Mr. GRAHAM:

Mr. Chairman, ever since I listened to the former Minister of Finance introduce this budget I have been much concerned over this feature of it; and ever since then the western Liberals sitting on this side of the house have been giving a great deal of attention to this exchange tax of ten per cent imposed upon imports other than from empire countries. It is no secret, I think, that we made representations to the former Minister of Finance, and after the present minister took over the portfolio we had an opportunity to make the same representations to him. I am happy to recall that in making his budget speech the former minister made it quite clear that the government fully realized that this was a departure from the traditional policy advocated and to a certain extent implemented by Liberal governments that have held office in Canada in the past. He definitely stressed the point that the necessity for this measure arose because of the war situation and indicated that the government fully intended to repeal the tax just as soon as the necessity for it was removed. I am also happy to believe that the present Minister of Finance takes exactly the same view.

As I have said, this tax has been justified by the government on the ground that it is necessary in connection with our war effort. They suggest that it will produce some 165,000,000 in revenue. I do not propose to deal with that feature, because I do not

believe the government would have introduced this tax at all if the primary purpose had been the raising of revenue. I have not asked them, but I think they would agree that there are many other ways of raising this amount of money without imposing such an unheard of tax in the manner in which it has been imposed. It is true that $65,000,000 is a considerable sum of money to us as individuals and to the Canadian people collectively; yet when it is recalled that the budget deals with some $1,250,000,000, I am sure the committee will agree that in comparison $65,000,000 seems small and therefore, from our point of view, could have been raised much more beneficially either by increased direct taxation or by being included in the amount to be raised by borrowing. Therefore I do not intend to emphasize the revenue producing purpose of this tax, because I do not believe the government, in asking the committee to adopt this resolution, had that in mind at all. Undoubtedly the primary reason for the introduction of this tax was the desire to conserve foreign exchange.

Mr. HANSON (York-Sunbury):

And to raise revenue; the minister said so.

Mr. GRAHAM:

For my purpose I am

assuming that the primary purpose was to conserve foreign exchange. We all know that Canada is faced with a most unusual situation. Because of the necessities of our war effort we are compelled to make very large purchases of war equipment in the United States, and that is also the situation so far as the mother country is concerned. In addition, some avenues of trade between this country and the United Kingdom have been closed because of the exigencies of war. So, as I followed the argument advanced by the minister, the purpose of this tax is to conserve United States exchange and also to increase the British preference in the Canadian market. That is to say, we wish to place ourselves in the position of having United States funds with which to make necessary war purchases in that country, and in addition, we recognize the fact that because of her situation at the present time the mother country is entitled to in increased preference in the Canadian market is against non-empire countries.

With the essential of these objectives I do not think anyone in this committee would disagree. I believe, however, that the method of carrying them out, as exemplified by this tax, is not the correct and proper method to achieve these purposes, worthwhile, as they may be. Although I am very much opposed to the application of this tax I voted

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for the budget, and perhaps it would be proper to place myself on record as to why I did so. If there is one thing in connection with our war effort that we need above everything else it is unity behind leadership. I am fully aware to-day, as I have been ever since war broke out, that if we intend to make our contribution to the war effort most effective, we must choose leaders of capacity and, when we have chosen them, give them that measure of confidence which will permit them to carry on the effort we expect of them with the greatest degree of efficiency and the least possible interference. I think everyone will agree that we cannot possibly hope to win this war on the street corner, in the coffee-shop or even in the lobby of this House of Commons. So it seems to me that in passing final judgment on any measure introduced in this house every member must ask himself how his attitude towards that measure in the long run will affect the general instrument we have created to carry on our war effort.

To-day my submission will be in the way of criticism of this tax, but I want it distinctly understood that this does not weaken in any way my personal belief as a Canadian, rather than as a Liberal member of this House of Commons, that the men in key positions in connection with our war effort are, in my opinion, completely satisfactory. I would not want them to be embarrassed or interfered with in carrying out the severe and almost overwhelming duties which have been imposed upon them as a result of our taking part in this war. In spite of that feeling on my part, however, I believe I should express my opinion if I consider that the government have been ill advised or have pursued a wrong policy, of course always bearing in mind that salutary statement by Cromwell, "I might be wrong". I therefore think it is proper for me to point out why, with regard to this particular exchange tax of 10 per cent, I believe the government has pursued the wrong way of achieving the objectives it wishes to achieve, that is to say the conservation of our foreign exchange and the giving of assistance to the motherland, in the position in which she finds herself to-day.

I have listened with keen interest and attention to observations from hon. members opposite, and I must say I have been surprised at some of the arguments advanced by them for and against this particular tax. I find myself, in principle of course, allied completely with the hon. member for Ros-thern (Mr. Tucker), who so ably presented to hon. members the plight of agriculture. He presented it as it seemed to him, from the

point of view of Saskatchewan. But I do not believe any western Liberal member with whom I have been acquainted has ever thought that any national policy in Canada can be advocated or supported from only a Saskatchewan point of view. I feel sure the hon. member for Rosthern had no such idea in mind when he made his observations.

We from the west realize fully that a national policy must be considered in the light of the manner in which it affects the whole of Canada, not any particular part of it. With respect to this particular tax I would point out that one might just as easily champion the cause of the farmers in Ontario, the farmers in the maritime provinces, the fishermen in any of the provinces in eastern Canada, or in British Columbia, and might champion just as easily the cause of the consumer in any one of the provinces of Canada as he could the cause of the farmer or the consumer in Saskatchewan. This is a national problem, and one must of course approach it from that viewpoint; otherwise his observations ought not be given any great consideration by the Minister of Finance. I join with the hon. member (Mr. Perley) who has just spoken and with other hon. members from western Canada who have expressed the belief that the western Canadian farmer is just as desirous of bearing a fair share of the war load as is any other citizen in Canada. The farmers of the west claim no monopoly on patriotism; but on the other hand they claim, as they have pointed out on many occasions, a position of reasonable equality in respect of the imposition of costs brought about by the war.

There are, of course, many circumstances in our Canadian confederation which make it almost impossible under any conditions to make equal the position of one individual as compared with that of another in any portion of Canada. But in my view it should be the aim of the government, so far as it is able, to divide the load as equally as possible among the different portions of the countiy which must bear it.

I listened with particular interest 'to the remarks of the hon. member for Lake Centre (Mr. Diefenbaker), who comes from my own province of Saskatchewan. Much as I admire and respect the hon. member, it occurred to me that he became confused when he attempted to reconcile his position in respect of this tax with his desire to support the protective idea, one which has been so long advocated by the Conservative party.

Mr. HOMUTH:

No difficulty about that.

Mr. GRAHAM:

I listened to the hon. member for Peel (Mr. Graydon) and much

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earlier, of course, to the hon. member for Danforth (Mr. Harris). May I point out to him, when he suggests that one must go down to the museum to find a free trader, that despite the war emergency and the necessities of the government, there are on this side of the house many hon. members who continue to support the fine and practical theories connected with the policy of free trade.

I listened yesterday to the Minister of Labour (Mr. McLarty), who quoted with approval Sir William Beveridge, and I would point out that in connection with the matter now before the committee I could quote the same authority with, I believe, the same approval. I doubt very much if one could find an economist of high repute who would support any policy other than that of the greatest possible freedom in our international trade.

As a matter of fact, in our own lifetime we have had the good fortune to see tried out two different theories in respect of trade. In 1930 we had the so-called "Canada First" programme. The Right Hon. R. B. Bennett made it quite clear to the country that, if returned to power, he was going to make experiments in the matter of tariffs. Let us say this of the right hon. gentleman, that he left no doubt in our minds that if he were returned to power he would carry out that experiment. Mr. Bennett did that very thing; he imposed the highest tariffs, and in this regard made an all-time high. For five years we as Canadian citizens had an opportunity of watching in actual practice the application of the theory of high protection.

As the hon. member for Rosthern pointed out, while there may be individual Conservatives who still support the theory of protection, yet away down deep in their hearts they must realize that from the point of view of the citizens of Canada that experiment was a hopeless failure, and was condemned in the election of 1935.

Never in my lifetime have I seen such a definite mandate given to any government to lower tariffs as was given to the Liberal government When it was returned to office in 1935. So much so is that true that I doubt if even the most courageous member on the Conservative benches to-day would dream of rising in his place and supporting under the name of "Canada First" the policy advocated by the Conservative party from 1930 to 1935.

For a moment or two I should like to deal with one aspect of this question. When Mr. Bennett put the "Canada First" policy into force he was successful in accompanying it with a promise from large manufacturers of

certain commodities to the effect that they would not use tariff increases unfairly to raise *the level of prices in Canada. I have had some experience in this matter, and when I speak I am speaking from my own knowledge of facts ascertained in inquiries before the tariff board, before parliamentary committees of this house and in legislatures.

I refer particularly to gasoline, and more especially to the suggestion by Conservative members that the promise elicited from those companies was carried out during that high tariff period. Let me outline briefly the history of what happened in connection with gasoline. Mr. Bennett obtained from practically all the large oil companies in Canada a promise similar to that obtained from most of the farm implement companies. I recall that Mr. Fowler of Saskatchewan, who was interested in the Consumers Cooperative Refinery, wrote to Mr. Bennett calling to his attention the fact that in Mr. Fowler's opinion the companies were not keeping that promise. Mr. Bennett replied that he had made certain inquiries and as a result of those inquiries was forced to disagree with Mr. Fowler's conclusion. Thereupon Mr. Fowler pressed the matter, setting certain facts before Mr. Bennett, and the latter graciously undertook to take the time and trouble to examine more carefully into the situation, and promised to communicate in greater detail at some later time. In his reply Mr. Bennett said he had caused due inquiry to be made and was quite satisfied that the companies had kept their promise, and that Mr. Fowler was wrong in his submission.

It will be recalled that some time later the Bennett government directed the tariff board to make inquiries respecting gasoline. The inquiry was costly not only to Canada but to all concerned. I believe the investigation began in the spring of 1935, sittings being held in Regina, Calgary and Vancouver, and two sittings were held here in Ottawa. If I recall correctly, the whole inquiry lasted at least a year and a half, and on its termination a report was made which is familiar to all hon. members. The tariff board, a wholly independent body set up !by the Bennett government, found that, either consciously or unconsciously, the companies had not keipt their promise, and recommended that the duty on gasoline be reduced from two and a half cents to one cent a gallon.

I know that Mr. Bennett was quite sincere in sending that letter to Mr. Fowler, and the executives of the companies may have been quite sincere in believing they had kept the promise which they had given to the government of that day. But hon. members will

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notice what a tremendous task was imposed not only upon the government but upon the people most vitally interested, the consumers of gasoline, of trying to prove, as finally they successfully did, that the promise was in fact broken; and thereafter they secured the relief which they so much desired. The consumers as a matter of fact would not have been able at their own expense to carry on that inquiry, but the province of Saskatchewan assisted them by bearing the expense of having their arguments properly presented and pressed home.

I turn now to the farm implements inquiry. I have heard suggestions from the other side that the farm implement companies kept the promise they gave to Mr. Bennett. Again I draw attention to the fact that the executives of these companies, perhaps not maliciously, perhaps unconsciously, did not adhere to the promise they gave. There was a costly inquiry into the matter, although in the end it proved a profitable inquiry for this country because of the changes that were made in the application of the regulations of the Department of National Revenue. But on that question alone, as hon. members know, a committee of this house sat in 1936, and again in 1937, and spent a great deal of time studying farm implement prices in this country. Here is a very strange thing in connection with the promise which was made to Mr. Bennett. The International Harvester company, the leading company in the farm implement industry in Canada, was never asked to give and never gave that promise to Mr. Bennett. I mention that to illustrate the futility of any government, Liberal or Conservative, attempting to depend upon promises given by private interests, be they manufacturers, lawyers or farmers, that they will not take advantage of a certain type of legislation to increase prices.

The committee went carefully into the prices of farm implements, and we discovered that whereas after 1930 the trend of prices of farm implements in the United States was downward because of the depression and the resultant desire of the companies to market their products, the trend in Canada remained constant. In my opinion and in the opinion of the committee the companies were not keeping the promise which had been given to Mr. Bennett, and which was relied upon by him. The real truth of the matter is that the trend of prices in the United States would have continued downward had it not been that Mr. Roosevelt in 1932 introduced his policy avowedly based on the assumption that it would be wise to increase wages and commodity prices in that country.

Mr. HANSON (York-Sunbury):

In what

year?

Mr. GRAHAM:

In 1932.

Mr. HANSON (York-Sunbury):

He was

not elected in 1932.

Mr. GRAHAM:

I am saying that he was elected. The increase in prices in United States started in 1933, as was pointed out, I think, by the hon. member for Souris.

Mr. ROSS (Souris):

I did not make that

statement.

Mr. GRAHAM:

Somebody did, when giving the range of price increases in United States, starting in 1933.

Mr. ROSS (Souris):

In 1936.

Mr. GRAHAM:

In the United States prices did start to go up in 1933, but that price rise was based on the assumption that costs of production in the United States had gone up, and steel and other commodities entering into the manufacture of farm implements also showed a rising price trend; but neither in wages nor in material costs did that rise occur in Canada until the January, 1936, increase.

The committee found that so far as Canadian industry was concerned there was no justification for the price increase in January, 1936, although one could easily show from the price information we obtained from the United States that there was at least a measure of justification for the increase in the United States. The hon. member for Rosthem said that the committee had some difficulty in passing judgment on the increases that occurred in 1936. I do not think any member of the committee had any difficulty in arriving at the conclusion that the increases were not justified by the cost items entering into the production of farm implements in Canada.

I have heard many statements made in this house and on the public platform that the policy adopted by this government of lowering the duty on farm implements from 25 to 12| per cent, and then later to 7i per cent, did not have the effect of decreasing the price of farm implements but rather had the effect of increasing prices in this country. If the suggestion is that the lowering of the tariff had the result of increasing farm implement prices, I would say that those members who make that suggestion cannot have read the report of the committee of this house which took such a great deal of time and trouble to establish the facts in connection with the farm implement industry. The truth is, as disclosed by the report of the committee, that right in the middle of the inquiry there was a reduction in the tariff from 12J per cent to 71 per cent because of the treaty with the United States, and immediately the committee were notified by the International Harvester

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company of a price reduction equivalent to the reduction in duty, expressed in dollars, on all implements imported from the United States and affected by the reduction in duty. The Massey-Harris company did likewise, and the John Deere company to a certain extent, but not on all implements. But the real failure of the industry to respond with price reductions equivalent to the reduction in duty was due to those companies which do not manufacture in Canada but manufacture practically their whole line of implements in the United States. I have in mind the John Deere company. While it manufactures a small line of implements in Welland, Ontario, the great bulk of its goods which are sold in Canada are manufactured in the United States. The John Deere company was in a position to disregard the reduction in duty, disregard the saving which that company made in the cost of marketing its products in Canada, and other Canadian companies saw no necessity for making reductions corresponding with the reduction in duty.

The situation was this. It was not that duties play no part in the price structure of any commodity but that there had grown up in the farm implement industry and in a number of other industries-I have no desire to pick on the farm implement industry-a tendency to disregard the tariff on any given commodity if there is a measure of control that permits an agreement, tacit or otherwise, to disregard the saving to the company and to insist that the consumer continue to pay the same price.

Mr. HANSON (York-Sunbury):

Is the hon. member suggesting that the farm machinery people are in a combine or trust?

Mr. GRAHAM:

I am suggesting this. Somebody referred to the Saskatchewan inquiry. I was counsel in that inquiry, which was held in 1938 or 1939. and it is true, as some member pointed out, that the committee of the Saskatchewan legislature reported to the dominion government that the position and the facts ascertained by the committee seemed to indicate that there was sufficient evidence to establish an infraction of the Combines Investigation Act. I say quite frankly to hon. members that there was not sufficient evidence to bring that fact home to any court in this land or any tribunal that might be set up. The committee of this house and the Saskatchewan committee could not possibly accept the fact that the price increases which were made in January, 1936, on a great number of farm implements could have been made without an agreement of some kind, when the companies engaged in the industry

increased at the same time the price of each individual implement to the same extent. I think it requires a strong imagination to accept that this was done without some measure of agreement. But the leader of the opposition raises the very point that I wish to raise against the amendment introduced by the minister, which gives more power to the price control board to control prices. The hon. member will note, with me, the immense difficulty of substantiating before a judicial tribunal of any kind things of the nature of which I have been speaking. You must go further than merely setting up circumstances which arouse strong suspicion. You must actually bring home sufficient evidence to prove the point you suggest, that either the company is a combine or that the company is not justified in the price increase.

Mr. HANSON (York-Sunbury):

May I suggest that that is going a little further; under the statute what one is required to do is to present a prima facie case.

Mr. GRAHAM:

Even then I doubt very much that anything effective can be done, because the executive officers of all the implement companies swore that there was no written agreement and no verbal agreement; and they are men of high character. Yet the circumstances would lead one to assume that by some method the companies had all arrived in January, 1936, at a decision to increase the price of hundreds of implements.

Mr. DOUGLAS (Weyburn):

And since,

also.

Mr. GRAHAM:

And since, also.

I referred to gasoline. After the tariff board had recommended the reduction and the government had implemented that recommendation by reducing the tariff from 2i cents to one cent, the Canadian companies did not give effect to it, and I am informed on very good authority that the reduction which occurred throughout Canada was brought about only by the late able chairman of the tariff board, Mr. Justice Sedgewick, going to New York to interview the Texaco company, a company which brought in all its products from the United States, and insisting that, since that company was actually saving the reduction in duty, it should lead the way in giving the reduction to the consumer in Canada. So one can see the position which any government or any agency is up against in getting the corporate associations of this country to give effect to reductions in the tariff.

I want to point this out to those who would suggest that a reduction in the tariff on farm

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implements simply gives the companies an opportunity to raise prices. If the remaining tariff of 7i per cent were abolished, one would soon find strong lobbies or representatives of the farm implement industry in Ottawa attempting to persuade this parliament that that was unfair and improper. The farm implement industry would like nothing better than that not only Conservatives but everyone who speaks on this matter would accept the theory they adopt, that a reduction in tariff would mean an added cost of the implements of production.

Mr. HOMUTH:

It has worked out that way.