Present:
The Prime Minister (Mr. Diefenbaker) in the Chair,
The Minister of Public Works
and Acting Minister of Defence Production (Mr. Green),
The Minister of Finance (Mr. Fleming),
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 Justice
and Acting Minister of Citizenship and Immigration (Mr. Fulton),
The Minister of National Revenue (Mr. Nowlan),
The Minister of Agriculture (Mr. Harkness),
The Secretary of State (Mrs. Fairclough),
The Minister of Fisheries (Mr. MacLean),
The Minister of Labour (Mr. Starr),
The Minister without Portfolio (Mr. Macdonnell),
The Minister without Portfolio (Mr. Browne),
The Minister of Mines and Technical Surveys (Mr. Comtois),
The Minister of National Health and Welfare (Mr. Monteith),
The Minister of Northern Affairs and National Resources (Mr. Alvin Hamilton),
The Secretary of State for External Affairs (Mr. Smith),
The Leader of the Government in the Senate (Senator Haig).
The Secretary to the Cabinet (Mr. Bryce),
The Assistant Secretaries to the Cabinet (Mr. Fournier), (Mr. Martin).

FRUITS AND VEGETABLES; TARIFF BOARD REPORT

40. The Minister of Finance summarized a report submitted by the Tariff Board on the fruit and vegetable items in the Customs Tariff.

The board proposed that the present system of tariff protection, designed to give producers protection during their marketing seasons, be continued. It recommended changes in several items, imports of which, in fresh form, amounted to about $20 million, and to $3 million for the processed product. The changes included increases in seasonal specific and other duties, extensions in the periods of application of seasonal duties and the dividing of application of such periods into two separate periods and combinations of these forms of protection. It was also proposed that additional duties be charged on some vegetables when imported in packaged form during the period of seasonal specific duty.

Duties on fruits and vegetables had been the subject of a long series of negotiations over the past thirty years, principally with the United States, during the course of which Canada received important reductions in many items in the U.S. tariff. The most important recent change occurred last April when, after prolonged negotiations with the U.S., Canada raised duties against imports of potatoes. Since it was not then possible to offer any acceptable compensation, the U.S. reduced the quantity of potatoes permitted entry at their special rate. The board now recommended the application of the present duty the year round. Action on this could be expected to result in further reduction or abolition of the amounts of potatoes the U.S. now permitted to enter under their special rate.²⁵⁵Implementation of the other recommendations would also involve increasing duties on other U.S. imports and, since there were no reductions in agricultural tariffs that Canada would wish to propose, the U.S. would probably raise their tariffs on agricultural and fisheries products imported from Canada. This would be almost certain to follow but for the fact that the U.S. was expected to raise its tariffs on lead and zinc. However, since agricultural agreements between the two countries had always been regarded as somewhat separate from other commercial arrangements the U.S. might nevertheless raise agricultural duties if these were to be raised by Canada.

The recommendations gave rise to a preference problem, particularly in regard to canned fruits and vegetables. In the absence of compensatory action, the suggested changes in the M.F.N. rates would involve a widening of the margin of preference between them and the preferential rates. He felt that, to avoid friction with the U.S. and to live up to Canada's obligations under the G.A.T.T., the present margins would have to be preserved. Some Commonwealth countries enjoyed special preferential rates on canned fruits. Undoubtedly, the U.S. would oppose any widening of the existing margins of preference on them and attempting to do so would add greatly to the difficulties of negotiating with the U.S. Reluctantly, therefore, he recommended consultations with the Commonwealth countries concerned with a view to increasing the special rates for canned fruits in line with the proposed increases in M.F.N. rates applicable to U.S. imports.

As regards to G.A.T.T., if it were decided to renegotiate as proposed, the necessary notification to the organization should be transmitted before the end of November, if possible. A G.A.T.T. waiver for the recommended increases seemed to be impracticable and not appropriate in present circumstances.

When this whole matter was being reviewed, the Canadian Horticultural Council had said that the most important need of the producer was for protection against "distress" or "clean-up" price imports, and that the problem might best be solved by a system of minimum fair market values. The Tariff Board had made no suggestion nor given any advice on this matter beyond saying it would be presumptuous of it to suggest what criteria should be applied in operating the relevant section of the Customs Act. Officials felt that a return to a system of fixed values would be highly repugnant to the U.S., although it might be possible, by the use of formulae, to minimize the arbitrary element. It had to be kept in mind, as well, that introducing into the tariff the element the Horticultural Council had in mind would lead other agricultural groups as well as industry to demand this form of protection. Even so, during negotiations it would be worth sounding out the attitude of U.S. authorities on it.

The Minister recommended that negotiations be opened with the objective of achieving the protection proposed by the Tariff Board and that the request for a system of values for duty be tentatively explored with the U.S. authorities.

(The explanatory memorandum had been circulated. Minister's memorandum, Nov. 27, 1957-Unnumbered).†

41. During the discussion the following points emerged:

1. The less Canada became involved in tariff matters with the U.S. during the next few months the better. It was very important to keep in mind the fisheries, whose market in the U.S. was vital and, in respect of which, substantial concessions had been received in the past. President Eisenhower had said that anything Canada might do by way of raising tariffs constituted an invitation to a large bloc in Congress to increase U.S. restrictions on trade.
2. The urgency of raising the matter now lay in the fact that, if Canada did not give notice of an intention to open up discussions later, special concessions would have to be sought subsequently in the G.A.T.T., which would be unnecessarily embarrassing.

42. The Cabinet deferred consideration of the proposals of the Minister of Finance to begin tariff negotiations in line with the recommendations of the Tariff Board's report on fruit and vegetables, to a subsequent meeting.

²⁵⁵oir/See Volume 23, Document 218.