811.114 Canada/5040a
The Assistant Secretary of State (Moore) to the Secretary of the Treasury (Morgenthau)
My Dear Mr. Secretary: Reference is made to HR 9185 (A Bill to Insure the Collection of the Revenue on Intoxicating Liquor, etc.), which is now pending in the Senate. The Canadian Chargé d’Affaires on Saturday called at the Department and expressed, on instructions from his government, objection to Section 403A of this Bill.
The Chargé stated that it was the understanding of his government that the effect of Section 403 of this Bill would be to enable the Secretary of the Treasury to declare an embargo against the importation of the liquor produced by individual foreign manufacturers against whom the United States Government has a claim based upon customs or internal revenue laws unless and until two things happened: that is, first, the foreign firm submits to the jurisdiction of the court of the United States in which such proceeding has been instituted and second, the foreign firm furnishes to the Secretary of the Treasury such security as he may require not in excess of double the amount of the claim.
As regards these two requirements mentioned above, the Canadian Chargé stated that he had no doubt that because of the extensive assets of the principal Canadian distillers in the United States they would find it necessary to submit to the jurisdiction of the appropriate courts anyway, but he stated that even if they did voluntarily submit to our jurisdiction it would appear that the requirement of security up to double the amount of the claims might effectively prevent the operation of certain Canadian firms in the United States. In this regard he mentioned the fact that he understood that the claim against one Canadian distiller was $30,000,000, and he raised the question of whether it would be possible for this firm to continue in business in the face of the requirement for a $60,000,000 bond to the United States Government.
Aside from the foregoing, the Canadian Chargé expressed on behalf of his government, certain objections on the ground of principle, to Section 403 of the proposed Bill. These objections might be summarized as follows: [Page 797]
- (1)
- He stated that the proposal seemed to be designed to enable pressure to be brought against Canadian distillers to compel them to submit to exactions not now provided for in existing legal processes. He stated that he understood the Canadian distillers had for some time been ready to negotiate a settlement with our Treasury Department, and that in any event it was, of course, open to the Treasury Department to bring actions in court in the usual manner. The proposed procedure, he added, seemed to be designed to overcome present rules of law in the matter of jurisdiction which are based on fundamental justice.
- (2)
- The Canadian Chargé stated that the proposed measures would seem to involve unjust discrimination against Canadian distillers. He pointed out that while the terms of this measure are general in application only Canadian firms would be affected.
- (3)
- The Canadian Chargé stated that it was the hope of his government that the United States authorities will not overlook the cooperation which Canada has extended to the United States in the prevention of smuggling. He referred particularly to the cooperation which Canada gave us during the prohibition era, mentioning the Anti-Smuggling Treaty of 1924,17 the large amount of information respecting smuggling activities which Canada furnished us under this convention, and he referred particularly to legislation which Canada passed in May 1930, under which export clearance was denied to liquors destined to countries where their importation was illegal. He pointed out that this legislation enacted following long representations from the United States,18 cost the Canadian Government millions of dollars in public revenue. The Chargé stated that it was the view of his government that it would not be in accordance with this spirit of cooperation which has been shown by Canada, to compel Canadian firms by this proposed measure to pay exactions which might not be recovered by ordinary processes of law.
- (4)
- Finally, the Chargé referred to the Trade Agreement between Canada and the United States19 which went into effect on January 1st. He stated that the adoption of this proposed measure might nullify completely the concession on whiskey in this Agreement for which Canada had given advantages for American trade. In this regard the Chargé referred particularly to Article XI of the Agreement which provides that in the event the government of either country adopts any measure, which though it does not conflict with the terms of this Agreement, is considered by the government for the other country to have the effect of modifying or impairing any object of the Agreement, the government which has adopted any such measure shall consider such representations and proposals as the other government may make with a view to effecting a mutual satisfactory adjustment of the matter.
As regards this fourth objection I may say that an officer of this Department, prior to the signature of the Trade Agreement, read to [Page 798] the Canadian Chargé and to the Canadian Under Secretary of State for External Affairs the expression of the Treasury Department’s views set forth on the enclosure to your letter of November 11, 1935.20
The foregoing, of course, relates almost wholly to the objections expressed by the Canadian Chargé in pursuance of an instruction from his government. I think it appropriate to add that this Department, on broad grounds of general principle, has from the beginning entertained serious doubts as to the propriety of Section 403 of this proposed measure. In a letter to the Attorney General, dated January 5, 1935,20 the Secretary of State wrote in part as follows:
“… You are advised that the adoption of the contemplated order involves imponderable consequences which only future events can resolve. I am of the opinion that the present is a particularly inopportune time to devise new procedures for bringing foreign enterprises and their property within the jurisdiction of the United States by placing restrictions on international trade. The possible effects of retaliation in certain foreign countries in regard to American concerns might lead to disastrous effects on our international trade. It would be difficult if not impossible for this country to protest against similar action by foreign countries should we set the precedent. I consequently still entertain grave doubts as to the effectiveness of the proposed measure when all the circumstances and possibility of retaliation are taken into consideration.”
Sincerely yours,
- Signed June 6, 1924, Foreign Relations, 1924, vol. i, p. 189.↩
- See Foreign Relations, 1930, vol. i, pp. 488 ff.↩
- Signed November 15, 1935; for text, see 49 Stat. 3960, or Department of State Executive Agreement Series No. 91.↩
- Not printed.↩
- Not printed.↩