Ottawa

The Hawley—Smoot Tariff Act occupied most of the time of Congress for a year and a half (Smith, 1936, p. 177). Empire preference was the major issue in Canadian politics for more than half a century (Drummond, 1975, p. 378). The Imperial Economic Policy Cabinet worried more about tariffs than about any other issue (ibid., p. 426), though much of it dealt with objectively insignificant goods (Drummond, 1972, p. 25). Drummond several times expresses the opinion that the Ottawa discussions in the summer of 1932 should have abandoned the question of tariff preferences and focused on monetary policy, and especially exchange-rate policy. In fact Prime Minister Bennett of Canada sought to raise the issue of the sterling exchange rate prior to Ottawa only to be rebuffed by Neville Chamberlain with the statement that the Treasury could not admit the Dominions to the management of sterling. Canada did succeed in getting exchange rates put on the Ottawa agenda, but the Treasury insisted that the question was minor and nothing came of it (Drummond, 1975, pp. 214–16).

Monetary policy and tariff policy were occasionally complements, occasionally substitutes. The Macmillan Committee report contained an addendum, no. 1, by Ernest Bevin, J.M. Keynes, R. McKenna and three others recommending import duties, and, in so far as existing treaties permitted, a bounty on exports, the combination being put

forward as a substitute for devaluation of sterling (Committee on Finance and Industry, 1931). In the event, the United Kingdom undertook both depreciation of sterling and the imposition of import duties.

Sterling left the gold standard on September 21, 1931 and depreciated rapidly from $4.86 to a low of $3.25 in December, a depreciation of 30 percent. Canada and South Africa adopted anti-dumping duties against British goods. On its side, the United Kingdom enacted an Abnormal Importations Act on November 20, 1931 that gave the Board of Trade the right to impose duties of up to 100 percent as a means of stopping a short-run scramble to ship goods to the United Kingdom before the exchange rate depreciated further. While 100 percent tariffs were authorized, tariffs of only 50 percent were imposed. This Act was followed in a few weeks by a similar Horticultural Products Act. Both the Abnormal Importations Act and the Horticultural Products Act exempted the Empire from their provisions (Kreider, 1943, p. 20).

In the Christmas recess of Parliament, Lord Runciman, President of the Board of Trade, persuaded Chamberlain to take up protection as a long-run policy, as had been recommended by Keynes and the Macmillan Committee, prior to the September depreciation, and opposed by Beveridge (1931), since without tariffs, the United Kingdom had nothing to exchange with the Dominions for preferences in their markets. The resultant Import Duties Act of February 1932 established a 10 percent duty on a wide number of imported products — but not copper, wheat, or meat — and created an Import Duties Advisory board, charged with recommending increases in particular duties above the flat 10 percent level. At the last minute a concession was made to the Dominions and colonies. The latter were entirely exempted from the increase, and the former were granted exemption until November 1932, by which time it was expected that mutually satisfactory arrangements for preferences would have been reached. Eighteen countries responded to the Import Duties Act by asking the United Kingdom to undertake negotiations for mutual reductions. The reply was universally negative on the grounds that it was first necessary to arrive at understandings with the Empire (Condliffe, 1940, pp. 300–8). In the spring of 1932, the Import Duties Advisory Board was hard at work raising duties above the 10 percent level, with the notable increase in iron and steel products to 33 1/3 percent. Three years later in March 1935 the iron and steel duties were increased to 50 percent in order to assist the British industry in negotiating a satisfactory basis with the European iron and steel cartel (Hexner, 1946, p. 118).

Imperial economic conferences held in 1923, 1926, and 1930 had all broken down on the failure of the United Kingdom to raise tariffs which

would have put her in a position to extend preferences to the Empire. Substitute assistance in the form of arrangements for Empire settlement or Empire marketing boards failed to produce significant effects on either migration or trade. British bulk-purchase schemes sought especially by Australia had been halted as early as 1922 and had not been resumed. Hopes were high for the Imperial Economic Conference of 1932 in Ottawa which now had British tariffs to work with.

Canada cared about wheat, butter, cheese, bacon, lamb, and apples; Australia about wheat, chilled meat, butter, cheese, currants, dried fruits, and canned fruits; South Africa about wine and dried and canned fruits; New Zealand about butter and mutton. The position differed in those commodities that the Dominions produced in greater amounts than the United Kingdom could absorb, like wheat, in which diversion of Dominion supplies to the United Kingdom from third markets would produce an offsetting increase in non-Dominion sales in non-British markets and leave Dominion export prices overall unchanged, from those in which the United Kingdom depended upon both Dominion and foreign sources of supply, among the latter notably Argentina in meat, Denmark in butter, Greece in dried currants and raisins, and, it would like to think, the United States in apples. Trade diversion from foreign to Dominion sources was possible in this latter group, but only at some cost in British goodwill in the indicated import markets. On this score, the United Kingdom was obliged to negotiate at Ottawa with an uneasy glance over its shoulder.

A significant Dominion manufacture, as opposed to agricultural product, which had earlier received preference in the British market, in 1919 under the McKenna duties, was motor cars. This preference had led to the establishment of tariff factories in Canada, owned and operated by United States manufacturers. Its extension in the Ottawa agreement led to the unhappy necessity of defining more precisely what a Canadian manufactured motor car consisted of, and whether United States-made motor parts merely assembled in Canada qualified as Canadian motor cars.

In exchange for concessions in primary products in the British market, the United Kingdom expected to get reductions in Dominion duties on her manufactures. But it proved impossible at Ottawa to fix levels of Dominion tariffs on British goods. Instead, the Dominions undertook to instruct their respective tariff boards to adjust the British preference tariff to that level which would make British producers competitive with domestic industry. Resting on the notion of horizontal supply curves, rather than the more usually hypothesized and far more realistic upward-sloping curves, the concept was clearly unworkable and gave rise to unending contention. It was abandoned in 1936.

Argentina, Denmark, Greece, Norway, and Sweden were not content to yield their positions in the British market without a struggle. Even before the Import Duties Act had taken effect, Denmark in January 1932 legislated preferences favouring Britain, and on raw materials used in manufactured exports. By June 1932, total imports had been reduced 30 to 40 percent, but import permits issued for British goods allowed for a 15 percent increase (Gordon, 1941, p.80). In similar fashion, Uruguay undertook to discriminate in the allocation of import licences in favour of countries that bought from her. The threat to discriminate against the United Kingdom was clear. Quickly after Ottawa, British customers pressed to take up negotiations postponed from early 1932 and to settle the extent to which Ottawa would be allowed to squeeze them out of the British market.

In the Roca—Runciman Agreement of May 1, 1933, the United Kingdom agreed not to cut back imports of chilled beef from Argentina by more than 10 percent of the volume imported in the year ended June 30, 1932, unless at the same time it reduced imports from the Dominions below 90 percent of the same base year. This was disagreeable to Australia, which was seeking through the Ottawa agreements to break into the chilled-beef market in the United Kingdom, in which it had previously not been strong (Drummond, 1975, p. 310). Three-year agreements with Denmark, Norway, and Sweden, running from various dates of ratification about mid-1933, provided minimum butter quotas to Denmark and (much smaller) to Sweden, a minimum bacon quota to Denmark amounting to 62 percent of the market, and agreement not to regulate the small and irregular shipments of bacon, ham, butter, and cheese by Norway. But guarantees to these producers left it necessary, if domestic British producers of, say, butter were to be protected, to go back on the Ottawa agreements which guaranteed unlimited free entry into the British market. The position was complicated by New Zealand's backward-bending supply curve which increased butter production and shipments as the price declined, and Australian policy, which evoked the most profound distrust from New Zealand, of subsidizing the export of butter to solve a domestic disposal problem (Drummond, 1975, pp. 320ff., 475). The problems of the Dominions and of the major foreign suppliers of the British markets for foodstuffs compounded the difficulties of British agriculture. In defence of the lost interest, the British agricultural authorities developed a levy-subsidy scheme under which tariffs imposed on imports were segregated to create a fund to be used to provide subsidies to domestic producers. The levy-subsidy scheme was first applied in the United Kingdom on wheat in 1932; strong voices inside the British cabinet urged its application to beef, dairy products, and bacon and ham. Wrangling over these proposals went on between

British and Commonwealth negotiators for the next several years as the United Kingdom tried to modify the Ottawa agreements, with Dominion and foreign-supplier consent, in order to limit imports. In the background, dispute deepened within the British cabinet between the agriculture minister, Walter Elliott, who wanted subsidies, and the chancellor of the exchequer, Neville Chamberlain, who feared their effect on the budget and consistently favoured raising prices and farm incomes, in the United Kingdom and abroad, by cutting production and limiting imports.

In its agreements in Scandinavia, the United Kingdom sought to bind its trading partners to give preferences to British exports, and especially to guarantee a percentage share of the market to British suppliers in that sorely afflicted export industry, coal. In eight trade agreements, British coal exporters were guaranteed generally the major share of import volume, with quotas as follows: Denmark, 90 percent; Estonia, 85 percent; Lithuania, 80 percent; Iceland, 77 percent; Finland, 75 percent; Norway, 70 percent; Sweden, 47 percent. In addition, Denmark agreed that all bacon and ham exported to the United Kingdom should be wrapped in jute cloth woven in the United Kingdom from jute yarn spun in the United Kingdom (Kreider, 1943, pp. 61–2). The Danish government gave British firms a 10 percent preference for government purchases, and undertook to urge private Danish firms to buy their iron and steel in the United Kingdom wherever possible. Kreider notes that these agreements constrained British trade into a bilateral mode: British agreements with Finland lifted the unfavourable import balance from 1 to 5 against the United Kingdom in 1931 to 1 to 2 in 1935. The agreement with the Soviet Union called for the import/export ratio to go from 1 to 1.7 against the United Kingdom in 1934 to 1 to 1.5 in 1935, 1 to 1.4 in 1936 and 1 to 1.2 in 1937 and thereafter. Argentina agreed to allocate the sterling earned by its exports to the United Kingdom to purchases from the United Kingdom.

The Ottawa agreement dominated British commercial policy from 1932 to the Anglo-American Commercial Agreement of 1938, and to a lesser extent thereafter. It was continuously under attack from foreign suppliers other than the United States that entered into trade and financial agreements with the United Kingdom, and from the United States which undertook to attack it as early as the World Economic Conference of 1933. But at no time could the agreement have been regarded as a great success for the Empire. It produced endless discussion, frequently bitter in character, and dissatisfaction on both sides that each felt they had given too much and gained too little. By 1936 and 1937, there was a general disposition to give up the attempt, or at least to downgrade its priority.