323. Memorandum From Secretary of State Rusk to President Johnson 1
SUBJECT
- Canada’s Automotive Duty Remission Scheme
I have read Secretary Dillon’s memorandum of September 152 recommending that the decision whether to impose countervailing duties on imports of automotive products from Canada be reached on legal, [Page 690] rather than on economic or political considerations. I agree with this conclusion. I believe, however, that we should be fully aware of the economic and political considerations and that in view of the potential effects of the decision made, the legal aspects of the matter should be as clear as possible.
Canada is our largest trading partner. In 1963, our trade with Canada exceeded $8 billion, or 20% of our total foreign trade. Our exports to Canada exceeded our imports by over $400 million. In the automotive sector alone our exports during 1963 totalled $550 million whereas our imports amounted to $22 million. In 1964 the figures are expected to reach $700 million and $60 million respectively.
If the decision is reached to impose countervailing duties on automotive imports from Canada, it will mean the failure of the Canadian automotive plan. The duty would be at the flat rate of 21-1/4% (in addition to the normal duty of 8-1/2%) based on Treasury’s estimate of the benefits accruing to Canadian manufacturers from the duty remission plan. Since the Pearson Government is deeply committed to the objectives of this plan, it is expected that the Canadian Government will adopt an alternative plan, probably involving an increase in “Canadian content” (the percentage of production which must be performed in Canada). The major United States automobile manufacturers have told us that such a decision by Canada would require them to make additional investments in Canada of several hundred million dollars, in order to protect the $600 million investment they already have there. For this reason, Ford, GM and Chrysler have stated that they would be placed in serious difficulty by the imposition of countervailing duties.
Politically, we must expect that the imposition of countervailing duties would put a severe strain on our relations with Canada. The position of the Pearson Government will be damaged and as a matter of political preservation it would be likely to issue furious anti-American statements to protect itself against anticipated taunts from the Diefenbaker forces. I therefore do not agree with Secretary Dillon that the imposition of countervailing duties will improve our negotiating position with Canada. Moreover, the dispute could affect Canadian cooperation with us in other fields.
The legal aspects of this matter are technical and properly within the responsibility of the Treasury Department. I note, however, in Secretary Dillon’s memorandum that a respectable case has been made that the Canadian plan involves no subsidy and that the issue is likely to be tested in the courts at any event. I wonder, in the circumstances, whether it would not be prudent to ask the Department of Justice to render an opinion on the question. This would, of course, involve a delay beyond the November 1 date proposed by Secretary Dillon, but it [Page 691] is my understanding that the significance of this date is primarily one of administrative convenience rather than of legal necessity.
Subsequent to my talk with Paul Martin last Monday,3 the Canadian Embassy has now informed us that the Canadians have developed some new proposals for an alternative to the Canadian remission plan based on a freer flow of trade. While the Embassy was not at liberty to discuss the new Canadian proposals, they indicated that they followed the lines of suggestions by United States representatives last summer. We propose to meet with the Canadians in Ottawa on September 24 and 25. These talks should indicate whether there exists a basis for an acceptable agreement with Canada which would result in termination of the remission plan and avoid the necessity to impose countervailing duties. In the circumstances I strongly recommend that the decision regarding countervailing duties be deferred until the results of the next talks are known.4
- Source: Johnson Library, National Security File, Country File, Canada, Vol. 2. Limited Official Use.↩
- Not printed. (Ibid.)↩
- See Document 322.↩
- In a September 22 memorandum to President Johnson, Secretary Dillon noted that he had the authority to issue a countervailing decision without reference to the Department of Justice and that November was the latest date such an order could be issued without impact on U.S. production. He suggested that issuance of the order be delayed to on or about November 10 to allow further time for talks. (Johnson Library, National Security File, Country File, Canada, Vol. 2)↩