Repeat Dept T & C (Dr. C.M. Isbister) (Information).

In the course of an executive session held by the Ways and Means Committee on July 9 to consider member bills, the Administration bill dealing with the imposition of the sliding scale of excise taxes on lead and zinc was considered. The Committee agreed to hold hearings on the bill on the 1st or 2nd of August. These hearings will be open hearings and we assume that Canadian producers will be working with their principal importers in order to ensure that their case is given as much support as possible.

2. While it may be anticipated that consumers will resist the imposition of the sliding scale of duties on the grounds that it will increase the price of lead and zinc in the USA, compared with the world price, create uncertainty in the market, and therefore provide an incentive for the substitution of other metals for lead and, particularly, zinc, it seems to us unlikely that the Ways and Means Committee, being cognizant of the very considerable drop in the price of these metals recently and the fact that a number of USA mines and smelters are closing down, will not support it.

3. However, unless there is a switch in tactics or some unforeseen development, it appears unlikely that action by the House of Representatives will be sufficient in this session to enable action by the Congress to help domestic industry. The Senate has now joined in battle over the Civil Rights Bill and may very well continue to debate for several months so that it will be unable to deal with any other legislation.

4. In a conversation last night Representative Hale Boggs (D-Louisiana) who is Chairman of the Ways and Means Sub-Committee on Customs Tariffs and Reciprocal Trade Agreements expressed the opinion that the Administration can take action without waiting for a bill to go through the Congress. He suggested that the hearings would bring out the fact that the administration could take action under the previous Tariff Commission hearing. Thus, it may very well be that while Congress cannot act during this session, the end will be achieved through administrative action (in this connection, it may be noted that the maximum that the President can authorize, assuming that it is accepted that he has the right to act, would be the rates recommended by the Tariff Commission report to the President in May of 1954). For both lead and zinc, this would produce a maximum increase in duties/taxes somewhat below that called for in the Administration bills.

5. Some suggestion has been made that the President might authorize the full recommended increase (that is to say, 3 cents) by invoking the security escape clause. However, the Chairman of the Senate Committee on Interior Insular Affairs asked the Chairman of the Tariff Commission to give his opinion on whether the Administration proposals would be in violation of GATT. Brossard's answer was to the effect that this would be a violation of 1(b), Article 2 of GATT. He went on to qualify his opinion, however, to indicate that legislation would not be a violation in the event that provision would be made that the amendments should not become effective until such time as other negotiations with other contracting parties had been successfully concluded. In a similar reply from the Assistant Counsel of the Office of the Legislative Counsel of the Senate, the opinion was expressed that the imposition of the additional taxes without going through the procedures provided by Article 28 of the GATT would constitute a nullification or impairment within the meaning of Article 23. This opinion also referred to Article 21 relating to security exceptions but suggested it would be difficult to justify this position in the present situation and that in any event such action might require a formal declaration of emergency.

6. Copies of both these opinions are being sent to you under separate cover.

7. In a conversation recently with a representative of the New Jersey Zinc Company, it was intimated to us that at any hearings on this subject, domestic industry would make the point that unless it was given adequate protection the USA manufacturers will find themselves at the mercy of foreign combines producing lead and zinc who could impose any price they wish on USA consumers once they have succeeded in eliminating competition from domestic industry. It would be said that foreign producers are not subject to antitrust legislation so that there would be no protection for the USA market from foreign producers. We cannot say whether this line of defence will be adopted actually but we thought it of interest to record this remark since this point may be one that will need to be dealt with at this hearing. We have heard no warning or intimation that attempts will be made to develop duties or taxes that will favour imports or ores or concentrates over imports of refined metal.

8. The Australian Embassy yesterday received from the State Department an answer to their protest on the proposed action of lead and zinc, which was referred to in our letter of June 11. A copy of this reply is being sent to you in our telegram 1542.? The reply rejects the Australian case and points to the fact that in 1954 and in May, 1956 foreign producers, including Australia, were warned of the rising rate of imports into the USA. The note goes on to point out that imports of lead from Australia have increased very considerably compared with the levels prevailing in 1954. Reference is also made to the expansion of other producers during the Korean war, whereas USA producers were held back because of price controls in the USA. Finally, it is emphasized that the present action is an implementation of the President's report when he rejected the Tariff Commission's recommendation in 1954 - "be prepared ... to consider even more far reaching measures and to make appropriate recommendations to the Congress."

9. We have received no reply to our memorandum which we presented to Mr. C. Douglas Dillon, Deputy Under-Secretary for Economic Affairs officially, and subsequently to Governor Adams and Hauge (messages 1258 and 1254 of May 29).²⁴² We have, of course, since then expressed our concern over these possible developments to other officials in the State Department, but it is possible that the State Department does not think that the form of our Note was such as to require any sort of formal reply similar to that given to the Australians. We are trying to find out if it is the intention of the State Department to reply officially but in the meantime if you would like an official reply, would you please let us know.

10. In our message 1295 [group corrupt] 4th of June, we asked if you could give us any opinion by the Canadian trade on how difficult it would be to live with this sliding scale as proposed by the Administration. We have had no comments from you on this particular point and it would help us here if we could have any formal opinion by traders on just how workable the Administration proposal would be if it were to be enacted.

²⁴²Voir volume 23, les documents 236 et 237./See Volume 23, Documents 236-237.