Sir,

I have the honour to refer to my cipher telegram No. 2 of January 5t concerning the possibility of extending the Cuban flour import subsidy to Canadian flour, and to give you hereunder a review of the steps taken by this Legation to assist local Canadian flour importers.

Your despatch of January 22, 1945, to H.B.M.¹ Minister, Havana, outlined the situation as it existed at the beginning of last year, and asked him if he would be good enough to see what could be done to see that the Cuban flour import subsidy be extended to include Canadian flour imported into Cuba.

An identical situation arose this year. If you will permit me, I will give in this paragraph a short and general review of the position as regards the import of Canadian wheat flour into Cuba. Cuba has always been a good market for wheat flour. Due to the nature of the bread baked to suit Cuban taste, it has been necessary for the principal wheat flour exporters in the United States and Canada to spend a good deal of time and money studying the baking problems and developing milling processes suitable to the Cuban market. Until the war with its subsidies, shipping problems and United States bloc purchasing of Cuban sugar, in which was included an agreement for a special subsidy on the export of United States flour to Cuba, Canada enjoyed a share in the Cuban wheat flour market. Flour was imported directly from Canadian mills, and also a good deal of Canadian wheat was milled in Buffalo for export to Cuba. The tariffs applied were 82¢ for a two hundred lb. bag of flour milled in the United States from U.S. wheat; 94¢ for a two hundred lb. bag of flour milled in Buffalo from Canadian wheat and $1.32 for a two hundred lb. bag of flour milled in Canada from Canadian wheat. When the United States gave a general subsidy on all wheat flour exported (now $1.48 per two hundred lb. bag), and added to this a special subsidy ($2.70 per two hundred lb. bag) on wheat flour exported to Cuba as part of the sugar agreement (to enable the Cuban Government to maintain the price of bread at 100 a loaf), Canadian wheat milled in Canada or in Buffalo could no longer compete in the Cuban market because of these subsidies and the tariff preference given American wheat flour. Last year when the negotiations for the sale of the Cuban crop to the United States Commodity Credit Corporation were temporarily suspended as part of the bargaining procedure, it was found that the flour stocks here were low, and the Cuban Government decided to subsidize the import of flour until such time as the United States renewed its special subsidy as part of the new sugar agreement. Mr. J. L. Mutter, at that time Canadian Government Trade Commissioner in Havana, managed after a good deal of delay to obtain an interview with the Minister of Commerce, and protested against the decision of the Cuban Government to pay this subsidy only on imports of flour milled in the United States from United States wheat. By the time he got his interview, it appears that the Ministry of Commerce had already concluded its agreement with the local flour importers for payment of the subsidy on some 800,000 two hundred llb. bags of flour needed. Actually, Decree No. 89, which was published in the Official Gazette on January 16, 1945, authorized subsidies to be paid on purchases made between the 1st and 15th of January, i.e. before the decree was published.

When the same situation arose this year Mr. J. E. O'Neill, Administrative Officer left in charge of the Commercial Secretary's Office, received instructions from the Department of Trade and Commerce to enquire whether the subsidy which the Cuban Government again proposed to pay on wheat flour imports would be extended to Canadian flour as well. Anticipating that we might receive instructions from you along similar lines to the ones which were sent (too late) last year to H.B.M. Minister to protest the decision of the Cuban Government to grant subsidies to imports of United States flour only, it was decided to take this matter up. It was hoped that Mr. Vaillancourt could make a call on Dr. Alberto Inocente Alvarez, Minister of State and actual boss of the Ministry of Commerce of which he was former Minister. For this purpose he was fortified with a memorandum, with Spanish translation, setting forth the attitude of the Canadian Government in connection with this matter of the payment of subsidies by the Cuban Government on the import of wheat flour. As it was not possible to make arrangements for Mr. Vaillancourt to call on the Minister, the memorandum was left at the Ministry of State on December 29. I enclose copies of this memorandum for your information.

About this time, representatives of the Canadian flour milling companies began to get in touch with us to enquire if the Legation intended to take the matter up with the Cuban Government. They supplied us with a good deal of useful information about developments in wheat purchasing circles. The representatives concerned were Mr. Rafael W. Bornn, representative of the Brackmanker Milling Company, Limited, and Western Canada Flour Mills of Toronto, Mr. Ronald Cabrera, representative of the Maple Leaf Milling Company of Toronto and Mr. Colin Rose, representative of the Dominion Flour Mills Limited, Montreal. Mr. Bornn was most assiduous in keeping us informed of developments, and I am attaching copies of a memorandum, dated December 31, which he left with the Legation outlining the situation, as well as copies of a letter of December 31st† addressed to Mr. Albert of . Nufer, Economic Counselor of the American Embassy here, complaining against discrimination against the southwest mills by a group of northern millers who seem to have managed to corner the local market by having their advice accepted almost exclusively by the responsible officials of the Ministry of Commerce.

On January 4th, Bornn brought in to me the draft of the decree which had been made available to the National Association of Foreign Commission Agents by the Ministry of Commerce. This draft decree referred throughout to flour imported from United States mills, and it was obvious its intention was to exclude Canadian flour. A note was immediately addressed to the Minister of State requesting assurances from the Cuban Government that the decree

when published would not discriminate against Canadian wheat flour. I attach copies of this note t for your information.

The decree in question, No. 4128, was published in the Official Gazette on January 5th, and conformed substantially to the draft that we had already seen, and which we had protested in our Note No. 1 of January 4th. I attach an English translation of this decree for your records. You will note that the decree provides for a rebate in taxes of $2.54 on each two hundred lb. bag of spring wheat flour imported, up to the amount of some 864,492.25 bags, all purchases to be made between the 1st and 15th of January 1946.

When no reply was received to our Note No. 1 of January 4th, I went, on January 10th, to see Senor Valdés Rodriguez, Assistant Chief of the International Commerce Section of the Ministry of Commerce. I told Sr. Valdés Rodriguez that, if we did not have a reply by January 12th, it would be quite impossible for importers of Canadian wheat to make their purchases before January 15th. I pointed out to him that the Canadian Government was paying subsidies on a long list of imported food stuffs in order to maintain a ceiling on the cost of living in Canada. I said that it might interest him to know that it was my understanding that the Canadian Government paid a subsidy on the import of bananas, of which fruit Cuba supplied Canada some $829,000 worth in 1944, and it was quite possible that a subsidy was paid too on some $748,000 worth of fresh pineapples exported by Cuba to Canada in the same year. I said that the Canadian Government did not discriminate in the payment of subsidies in regard to the source of supplies obtained. I said that if the Cuban Government could not see its way clear to extending customs rebate payments to include Canadian wheat flour, this fact would have to be reported to the Canadian Government so that they might consider whether it would be desirable to withdraw the Canadian subsidy from imports on certain commodities from Cuba. I am attaching, for your information, copy of a memorandum which I prepared for Mr. Vaillancourt on January 10th developing these arguments. Sr. Valdés Rodriguez said that, as time was short, he would counsel the Legation to try to obtain an interview with the Minister of Commerce, and if at all possible, it would give more weight to our representations if Mr. Vaillancourt could attend the meeting.

At 3:30 on January 11th, Mr. Vaillancourt, Mr. J. E. O'Neill and I called on the Minister of Commerce, Sr. César M. Casas, and repeated to him the representations which I had already made to Sr. Valdés Rodriguez. The Minister of Commerce said that he had read with a good deal of interest the statement made to the press by the Honourable C. D. Howe concerning the desire of the Canadian Government to see its trade with Cuba increased and regularized by the conclusion of a commercial treaty. He thought this was an excellent idea, and he hoped that, under the new regulations worked out, it would be possible for Canada to export wheat to Cuba. He said, however, that Decree No. 4128 had been drafted to take care of a particular, and he hoped temporary, situation. It could not be discriminatory if it was viewed against the background of the sugar negotiations. He said that it must be obvious that Cuba had been, during the war, almost completely dependent on the United States for its full range of supplies, and that, under the agreement for the sale of the sugar crop to the C.C.C., provisions had been included whereby the United States had endeavoured to assist the Cuban Government to maintain ceilings on essential food supplies. Cuba hoped that the United States would renew special subsidy on wheat flour exported to Cuba as a part of the new sugar agreement, and, therefore, wished to do nothing that might prejudice this outcome. (I read between the lines here that what was intended was that the Cuban Government hoped that U.S. flour milling companies would exert pressure on the U.S. Government to maintain its subsidy, and that for this it was necessary that the Cuban Government keep in with the American flour millers). Sr. Casas went on to say that, if the U.S. Government did not grant a special subsidy on wheat flour exported to Cuba as part of the new sugar agreement, it was quite possible that Cuba would approach the Canadian Government to make available some wheat flour supplies for the latter part of the year. After this, Mr. O'Neill and I, on behalf of the Legation, and Sr. Valdés Rodriguez and Sr. Ruben Ortiz La Madrid, Chief of the Division of Interior Commerce, for the Cuban Government, exchanged a number of thrusts. I said that we were all agreed on the desirability of working out arrangements for fuller Cuban-Canadian trade in the future, but that what we were here to discuss this afternoon was the regime which would be effective in the interim period. I said that it would be difficult for Mr. Vaillancourt to explain to the Canadian Government that the Cuban Government wished to see commerce expanded when its actions in this case could only be considered by the Canadian Government as discriminatory. Sr. Valdés Rodriguez argued that Mr. Vaillancourt should report that this decree was not discriminatory if it was viewed against the background of the sugar negotiations. Mr. O'Neill brought out the figures of past Canadian wheat flour sales to Cuba, and showed how we had been cut off from this market during the period of the war, and how unbalanced the trade between the two countries had been. He said that if the Cuban Government wished to sell more to Canada, or even to continue the sales which it had been able to make during the war when other sources of Canadian supply had been cut off, it would be necessary for the Cuban Government to adopt a more liberal attitude toward Canadian imports in the future. The meeting broke up in a spirit of goodwill, with nothing specific achieved in regard to this particular decree, which we were told only granted a subsidy to flour imported from the United States and milled there from American wheat, but we did, I think, have a useful exchange of views that should prove a good starting point for further commercial discussions we may have in the future.

I have etc.
A. R. MENZIES

¹L'accord fut signé le 20 février. Voir Canada, Recueil des traités, 1946, N° 7. L'accord fut ratifié le 24 septembre 1946. Voir le Décret du Conseil P.C. 3957.
¹The agreement was signed on February 20. See Canada, Treaty Series, 1946, No. 7. The agreement was ratified on September 24, 1946. See Order in Council P.C. 3957.