Present
The Prime Minister (Mr. Diefenbaker) in the Chair,
The Secretary of State for External Affairs (Mr. Green),
The Minister of Veterans Affairs (Mr. Brooks),
The Minister of Transport (Mr. Hees),
The Solicitor General (Mr. Balcer),
The Minister of National Defence (Mr. Pearkes),
The Minister of Trade and Commerce (Mr. Churchill),
The Minister of National Revenue (Mr. Nowlan),
The Minister of Citizenship and Immigration (Mrs. Fairclough),
The Minister of Labour (Mr. Starr),
The Postmaster General (Mr. William Hamilton),
The Minister without Portfolio (Mr. Browne),
The Minister of Mines and Technical Surveys (Mr. Comtois),
The Minister of National Health and Welfare (Mr. Monteith) (for morning meeting only),
The Minister of Northern Affairs and National Resources (Mr. Hamilton),
The Minister of Defence Production (Mr. O'Hurley),
The Secretary of State (Mr. Courtemanche) (for morning meeting only),
The Minister of Public Works (Mr. Walker),
The Associate Minister of National Defence (Mr. Sévigny).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Mr. Fournier, Mr. Martin).

. . .

POLICY CONCERNING U.S. SUBSIDIES ON COTTON TEXTILES
(PREVIOUS REFERENCE AUG. 14)

15. Mr. Nowlan as Acting Minister of Finance said that the Interdepartmental Committee on External Trade Policy had now considered the possible use of anti-subsidy duties in connection with imports of subsidized cotton textiles from the United States.

The U.S. cotton export subsidy programme began in 1956. Direct subsidies were applied to exports of raw cotton, and "equalization payments" paid on exports of cotton products to compensate manufacturers for the fact that, unlike their foreign competitors, they did not benefit from the subsidy on exported raw cotton. Subsidy payments on raw cotton were increased in 1959-60 from 6.5 cents per pound to 8 cents per pound and equalization payments had been adjusted to reflect this increase.

The anti-dumping provisions of the Customs Tariff had been applied since the beginning of the U.S. subsidy programme. However, it was believed that some evasion took place which made the actual price to Canadian importers below the fair market value. Representations had been made that further action was required if certain plants in Canada were not to be closed. The U.S. would no doubt argue that the subsidies on raw cotton upset the competitive advantages for U.S. exporters of cotton products in foreign markets, and that countervailing duties would represent a net increase in protection against normal competition. Canadian mills argued that, even though they benefited from the raw cotton subsidy, damage had been caused by the subsidy on exports of manufactured products, partly because of the difficulties of preventing evasions of anti-dumping duty and partly because the existence of the products subsidy encouraged U.S. producers to make a special drive for export markets.

The Committee concluded that some action was warranted. If, however, anti-subsidy duties were applied, there would be a strong demand in the U.S. for some counter-action, and it would be difficult for the U.S. administration to resist this demand, particularly because Canadian producers benefited from the subsidy by their access to subsidized raw cotton. It was possible that Canadian mills might be denied such access. Another important consideration was that the forthcoming negotiations with the U.S. on textile tariffs might be made more difficult.

An alternative would be to request the U.S. to exclude Canada from the export subsidy on cotton products. This would produce the same benefit as the application of anti-dumping duties without the danger of retaliation. It would be in line with the recent approach of U.S. officials regarding the application of U.S. countervailing duties to Canadian hogs should a deficiency payment plan be adopted in Canada. Furthermore, relations with the U.S. were such that Canada had an obligation to consult before taking action.

The Committee submitted a draft communication to the U.S. to initiate consultations on this matter. An explanatory memorandum had been circulated; (Memorandum, Chairman, Interdepartmental Committee on External Trade Policy, Sept. 25, 1959 - Cab. Doc. 291/59).?

16. Mr. Nowlan added that this problem had come to a head because of indications that the Marysville plant in New Brunswick might have to be closed. He doubted if much would come from the proposed approach but at least it should be tried.

17. During the discussion it was pointed out that any action taken by Canada would probably cause a storm in the U.S. and disturb relations between the two countries.

18. The Cabinet agreed that the United States be informed, that the Canadian government was convinced that material injury was being done to the cotton textile industry by imports of subsidized U.S. cotton textile products;

that Canada wished to initiate consultations with the U.S. with a view to finding an equitable solution to the problem; and that the best solution would be for the U.S. government to remove the subsidy on cotton textile products exported to Canada.

. . .