Dear Mr. Brown,

This letter and attachment are going to take quite a bit of reading and you might want to refer the subject at once to Mr. Schwarzmann and possibly others in our Department as well as the Economic Division of External Affairs, Finance and the Bank, in order to save time.

On Wednesday, February 4th, Sir David Eccles, President of the Board of Trade, addressed an audience of about four hundred at a Canadian Chamber of Commerce luncheon in the Dorchester Hotel.³⁴⁹ A copy of his speech is attached? and your special attention is directed to the marked paragraphs.

Sir David's presentation of the facts and his suggested cure are obviously open to question, but such statements have strong public appeal here when they appear in the press. Attached? are clippings from The Times, The Daily Telegraph and The Financial Times of February 5th and 9th and an editorial from The Financial Times of February 5th. The latter gives further justification to our suspicion that Sir David might have been issuing a warning that there might be some slow-up in the rate of liberalization of imports from dollar sources, despite the assurances we have had to the contrary at the official level. There is no doubt that the Greer's Ferry³⁵⁰ case has caused much bitterness here and it could have a bearing on the attitude of the United Kingdom Government toward further dollar import liberalization. Our objection is, of course, that this bitterness might be directed at Canada. That Sir David's statement might be becoming the "party line" was suggested when I attended a luncheon two days ago for four Quebec newspaper men. In his welcoming remarks Sir William Rootes, who is as you know Chairman of the Dollar Exports Council, echoed the views expressed by Sir David and I suspect that we shall be hearing the same ideas from other sources fairly frequently.

Following the Eccles speech we discussed in Canada House the possible steps we might take to correct the impression he had created. It was agreed that we should take no immediate action, especially as the High Commissioner expected to have many opportunities in the near future to speak to groups where he could present the Canadian point of view. With this in mind, Mr. Drew asked us to prepare notes covering some of the points he might make in such speeches. Mr. Grandy is also giving the matter his attention. He will deal with the contractual obligations of the United Kingdom toward Canada, i.e. the U.K.-Canada trade agreement, G.A.T.T. and I.M.F., under which there are commitments to liberalise trade as soon as balance of payments difficulties disappear. If it is thought in Ottawa that there are some general comments we should have on this aspect of the question, we shall be glad to have them.

It now develops that Mr. Drew has been invited to speak to the Canadian Chamber of Commerce on Thursday, March 5th. His talk will not be "billed" as a rebuttal to the Eccles speech, but Jack Rodgerson, President of the Chamber, agrees that it would be appropriate for Mr. Drew to use the same forum to present, in effect, the Canadian answer.

Attached are some notes which we (mainly Mr. Tregaskes) have prepared. It would be appreciated if these could be carefully examined in Ottawa by those concerned. We want them to be corrected, amended, strengthened and otherwise put into such shape that Mr. Drew or any of us could use them with complete confidence. If any other points should be added, we shall welcome them. We are not, of course, presuming to write Mr. Drew's speech but I am sure he will be glad to have the most authoritative briefing on the ideas he chooses to present.

Please regard this question as urgent and let us have comments by telex on this letter and the attached notes as soon as possible and certainly not later than about February 23rd.

Yours faithfully,
B.C. BUTLER

[PIÈCE JOINTE/ENCLOSURE]

Note

Memorandum

[London, n.d.]

NOTES CONCERNING QUESTIONS RAISED BY SIR DAVID ECCLES, PRESIDENT, BOARD OF TRADE IN A SPEECH TO CANADIAN CHAMBER OF COMMERCE AT DORCHESTER HOTEL, 4TH FEBRUARY, 1959

1. Canadian exports to the United Kingdom for 1958 totalled $781 million. Canadian imports from the United Kingdom totalled $527 million. On a per capita basis, Canada imported from the United Kingdom $31; the United Kingdom imports from Canada totalled $15.5 per head. On this basis, therefore, Canada imported twice as much from the United Kingdom as the United Kingdom did from Canada.³⁵¹

2. The composition of the imports into the United Kingdom from Canada is interesting. 90 per cent of these imports consist of the following sixteen items:

Wheat Nickel
Barley Copper
Oil seeds Aluminium
Tobacco Zinc
Newsprint Lead
Lumber Platinum
Iron ore Asbestos
Ferre-alloys Abrasives

These are essential raw materials and agricultural products necessary for the industrial and manufacturing industries of the United Kingdom. Only 10 per cent of United Kingdom imports from Canada are manufactured goods or processed food products. The United Kingdom purchases these basic raw materials from Canada because Canada is a reliable and competitive source of supply. We have noted that, should such raw materials be forthcoming from other countries at lower prices, there is not much hesitation in switching to the new source of supply. This is as it should be. Trade, both ways, must be subject to normal commercial and competitive considerations.³⁵²

3. In his speech, Sir David Eccles implied that this country subscribes to balanced bilateral trade. This is at variance with the traditional foreign trade pattern of the United Kingdom and it is hard to understand why a bilateral balance should be deemed necessary in Canadian-U.K. trade. For example, the United Kingdom purchased £93 million from South Africa in 1958, while U.K. sales to South Africa totalled £174 million. If the United Kingdom followed a policy of bilateral balancing her purchases from South Africa should have been increased by £81 million.

4. The President also implied that an unbalanced trade between Canada and the United Kingdom is a new phenomenon. In point of fact, Canada has always enjoyed a large favourable balance of trade with the United Kingdom. For example, taking selected years from 1901, the following figures show Canadian exports to the United Kingdom (to the closest million dollars) and the imports from the United Kingdom. The table also indicates the balance in favour of Canada:

5. While Canada has enjoyed a traditionally favourable balance in merchandise trade with the United Kingdom, some of this favourable balance is necessary in order to pay for the many "invisible" items which go to make up the current account balance between the two countries. Canada pays out more than she receives on tourist expenditures, interest and dividends, freight and shipping, insurance, and similar items. In 1953 Canada was indebted to the United Kingdom on these items to the extent of $60 million; in 1954, $40 million; 1955, $36 million; 1956, $73 million; 1957, $87 million. I would guess that for 1958, our indebtedness on these accounts might be in the region of $100 million.

6. Another interesting point to note is that Canadian exports to the United Kingdom in 1939 totalled $328 million. These have increased by approximately 140 per cent in 20 years to $781. United Kingdom exports to Canada in 1939 totalled $114 million and have increased nearly 450 per cent in 20 years to $527 million.

7. It must be remembered, too, that in the post-war years United Kingdom investment in Canada has increased very substantially. As a matter of fact, U.K. investment in Canada in 1957 was the highest on record. In 1930 investments by residents of the United Kingdom in Canada, both direct and portfolio, totalled $2,766 million which was the highest pre-war figure attained. By 1948 this had dropped to $1,610 million. Each year from 1948 to 1957 records a substantial investment of United Kingdom capital in Canada, and by 1957 this had reached a figure of $2,915 million. For example, United Kingdom investment in manufacturing industries increased from $156 million in 1945 to $604 million in 1956. Apart from the profits these investments bring to the United Kingdom, it also suggests that many British-controlled manufacturing companies in Canada are now turning out products which formerly were exported from the United Kingdom into Canada. Thus, while the actual shipment of goods to Canada may be affected it would surely be wrong to say that the United Kingdom is not benefitting by the extent to which British firms have established themselves and become identified with the Canadian market.

8. There is still much scope in Canada for United Kingdom manufacturers to take a larger share of the Canadian import market. The main source of Canada's leading imports of manufactured products is the United States, and the United Kingdom still enjoys a relatively minor percentage of the total Canadian import market. The following table illustrates the percentage of the import market enjoyed by the United States and by the United Kingdom in 1956 and it is in these categories that United Kingdom manufacturers have the best opportunities for increasing their exports to Canada:

9. Most British products enjoy preferential tariff treatment in Canada. As well, there is no form of import control in Canada which would discriminate against or exclude British goods. The Canadian Government has fostered a 'Buy British' campaign and has given practical and moral support to this policy. Obviously, however, in a free economy such as Canada's, buying decisions are made by individuals and no government dictation on their purchasing policies is possible. Canadian importers must be persuaded that it is in their own interests to buy British products and the onus for changing their buying habits and inclinations must rest on the British exporter.

³⁴⁹Voir/See "Canada Asked to 'Buy British'," The Times, February 5, 1959, p. 6.

³⁵⁰Voir/See L. Galambos and D. van Ee, eds., The Papers of Dwight David Eisenhower, Vol. 29 (Baltimore: Johns Hopkins University Press, 1996), Document 1033.

³⁵¹Note marginale :/Marginal note:
Not so good a point [auteur inconnu/author unknown]

³⁵²Note marginale :/Marginal note:
good [auteur inconnu/author unknown]