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NOTES AND MEMORANDA

THE CANADIAN PREFERENTIAL TARIFF.

The Canadian Preferential Tariff has now been in operation for three years; and since it is likely to be a permanent policy, a consideration of its effect on the volume and direction of trade is a matter of some importance. From the point of view which mainly interests the English producer, the policy is permanent; for, though the preference is an issue in the electoral campaign which is going on at the time of writing, the issue is not whether the preference shall be maintained or withdrawn, but whether the existing preference shall be made a means of extorting from the English consumer a reciprocal preference for the Canadian producer. The parties differ with regard to the methods; they are agreed with regard to the fact of the preference. While the Conservative party claims that the method in which the Liberals gave the preference rendered it more difficult to gain the desired reciprocal concession, yet they accept the accomplished fact; and, in the present state of public sentiment in Canada, no party could, or would, do otherwise. 1

The policy which was inaugurated in 1897 has undergone several changes. The original device, which was perhaps not seriously in

. tended, though it was vehemently defended, was of the nature of a maximum and minimum tariff in terms of which the United Kingdom was, for favours past, at once to receive the benefit of the minimum schedule. The Ministers of the Crown made great efforts to show that their proposal was not an Imperial preference, which would admittedly have conflicted with the obnoxious Belgian and German treaties, but was open to all nations which chose to accept Canada's terms; and under criticism they became more and more positive in their assertions that their policy could not be said to be in conflict with the treaties because “ the offer we now make is not a preferential offer at all in the true and legal sense of the word. That offer is open to all the world .... We exclude no nation."

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1 Hon. Geo. E. Foster, Can. H. of C., March 27, 1900.

Sir R. Cartwright, Can. Hansard, 1897, pp. 1,244-45.

The actual writing of the preferential clauses bears out this contention. The preference was to be extended to all countries which admit the products of Canada on terms which, on the whole, are as favourable to Canada as the terms of the reciprocal tariff herein referred to are to the countries to which it may applyCanada reserving to herself the sole right of determining what were " favourable terms." The Finance Minister, in submitting the project, said : “We propose to adopt a general tariff and then we propose to adopt a special tariff having reference to the countries which are desirous of trading with us; and as a matter of course, not by the express words of the resolution, but by the condition of affairs which exists, that preferential tariff gives preference, above all others, to the products of Great Britain." 1 But it was not an exclusively Imperial preference, for Holland and Japan as well as British India and New South Wales received the benefits of this special minimum tariff along with the United Kingdom.

Whether the Canadian contention was right or wrong regarding the applicability of the treaties, the Imperial Government settled the question by denouncing the treaties and therefore admitted to reciprocal benefits all nations having the advantage of a most favoured nation clause. And for the fiscal year ending June 30th, 1898, the state of matters was as follows. Countries admitted by the reciprocal character of their tariffs : New South Wales, British India, Japan, and the Netherlands, and, of course, the United Kingdom.

Countries admitted under the Belgian and German treaties : Belgium and Germany.

Countries admitted under the most favoured nation clause in their treaties: Austria and nineteen others.

Whether the reciprocal offer was ever honestly made to all countries remains in an obscurity which the language of the Finance Minister in 1898 does not clear up. Holland during the year actually received the benefit of the minimum schedule; but whether, by right, under the reciprocal clause, or by the Imperial Government's decision under the most favoured nation clauses, is not clear. The point was raised in debate whether the admission of Holland under the reciprocal clause would not, in virtue of the most favoured nation clauses, have justified Austria and the nineteen others in claiming the same reduction; and Mr. Fielding did not answer the question except by saying, “We could easily have refused to admit Holland,” Canada being the judge when terms were favourable. If the reciprocal clauses of 1897 had been a policy, and not an argumentative expedient, this statement could hardly have been made.

In 1898 the policy entered on a new phase. The international offer disappears and a straight preferential clause confining the concession to countries within the Empire takes its place. During the first year there was no real preference. The 12 per cent. reduction was shared

i Can, Hansard, 1897, p. 1,110.

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by nearly every country except the United States; as against the United States the United Kingdom has had a preference from the beginning. But the twenty-five per cent. preference was not to be shared with any industrial competitor. British India and New South Wales were again included ; and the preference could be extended to any other colony when Canada was convinced that its customs tariff "was, on the whole, as favourable to Canada as the British preferential tariff herein referred to is to such colony or possession." The privilege was also extended to the West Indies, not by right, but as an effort to remedy the economic distress of these islands. " It has occurred to us," said Mr. Fielding, “ that we should be willing, in a small way, to lend a helping hand to these colonies in the sunny south. If we adhere too rigidly to the underlying feature of our preferential, I am afraid we shall have to admit that the terms of the tariff of the West Indies are not favourable to us; and perhaps we could not by a mere reciprocal clause extend the preferential tariff to the West Indies.” But whatever the terms, the West Indies were included.1

In 1900 the preference, as applied to these parts of the Empire, was, for no very obvious reason, except perhaps that suggested by Sir Richard Cartwright in 1897, that the principle "would lead us further," increased to 33} per cent. : and at that figure it remains, and is likely to remain, unless it is further increased.

The result of this preference to British trade is not quite clear; but it certainly is not what it was expected to be. Those who were responsible for the policy made no ventures in the realms of prophecy. The Finance Minister declared that he could form no estimate of its effect on the revenue of Canada; and as far as I have been able to discover, only one responsible Minister ventured a prediction ; which, however, time has signally failed to establish. Sir Richard Cartwright said :

“I altogether mistake the quality and temper of English manufacturers if free trade England, with from six to ten points in her favour, will not be able to drive American cotton manufacturers out of the market.” 2

As a matter of fact the American manufacturer has not been driven from the market. On the contrary he has increased his sales and increased them at a greater rate than his English competitor. The English cotton manufacturer with the preference has sold 20 per cent. more: the American without a preference has sold 70 per cent.

But whatever the official caution in the matter of prediction, public opinion anticipated the capture of the Canadian market from the foreigner by the British exporter; and it was a matter of regret, as well as of surprise, when the trade figures showed that the English manufacturer was not even holding his own. It is true that imports from the United Kingdom have increased, but they have not increased so fast as the general import trade of Canada. The public does not

I Can. Hansard, 1898, p. 3,150. 2 Can. Hansard, 1897, p. 1,238.

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understand the fallacy that so often lurks under percentages, and could not, therefore, appreciate the fact that a ten per cent. increase in the imports from the United Kingdom might be more important than an increase of 151 per cent. in the imports from Belgium or of 107 per cent. in the imports from South America. And according to the measure of the anticipation was the sense of disappointment at the result--a feeling of which the Canadian Opposition naturally took advantage to denounce the preference as a fraudulent concession that had no practical effect in increasing importations from the Mother Country.

With regard to the preference to the West Indies there is no difficulty. There it has, admittedly, been of little effect, because, admittedly, it was too small to affect the situation. A preference of 25 per cent. could be little inducement to the West Indian planters, while they had a practical preference of 35 per cent. in the nearer market of the United States, because their sugar was not bounty grown. With regard to British India and New South Wales, the volume of their exports to Canada affected by the preference is so small that many other causes or accidents might affect the trade more than the preference could do. The effect of the preference on imports from the United Kingdom requires more careful consideration. Comparison of total imports with total imports can give no conclusion because the preference does not, and cannot, affect goods which are imported free of duty. Canada imports 64 millions worth of goods free of dutyconsiderably more than a third of her total importations. It so happens that these free goods are mainly raw materials of her industries, and these are derived chiefly from the United States. There has been in Canada a great industrial revival during the last few years, and every evidence goes to show that Canada, to the measure of her capacity, has shared in the general prosperity of the industrial world. The volume of the imports from the United States has been enormously increased in this way; and no legitimate conclusion can be drawn from a comparison of the total imports from the United States and the total imports from the United Kingdom.

In the following tables a separation is made between dutiable imports and free imports from certain of the preferred countries and from certain other countries whose conditions are somewhat similar, An average has been taken for the imports for the three years 1894–96; and the year 1897, which was, owing to the change of government and a possible change of trade policy, an exceptional year, has been omitted from the comparison. The year 1898 was the first completed preference year, but it must be remembered that the preference of 12 per cent. was shared by almost all countries except the United States. The figures for 1900 are not available.

The field of investigation must be further limited before an accurate comparison can be made. It would lead to nothing but misunderstanding to compare the percentage of increase of the imports from

IMPORTS (FOR CONSUMPTION) INTO CANADA FROM PREFERRED COUNTRIES AND

CERTAIN OTHERS, FOR YEARS 1894-96, 1898, 1899 (000's OMITTED).

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the United States with the percentage for British Guiana. Accordingly, the three countries from which Canada chiefly derives her imports are singled out for comparison, and all others are grouped together under the one heading " other countries." With reference to the distinction between imports under the general tariff, and imports under the preferential clauses from the United Kingdom, it is to be remembered that all British imports receive the benefit of the preference. Spirits, malt liquors, tobacco, and all articles of whatever character, “into the production of which there has not entered a substantial portion of the labour” (sic) of the United Kingdom are imported under the general tariff and receive no preference.

In the following table the basis of comparison is as before the annual average of the three years 1894-96, the year 1897 being omitted as above.

These results are somewhat surprising and might bring joy to the heart of the militant free-trader. A preference of twenty-five per cent. not only does not give the market to the preferred country, but seems to act as a blight on its trade. The United Kingdom does indeed share in the general expansion of Canadian imports, but its share of the increase is by no means proportional to that obtained by countries which have no preference. Germany was, it is true, on the same footing as the United Kingdom during the first year; but its trade increased faster after it had been reduced to the non-preferred list. As against the United States the preference was in force from the beginning. But that is not all. The importations of free goods from the United Kingdom increase slightly faster than the imports of dutiable goods; and, what is strangest of all, the imports of goods which have no preference, although dutiable, increase much faster than the imports of goods which have the advantage of a preference.

1 Can. Hansard, 1898, p. 3,158.

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