611.4131/1710
The Department of State to the British Embassy
Memorandum
It is stated in the memorandum received from the British Ambassador, dated July 5, 1938, in which reference is made to the personal memorandum handed by Mr. Hawkins to Mr. Overton on June 13 [14], 1938 in regard to tariff specialization, that the United States requests for concessions on specified types of softwood have given rise to the question whether it would be justifiable to differentiate for duty purposes between the species normally imported into the United Kingdom from the United States and the species which are commonly imported from other sources. The American request is, of course, limited to types of lumber of which the United States is the principal foreign supplier for the British market. It should not be inferred from this request, however, that the United States is asking that more favorable tariff treatment be accorded to its softwood lumber than to that imported into the United Kingdom from other countries, namely, the Baltic countries. The United States is seeking to obtain merely the same treatment for its softwood as is accorded to the same type of Canadian softwood, chiefly Douglas fir, in order that it might regain, at least partly, the share of the United Kingdom market for Douglas fir which it lost as a result of the tariff preference on lumber given by [Page 46] the United Kingdom to Canada. It is presumed that the objective of the American request is clearly understood by the Government of the United Kingdom and that the difficulties involved in this connection do not arise from a misunderstanding of the nature of the American request.
The problem under consideration arises from Empire preference, and its solution extends beyond the scope of merely Anglo-American relations. However, inasmuch as the granting of the American request on lumber is vital to the conclusion of a trade agreement between the United States and the United Kingdom, the United States must urge that the problem be viewed in broad perspective and that technical considerations not be permitted to stand in the way of a solution.
It is understood that, although the American request would not preclude extension by the United Kingdom of the benefits of a concession on American Douglas fir lumber to softwood lumber imported into the United Kingdom from all countries, especially the Baltic countries, the United Kingdom would be opposed to taking such action for reasons involving customs revenue and that Canada would also be opposed to such action since it is not prepared to relinquish entirely the advantages in the United Kingdom market which Canadian Douglas fir has over Baltic softwood as a result of the tariff preference guaranteed to it in respect of lumber. On the other hand, it is claimed that unless the softwood lumber of the Baltic countries as well as of other countries was accorded the same treatment as American Douglas fir, the United Kingdom would be in the position of violating its most-favored-nation obligations. In other words, as has been previously pointed out, the problem is in part one of tariff specialization.
It is not believed, however, that the question should be regarded from the point of view of narrow, technical considerations. Emphasis should be given, rather, to the broader point of view of the Economic Committee of the League of Nations which has pointed out that specialized classifications may in certain cases be in the interest of international traffic, “since they sometimes offer a very valuable means of enabling the products of a given country to obtain reductions of duties or customs facilities which would not be granted if they had to be extended to larger categories of goods”. The American proposal in respect of lumber is a case in point. Under this proposal, international trade in lumber would be improved and all countries concerned would benefit. The opportunities for the sale of Canadian lumber in the American market would be increased. American exporters would have an opportunity to regain their fair share of the lumber market of the United Kingdom. The market in the United Kingdom for Baltic lumber would not be seriously affected, [Page 47] for the effect of the proposal in this regard would be merely to substitute American Douglas fir for some of the Canadian Douglas fir now sold in the United Kingdom. Since most of the Douglas fir now imported into the United Kingdom, being of Canadian origin, is free of duty, there is no reason to believe that the extension of free entry to American Douglas fir would result in an increase of the British demand for Douglas fir at the expense of Baltic softwood.
Moreover, if the United Kingdom should offer, as a part of the plan, a reduction of the duty on the lumber of the Baltic countries, the latter not only would not lose anything, but would benefit from the lower duty and the resulting smaller preference for Douglas fir.
The proposal of the United States in respect of lumber offers possibilities for solving in a large measure existing difficulties, involving not only the United States and the United Kingdom, but other countries as well, which have arisen from an artificial diversion of trade in lumber from its normal, economic channels. It is believed therefore that the proposal, affording an opportunity to establish that trade on a more equitable and more freely competitive basis, is compatible fundamentally with the objective of the most-favored-nation principle.
In view of the above considerations, it is requested that the question regarding the United States request in respect of lumber be reconsidered and that an effort be made to find a solution of the difficulties involved.