1. This memorandum deals with the urgent problem of the import controls on cheddar cheese and processed milk announced recently by the United States Department of Agriculture. This action followed from a rider known as the Andre­sen amendment which was attached to the Defence Production Act. Exports of cer­tain of our dairy products, and particularly of cheddar cheese, are likely to be restricted as a direct result. Even more important is the fact that these restrictions are wholly inconsistent with the principles and the agreements upon which joint trade has been developed in recent years between Canada and the United States. If the latter is to persist in the application of these new measures, there may be harm­ful and unavoidable consequences for the commercial policy which has been pur­sued by both countries in recent years.

2. In introducing its new import controls, the United States Congress has for the first time taken action in contravention of the General Agreement on Tariffs and Trade. The GATT provides clearly that quantitative import restrictions of this kind shall not be imposed except in certain stated circumstances which cannot be held to exist in respect of these commodities at the present time. By this legislation, fur­thermore, the United States has impaired and, indeed, nullified the value of tariff concessions negotiated at Geneva in 1947 and at Torquay, these concessions having been bound until January lst, 1954. Canada has negotiated and paid for reductions in the United States duty on cheddar cheese which have reduced that duty from a level of 4 cents per pound, but not less than 25% ad valorem in 1947 to 3 cents per pound, but not less than 15% ad valorem at present. The new import controls will make it impossible for Canadian exporters to take advantage of these tariff reduc­tions and, indeed, their position will be worse than it was prior to the Geneva negotiations.

3. Members of the Standing Committee on Banking and Commerce of the House of Commons questioned the Torquay Delegation on the likelihood of the United States taking action to nullify or impair tariff concessions which had been negoti-ated. In his evidence before the Committee, Mr. H.B. McKinnon, the head of the Delegation, said it was "unthinkable" that the United States would violate her agreement with Canada. The Standing Committee also inquired into the steps open to Canada should the United States or any other country violate the GATT. Mr. McKinnon went on to point out, in response, that if the United States were to vio­late her agreement in respect of even one important commodity, measures of retali­ation could be devised. Parliamentary action would not necessarily be required, he said, since tariff concessions could be withdrawn from the United States in most instances by the mere cancellation of an order-in-council. The relevant passages are in the Minutes of Proceedings and Evidence of the Standing Committee for May 29 and June 11.¹⁰⁵

4. Cheddar cheese is the only type sold in large quantity by Canada to the United States. United States imports of cheddar have been as follows during the three year period:

     Annual import quotas will be equal to the average of three years, 1948-50.

United States imports of cheddar cheese, which have grown steadily to a level of 13.3 million pounds will thus be cut back to a rate of 5.5 million pounds per year.Since the new import quotas are not allocated to individual countries, it is impossi­ble to say how much of the cut will be borne by Canadian cheese. As a result of the United Kingdom contracts placed in Ontario, there may not be as much Canadian cheese available for export to the United States this year. Producers of mature cheddar, such as Black Diamond, may feel the adverse effects immediately and these will be unavoidable for other producers as time goes on.

5. It cannot be argued plausibly that cheese is in a particularly difficult position in the United States at the present time. During 1950 the United States Government accumulated an inventory of over 100 million pounds of cheese but this surplus has largely disappeared by now. Although the support price for first grade cheddar cheese has been raised to 36 cents per pound (from 31 cents in 1950), the current wholesale price of about 40 cents per pound is high enough so that none is being offered to the Government. There is thus no new surplus being built up. In any event, imports of all cheese into the United States amount to less than 5% of domestic production and imports of cheddar cheese are approximately 2% of domestic production. It is difficult, therefore, to believe that imports present much of a threat to United States cheese producers. In other words it is impossible to condone, or to justify under the GATT, the import controls which have been introduced.

6. The Defence Production Act was signed by the President of the United States on July 31. Although the Andresen amendment is in contradiction to the commer­cial policy of the Administration, the President approved the amendment along with the rest of the Bill, presumably as part of a compromise by which he obtained passage of his emergency legislation. It is obvious that Wisconsin dairy interests are the principal supporters of the Andresen amendment.

7. The Andresen amendment was studied carefully in Ottawa as it moved through its early legislative stages. Officials have been concerned that if this principle of unwarranted import controls is once established, there will be nothing to prevent its being extended arbitrarily to many products. On July 13 the Ambassador to the United States was asked to make a protest to the State Department against the gen­eral principle involved in the proposed measure. A copy of the messaget to Wash­ington of that date is attached to this memorandum. Other countries which have expressed their interest to the United States in this matter include France, Denmark, Australia, Argentina, the Netherlands, Finland, New Zealand, Switzerland, Nor­way, Uruguay, and the Dominican Republic.

8. It seems desirable now to send a Note to the United States Government to protest again, and in stronger terms. A draft Note is attached to this memorandum, which is, in effect, a request that these new import controls be withdrawn. There is little reason, however, to hope that the Administration will be able to have the Andresen amendment withdrawn at an early date. The Administration is, in fact, in a weak position, the amendment having been attached to a piece of emergency leg­islation which is both controversial and important. Before any action is taken, the Government should therefore decide how far it is prepared to go should remedial steps not be taken by the United States. If the Government is to undertake measures of retaliation against the United States, the appropriate form of retaliation would probably be the withdrawal of selected tariff concessions which were negotiated with the United States either at Geneva or at Torquay. It would be desirable to choose tariff items for this purpose which would have a penal effect upon United States trade but would have as little effect as possible upon the cost of living in Canada. If effective measures of retaliation are announced by the Government, these may be of great assistance to the President of the United States in dealing with Congress. The Administration will be in a stronger position to ward off the demands of pressure groups if it can be shown that restrictive trade measures of this kind will provoke a prompt reaction from Canada and other countries.

9. The timing of any retaliatory measures is important. Consideration must be given to the position of the Contracting Parties to the General Agreement on Tariffs and Trade which will convene in Geneva on September 17. If the Government is to decide in favour of retaliatory measures, it would be desirable to make a public announcement, on or before September 17, that certain specified tariff concessions will be withdrawn from the United States immediately following the close of the current session of Congress, unless the new import controls have been removed in the meantime. The Contracting Parties could then be notified of this announcement. This would put the Government in the position of having taken action well in advance of the fall session of Parliament. Opinion in the United States might well be more concerned about getting into difficulty with Canada than it would be about an infringement of the GATT and this is a reason in favour of our taking any action directly and announcing it later to the Contracting Parties. Since the obligations of the United States in this matter are laid down in the General Agreement on Tariffs and Trade, however, it is inadvisable to ignore the Contracting Parties to the Gen­eral Agreement. This is why it is desirable that any announcement by the Govern­ment be made in advance of September 17 so that the Contracting Parties may be notified. It is quite possible that some other Government may take the initiative in placing this item on the agenda of the coming meeting of the Contracting Parties and in that case the Canadian Delegation can support it without difficulty. For Can­ada to consult the Contracting Parties to the GATT in advance, however, about any retaliatory measures, would inevitably be to delay any action until after Parliament meets. A long debate in the Contracting Parties, furthermore, would have an unpre­dictable effect on United States opinion.

10. In view of the above, I recommend,

(a) that a Note be delivered to the Government of the United States as in the draft attached to this memorandum;

(b) that the Minister of External Affairs, the Minister of Finance and the Minister of Trade and Commerce should consult jointly to determine whether retaliatory measures are required in the light of the reply to be received from the Government of the United States; and

(c) that the Minister of Finance be requested to review tariff concessions which have been made in the past, to select items which may be withdrawn if necessary from the United States and following the consultation made in (b) to make an appropriate recommendation. ¹⁰⁶

C.D. HOWE

[PIÈCE J0INTE/ENCLOSURE]

Projet de note pour le Gouvernement des État-Unis

Draft Note to the United States Government

Ottawa, August, 1951

The recent announcement of the United States Department of Agriculture with regard to the control of imports into the United States of fats, oils, and other dairy products has created a situation which is of urgent concern to the Canadian Gov­ernment. The restriction of the imports of dried milk products, and cheese in partic­ular, will cause immediate damage to Canadian trade with the United States.

In the case of cheese, the new import quota will reduce United States imports substantially below the levels which have prevailed in the immediate past. This reduction cannot fail to have a serious prejudicial effect upon the position of the Canadian dairy industry.

While the impact of the new restrictions upon particular producers is of immedi­ate concern, the Canadian Government wishes also to call the particular attention of the Government of the United States to the more far-reaching implications of this action. The new restrictions announced by the United States Department of Agri­culture are contrary to the obligations which the two governments have assumed toward one another in the General Agreement on Tariffs and Trade. The latter pro­vides clearly that quantitative import restrictions of this kind shall not be imposed except in certain stated circumstances which cannot be held to exist at present in respect of these commodities. These new import controls, furthermore, will nullify the value of certain of the tariff concessions which were negotiated at Geneva in 1947 and at Torquay, these concessions having been bound by the United States until January 1, 1954.

The Government of Canada has sought at all times to observe the terms of the General Agreement on Tariffs and Trade which govern the commercial relations between our two countries. The Canadian Government earnestly hopes the Govern­ment of the United States will review the action it has recently taken to restrict the imports of dairy products, in the light of the provisions of the General Agreement on Tariffs and Trade, in order that the mutually advantageous trade which is of such great importance to the general well-being of both our countries may not be impaired. ¹⁰⁷

¹⁰⁵ Voir Canada, Chambre des communes, Comité permanent de la banque et du commerce, Procès­verbal et témoignages, Ottawa: Imprimeur du Roi, 1951, N° I et 5.
See Canada, House of Commons, Standing Committee on Banking and Commerce, Minutes of Proceedings and Evidence, Ottawa: King's Printer, 1951, Nos. 1 and 5.

¹⁰⁶ Approuvé par le Cabinet, le 22 août 1951./Approved by Cabinet, August 22, 1951.

¹⁰⁷ Remise au Gouvernement des États-Unis, le 27 août 1951./Delivered to United States Government on August 27, 1951.