The Interdepartmental Committee on External Trade Policy has considered problems relating to merchant shipping policy brought forward by the Chairman of the Canadian Maritime Commission and submits the following report:

The Canadian merchant marine is affected detrimentally by certain provisions of the U.S. Economic Cooperation Act, and by the shipping policy of European and other countries. While Canada will have approximately 1.2 million tons of shipping available for the carriage of E.C.A. cargoes, recipient countries are now using every means in their power to ensure movement of goods in their own vessels.

The E.C.A. statutory provision that, as far as practicable, 50 per cent of E.C.A. supplies purchased in the United States shall be carried in U.S. vessels will probably draw back into trade a considerable number of inactive U.S. vessels. Other ships, owned by European nations and now occupied in trade with the United States will turn to alternative trade routes, and, - since Canadian costs are higher than those of European nations although lower than those of the United States, Canadian shipping will be placed at a competitive disadvantage. In carriage of E.C.A. supplies in other than U.S. ships, recipient countries will prefer to use their own ships, because of their desire to conserve limited supplies of dollars and to make the maximum use of resources at their disposal.

Instances of discrimination against Canadian shipping are already evident. In the carriage of timber, for instance, the United Kingdom is offering Canadian companies a charter rate of $32.50 per M, as against $40.00 per M or its equivalent being paid to British liner companies. It is understood, also, that the British Ministry of Food has in some cases refused to charter Canadian ships from Montreal. Not only the United Kingdom, but practically every foreign government is taking active steps to protect its national shipping.

The Canadian government has already decided that the maintenance of a small but efficient Canadian merchant marine is in the national interest. In line with this policy, the government is encouraging reduction of the total number of vessels and replacement of existing ships by faster and more economical units. Although at present private owners are operating 1,263,000 tons of dry cargo vessels and, in addition, some seventy vessels chartered to the U.K. government will be returned during 1948 and 1949, the ultimate size of the Canadian merchant marine will likely be about one million tons, a fleet small in relation to the total volume of Canadian trade and to Canada's position in the world. During the present period of transition before the fleet is fully modernized and able to compete without special assistance, it remains necessary to find employment for a substantial number of vessels.

Special arrangements connected with any further use of Canadian credits or sale of Canadian goods, designed to ensure use of Canadian vessels are not because of their discriminatory nature, desirable in the long run, and are inconsistent with multilateralism; nevertheless the policies of the United States and other maritime countries in protecting their merchant fleets leave Canada no alternative. Canada's ability to bargain in this connection relates only to commodities in short supply and in regard to which the government can exercise some control over exports, formal or informal. These would include mainly wheat, lumber and base metals. The bargaining position is clearly strongest where Canadian credits to foreign countries are involved.

In the circumstances, the Committee recommends:

(a) that in any future consideration the government may give to further drawings on Canadian credits to the United Kingdom or other countries, or in any new arrangements for major purchase by other countries of basic Canadian commodities, the government should seek to ensure reasonable use of the Canadian merchant fleet - reasonable use being suggested as the 1947 basis, when 14 per cent of total Canadian exports were carried in Canadian ships;

(b) that the special Canadian representative appointed to maintain contact with the operations of E.C.A. and recipient countries in Europe be directed to assist wherever possible, the utilization of Canadian vessels in the carriage of goods purchased in this country;

(c) that the Canadian Ambassador to the United States be asked to explain to the appropriate U.S. authorities the difficulties presently confronting the Canadian merchant marine in carrying a reasonable proportion of Canadian trade, as a result of the shipping policies adopted over recent months by other countries.⁶⁵

⁶⁵Le Comité du Cabinet sur la politique du commerce extérieur a donné son accord le 3 juin
Approved by Cabinet Committee on External Trade Policy on June 3.