364. Briefing Paper Prepared in the Bureau of Economic Affairs1
ECONOMIC INTEGRATION WITH CANADA
The possibility of the economic integration of the United States and Canada has been suggested from time to time in the past. Studies of this matter were actually made on the staff level with the Canadians in 1948, but they did not lead to any concrete results.
What did emerge, however, was a clearer understanding of the magnitude of the problem. Economic integration is usually regarded as the forerunner of a much closer political association of the countries concerned. As such, it is often viewed with suspicion by those interested in preserving the political independence of their country. This feeling is heightened when the contemplated arrangement involves the integration of a small country with a large and powerful one. Since the end of World War II, Canadian nationalist spirit has certainly increased and there can be no doubt that the highest value is attached by Canadians to their complete independence of action in both domestic [Page 885] and international affairs. Related to this feeling is the frequently expressed concern about the extent of American ownership of basic Canadian resources and the sensitivity about undue American cultural influences as manifested in the recently enacted discriminatory tax on Canadian editions of American magazines.2
While this feeling should not be over-emphasized, it does have to be taken into account in considering any proposal for economic integration. It apparently played some role in the ultimate Canadian decision in 1948 not to pursue the integration studies further.
There are, of course, complex economic issues involved in any project of this sort. Canada is developing at a tremendous rate. The Canadians are interested in continuing this economic development in order to diversify and strengthen their economy, to attract immigrants, to raise their over-all standard of living and to strengthen their role generally in international affairs. They do not want to remain “hewers of wood and drawers of water.” Their whole tariff structure is designed to ease the change from a largely raw materials and agricultural producer to one having a wide range of industries serving not only the Canadian but foreign markets as well. How these objectives would fit in with an arrangement requiring Canada to eliminate tariffs and other restrictions on imports from the United States is problematical and would have to be explored very carefully.
The agriculture side of the question is, of course, extremely difficult. The Canadians are deeply opposed to the restrictions we now impose on imports of farm products under our agricultural legislation. It is doubtful that they would seriously consider an integration proposal that would not open up our market to their farm exports just as much as we might wish them to open their market to our exports of manufactured goods.
Trade between the United States and Canada is already substantially free of restrictions. There are no controls on the movement of currency or capital in either direction, the respective tariffs are generally low, and import quotas are virtually nonexistent outside of agriculture. As a result, Canada is already the largest single market for American products. How much this relationship could be improved through formal “integration” is not clear.
For the foregoing reasons, it does not appear that the present time is appropriate to initiate a proposal for economic integration with Canada.