Our Economic Relations with the United Kingdom

MR. HERMANT

Members and Guests of the Empire Club of Canada We are to hear an Address today by Mr. M. J. Coldwell, Member of Parliament for Rosetown-Biggar, Sask., the National President and Parliamentary Leader of the CoOperative Commonwealth Federation Party. Born and educated in England, Mr. Coldwell came to Canada in 1910, and has from that time to this devoted himself to Canada and the Empire through conspicuous Public Service. As a Teacher, voluntary Lay Reader, Alderman, Hospital Governor, Member of Parliament, and Party Leader, Mr. Coldwell has made a fine contribution to this Country. He was a delegate to the Empire Parliamentary Conference in London in 1941, and again in 1948. He was a member of the official Canadian Delegation to the San Francisco Conference in 1945, and a Canadian delegate to the United Nations Assembly in New York. The Empire Club of Canada, whose motto is "Canada and a United Empire", has no Party politics, and while we do not all share the political convictions of our Guest today we do feel that with men of his character and goodwill devoting themselves unselfishly to Public Service along with the intelligent and active interest of all men of all political Parties our heritage of Political Freedom and British justice is secure. It seems appropriate to quote the words of Winston Churchill when he was acknowledging Birthday Greetings from Prime Minister Attlee.

He said, "How far more great are all those sentiments which unite us than are the still quite important matters which are so often the occasion of debate". The subject of Mr. Coldwell's Address today is: "Our Economic Relations with the United Kingdom".

MR. COLDWELL:

No matter what the diversity of views may be regarding Canada's relationship with other commonwealth countries, a relationship which I believe the majority of the people are anxious to preserve, we must share grave misgivings concerning the economic problems which have arisen and which are crying aloud for solution.

The problems are those that affect Canada vitally, for, for almost a century, the Canadian economy has rested upon the assumption that we could find a market for our vast surpluses of food and many raw materials in the United Kingdom, while we could buy manufactured articles, raw cotton, citrus fruits and winter vegetable supplies from our great neighbour to the South.

We were able to do this because, prior to the two great wars, Great Britain had vast overseas resources from which she derived interest, or through such services as shipping, insurance, banking and so on, she was able to convert currencies she acquired into currencies she needed to purchase food and supplies in any parts of the world where they were available. So it was that she was able to purchase Canadian food and raw materials in vast quantities, in spite of the fact that we bought relatively little from her:

In other words--we were able to convert our sterling balances into dollars, or any other currencies we required, in order to get supplies we needed or desired from the United States and other countries, to which we sold far less than we bought from them.

And what was true of Canada was true, of course, of many other countries in the world because Britain was able to invest balances due her in assets from which she derived payment to her nationals, whether they were individuals or corporations.

To some extent Britain's overseas investments were liquidated during the first world war, but, in the second world war, not only were her assets largely liquidated and lost, but she accumulated debts, so that former debtor countries to her became her creditors.

This changed world situation had--and will I believe have--more particularly in the immediate future--a depressing effect on the Canadian economy.

We have, as I said in the House of Commons several years ago, a more vulnerable economy than almost any of the great trading countries because of the historic manner in which our economy has been built on the basis of triangular trade with the United States on the one hand, and the United Kingdom on the other.

Since the war one school of thought in Canada has promoted the idea that our future welfare lay in the direction of increasing our trade with the United States.

Unfortunately, in many respects, the main commodities upon which a large proportion of people depend, are competitive with United States producers.

If we take the number of people who are employed in a particular industry as the criterion, we shall find that agriculture is the industry upon which the largest number of Canadian citizens depend directly or indirectly, for their welfare and their prosperity.

It is this industry which is almost entirely dependent upon the United Kingdom market.

During the war our agricultural production was greatly expanded, particularly in certain aspects. We became the principal suppliers not only of wheat but of bacon, eggs, and other agricultural commodities.

This was made possible by the credits or gifts established for Britain and by the liquidation of assets formerly held by British nationals, in Canadian railways and other industries.

At the end of the war the British people faced a stupendous economic problem. They continued--and indeed increased--the austerity programme that had been inaugurated during the war.

They began not only to repair internal war damage in housing and in factories, but to replace obsolete machinery and build new industries in depressed areas to increase their production and their output.

Those of us who have followed the heroic attempt to rebuild the British economy have been deeply impressed with the success already attained. What is sometimes forgotten is that Marshall Aid received by the United Kingdom, has been almost entirely offset by British aid to India, Pakistan, Egypt, and indeed other countries including Western Germany.

This now is certain, that in the immediate future--and I expect for a number of years, Britain will have to buy where she can sell; in other words, obtain the necessary funds to purchase her supplies where she is able to send her goods or perform her services to obtain the necessary funds.

It will be seen, then, that Canadians must revise their views and trade policies, to meet a new situation.

Let me repeat what I have already said-that the prosperity of Canada, as a nation, is not only closely, but inextricably, linked with the United Kingdom economy.

Without that market for our vast surpluses of wheat, apples and other primary produce, our economy will be seriously depressed.

Those who have contended that we must find markets for Canadian goods in the United States must have been disillusioned recently--when our great neighbour to the South declared surplus, or put floor prices (which have the same effect) under nearly all agricultural products which we export in large quantities.

These include, of course, grains, bacon, pork, eggs, potatoes, and so on, all of which we have in surplus supply also.

Only those primary commodities derived from resources which the American people have exploited in the past, are now welcome in quantity in the United States.

These include forest products, iron ore and other minerals. Unlike agricultural products, once they are used they are not quickly replaced, and, in the end, their export may retard the development of our economy in the future.

Canada's relationship, then, economically, with the United Kingdom, is essential to the welfare of the present population of Canada, and, I believe, to the wellbeing of this nation in the years to come.

What then are the steps we must take to offset the difficulties that have arisen? Some, of course, are domestic and some international.

It seems to me that there are three primary steps which must be undertaken at government level:

First, and most important,--domestic consumption must be maintained and increased by planning for full employment and widely distributed purchasing power. This, however, to a great extent, depends upon the other two policies which seem to me to be necessary.

If we are to maintain our domestic economy at a reasonable level, the government cannot allow primary products to fall drastically in price.

Consequently, the maintenance of purchasing power on our farms and in our forest industries, may require the establishment of what we now call-floor prices.

This, however, is outside the scope of my address today.

The Third policy which comes under the head of my topic, is the necessity of Canada taking the initiative both at home and abroad to restore order in the realm of international marketing.

As I have already indicated, throughout the years our best and most reliable overseas market for exportable surplus has been the United Kingdom.

Obviously, at no time in their history, did they need to import food from Canada to a greater extent than at the present time. Their problem--and indeed our problem too--is to find ways and means of adjusting payments between us.

They have made and are making unusual attempts to find markets in Canada for goods that we can use. Their methods may be faulty, but these, I am glad to say, are something which groups of Canadian importers and United Kingdom exporters are endeavouring to improve.

I believe that the situation is far from hopeless and that solutions can be found. Undoubtedly, one of the principal barriers against the importation of British and sterling area goods is our Canadian tariff structure. If Canadian tariffs were lower, the United Kingdom could ship us more goods in payment for the primary products we have to sell.

But, unfortunately, instead of lowering tariffs against British imports since the end of the war, we have in several important instances raised them. When our government signed the Geneva Agreements just over two years ago, we accepted immediately the non-discriminatory features of the undertaking. That we need not have done in view of our trade position until at least one year later, and if, as it happened, the dollar sterling situation remained as it was, we could have obtained a further postponement of the coming into effect of the non-discriminatory clauses of the Agreement.

But, are the Canadian Government and the Canadian industrialists anxious to encourage British imports? One is inclined to doubt it when, for example, important expenditures by government-owned organizations are made in the United States for equipment that could be bought cheaper from the, United Kingdom.

A recent example is the purchase by the Canadian Broadcasting Corporation of equipment for television transmission in the United States without permitting the British who are, we are told, more advanced in television, to tender on the equipment. Examples of the same sort of thing have been appearing in American newspapers, reporting that contracts for electrical and other equipment obtainable in Britain at lower prices have been given to United States firms.

We are preaching to the British to increase their exports; we should practice what we preach by importing supplies and equipment which we can obtain economically from them.

Then in his 1948 budget speech the Minister of Finance announced that on July 1, 1949, the pre-war tariffs against British cotton and rayon piece-goods would be reimposed.

This was a sore blow to the British government which relies to a considerable extent upon the export of textiles to obtain necessary funds abroad, with which to buy food, raw materials and other supplies.

But the British were not slow in pointing out that the policies being pursued by Canada in these particulars were a very serious consequence.

There is no doubt that many of the goods which we are importing from the United States, we could get just as well, if not in some respects, better, from the United Kingdom.

We cannot expect under present circumstances to continue to sell to Britain three dollars worth of Canadian commodities for every dollar's worth of goods we accept in return.

I do not mean to imply that there can be a complete or absolute balance between our two countries therefore, it would, I believe, help to bridge the immediate gap if we accepted part-payment in sterling. It is improbable that this could happen under the present circumstances or any likely to arise in the near future.

That being the case some other method must be found of reconciling our accounts. Because of our habit of purchasing large quantities of goods in the United States, our policy has been geared to obtain dollars in payment for goods we exported to the United Kingdom and to other countries.

Instead of demanding payment in dollars, therefore, it would, I believe, help to bridge the immediate gap if we accepted part-payment in sterling.

This sterling could be used to buy some of the goods we shall need in the future from Britain's ever-increasing production, but what is much more feasible and important, it could also be used for Canadian investment in the sterling area.

The countries of South East Asia and the underdeveloped areas of Africa, controlled as they are by sterling area countries--and particularly by the United Kingdom--are trying to build up and expand their economies. They need machinery of all kinds. There is, therefore, no reason why Canada could not export to Britain foodstuffs and other commodities which we have in surplus supply to feed or house the British workers who would produce many of the machines needed in the under-developed areas.

Thus payment to Canada could be made in the form of capital investment in the under-developed areas. In this way each country could specialize in the kind of production for which it is best suited and at the same time help to build up the under-developed areas of the world. Thus we would assist the British people to obtain badly needed food and other supplies and at the same time assure Canadian producers of badly needed markets for the vast surpluses which otherwise will accumulate and be a burden to our economy. Not only will it be a burden to our economy but it will inevitably lead to drastic curtailment of purchasing power on our farms and to unemployment in our cities.

A plan of the description such as I have suggested, would not only be beneficial to Canadian economy but would secure for us the goodwill of old and new territories containing millions of potential customers for Canadian supplies.

You will, therefore, see that the proposal I am making does not involve the accumulation of frozen sterling balances which one day Britain or other Countries in the sterling area would have to redeem in dollars. If that were so, the proposal would be unacceptable to the British, whose spokesman, Mr. Harold Wilson, at the Food and Agricultural Conference last year stated--and I quote from his official text "the accumulation of large and growing amounts of inconvertible currency on the assumption that they would one day be made convertible" was a policy which he could not accept.

What I am suggesting is that sterling accepted as part-payment for Canadian exports should be used for investment purposes in the sterling area, or for payment for goods to be delivered as production increases in Britain. This latter proposal would, of course, not be practicable if there were no prospect of increased production in the United Kingdom, but production has been rising steadily as war damage has been repaired and will continue to rise as results of the present heavy capital expenditures in the country become apparent. This, however, is only one, and not the principal, part of my proposal.

British and American economists all agree that any attempt to bridge the dollar gap must include not only action to increase North American purchases of sterling goods but also to increase the flow of investment from North America to sterling areas, and more particularly to the under-developed regions of the sterling area. This point is too often ignored in a discussion of the subject in Canada, although, as I have already indicated, every responsible study of the situation has underlined its importance.

Last September the Washington Conference stressed the need for both public and private investments from the dollar area to the sterling area.

Quite recently at the meeting of the Commonwealth Foreign Ministers in Ceylon, this phase of our commonwealth relationships was underlined.

Indeed in the speech to which I have already referred, that of Mr. Harold Wilson, last September, the importance of international investment by Canada and the United States was emphasized, and I quote--"since it is one of the most hopeful and speediest means of increasing the flow of scarce currencies into the rest of the world."

Hence the suggestion I have made with respect to sterling balances being used for investment purposes is directly in line with the suggestions.

Let me emphasize that the United Kingdom is much better equipped than Canada to provide many types of capital goods required in other parts of the sterling area.

The Canadian economy, on the other hand, has been largely built on the provision of vast quantities of wheat and other food products, as well as other kinds of raw material for export abroad. Hence, part of Canada's contribution to the proposed flow of investment to the underdeveloped regions of the sterling area might well be the supplying of food, for example, to the British workers who are producing some of the needed capital goods.

The development of such arrangements would, of course, require agreement among the countries concerned, but what I am doing is trying to suggest some basis of discussion to enable us to maintain those economic relationships upon which I firmly believe the welfare and prosperity of our own country depends.

This is not a plea for aid to Britain. That is, if I may use a term which I hope you will not misunderstand, an incidental consideration to a Canadian interested in the welfare of his own country primarily. I believe, however, that if a solution along these lines can be worked out, it would be helpful both to the British people and would assure Canadian primary producers of badly needed markets.

One other point I think I should make is that I am not suggesting that the purchase of United States goods should be denied to Canadians. I suggest nothing of the kind.

I do suggest that our balance of payments to the United States is, under present world conditions, a burden which is becoming ever more difficult for Canada to bear. I suggest that there are some Canadian expenditures for United States products which could be curtailed without causing very much hardship to the Canadian public.

Then, of course, we could further restrict luxury travel to the United States. In November, 1947, the federal government imposed limited restrictions against imports from the United States.

In the year 1948, Canadian imports of restricted goods from the United States were approximately three hundred million dollars less than in 1947.

Even more substantial savings could have been made if our imports of alcoholic beverages, of raw furs and luxury goods had been curtailed--indeed these might have been substituted for some of the more essential things, like fresh winter vegetables, and thus removed some of the causes of dissatisfaction which the policy involved.

Of course I know that the objection to what I am suggesting is that such a policy involves certain government controls.

That is, of course, true, but if the choice has to be made between the institution of certain controls and a drastic reduction in farm purchasing power and an increase in unemployment, I believe the Canadian people would prefer intelligent and beneficial controls.

Canada's prosperity in the future as in the past, depends, in my opinion, upon our ability to trade as freely as we can with our best customer--the United Kingdom.

In so many respects our economy is competitive with that of United States. It is in the same respects complementary to that of the United Kingdom.

Apart altogether from sentiment, from the desirability of maintaining our commonwealth associations, our material and economic interests lie in maintaining and expanding our relationships with the United Kingdom.

To assume the maintenance and, indeed, the expansion of this vital economic relationship, must be, I believe, a primary purpose of public policy.