105. Current Economic Developments1
Report on Canadian Talks with US and Commonwealth
Canadian and US cabinet members have completed a two-day meeting (October 7–8) in Washington exchanging views on current economic relations between the two countries.2 The talks did not [Page 268] lead to any new policy decisions or commitments, but they were valuable in clearing the air and dispelling certain misunderstandings which have arisen on economic matters of concern to both countries, and laying the groundwork for discussing individual problems through normal channels. A week earlier, Canada played host at Mont Tremblant to a Commonwealth Finance Ministers meeting. The most significant development at Mont Tremblant was the Commonwealth decision to hold a Commonwealth trade and economic conference next year. Also of interest was UK Chancellor Thorneycroft’s proposal for a UK-Canadian free trade area.
Background The US-Canadian meeting in Washington, October 7-8, was the third in a series of meetings of the Joint US-Canadian Committee on Trade and Economic Affairs, which had met previously in March 1954 and September 1955.3 The meeting was conducted in an atmosphere of cordiality and frankness, and the US found it valuable to exchange views on economic problems of mutual interest. Canadian officials have also expressed the opinion that the session proved exceedingly useful.
Four cabinet members from each country composed the Joint Committee. Representing the US were: Secretary of State Dulles (Chairman), Treasury Secretary Anderson, Agriculture Secretary Benson, and Commerce Secretary Weeks. Representing Canada were: Finance Minister Fleming, External Affairs Secretary Smith, Agriculture Minister Harkness, and Trade and Commerce Secretary Churchill.
The Joint Committee was established to provide an opportunity for the cabinet members primarily concerned with economic relations to meet informally from time to time to exchange views and to examine developments of mutual interest. This third meeting was especially valuable as it was the first occasion since the Canadian election in June for a group of cabinet members from the two countries to meet together. Some statements and actions during the past few months on the part of the new Canadian officials have occasioned us some concern—such as their criticism of US private investment policies in Canada, an apparent advocacy of a shift of 15% in trade away from the US, and new import restrictions. On their side the new Canadian officials were not familiar with the background underlying some US policies, particularly those relating to surplus agricultural disposals. These things combined to create misunderstanding and concern. It is hoped that the presentation of the US position has helped the Canadian visitors to view our mutual problems with an improved perspective.
[Page 269]Washington Discussions At the meeting a wide range of subjects were examined, including domestic economic developments in both countries, certain trade restrictions, US surplus disposal policies, US investment in Canada, the possibility of US restrictions on lead and zinc imports, and a number of other specific questions of special interest to both sides. In the course of the review of current economic conditions, it was recognized that the two countries have a deep and continuing interest in each other’s economic stability and strength. In particular, representatives of the two governments expressed their full accord on the importance of a high level of business activity being maintained in their economies, and on the need for growth that does not endanger either internal or external economic stability.
Canadian Finance Minister Fleming, in his opening speech, dwelt on the unsatisfactory situation of Canada’s trade balance, particularly with the US. He expressed concern at the very high proportion of Canada’s external trade which is taking place with the US and at the fact that Canada has been importing much more from the US than it exported to the US. Secretary Dulles pointed out that all international transactions, invisible as well as visible, have to be taken into account in considering a balance of payments. He drew attention to the over-all strong balance-of-payments position of Canada and pointed out that Canada’s trading deficit with the US had been accompanied by an inflow of capital from the US, and that the rest of the deficit had been covered by Canada’s trade surplus and investment inflows from other parts of the world. In addition, Secretary Dulles pointed out that US leadership since World War II has been directly related to our trade imbalance which was financed by our aid programs and other special expenditures overseas. Canada as a close friend and ally certainly recognized the importance of the US maintaining its position of leadership. The US also stressed the dependability of the US economy both as a market and as a supply source for Canada.
While the Canadian ministers maintained that US surplus disposal operations have adversely affected Canadian wheat sales, the Canadians on the whole were unexpectedly mild in their statements and made no specific proposals. They emphasized particularly the harmful effects barter transactions have had on commercial marketings of all exporting countries, including Canada and the US. The US members affirmed to the Canadian ministers their intention in all surplus disposal activities to avoid, insofar as possible, interfering with normal commercial marketings. They gave assurance that under the present revised barter program, each barter contract must result in a net increase in exports of the agricultural commodity involved, and that interest must be paid until the strategic materials are [Page 270] delivered or payment is otherwise effected for the agricultural commodities.
The Canadians made clear that they want to sell 300 million bushels of wheat abroad and indicated that they were considering a PL–480 type program of their own for India, Pakistan and Ceylon which would be in addition to their aid through the Colombo Plan. They did not, however, reveal any details or figures. The US stated that it would welcome such a program and would be glad to consult with the Canadians regarding it. The Canadians expressed some dissatisfaction with our previous consultations with them on US wheat disposals, which they felt had not affected major US disposal policies. However, they indicated their desire that such consultations be continued and it was agreed to do so.
The Canadian ministers expressed concern over the effect on Canadian producers which would result from any future action by the US to raise duties on imported lead and zinc. Secretary Dulles explained the background of the problem to the Canadians in considerable detail, making clear the possibility of Congressional action of a more restrictive character if the Administration does not take action. He put it in terms of an attempt to redress the imbalance which had developed between imports and domestic production. The US emphasized that any US action would be in accordance with the General Agreement on Tariffs and Trade and stressed the continuing need for imports of certain metals and minerals.
Regarding US investment in Canada, Minister Fleming said that he thought Americans had misunderstood statements of concern in this regard by Canadian leaders. He made it clear that Canada welcomed the inflow of capital and recognized its important contribution to Canadian economic development. The Canadian Government, he said, had no intention of promulgating any restrictive or discriminatory legislation, but expressed hope that American companies operating in Canada would develop and maintain closer relationships with the people of Canada. Note was taken of the recent supplementary tax convention between the US and Canada which was designed to facilitate greater Canadian participation in American-owned corporations operating in Canada.
On the matter of trade restrictions imposed by either country, and the lack of consultation thereon, it was fully agreed that these matters should be pursued in official channels. Among other things, the US mentioned the Canadian magazine tax problem, and Minister Fleming indicated that the Canadian Government would examine the problem carefully, but he made no commitment that action would be taken. The Canadians stressed particularly the marketing problems faced by their fruit and vegetable producers, and suggested the [Page 271] possibility of restrictive action on imports of these commodities. Both governments were in accord on the need for continued support of the GATT.
There was very little discussion of the British proposal made the preceding week at Mont Tremblant for a UK-Canadian free trade area. The Canadians referred to this in passing, and Fleming said that the Canadians do not plan to establish any new preference scheme. He explained that Prime Minister Diefenbaker’s published statement about a 15% shift of imports from the US to the UK was not a proposal. Rather, Diefenbaker had said that if such a shift could take place it would solve Canada’s trade “imbalance” problem.
[Here follow sections on unrelated topics.]
- Source: Department of State, Current Economic Developments: Lot 70 D 467. Limited Official Use.↩
- Copies of minutes of the 2-day conference are ibid., Secretary’s Memoranda of Conversation: Lot 64 D 199.↩
- Reference is to the meeting of September 26, 1955, described in Document 47.↩