Dear Mr. Macdonald:

You have been appointed Canadian delegate to the First Session of the Provisional Maritime Consultative Council which will meet in Paris on the 16 May.

2. The Canadian Government has no items to suggest for the agenda. You should however regard yourself as holding a watching brief: we will wish to receive in due course a report on all aspects of the proceedings, and on the points of view expressed by the delegations of the various governments represented.

3. The Canadian Government feels that it is desirable to avoid any action, at the Paris meeting of the Provisional Maritime Consultative Council, which could be interpreted as prejudicing the discussions which will take place at the United Nations' Conference this Autumn called to examine the draft convention for the inter-governmental Maritime Council. It is understood however that certain delegations may seek to discuss some questions relating to so-called "restrictive practices" in shipping arrangements. If aspects of this question are raised, you should take the attitude that the P.M.C.C. should not reach any formal decision on these two subjects at this time, but that the meeting can be useful, if other delegations so desire, for an informal exchange of views on this subject.

4. The general question of restrictive practices in shipping has arisen not only at the recent conference in Washington of the U.M.C.C.,¹⁹ but also at the meetings of the Preparatory Conference on Trade and Employment in London and New York, and at the recent Session of the Economic and Social Council of the United Nations. I am therefore attaching copies of two memoranda of the following subjects:

Discriminatory and Restrictive Practices in International Shipping Arrangements.

"Tied Shipping" Clauses.

These memoranda outline briefly some of the background on these subjects and suggest the general attitude of the Canadian authorities.

5. Since aspects of these questions may also arise in the immediate future during the discussion of the proposed International Trade Charter at the Second Session of the Preparatory Conference on Trade and Employment now taking place in Geneva, we would like to receive summaries by telegram of the attitudes expressed on this matter by other delegations at the Paris meeting.

6. If any matters arise on this or other subjects, on which you desire further information or instructions, do not hesitate to communicate by telegram to the Department of External Affairs, Ottawa.

Yours very truly,
L.S. ST. LAURENT

[1^ÈRE PIÈCE JOINTE/ENCLOSURE 1]

Note
Memorandum

CONFIDENTIAL

Ottawa, May 2, 1947

DISCRIMINATORY AND RESTRICTIVE PRACTICES IN INTERNATIONAL SHIPPING ARRANGEMENTS

An issue which has recently come up in a number of international conferences concerns the question of discriminatory or restrictive agreements regarding the allocation of routes and fixing of rates for international shipping services. A number of the so-called "economically underdeveloped" countries are seeking international agreement to prohibit such practices, which they maintain have substantially hindered the development of their commerce in the past.

One field in which this campaign is being pursued is in the various preparatory conferences drafting the International Trade Charter preparing for the creation of an International Trade Organisation. The draft Trade Charter, as it now stands, has a chapter (VI) on `Restrictive Business Practices", the first article in which provides in part:

"Members shall take appropriate measures, individually or through the Organization or in both ways, to prevent business practices affecting international trade which restrain competition, limit access to markets or foster monopolistic control whenever such practices have harmful effects on the expansion of production and trade and the maintenance in all countries of high levels of real income or impair any of the purposes of the Organization as set forth in Article I."

The chapter goes on to establish a procedure with respect to complaints, and to lay down in some detail the obligations of Member Governments in this regard. The chapter, which has been included largely at the instance of the United States and Canada, is of course aimed primarily at abuses by international cartels, but many of the operative clauses, such as that cited above, are general and inclusive in scope. It is intended that the final article in the chapter, which lists certain exceptions to the obligations laid down, will include a clause excepting international agreements or understandings concerning aviation, telecommunication services and certain other services. The United Kingdom, Norway, and certain other delegations with large shipping interests, desire also to have shipping completely excluded from this chapter. On the other hand, India and a number of other countries (e.g. most Latin American countries) feel strongly that shipping should not be excluded. The Canadian delegations at the Preparatory Conferences have taken a view that there is no reason in principle to exclude shipping from these provisions, unless some other intergovernmental organization assumes responsibility for the prevention of abuses in the shipping field. In the case of aviation and telecommunications there are suitable intergovernmental arrangements for dealing with abuses or complaints. No final decision has yet been reached by the Preparatory Conference on Trade and Employment on the question of including or excluding shipping.

3. The draft convention for an Intergovernmental Maritime Consultative Organization drawn up by U.M.C.C. contains the following in Article I. ("Scope and Purposes of the Organization"):

"(ii) to encourage the removal of all forms of discriminatory action and unnecessary restrictions by Governments affecting shipping engaged in international trade so as to promote the availability of shipping service to the commerce of the world without discrimination."

It will be noted that this does not mention discriminatory action and unnecessary restrictions by private international agreement — that is by ship-owners.

4. At the recent Fourth Session of the Economic and Social Council, on 28 March, 1947, the Council adopted a resolution which, at the instance of the Indian delegation, includes the following instructions to the Conference which the Economic and Social Council will be convening to establish an intergovernmental maritime organization:

"the conference will also consider if the scope and purposes of the organization should include the removal or the prevention of unfair restrictive practices by shipping concerns."

The Canadian delegation to the Economic and Social Council was among the majority which supported this amendment to the original resolution. The Norwegian delegation strongly opposed this amendment.

5. There are thus two questions:

(a) whether the I.M.C.C. constitution should bring the possibly discriminatory effects of Shipping Conference arrangements and of other non-governmental international agreements within the purview of the I.M.C.C.; if it does, it will then he more arguable that this question should not fall within the purview of the International Trade Organizations.

(b) whether the Convention setting up the I.M.C.C. should include in the list of purposes the clause "to encourage the removal of discriminatory action and unnecessary restrictions by private agreements", thus putting private arrangements on a footing comparable with intergovernmental arrangements.

6. The second question obviously goes much further than the first. It is suggested that the Canadian delegation should adopt an affirmative attitude to question (a). No definite attitude to question (b) should be adopted at this time. Since this general subject will be arising at other conferences, as well as at the forthcoming P.M.C.C. meeting in Paris, and particularly since it will no doubt arise in Geneva during the course of the present second Session of the Preparatory Conference on Trade and Employment, the Department of External Affairs would wish to receive by telegram from our Delegation reports on the attitude adopted on this matter by various delegations at the P.M.C.C. meeting.

[2 PIÈCE JOINTE/ENCLOSURE 2]

Note
Memorandum

CONFIDENTIAL

Ottawa, May 2, 1947

"TIED SHIPPING" CLAUSES

1. One of the items which the United Kingdom proposes to raise at the Paris meeting of P.M.C.C. is a general discussion about provisions in trade agreements that the goods exchanged must be carried wholly, or up to a fixed percentage, in ships of one or both of the parties to the agreement. Argentine has recently included in some of its trade agreements a clause providing that 50 per cent of the goods exchanged must be carried in Argentine ships and 50 per cent in ships of the other party to the agreement. The United Kingdom believes that both China and India are considering the possibility of inserting similar clauses in trade agreements which they may negotiate in the near future.

2. The United States has at times shown some tendency to favour "tied shipping" clauses, not in trade agreements as such but in connection with loans granted by the Export-Import Bank.

3. Naturally the United Kingdom, which for many decades has earned a substantial foreign-exchange income from shipping services, is opposed to the development of this type of discriminatory provision in bilateral international agreements.

4. "Tied Shipping" clauses are obviously discriminatory and restrictive to an extreme degree: far more so, for example, than are subsidies. The widespread use of clauses preventing competition in shipping services would preclude the achievement of the most efficient international division of labour in the shipping field. Such clauses would further be directly contrary to the general principles supported by the Canadian delegation (and almost all other participating nations) in the Preparatory Conference on Trade and Employment which will set up an International Trade Organization based on non-discriminatory multilateralism.

5. It is sometimes argued in justification of "tied shipping" clauses that they are merely analogous to tied loans, which are widely recognized. This analogy is not complete, since tied loans in the intergovernmental field can be compared most appropriately with sales on credit by merchants in the domestic field. International loans which are properly comparable with the untied domestic loans of commercial banks are of course those granted by the World Bank, and these loans will not be "tied".

6. It is suggested therefore that we should be prepared in principle to support the inclusion in an appropriate draft international convention or conventions of a provision precluding "tied shipping" clauses. It may be that agreements might be considered appropriate for inclusion in the proposed International Trade Charter. It might be more appropriate however to have such an undertaking sponsored by the P.M.C.C. or by the proposed Intergovernmental Maritime Consultative Council.

7. Since this topic is related to negotiations now taking place at the Preparatory Conference on Trade and Employment in Geneva, the Department of External Affairs would wish to receive from the Canadian delegation to the P.M.C.C. telegraphic reports on relevant discussion at the Paris meeting.

¹⁹United Maritime Consultative Council.