Reference: My immediately preceding telegram.?

STATE LEGISLATION AFFECTING THE MANUFACTURE AND SALE OF BEER

Mr. E.P. Taylor, Chairman of the Board of Carling Brewing Company Inc. (a Virginia company 99% owned by Canadian Breweries Ltd) accompanied by Mr. Ian R. Dowie, President of this company, and several advisers called on the Minister March 6 to discuss the legislative attempts being made in several states to discriminate against brewing companies in which the controlling interest is held by persons not citizens of the United States.

2. They outlined the history of this company since Canadian Breweries Ltd. gained control of it and altered its name from Brewing Corporation of America. Sales had increased from 300,000 barrels to 3 million barrels. It was now providing 4% of total United States production; it was the eighth largest producer and still advancing. Mr. Taylor said this progress was a result of the application of modern methods, and was not fostered by unfair practices.

3. Mr. Taylor said that the real reasons why Carling was unpopular with the other U.S. breweries were this steady growth and the fact that while not indulging in price-cutting, the company refused to participate in price-fixing arrangements. Two other reasons were also cited, the high Canadian tariff on United States beer, and the unwillingness of the provincial liquor boards to list it. These in Mr. Taylor's opinion were red herrings. The United States industry was not really interested in exporting to Canada.

4. Mr. Taylor believed that a plot to encourage discriminatory legislation in individual states had been hatched at a meeting of the United States Brewers' Foundation in January. In Maryland a bill had now been passed by both Houses which would prohibit Carling from establishing a brewery there. It was still possible that the Governor would veto the bill. The press and most public bodies were opposed to the bill.

5. Bills had been introduced in New York and Pennsylvania which would effectively prohibit the import into these states of Carling's products produced in other states. (The 21st Amendment of the U.S. Constitution has apparently been interpreted so as to leave any state free to regulate the trade in beer and liquor as it sees fit, even where inter-state commerce is concerned). A bill had also been introduced in New York designed to prohibit the issuance of a brewer's license to Carling. Although all these bills were drafted in general terms they were in his opinion intended to apply solely to Carling, which was the only brewery that could be affected.

6. Mr. Taylor said the Carling Brewing Company was doing what it could to discourage these activities. It was employing registered lobbyists and the best counsel, and was even considering taking civil action against the other brewers under the anti-trust laws. He believed, however, that it would be helpful if the Canadian government were to express some concern to the United States authorities. There was a danger that these state activities would set a precedent that might be applied to distilling and other industries.

7. Mr. Pearson pointed out that our interest would be in the protection of Canadian investors as such, not the protection of a United States company. The situation was complicated by the fact that the complaints concerned state rather than federal acts, and we had to consider what position we might be in if faced with representations from the U.S. government with regard to such matters as provincial liquor regulations or practices. He indicated that we could however make enquiries in Washington on the basis of reports in the press. These enquiries might stimulate some interest in Washington in the principles involved. We would also consider whether it would be wise to make informal representations to the United States authorities. We certainly shared Mr. Taylor's view that the example set by legislation of this kind could have serious consequences.

8. Mr. Taylor appeared to be satisfied with this. He undertook to send us a brief on the whole subject.