Foreign Relations of the United States: Diplomatic Papers, 1942, General; the British Commonwealth; the Far East, Volume I

561.321D1 Advisory Committee/1–142

The Counselor of the Canadian Legation (Mahoney) to the Chief of the Division of Commercial Policy and Agreements (Hawkins)

Washington, January 1, 1942.

Dear Mr. Hawkins: With reference to a meeting held in your office on December 12, 1941,² at which time you handed to me a copy of the proposed agreement on Upland cotton between Canada, the United States and Brazil, I may now inform you that this proposed agreement has been studied carefully by the competent authorities of the Canadian Government, which shares with the Government of the United States the desire to stabilize the market for Upland cotton in Canada to the mutual benefit of both producing and consuming interests.

Apparently the problem of participation in the Canadian market has been under consideration by the United States Government since September of this year. On September 18th, when the United States Minister to Ottawa wrote to the Under-Secretary of State for External Affairs³ about the new cotton export programme of the United States Department of Agriculture, he said that the United States Government was “prepared to discuss with representatives of the Brazilian Government the immediate problem of fair participation by both countries in one of the few cotton markets still open to them (i. e., Canada).”

Since September conditions have, however, changed considerably. The export position has altered because of the outbreak of war between Japan and the United States. The import position, so far as Canada is concerned, has also altered. On October 19th the Prime Minister announced that all goods and services sold in Canada were to be placed under a price ceiling. This price ceiling came into effect on December 1.

As part of the machinery to maintain prices, a Commodity Prices Stabilization Corporation has been set up. This Corporation will buy essential raw materials from abroad and will resell them in Canada at a price which will enable manufacturers to continue to supply goods to retailers at prices which are reasonable in relation to the retailers’ ceiling prices for sales to consumers. The probable result will be that the Corporation will become the sole Canadian buyer of cotton and other essential raw materials purchased from abroad.

As a government monopoly it will be bound by the provisions of paragraph 1 of Article IV of the Trade Agreement between Canada and the United States of America, signed at Washington on November 17, 1938.⁴

This paragraph reads as follows:

“If either country establishes or maintains a monopoly for the importation, production or sale of a particular commodity or grants exclusive privileges, formally or in effect, to one or more agencies to import, produce or sell a particular commodity, the Government of the country establishing or maintaining such monopoly, or granting such monopoly privileges, agrees that in respect of the foreign purchases of such monopoly or agency the commerce of the other country shall receive fair and equitable treatment. To this end it is agreed that in making its foreign purchases of any product such monopoly or agency will be influenced solely by those considerations, such as price, quality, marketability, and terms of sale, which would ordinarily be taken into account by a private commercial enterprise interested solely in purchasing such product on the most favourable terms.”

The same paragraph is included as Article IV in the Trade Agreement between Canada and Brazil, signed at Rio de Janeiro on October 17, 1941.⁵ It is also included as Article TV in the Trade Agreement between Canada and Haiti, signed at Port-au-Prince on April 23, 1937,⁶ and Haiti is a possible source of supply of cotton to Canada.

Furthermore, Canada is obliged to grant to the Belgian Congo, which is a possible source of supply of Upland cotton, treatment not less favourable than that granted to the United States and Brazil, since Article 4 of the Trade Convention between Canada and Belgium, signed at Ottawa on July 3, 1924,⁷ reads as follows:

“It is understood that in all matters governing the import, export and transit of merchandise, the Economic Union of Belgium and Luxembourg grants to Canada and Canada grants to the Economic Union of Belgium and Luxembourg the treatment of the most favoured nation.”

Thus the Commodity Prices Stabilization Corporation when purchasing cotton from foreign countries must accord the United States, Brazil, Haiti and the Belgian Congo “fair and equitable treatment”; it must

“be influenced solely by those considerations such as price, quality, marketability, and terms of sale, which would ordinarily be taken into account by a private commercial enterprise interested solely in purchasing such product on the most favourable terms.”

Canada has proposed to Peru the conclusion of a most-favored-nation trade agreement similar to that recently concluded between Canada and Brazil. If Peru agrees to Canada’s proposal, Peru, another alternative source of supply of Upland cotton, will also be entitled to claim “fair and equitable treatment” as defined in Article IV of the Trade Agreement with the United States.

In the light of these considerations the Legation has been instructed to request that the authorities of the United States Government concerned be good enough to reconsider the proposals which you handed to me on December 12th.

Yours sincerely,

M. M. Mahoney

2. No memorandum of this conversation found in Department files.
3. See instruction No. 629, September 16, 1941, to the Minister in Canada, Foreign Relations, 1941, vol. iii, p. 139.
4. Department of State Executive Agreement Series No. 149; 53 Stat. (pt. 3) 2348.
5. Canadian Treaty Series No. 18 (1941); reprinted as British Treaty Series No. 52 (1946).
6. League of Nations Treaty Series, vol. cxciv, p. 59.
7. Ibid., vol. xxxii, p. 36.