Foreign Relations of the United States, 1958–1960, Western European Integration and Security, Canada, Volume VII, Part 1

284. Memorandum of Conversation⁰

PVC/MC–5

Ottawa, July 9, 1958, 3–5 p.m.

PRESIDENT’s VISIT TO CANADA

Ottawa, Ontario, Canada

PARTICIPANTS

• United States
  • The Secretary of State
  • The Honorable Livingston T. Merchant, Ambassador to Canada
  • The Honorable Tyler Thompson, Minister, Embassy, Ottawa
  • Mr. Joseph N. Greene, Jr., Special Assistant to the Secretary
  • Mr. Willis C. Armstrong, Counselor for Economic Affairs, Ottawa
• Canada
  • The Honorable Sidney E. Smith, Secretary of State for External Affairs
  • The Honorable Donald M. Fleming, Minister of Finance
  • The Honorable Gordon Churchill, Minister of Trade and Commerce
  • The Honorable Douglas S. Harkness, Minister of Agriculture
  • Mr. John English, Deputy Minister of Trade and Commerce
  • Mr. A. F. W. Plumptre, Assistant Deputy Minister, Department of Finance
  • Mr. L. W. Pearsall, Director of Marketing Service, Department of Agriculture
  • Mr. Douglas V. Lepan, Assistant Under-secretary, Department of External Affairs
  • The Honorable Norman A. Robertson, Ambassador to Washington

SUBJECT

• Economic Problems: a. COCOM, b. Meeting of Joint Cabinet Economic Committee c. Commonwealth Conference, d. Commodity Stabilization, e. Increased Resources for Bank and Fund, f. Soviet Economic Offensive, g. World Food Bank and NATO Stockpiling, h. Restrictions on Travel of Immigrants, i. Trade Agreement Legislation, j. Metals (lead, zinc, copper, aluminum and nickel), k. Oil, 1. Trade of United States Subsidiaries with China, m. Cattle, n. Western Drought and Canadian Need for Feed

Mr. Smith invited the Secretary to raise first such problems as the United States wished to discuss; he said he had heard we might wish to talk about restrictions on the travel of immigrants. The Secretary replied that he did not come prepared to discuss economic issues in detail but that it would be useful to have an informal exchange of views. He first wished to express appreciation for the repeal of the magazine tax; this removed a point of irritation between the two governments. Second he wished to touch on developments in connection with COCOM. He observed that COCOM has now gone through the embargo list in detail and has eliminated many items, leaving a fair number in dispute, but nevertheless liberalizing considerably. He noted that Under Secretary Dillon, who is handling this and other economic problems for the Secretary, had asked the Secretary to stress to the Canadians the importance which the United States attaches to continued embargo on nickel and cobalt. Copper, the Secretary added, is not equally important.

The Secretary next turned to the question of a date for a meeting of the Joint Cabinet Economic Committee. Mr. Fleming commented that all four Canadian members were now present. The Secretary suggested August 4, observing that he would not be available but that Mr. Dillon would be, and that the other Cabinet Ministers would also. Mr. Fleming explained that the House would be still sitting at that time, and that Mr. Harkness would not be available that week; perhaps a later date could be arranged. He asked when the current session of Congress would be over. The Secretary replied that he thought that all important legislation would have been handled by August 4 and that the session would probably end in mid-August. Mr. Fleming observed that a later date would be better, and said that Canada was busy preparing for the Commonwealth Economic Conference, which opens September 15. The Secretary said there had been some thought in the United States Government that a Cabinet Committee meeting might usefully take place before the Commonwealth Conference, but this was not by any means imperative. Mr. Fleming asked if the United States had anything urgent to bring up before that meeting, and the Secretary said no, but expressed interest in knowing about the Commonwealth Conference.

Mr. Fleming urged that there be no thought in Washington that the Commonwealth Conference was directed in any way against the United States; indeed the opposite was true. The Conference is expected to last two weeks, and to include representatives from all Commonwealth countries, including selected Ministers from British colonies. There have already been two conferences of officials, in February and in June. The Conference is intended to cover trade, finance and economic development. It is obvious that the Conference cannot be like the Conference of 1932, as the world is now very different. No one is proposing any new Commonwealth trade preferences, but it is proposed to maintain the present system of preferences. Everyone is concerned about the removal of barriers of many forms, and Canada is particularly interested in removing barriers against exports from hard currency countries, in which its interest is identical with that of the United States. A number of the Commonwealth countries have underdeveloped economies and Canada itself is still a heavy net importer of capital, but it will have to think about helping to develop the economies of underdeveloped areas. Again the interests of the United States and Canada are identical, and find expression, for example, in the Colombo Plan.¹ There has been talk of special Commonwealth institutions, such as a bank. It is not realistic or sensible to consider a Commonwealth bank or new financial institution, but there may be efforts to develop a Commonwealth institutional center for technical training. However, the United States should rest assured that there will be no suggestion for financial institutions which would cut across the IMF or the IBRD. There would be nothing to duplicate or overlap existing institutions, to which Canada gives its full support. Canada as a matter of fact is interested in the expansion of the resources of the Bank and Fund and would like to discuss the matter now with the United States.

Mr. Fleming indicated that the problem of general stability for primary commodities would loom large in the discussions at the Commonwealth Conference. In particular, there would be attention given to the possibility of commodity agreements, and Canada was hopeful that the occasion might be used to persuade the United Kingdom to rejoin the Wheat Agreement.² A number of the Commonwealth countries depend heavily upon primary commodity sales for their foreign exchange earnings.

Mr. Fleming closed his comments on the Commonwealth Conference by indicating that nothing would develop there which would prevent or hinder the expansion of trade. He said the Conference is not and never has been directed at the United States and that most of the instances of economic problems of an international nature are of such a character that constructive action concerning them is impossible without support and leadership from Washington. Mr. Churchill commented that if the Conference succeeds, it will expand trade.

The Secretary commented that the United States is not sensitive about Canadian discussions in the Commonwealth concerning economic matters. He said trade is not finite, and can always be expanded. The more trade there is, the more there is apt to be. Thus, the United States feels no concern at all regarding the Commonwealth Conference.

The United States would like to see sterling more solidly on its feet, for the simple reason that if it slips, we have to help. Any trade or other development which strengthens sterling is good. We should not exclude the possibility of new institutions. We are, for example, trying to expand and improve the Development Loan Fund, for instances where the Export-Import Bank and the IBRD do not work. Otherwise, underdeveloped countries are apt to see the challenge of development under Communism and, in the absence of identifiable progress under free institutions, are apt to be attracted to the Communist route. In general, the proliferation of financial institutions is not a good thing, and jealousy between institutions such as the IBRD and the Export-Import Bank can sometimes occur. In recent times, there have been suggestions for regional financial institutions such as those proposed for the Middle East, Latin America and the Far East. These institutions are not in general promising, because they are limited to regions.

The Secretary said that the United States believes it will be necessary to add to the resources of the Fund and the Bank within the next twelve months. Mr. Fleming asked whether anything could be expected from the United States on this subject before the Commonwealth Conference, which will probably be discussing the possibility. The Secretary said it was unlikely that the United States would make any announcement before the adjournment of Congress. The Congress has not yet completed action on major administration measures such as the Mutual Security appropriations. Mr. Fleming asked whether the United States would support the idea of a committee to be appointed at the New Delhi meeting in October,³ and the Secretary said a committee might take too long. He said the United States was seeking to have a position on this matter by the time of the New Delhi meeting.

The Secretary then went on to comment on the subject of stabilizing markets for primary products. He said we now look with less disfavor on this sort of thing than in the past. Formerly, we had a restrictive policy but now we have relaxed somewhat and, for example, are participating in a conference on coffee, which is very important to the Latin American countries, but unfortunately the African producers did not come to the conference. He said we are afraid that Soviet policy might prevail unless there is more stability for primary commodities. The barter methods of the Soviet Union helped countries in this way by providing a relatively stable market for raw materials with a drawing account for manufactured goods from the Soviet Union. The United States feels that the Soviet Union cannot do this too widely at present, but that it would keep on repressing its own people so as to have more resources available for foreign economic activity. He thought that most countries in the free world prefer a free enterprise system, and are willing to take some risks for it, but not the risks of a violent swing in prices of primary commodities. He thought that any economic dislocation would be seized upon by the Soviet Union, which is now engaged on occasion in dumping cotton, and in selling tin and aluminum. Mr. Harkness asked if the Secretary thought this deliberate on the part of the Soviet Union, and the Secretary replied that he did not think we could yet say that it is. He referred to a study made by the International Nickel Company some years ago in regard to Soviet sales of platinum,⁴ and said that it had been impossible to conclude that Soviet action was deliberately designed to injure other countries.

The Secretary said that we are setting up exercises of our own in economic warfare, and that an important confidential study is now going on. He said we do like stability but not artificially high prices. He thought stability came from reasonable balance of supply and demand and he noted that in many cases the producers of primary products are abysmally ignorant of marketing conditions. He thought that study groups and conferences are useful in this connection.

Mr. Harkness asked the Secretary what he thought of the idea of a World Food Bank and NATO stockpiling. The Secretary said that the United States had given very careful attention to this subject and had thought it good in principle but had noted the prohibitive cost. The United States had offered grain to other countries for stockpiling on condition that the other countries would pay the freight and storage. The Secretary also commented that conditions surrounding such stocks would have to be carefully devised to prevent the stocks from having an unfortunate impact on commercial markets. This might be particularly true in some of the less developed countries. In general, the Secretary said the United States was hesitant about any substantial efforts to sustain prices through government buying, because this got things too far removed from the law of supply and demand. He noted that primary producers who must make their own way in international marketing are likely to have a healthier understanding of foreign trade than producers who simply sell to their own government.

On invitation from Mr. Smith, the Secretary then referred to the restrictions placed upon the travel of immigrants to Canada through the United States. He suggested that this subject might cause considerable trouble in the future and urged that the Canadian Cabinet have another look at it. Mr. Bryce commented that there was an administrative problem. The Secretary and the Ambassador noted that the administrative problem appeared to the United States to be soluble by other means, and the Ambassador particularly observed that the chief processing centers for immigrants are now Montreal and Toronto, which would appear capable of handling immigrants whether they came direct or via the United States. The Secretary and the Ambassador noted that the matter was important in terms of aviation routes, and that we would probably be receiving suggestions from airlines for retaliatory action against Canada. Mr. Fleming asked what the United States’ rule was, and the Secretary explained that the United States did not have any requirement comparable with that now laid down by Canada. He also noted that many people who are in the United States on a temporary basis are likely to come to Canada if they wish to become immigrants into the United States. Mr. Bryce commented that there was some Canadian reluctance in times of unemployment for there was no way in which Canada could be assured that these people would obtain immigrant visas for entry into the United States.⁵

Mr. Fleming then asked for comments from the Secretary regarding the Trade Agreements Act renewal, stating that developments had been very promising indeed from the Canadian standpoint. He also wanted to know what the United States would do under the bill when enacted. The Secretary said that the outlook was not as good in the Senate as it had been in the House and that the Senate Finance Committee would probably not report out as good a bill, or one that would last as long. He said the Senate was in general wide open, in terms of debate, and that the bill could be amended substantially by action on the floor, in contrast to the situation in the House where the rules limit debate very sharply. He hoped that the strong House vote, and the possibility of amendment on the floor, would produce good results when the bill went to conference. His final estimate was that we would have an acceptable bill. With respect to the question as to what the United States would do under the Trade Agreements Act, the Secretary referred to the impending tariff negotiations with the Common Market as a major reason for the bill in its present form.

Mr. Fleming then said he would like to have the Secretary’s views on the Lead-Zinc situation. Canada was pleased that no step had been taken to increase tariffs and appreciated the efforts of the Administration in holding protectionist forces in check. He was required to observe, however, that subsidies could also hurt Canadian interests. The Secretary said that we were fully aware of this possibility and that we did not like subsidies very much, but that we had to do something under the circumstances. He said we were trying to keep the amount down, to help smaller companies, and to avoid damages to Canada and Mexico. Unhappily, Congress is amending the original proposal. Canada has a powerful advocate in the Executive and the result will probably be something better than the tariff increase recommended by the Tariff Commission or than special legislation.

Mr. Fleming asked about copper and the Secretary explained that the copper excise tax had automatically gone back into effect because the United States Government could not assert there was a shortage of copper. The United States had decided upon a stockpiling program which would be temporary and which had accounted for the recent strengthening of the copper market.

Mr. Fleming then referred to a proposal introduced in the Congress for increasing the duty on aluminum by four cents a pound. He realized that this was not an Administration measure and he hoped that the Administration would bear Canada’s interests in mind in this connection. With respect to nickel, Mr. Fleming said that production had been cut back, and that there was Canadian concern over the extent of the United States’ commitment to buy Cuban nickel. The Secretary said that we had been trying to get out of the Nicaro Project in Cuba but that it was easier to get into these things than to get out, especially in view of the recent unsettled conditions in Cuba which make it difficult to find a buyer for the property. He thought that the basic problem was to get the consumer industry into the mood to use more nickel after years of thinking that nickel was in short supply.

Mr. Fleming then turned to the subject of oil and outlined the apprehensions of Canadians concerning United States restrictions on imports into District V. He said he had talked to Secretary Anderson about this in Paris last December⁶ and that Canada had made its views known on many occasions. He said further that he realized that the quotas had not been fully subscribed but he needed to emphasize the importance which Canada attached to development of oil on a continental basis. In Canada, there is pressure for a Montreal pipeline, which would be very upsetting for the United States and for Venezuela. He was concerned over the danger that the United States’ position of restriction might harden. Mr. Harkness was asked to comment on the feeling regarding oil in the oil producing part of Canada, which is his home. Mr. Harkness said that more than any other one thing, oil restrictions have caused ill feeling toward the United States in Canada. The Secretary said that he recognized that this is the fact, but that he is forced to observe that this ought not to be the fact. He said that effort had originally been made to avoid restrictions on Canadian oil by exempting District V. He said that the United States had sought to establish a principle of sharing cuts and increases as between domestic and foreign suppliers. The decline in tanker rates and the availability of cheap Middle East and Indonesian oil had affected Canadian oil adversely, as they had the oil of the United States. He said that his judgment was that Canada ought to be grateful to the United States for the efforts made to preserve an equitable Canadian share in the United States market. He also thought it should be acknowledged that the heart of the problem was the decline in the market for oil, which affects both United States and Canadian producers; it is not United States import restrictions.

Mr. Fleming said that it was hoped to touch on several agricultural subjects, and Mr. Smith noted the need to discuss trade with China. Both observed that not much time remained. The Secretary said he thought this showed that there ought to be a Cabinet Committee meeting on August 4, in order that he could have some help. On the question of China trade he commented that we can consider issuance of licenses to permit United States subsidiaries in Canada to ship goods to China where the transaction was important in its effect on the Canadian economy, and where there was no purely Canadian organization available to take the order. The automotive industry was a case in point. The Secretary added that he did not wish to open the matter wider than he had to. Communist China has only a limited amount of funds available for foreign purchases, and no increase in China’s trade has occurred since the two lists were equated. If we open the door too wide for subsidiaries we may have to open the door for parents. He asked that the Canadians not press the matter, but assured them that if they have a real case they will get responsive action from the United States. The Secretary read a formulation which he thought could be used for the basis of an announcement, to read as follows: “The Canadian and United States Governments have given consideration to situations where the export policies and laws of the two countries may not be in complete harmony. It has been agreed that in these cases there will be full consultation between the two Governments with a view to finding through licensing procedures satisfactory solutions to concrete problems as they arise.” After discussion the word “licensing” was replaced by “appropriate”. Mr. Smith and Mr. Churchill expressed their appreciation for the United States offer, and observed further that a good many of the proposed transactions had not in fact been bona fide. The Secretary said that he thought a number of these suggestions had been made to make trouble and that the development of a system of accommodation to general Canadian interests would mean that the offers might disappear. He compared the situation with what happened on newspaper correspondents, where, after the United States finally decided to give passports, the Chinese would not give visas.

Mr. Churchill then asked about wheat disposal and referred to the damage which had been caused for Canada by extensive barter operations. He expressed appreciation for the change in procedure, and wondered where barter stood in new legislation. The Secretary said that barter had been taken out of the bill in the Senate, but had recently crept back in, in the House version. He said the matter is being held up for another week to see what can be done. He hoped that the Administration would succeed in keeping the mandatory barter provision out of the bill extending PL 480.

Mr. Harkness and Mr. Churchill then referred to the importance of the United States market for Canadian cattle. He wondered whether there was a danger of restrictive action on the part of the United States. In response it was indicated that escape clause action was highly unlikely, and that a recent check with Washington did not indicate promising prospects for special restrictive legislation. The Ambassador touched on the importance of reciprocity in agricultural treatment, indicating that Canadian action on fruits and vegetables might weaken the general support which farm organizations in the United States have given to reciprocal trade. The final topic was the interest of Canada in possibly obtaining hay from United States Soil Bank land for relief of Canadian cattle raisers afflicted by drought. The response was that this was probably not possible, but would be looked into again.

0. Source: Eisenhower Library, Whitman File, International File. Secret. The meeting was held in the Minister of Agriculture’s Office at the House of Commons.
1. The Colombo Plan was begun in 1950 as a Commonwealth Plan for economic development in South and Southeast Asia.
2. Reference is to the 1956 International Wheat Agreement, which prolonged the arrangements with respect to the sale and purchase of wheat that had been agreed in 1949 and renewed in 1953.
3. The International Monetary Fund and the International Bank for Reconstruction and Development were scheduled to hold their 13th annual meeting at New Delhi October 6–10.
4. Not further identified.
5. In a brief conversation with Dulles at the airport on July 11, Smith stated that he would pursue the question of the new Canadian travel restrictions with the Department of Immigration. (Memorandum of conversation, July 11; Department of State, Conference Files: Lot 63 D 123, CF 1049)
6. No record of this conversation has been found in Department of State files.