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A Year of the Canadian Trade Agreement

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THE Trade Agreement between the United States and Canada which became effective January 1, 1936, reversed a tariff policy that for a number of years had been curtailing commercial intercourse between the two countries. The essential features of this Agreement may be briefly outlined. Pledges were exchanged regarding the tariff principles to be applied in future to all trade between the two countries. Each promised to extend most-favored-nation treatment to the other's trade, that is to say, customs treatment equally favorable to that accorded any other foreign country. As a matter of fact, Canadian goods were entering the United States on these terms before the Agreement. Now, however, this favorable status is formally assured, for the Agreement automatically extends to Canadian goods any tariff reductions which the United States may make in subsequent trade agreements with other countries. Correspondingly, Canada guarantees that American goods will be charged the lowest rates imposed upon goods from any foreign nation. Previously, goods exported by the United States, alone among those coming from any important supplier of the Canadian market, had been subject to the highest general tariff rates.

Further, each country agreed to reduce the rates applicable to an extensive list of products regularly imported from the other. All of the many reductions made by the American Government represented changes in the general American tariff schedules, and the new rates are specifically set forth in the Agreement and "bound" against increase during its life. The Canadian tariff rates on imports from the United States were lowered in two ways. First, the Canadian intermediate tariff schedules were extended to all American products, in accordance with the most-favorednation principle. Secondly, designated reductions of rates were made upon a selected list of products important in the American export trade with Canada. Furthermore, these reduced duties were bound against increase during the Agreement's life. However, neither the promise of most-favored-nation treatment nor the pledge not to increase the Canadian rates applicable to specifically enumerated products is a safeguard against the grant of still lower preferential rates on the same commodities to the countries within the British Empire -- a matter given new significance by the negotiation of a new accord between Canada and the United Kingdom in 1937.

The reciprocal pledge against increasing designated rates covers many dutiable products on which the rates are moderate and, most important, it guarantees continued free entry for many commodities. The assurance of entry free of duty applies to many Canadian commodities for which the United States has habitually been the principal outlet and which accounted for about half of Canada's total exports to the United States before the Trade Agreement was signed.[i] Similarly, the guarantee of continued free entry into Canada for such commodities as cotton, rough lumber, low-priced traction engines, hides and skins, and lemons, has genuine commercial importance for the United States.

In addition, the Canadian Government agreed to modify its use of arbitrary valuations in the application of ad valorem duties to American products. This practice had severely burdened American exports because of the resulting high level of rates and the uncertainty as to what these rates would be. The significance of these changes in valuation practice was brought out in the speech which the Canadian Prime Minister delivered regarding the Agreement: "Not less important than the visible and conspicuous reductions in the rates of duty applicable to imported goods . . . has been the elimination of the arbitrary and often invisible interference of governmental agencies in the normal course of trade. We have canceled scores of arbitrary valuations, limited the scope of the application of the dumping duty to the protection of legitimate and substantial domestic interests. . . ." Lastly, by a supplementary promise, the Canadian Government arranged to grant Canadian residents a $100 tourist allowance similar to that which the United States tariff accords returning American travellers.

In a world marked by intense nationalism and efforts to achieve national self-sufficiency, these tariff revisions are almost without contemporary parallel. How high, nevertheless, the tariff barriers which still remain would have appeared in earlier periods! In the Reciprocity Agreement negotiated by President Taft in 1911, Canada and the United States each agreed to permit duty-free entry to almost all the principal agricultural products grown in the other country, except wool.

II

The course of trade from 1928 through 1936 between Canada and the United States, and between each of them and the rest of the world, is shown in the tables on the following page.[ii]

The great decline alike in the total trade of the United States and of Canada, as well as in the trade between them, during the period 1929-1933, reflects both the depression and the obstructive effects of rising tariff barriers. It will be noted that the total export and import trade of the United States with the whole world fell more markedly between 1928 and 1933 than did the foreign trade of Canada; and that subsequently the relative rise in Canada's total exports has been greater than our own, while the rise in the total imports of the United States has been relatively greater.

By 1933 the trade between the two countries had fallen to the lowest level since 1910, and, measured by money value, was less than one-third of what it had been in 1928. The greatest relative decline was in American exports to Canada: from 17.1 percent of our total exports in 1928, they had fallen to 12.3 percent by 1933. During the same time the share of the United States in Canada's total imports dropped from 67.6 to 54.2 percent. This exceptional decline in American exports to Canada was not caused solely by the higher Canadian tariff or by the increased preferences resulting from the Ottawa and other Agreements. A substantial portion of American exports to Canada consists of the capital goods which are purchased during a period of rising industrial activity, and the semi-luxuries likewise bought when times are good. The

I. CANADIAN-AMERICAN TRADE
(In millions of U. S. dollars)
1928 1929 1930 1931 1932 1933 1934 1935 1936
U. S. Exports
Exports of merchandise to Canada 862 902 628 378 228 198 287 308 369
  Percent of increase over previous
  year 45.0 7.3 19.8
Total merchandise exports 5030 5157 3781 2378 1576 1647 2100 2243 2416
  Percent of increase over previous
  year 27.6 7.0 7.5
Merchandise exports to Canada,
calculated as percentage of total
exports of U.S. merchandise 17.1 17.5 16.6 15.9 14.5 12.3 13.7 13.7 15.3
U. S. Imports
Imports for consumption from
Canada 489 503 402 266 174 185 227 286 378
  Percent of increase over previous
  year 22.7 26.0 32.0
Total imports for consumption 4091 4399 3061 2091 1323 1450 1636 2039 2421
  Percent of increase over previous
  year 13.0 24.6 18.9
Imports for consumption from
Canada, calculated as percentage
of total U. S. imports for consumption
11.8 11.5 13.1 12.7 13.1 12.8 13.9 14.0 15.6

II. CANADIAN-AMERICAN TRADE
(In millions of Canadian dollars)
1928 1929 1930 1931 1932 1933 1934 1935 1936
Canadian Exports
Exports of produce to U. S. 492 523 396 257 163 171 223 266 340
  Percent of increase over previous
  year 30.4 19.3 27.8
Total exports of produce 1350 1182 886 605 494 532 653 729 944
  Percent of increase over previous
  year 22.7 11.6 29.5
Canadian produce exports to
U. S., calculated as percentage of
total exports of Canadian produce 36.4 44.3 44.7 42.5 33.0 32.1 34.2 36.5 36.0
Canadian Imports
Imports for consumption from
U.S. 826 894 654 394 264 217 294 312 370
  Percent of increase over previous
  year 35.5 6.1 18.6
Total imports for consumption 1222 1299 1008 628 453 401 513 550 635
  Percent of increase over previous
  year 27.9 7.2 15.5
Imports for consumption from
U. S., calculated as percentage of
total Canadian imports for consumption
67.6 68.6 64.8 62.7 58.3 54.3 57.2 56.7 58.3

volume of American imports from Canada held up better than did American exports to the Dominion. Canada's share in our total imports rose from 11.8 percent in 1928 to 13.1 percent in 1933, though they represented a much reduced part of Canada's total exports. The trade that held up best was in products on the American free list, particularly pulpwood, woodpulp and newsprint.

Trade improvement between the two countries began in 1934 and has been continuous since then. The value of American merchandise exported to Canada rose from 198 million dollars in 1933 to 308 millions in 1935, reflecting Canada's general economic recovery. Similarly, our imports from Canada increased from 185 million dollars in 1933 to 287 millions in 1935 as a consequence not only of the improvement of economic conditions in the United States but also of the drought and the repeal of prohibition. Thus, before the Agreement went into effect at the beginning of 1936 the volume of trade in both directions had increased substantially from its low point in 1933.

III

The trade in each direction continued to increase during 1936, the first year of the Agreement. More significant, in so far as estimating the results of the Agreement is concerned, is the fact that during this year of world-wide commercial expansion the volume of trade between the two countries increased in greater ratio than did the volume of trade between either one of them and the rest of the world.

American exports to Canada in 1936 increased 19.8 percent over the previous year, whereas our total exports to all other countries rose only 5.8 percent. Similarly, in 1936 exports to Canada became 15.3 percent of our total export trade as compared with only 13.7 percent in 1934 and 1935. Furthermore, these American exports represented 58.3 percent of Canada's total imports. This was the highest share they had had (in the Canadian total) since 1931, though it was still much below the pre-depression level.

Our imports of Canadian merchandise rose 32 percent over the previous year and became 15.6 percent of our total imports, a notably greater part of the total than in any recent year. This increase was in about the same ratio as the expansion of Canadian exports to the whole world. It may be added that these calculations exclude large imports of gold from Canada, which may be regarded as a commodity movement.

Every feature of the record tends to show that the Trade Agreement made it possible for an increased volume of trade to move between the two countries and enabled each to participate more freely in the economic improvement occurring in both countries. Each became more important to the other as a market and as a source of supply for needed goods.

In order to understand more clearly the character and significance of this expansion in American-Canadian trade, let us examine it a little more in detail. In the following table American imports for consumption from Canada are divided according to their status under the Agreement:

III. UNITED STATES IMPORTS FROM CANADA
(In millions of U. S. dollars)
Increase Percentage
in value, of increase,
1936 over 1936 over
1935 1936 1935 1935
1. Adjusted total U. S. imports for consumption
from Canada, omitting special
items not within field of this analysis
(Items 2 and 5) 258.4 352.5 94.1 36
2. Total dutiable imports (Items 3 and 4) 108.3 173.5 65.2 60
   3. Dutiable imports on which duty
   was reduced 37.3 67.0 29.7 80
   4. Dutiable imports on which there
   was no duty reduction 71.1 106.5 35.4 50
5. Imports of commodities on free list
(Items 6 and 7) 150.1 178.9 28.8 19
   6. Bound on free list in Agreement 126.6 151.5 24.9 20
   7. Items on free list not so bound 23.4 27.4 4.0 17

After excluding from computation certain trade movements of a special character, we find an increase of 94 million dollars in our total imports for consumption from Canada during 1936. Significant in indicating the effect of the Agreement in stimulating trade is the fact that while total American imports increased only 36 percent, those which entered under the reduced duty grew by 80 percent. This total is composed of increases in the importation of many different products. We must note, too, that whiskey (age not less than four years) was the largest single item: its importation from Canada rose in value from 14 million to 28.3 million dollars, the result of special and probably temporary circumstances.

The significance of the duty reductions may seem somewhat lessened when it is noted that there was also a 50 percent increase in the importation of dutiable commodities on which rates had been left unchanged. This, however, is largely due to the increased imports of Canadian wheat, barley and rye. The trade in these three commodities, on which full and unchanged rates are paid, was stimulated by the drought. American imports of the three commodities rose during the year from 15.9 million dollars to 40.3 millions.

The increase of imports of commodities on the free list was only 19 percent -- less than the increase in the case of dutiable commodities. Of the total free list imports, amounting to about 179 million dollars in 1936, 123 millions represented newsprint paper, woodpulp and pulpwood; in fact, the increase in these three items made up most of the total increase.

Much controversy in the United States has centered about the reduction of the American duty on certain agricultural and forest products, imports of which subsequently increased. The commodities most frequently mentioned are cattle, lumber, cheddar cheese, seed potatoes and maple sugar, as well as a few items bound on the free list, notably red cedar shingles and newsprint. To appraise the Agreement primarily by its effects on the domestic economic position of a few small sectors of American production is to fall into the error originally responsible for the dislocation of American foreign trade. However, a detailed record of the importation of these commodities in 1935 and 1936 holds special interest. It is given in the following table:

IV. AMERICAN IMPORTS OF CERTAIN CANADIAN COMMODITIES
(In millions of U. S. dollars)
1935 1936 Increase
Cattle:
    700 lbs. or more each 3.6 7.2 3.6
    Less than 175 lbs. each (a) 0.8 --
Sawed boards, planks, deals and sawed timber (total) 8.6 13.2 4.6
    Soft woods
      Douglas fir and Western hemlock 1.3 2.4 1.1
      Spruce 3.6 5.9 2.3
      Pine 2.1 2.3 0.2
    Hardwoods 0.9 1.8 0.9
Cheddar cheese 0.1 1.5 1.4
Seed potatoes 0.1 0.7 0.6
Maple sugar 0.3 1.0 0.7
Red cedar shingles 7.4 6.1 -1.3
Newsprint 72.2 86.5 14.3
Woodpulp 22.8 27.2 4.4
Pulpwood 7.8 9.5 1.7
(a) No comparable figure for 1935 is available. Imports from Canada of all
cattle weighing less than 700 lbs. decreased $75,000 (from $1,592,000 in
1935 to $1,517,000 in 1936).

Now, the duty was lowered on three classes of cattle, though the reduction was applicable only to limited quotas. There are not sufficiently differentiated statistics available for us to be able to make a precise comparison between the number of cattle in these three classes imported in 1936 and in 1935. Even so, the total number in the classes in question coming from Canada during 1936 amounted to less than 1.2 percent of the Federal-inspected slaughter. Total imports of cattle from all countries in that year (whether of the classes included in the Canadian Agreement or not) amounted to 399,209 head. On a live weight basis, this represented only 2.1 percent of the Federal-inspected slaughter. In 1935 total imports amounted to 364,623 head, representing approximately 2 percent of the slaughter for that year. There is not space here to go into lengthy discussions of the statistical bases for all of our statements. It can be asserted, however, that the increase in American cattle imports, while sufficient to improve the lot of Canadian producers, had no significant effect upon the total income of American cattle producers. On particular days and in particular markets the imports doubtless had a minor price effect. But the general decline in cattle prices during the spring of 1936 was due primarily to the heavy domestic marketing. In the second half of the year the price recovered. No industry is affected more directly by the general economic condition of the country than cattle raising.

About cream, all that need be said is that the milk equivalent of the actual imports was negligible. It amounted to less than 1 percent of the total fluid milk production in the North Atlantic States, where practically all the cream imported from Canada is marketed.

In the case of cheddar cheese, however, imports increased tremendously -- from 730,000 to 10,870,000 pounds. This enlarged importation was nevertheless only about 2.2 percent of domestic production; in August, the month when the ratio of imports to domestic production was highest, it was 5.3 percent. What happened was this. The rising consumption and the high prices prevailing at the end of 1935 both augmented domestic sales and attracted enlarged imports. First the price declined seasonally; then it recovered, notwithstanding the import movement in the summer months. The average annual price, which had been 14.3 cents in 1935, rose to 15.3 cents in 1936, while the gross income of the American producers of cheddar cheese rose from 67 million dollars to 75 million.

The case of maple sugar and maple syrup farmers cannot be discussed with the same statistical certainty. The duty was cut on maple sugar, but not on maple syrup. Maple sugar imports more than tripled (reaching almost a million dollars); maple syrup imports almost ceased. The combined imports of maple sugar and syrup equal about one-quarter of the domestic production. The combined domestic production of the two fell. It is uncertain whether the primary cause of the increased import movement was the duty reduction, or the coincidence of increased Canadian production of maple sugar at a period when the weather was unfavorable to the flow of sap in the American producing areas. The only published prices available ("Crops and Markets," Department of Agriculture) show the price to be virtually the same in 1936 as in 1935.

In regard to seed potatoes also, a summary statement must suffice. Imports increased substantially, approximating 6.6 percent of domestic production; the quota was almost filled. But these imports were attracted to an American market where the price of all potatoes was favorable. The domestic production of seed potatoes was greater than in any year except 1935, even though many American producers were led to sell their potatoes for consumption due to the exceptionally high prices which prevailed in the domestic market during the early part of the year.

Imported lumber from Canada must pay both tariff duty and import excise tax. The reductions made in the combined tax on certain species of Canadian softwoods and hardwoods left them still well protected; and in the case of Douglas fir and Western hemlock the amounts that could be imported were limited to about 5 percent of domestic consumption over the past few years (only half of this quota was filled in 1936). Here again our statement must be summary. During 1936 American lumber imports from Canada of both softwoods and hardwoods increased substantially, and at a more rapid rate than domestic production. The total imports nevertheless remained only a minor fraction of the domestic production -- about 2.4 percent in the case of Douglas fir and Western hemlock, less than 1 percent in the case of pine, and about 1.3 percent in the hardwood group. Spruce is the exception: imports are in a high ratio to American output, which has been declining since 1909, primarily because of the dwindling of our spruce resources. Higher prices, along with an expansion of domestic production, suggest that the income of the American lumber industry as a whole improved in 1936. The least that can be said is that it was not grievously injured by the enlarged imports. The availability of Canadian supplies at moderate prices can properly be looked upon as a useful stimulant to activity in the construction of houses. It should be observed also that the United States exports substantial quantities of hardwoods (and some softwoods) to Canada and other parts of the world.

Two forest products that were bound on the American free list by the Canadian Agreement have attracted special interest: red cedar shingles, and newsprint, woodpulp and pulpwood. In recent years we have imported from Canada a substantial part of our total supply of red cedar shingles: their quality is good and our domestic stands of higher-grade cedar are limited. In 1934, under the N. R. A., an agreement was worked out with the Canadian producers for limiting imports from Canada to 25 percent of our current consumption. The right to apply a similar limit was reserved under the Agreement. Total imports in 1936 were less than they had been in 1935. But in anticipation of heavy importation, legislation was passed which made the imposition of a quota mandatory for the first half of 1937. The limitation may prove to be unwisely rigid, judged by American requirements.

The retention of newsprint, woodpulp and pulpwood on the free list is primarily explained by our wish for cheap paper for printing and the comparative scarcity of our own supplies (although the development of Southern pine may be an important new factor). These items make up our largest single import from Canada. Since the turn of the century Canada has supplied an increasing proportion of the newsprint and pulpwood consumed in the United States. During the decade 1923-1933 the trend of newsprint and pulp prices was sharply downward; and with the great shrinkage of newsprint consumption after 1929, the earnings of the industry were cut severely. However, since 1933 prices have risen from $40 to $42.50 per ton (further increases to about $50 for 1938 contracts have been announced), and the combined output of the two countries has expanded substantially. Although the increase in production has taken place almost entirely in Canadian plants, the considerable American capital invested in the Canadian industry means that the fruits of this expansion have fallen on both sides of the border.

So much for Canadian imports into the United States. Let us now examine the situation in reverse. How has the Agreement affected American exports to Canada? The following table indicates the extent to which the increased American export movement consisted of goods on which Canadian duties were reduced.

V. CANADIAN IMPORTS OF AMERICAN MERCHANDISE
(In millions of Canadian dollars)
Increase Percentage
of value, of increase,
1936 over 1936 over
1935 1936 1935 1935
Adjusted total Canadian imports, for consumption,
of American merchandise 296.5 354.9 58.4 19.7
   (a) Imports of commodities on which
   duty was reduced 119.5 155.7 36.2 30.2
   (b) Imports of commodities on which
   duty was not reduced 177.0 199.2 22.2 12.5

As there was a 30.2 percent increase in imports entering under reduced duty and a 12.5 increase of all other imports from the United States, it seems reasonable to attribute a substantial part of this result to the Agreement. Canada's enlarged importation of American goods on which the duty had been reduced was distributed among all groups of commodities. Making up almost half the total were iron and steel products, which grew by 27.3 percent, reflecting not only duty reductions but also expanded Canadian demand for capital goods. The increase in the importation of American agricultural products on which duties had been reduced was 32.5 percent (16.1 million dollars in 1936 as compared with 12.2 millions in 1935).

The movement of American agricultural products to Canada has aroused considerable interest. It has therefore seemed worth while to elucidate the question in more statistical detail in the following table.

VI. CANADIAN IMPORTS OF AMERICAN AGRICULTURAL AND NON-AGRICULTURAL PRODUCTS
(In millions of Canadian dollars)
Increase Percentage
in value, of increase,
1936 over 1936 over
1935 1936 1935 1935
Adjusted total Canadian imports, for consumption,
of American merchandise 296.5 354.9 58.4 19.7
   (a) American agricultural products
   (vegetable and animal) 46.5 55.9 9.4 20.0
   (b) American non-agricultural products
250.0 299.0 49.0 19.6

VII. CANADIAN IMPORTS OF AMERICAN AGRICULTURAL PRODUCTS
(In millions of Canadian dollars)
Increase Percentage
in value, of increase,
1936 over 1936 over
1935 1936 1935 1935
Canadian imports of U. S. agricultural products
on which duties were reduced 12.2 16.1 3.9 32.5
Canadian imports of U. S. agricultural products,
tariff treatment of which was bound
under the Agreement 18.7 23.5 4.8 25.6
  Of which raw cotton and linters 15.2 19.0 3.8 25.3
Imports of American agricultural products
not dealt with in the Agreement 15.4 15.2 -0.2 -1.3
      Total 46.3 54.8 8.5 18.4

Among the dutiable imports, oranges and other fresh fruits, tomatoes, lettuce and other fresh vegetables (with a total value of 2½ million dollars) accounted for the most important increases. Moderate expansion took place in fishery products and in fur and fur products. The enlarged Canadian imports of iron and steel products ranged all the way from heavy machinery (the increase of mining and metal-working machinery being particularly important) to minor manufactures, such as bolts and rivets. There was a moderate growth in the import of American automobiles, engines and parts; and the duty revisions caused some shift from the purchase of parts to the purchase of automobiles. Other imports which registered important increases were newspapers and periodicals, electrical apparatus, radio apparatus, cotton manufactures, glass and glass products, and particularly traction engines for farm use, on which the tariff rate was only bound, not reduced.

IV

In the negotiations preceding the Agreement each country naturally sought to secure improved tariff treatment primarily for those of its commodities which it had reason to believe, judging by experience and competitive ability, it could sell in other country's markets. However, both countries extended the reduced rates to the trade of all other countries with which they have most-favored-nation relations.

The following table shows the extent to which the trade of other countries with the United States and Canada has grown in those particular products on which the duty was lowered by the Canadian-American Agreement (although other factors besides the Agreement were of course involved):

VIII. UNITED STATES AND CANADIAN IMPORTS OF PRODUCTS ON WHICH DUTIES WERE REDUCED
(In millions of U. S. dollars)
Percentage
1935 1936 increase
United States imports
    U. S. imports of commodities from
    Canada on which duties were reduced 35.1 64.7 84.2
    Same, excluding whiskey 21.1 36.4 72.4
    Total U. S. imports of same commodities
    from all other countries (i.e., excluding
    Canada) 15.3 31.5 106.1
    Same, excluding whiskey 3.1 4.1 32.3
Canadian imports
    Canadian imports of commodities from
    U. S. on which duty was reduced 119.5 155.7 30.3
    Canadian imports of same commodities
    from all other countries (i.e., excluding
    U.S.) 94.3 109.4 16.1

This table shows that the reduction of duties facilitated not only the direct trade between the two countries, but also the trade of each with the outside world. There was greater expansion in our imports from the rest of the world of commodities unaffected by the Agreement, particularly free list commodities, than of commodities on which American duties were cut. This shows the extent to which the commodities selected for reduction were those primarily purchased from Canada.

That other countries should share somewhat in the enlarged trade created by the Agreement was, as already remarked, part of the original design of the negotiators. In international trade (as in domestic trade), those able to produce and sell more tend in general to buy more -- a tendency much impeded, however, by contemporary restrictions. Further, each country expects its trade with the outside world to benefit reciprocally from the protection given by the rule of equality. It can be definitely asserted that the generalization of the reductions granted has not lessened the value of the Agreement to either country.

V

In this connection, some misgivings have arisen in the United States as a result of certain developments in Canada's commercial relations with other countries subsequent to the signature of the Agreement. The first such development was Canada's negotiation of a trade agreement and payments arrangement with Germany, effective in November 1936. This arrangement provided for the reciprocal grant of unconditional-most-favorednation treatment in regard to customs duties. However, since Canadian exports to Germany had fallen decidedly below Canada's purchases of German goods -- largely as a result of Germany's restrictions on the granting of exchange for the purchase of Canadian goods -- the Canadian Government concluded a payments arrangement at the same time. Under the terms of this, the German Government becomes pledged to use all the proceeds from the sale of German goods in Canada for the purchase of Canadian goods; and further definite percentages of the available exchange are allocated to specified Canadian goods, among which wheat and apples are important.

This arrangement departs from the principle underlying the Canadian-American Agreement. It in fact represents an adjustment to the type of bilateral trade arrangement common in Europe today. It may put other countries, including the United States, at a competitive disadvantage in selling in Germany, especially because it designates particular Canadian commodities for which exchange is to be provided. Whether or not the Canadian-German Agreement will also work in the long run to affect the competitive position of American goods in the Canadian market unfavorably, as compared with German goods, is difficult to forecast. The recent decision of the Canadian Government to put the value of the mark for duty purposes at 32 cents instead of at the official rate of 40 cents may facilitate some such development. If the employment by Canada of this type of accord should adversely affect the American position in the Canadian market, the ultimate result would be to invalidate the basis of equality presumably underlying the Agreement.

Of greater moment was the new trade agreement negotiated between Canada and the United Kingdom in February 1937, representing a revision of the Ottawa Accord of 1932. This new agreement has important bearings on the course of American trade with Canada, the United Kingdom and other parts of the British Empire. It also may be indicative of the future course of imperial preference policy. There is little doubt that the British and Canadian Governments sincerely endeavored to safeguard and expand their trade relations in a way consonant with the general development of world trade. The terms of the Ottawa Accord of 1932 provided for widespread increases of tariff duties applicable to trade with the outside world. In contrast, the new 1937 agreement is aimed primarily at reducing duties between Great Britain and Canada, and does not increase the level of tariffs applicable to goods from elsewhere. Still, analysis shows that by enlarging many preferences, it does create new trade disadvantages for outside countries, including the United States.

The United Kingdom continued to guarantee a preferred place on the British market to many Canadian products, especially agricultural. This preference is embodied in a pledge to maintain the present free list on Canadian products, and a promise that the designated margin of preferences on 21 important items will not be lessened (i. e., British duties applicable to these items coming from outside the Empire cannot be reduced). The 21 items include wheat, butter, copper, timber, apples and tobacco. The list was extended to include some items on which the preference had not hitherto been bound, and in the export of some of which the United States is interested. This list of assured preferences handicaps American products competing in Great Britain.

The Canadian Government in return lowered many of the duties in its preferential tariff applicable to British goods, and pledged itself to maintain many margins of preference. These duty reductions covered 179 tariff items. Among them were many on which American goods compete in the Canadian market, notably the manufactures of iron and steel, paper, textile and leather products, and machinery. In fact, during 1935 Canadian imports of these products from the United States amounted to over 28 million dollars (being 9 percent of total Canadian imports from this country), as compared with imports from the United Kingdom of $27,900,000 (24 percent of the imports from the United Kingdom). The increase of preference is likely to divert some Canadian trade from the United States to the United Kingdom, although experience indicates that in many of the fields in question American producers can overcome even a substantial preference. In selecting the items on which the margin of preference was enlarged, the Canadian Government made a definite effort to select commodities other than those dealt with in the Canadian-American Agreement. Yet it is to be noted that 21 of the items were specifically included in Schedule I of the Agreement with the United States, and that in 1935 Canadian imports of these 21 items were predominantly from the United States. Further, in the case of 7 of these 21 items, the new margin of preference is higher than before the Canadian-American Agreement, though only by small amounts.

By way of a potential offset, Canada regained its freedom of tariff action in regard to many products on which the margin of preference had been fixed under the original Ottawa Accord. The number of items so bound was reduced from 215 to 91. Nevertheless, among these are many products important in the American export trade to Canada, including iron and steel products, many types of machinery, chemicals, glass and anthracite coal.

Whether this accord will result in diverting or eliminating any substantial part of the American export trade to Canada, especially in items which figure in the Trade Agreement with the United States and for which counter-concessions were reckoned, events will decide better than conjecture. Certainly, if Canada wishes its trade relations with the outside world to continue to develop, it will have to restrict the extent to which it shapes its trade along Empire lines on the basis of preferential tariffs. The strength of the tendency in that direction in recent years is shown in the following table:

IX. SHARES OF BRITISH EMPIRE COUNTRIES AND OF FOREIGN COUNTRIES IN TOTAL CANADIAN IMPORTS AND EXPORTS, 1930-1936
Percentage of Total Imports Percentage of Total Exports
Empire Foreign Empire Foreign
1936 30 70 51 49
1935 32 68 52 48
1934 31 69 51 49
1933 33 67 48 52
1930 23 77 36 64

Nor is conjecture useful on the question of whether the new British-Canadian accord will turn out to be an unmanageable obstacle to the negotiation of a trade agreement between the United States and the United Kingdom. An opportunity undoubtedly exists to enlarge the trade between the United States and the different parts of the British Commonwealth. Even in 1936 this trade exceeded a half billion dollars in each direction, being roughly in balance. The decisive preferences which now stand in the way of the export of American agricultural products to the United Kingdom must certainly be a matter of serious concern to the negotiators; opportunity for American agricultural producers to enter British markets at no decisive disadvantage would appear to be a prerequisite to agreement. In any event, the modification of existing preferences will require agreement between the governments of the United Kingdom and the Dominions.

VI

This article has examined the trade results of the Canadian-American Agreement. Both Governments had in mind other aims aside from the stimulation of mutually profitable trade between their two countries. In their hopes the Agreement was but one step in a program of negotiation with the whole world for a general lowering of tariff barriers and the advancement of international economic coöperation and amity. Both Governments can proceed with other steps in accomplishing that general program reassured by a knowledge that the Canadian-American Agreement has had beneficial results.

[i]E.g., pulpwood, woodpulp, newsprint paper, crude asbestos, nickel, crude gypsum, undressed furs, and various kinds of fish.

[ii] To give the reader a complete and exact understanding of the statistical corrections and refinements of the original statistical material utilized in preparing these and subsequent tables, very lengthy annotated footnote explanations would be required. Rather than confuse the reader by giving a necessarily inadequate account, such annotations have been omitted entirely. Divergences will be observed between some of the totals given in the records of American trade as drawn from United States official statistics and those of Canadian trade as drawn from the Canadian official statistics. These result from at least a dozen separate differences in the scope and nature of the statistical material. Similarly, divergences will be observed between some of the figures given in these tables and some appearing in the subordinate tables presented further on. The reasons for these divergences are also many and complex. On the whole, the figures given in the subordinate tables are relatively exact in regard to the matters they cover. In dealing with specific questions it was possible to make certain adjustments which could not be made in the general tables without making the composite statistical impression more inexact.

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