1. United States officials have informed us that the Administration intends to make use of the powers contained in the Trade Agreements Extension Act of 1955 to enter into tariff negotiations with other countries. This information is not to be disclosed to the public for the present.

2. As far as the United States is concerned, the possible scope of the tariff negotiations is limited by the terms of the new Act. The President may authorize negotiations to reduce individual tariff items in three annual instalments by a maximum of 15% of the present levels. In addition, the President is empowered to negotiate reductions down to 50% ad valorem, of rates which are in excess of that level. These not very extensive powers will be curtailed, perhaps substantially, by the "peril point" procedures, which are designed to limit and restrict, in favour of tariff-sensitive domestic industries, the extent to which the President makes use of his statutory powers to negotiate tariffs.

3. To take advantage of the first 5% instalment of the President's 15% powers, negotiations must be concluded by June, 1956, a year after the effective date of the new Act. The American proposals therefore include a time-table. Preferably by July 15, and at the very latest by August 1, other countries planning to participate in the negotiations are requested to inform the United States. By August 15, the United States Government wishes to receive itemized requests for tariff concessions. At the beginning of September, the President will formally announce that the United States will carry on tariff negotiations with other countries. By October 1, public hearings will be commenced and the Tariff Commission will initiate its studies for the determination of peril points. These hearings and studies are required by statute and the results will determine, product by product, the extent to which the President's negotiating powers will be used. The target date for the commencement of the actual tariff negotiations is January 15, 1956.

4. Tariff concessions resulting from negotiations with the United States are of more questionable value than formerly, because of the enlarged escape procedures for the subsequent withdrawal of concessions. It will be remembered that the necessary majority of Contracting Parties to the GATT granted a "waiver", at their Ninth Session, which will facilitate withdrawals by the Americans from their commitments with respect to agricultural tariff items and agricultural import restrictions. In addition, in the Trade Agreements Extension Act of 1955, there has been included a new and still untested escape procedure to be used in considering tariff increases where imports "threaten to impair the national security".¹⁶⁴ This same Act provides for certain extensions to existing tariff escape clauses. The Contracting Parties have as yet had no opportunity to determine whether the new national security escape clause is consistent with the GATT and, quite obviously, a great deal will depend upon the way it is administered. Aside from this legal point, there will clearly be more scope under the new Trade Agreements Act than under the old for United States industries to appeal for increased tariff protection and the Administration will have weaker grounds for opposing such increases.

5. From what has been said, it appears that there may be public criticism of Canadian participation in further tariff negotiations with the United States in present circumstances. The negotiations are bound to be difficult and they may lead to meagre results. United States officials have indicated that they will bargain to be paid in full for any tariff concessions the United States may make.

6. There is a further element of difficulty for us in the particular form of negotiations planned by the United States. Their law provides for tariff reductions of 5% in each of the three coming years, but the Administration apparently anticipates that one round of negotiations, in 1956, will provide the basis for all three reductions. In short, in June 1956 the United States will be announcing, for a list of products, a series of reductions which will become effective, in part immediately, but in part in one and two years' time. Other countries participating in the negotiations will probably find it expedient to do the same; indeed there does not seem to be any satisfactory alternative. This implies that certain Canadian tariff reductions would be announced one or two years before they came into effect. Such a departure from traditional Canadian practice is, of course, undesirable. On the other hand, considering the limitations on what the United States can offer - limitations which will circumscribe the whole of the multilateral negotiations - it can be anticipated that the reciprocal tariff reductions on our side would not be very many or very extensive. Further, all Canadian importers affected would be in the same position; the situation must be distinguished from one in which there is a "budget leak" and certain importers can get an advantage over others.

7. It may well be asked whether it is worth while for Canada to participate in the negotiations. In this connection, however, it should be observed that Canada can hardly refuse to cooperate with a move, however slight, towards lower tariffs by a Republican President, in the face of stubborn opposition from protectionist elements in the United States Congress. Though the new United States legislation may be limited and even disappointing in certain respects, it sets forth a policy which appears much more attractive if it is remembered that the alternative would possibly be large and widespread tariff increases.

8. Various matters of trade and commercial policy are still pending before Congress such as the customs simplification bill, the bill for participation in the Organization for Trade Cooperation, and the hardboard bill.¹⁶⁵ It is perhaps unfortunate that the Canadian Government must make a decision in the immediate future as to whether or not to participate in the tariff negotiations which will not actually commence until another six months have passed. If it is now decided that Canada should participate, it would nevertheless seem desirable to advise the United States Government that this decision might have to be reversed if adverse developments were to take place in United States legislation in the meantime or if our interests were adversely affected by the use of escape clauses. A draft note to the United States Government is attached.

9. Recommendations:

(a) That the Canadian Government should inform the Contracting Parties to the General Agreement on Tariffs and Trade of its present intention to participate in the proposed tariff negotiations early in 1956;

(b) that the attached Note be transmitted to the United States Government.¹⁶⁶

L.B. Pearson

Concurred

C.D. Howe
Minister of Trade and Commerce

Walter Harris
Minister of Finance

Confidential

1. The Canadian Government has been officially and confidentially informed of the decision on the part of the United States Government to carry on tariff negotiations with other countries under the provisions of the Trade Agreements Extension Act of 1955. The Canadian Government has been asked to indicate by July 15 if possible, and by August 1 at the latest, whether it plans to participate in these negotiations. The Canadian Government appreciates that the urgency of this request is necessitated by statutory requirements in the United States, even though the negotiations will not commence until early in 1956.

2. The Canadian Government welcomes this initiative on the part of the United States Government to reduce tariffs, and thus promote the restoration and expansion of multilateral world trade. Even though the tariff negotiations will be somewhat limited in their scope, they may constitute a worthwhile step forward in the general reduction of barriers to international trade, a task which is of crucial importance to friendly and co-operative working relations among countries of the free world.

3. The Canadian Government has decided, in principle, to participate in the tariff negotiations which are planned to commence early in 1956. At the same time the Canadian Government must reserve the right to reconsider the decision if circumstances alter materially during the six months which will elapse before actual negotiations are commenced. In making this reservation, the Canadian Government has particularly in mind the uncertainty that prevails regarding possible restrictive legislation by the U.S. Congress and regarding the use that may be made of the new and revised escape procedures incorporated in recent legislation and of the waiver granted to the United States by the Contracting Parties to the GATT with regard to agricultural products. The Canadian Government naturally hopes that there will be no developments in the United States which would impair commitments made to Canada in trade agreements, and that the United States in administering its laws will continue to have regard to the common interest of all friendly countries in multilateral trade.