Mr. HANSON (York-Sunbury):

I think I understand the theory, having had the benefit of a recent conversation with the oil controller. In effect it would appear that this is an indictment of the policy of excess taxation, in one limited field. The minister must know, I think, that the policy adopted with respect to gold mining has had the effect of freezing the business of prospecting. I am informed that this is so, that none of the promoters are willing to put out a dollar in prospecting for further gold ore, in view of what they consider to be the excessive taxation on gold mines. Personally I do not know whether or not that taxation is excessive. 1 am quite willing to see this go through as an experiment, to see what will result, but I hope the minister will be very careful in the exercise of the authority here given. With his native caution I have no doubt he will be careful, and it may be that no undesirable result will follow.

While we are dealing with this project, has the minister anything to report with respect to the powers that were conferred on the governor in council by the legislation now being enlarged, with respect to obtaining more foreign exchange by means of exports? What has been the result of that legislation? How many agreements have been entered into? Has there been any fruit in the way of increased foreign exchange, or is the legislation still in the experimental stage?

Mr. ILSLEY:

Six draft agreements have been approved by order in council. I think that is all. There may have been one or two more about which I have forgotten, but I do know of six. So far as I am aware none of these agreements has been signed. I am under the impression that some steps have been taken in the faith that the agreements will be signed, but the actual result to date in the production of foreign exchange would be very small, if any.

Mr. HANSON (York-Sunbury):

Would the minister care to indicate the type of business? If that is not desirable I shall not press it.

Mr. ILSLEY:

I did that before, in a general way, in answer to a question of the leader of the opposition. I believe the field in which

War Exchange Conservation Act

we have the most negotiation is the export of pulp and paper. But the applications are by no means confined to these products. They extend to some manufactured goods, depending on the United States market and on some other factories as well. There is a large number-I do not know exactly how many- of applications pending at the present time. As has been pointed out, it requires considerable caution on the part of the department, because the power is great, and the improper exercise of it would not be charitably viewed. It would look as if it were a private deal between the government and a private company.

Mr. HANSON (York-Sunbury):

On general principles this legislation, viewed from other aspects, is wholly undesirable, because there is a chance to play favourites. I am not suggesting that the minister will do anything of the sort. But in view of the rather critical situation as I understand it with respect to foreign exchange, and having regard to all our commitments, I believe the minister is justified in taking what I might call a flier in this field. I hope it will not be too detrimental to the treasury, and that it will be productive of some fruits for the foreign exchange position. We shall wait until another session to see what has happened. Was there not some provision, arrangement or undertaking whereby when these agreements are completed and become operative they will be made public?

Mr. ILSLEY:

They must be tabled within fifteen days after the next session.

Mr. HANSON (York-Sunbury):

They cannot be obtained until parliament is in session?

Mr. ILSLEY:

No.

Mr. ROSS (Calgary East):

Let us suppose a company has drilled a well in each of the four years 1936, 1937, 1938 and 1939. Each of the wells produces at the rate of one hundred barrels a day. On what basis would the standard of taxation be fixed?

Mr. ILSLEY:

The hon. member is talking about the Excess Profits Tax Act?

Mr. ROSS (Calgary East):

Yes, I am coming to that. I assume these agreements would deal with that act. I want to know the basis for the excess profits tax.

Mr. ILSLEY:

The standard profits are the average of four years. But there is a special formula relating to oil wells and gold mines. The principle of the special formula is that the excess that is taxed is not the excess earnings per dollar invested, but the excess

[Mr. Ilsley.l

earnings per unit produced. That rule is far more favourable to the producer than is the other rule. It would mean that if there is a large production in the taxation year, a production much larger than the average four base years, there is an assumed production of that increased amount in the standard period. I realize that this is a complicated matter, and I do not believe I shall be able to make it clear without spending considerable time on it. I should like to have the act before me when I am making the explanation. If the hon. member would like to see me about it later I should be pleased to go into it with him.

Mr. ROSS (Calgary East):

Yes, that would be better.

The ACTING CHAIRMAN (Mr. Fournier, Hull):

Following this amendment section 2 becomes section 3.

Mr. HARRIS (Danforth):

We are now

dealing with the old section 4, having to do with part II of schedule I. The idea most of us have in our minds when we are considering war exchange conservation is to do everything possible to get hold of United States dollars, to save our Canadian dollars going to the United States for United States products, and to assist the United Kingdom by providing her with Canadian or United States dollars, as the case may be. This item is an attempt, and in view of all that has taken place in the last ten years, I would say it is a very feeble attempt, to exercise some control over a situation which has developed more particularly since the wrar started. The condition goes even deeper than that. Even before the war we had our friends in the United States initiating legislation of a kind which affected very seriously Canada's position with regard to the items enumerated in section 5 of the bill.

The situation in the last five or six years is that our friends in the United States saw fit to impose on the commodities mentioned in this section, and all other commodities in that group, whether they were of the vegetable or animal kingdoms, when entering the United States, an excise duty of three cents per pound. Before the war the producing countries of the commodities recited in the seetion were north Africa, Nigeria, Straits Settlements and, in respect of coconut products particularly, Ceylon and the Gold Coast. Those products found their way in the crude state to the United Kingdom, where they were processed

War Exchange Conservation Act

and whence they were exported to Canada. Brazil became an extensive producer of these commodities, and we know that China was perhaps one of the first producers in large quantities. Large quantities were obtained from the Dutch East Indies, British Guiana and the West Indies. These commodities were part and parcel of the empire trade agreement, and no change with respect to them could be made unless by special agreement. Later the United Kingdom-United States-Canada agreement carried a clause under which after consultation a change could be made and, as the minister mentioned, consultation was necessary only if the change was a revision upward.

In this northern Canadian zone the production of fats cannot be carried out as cheaply as in countries which produce fats from the palm and coconut trees and from pea or ground nuts, as they are called in India and China. In Canada fats are produced by raising hogs or cattle, whereas in these other countries they are produced from the palm tree, from ground nuts and copra, without the necessity of having to provide shelter or feed as in the case of fat from hogs and cattle. The result is that production costs are very low on vegetable oils.

In August, 1936, the United States imposed an excise duty of three cents per pound upon commodities of this type which had not been covered previously by processing taxes. The result was that there was backed up upon the world's markets a billion pounds of these commodities. Canada had free trade with the United Kingdom and other parts of the British empire and the market conditions in those countries were quite depressed. The result was that this depressed condition was passed on to Canada, and we found ourselves without any market for our animal fat production. Evidence was produced to show that we must take similar steps to those taken by the United States in 1936 to protect our primary producers. It was shown that if this were done the average return per animal would be from SI to $2 in the case of cattle production, and about the same return per head to the producers of some 8,000,000 hogs.

After a lengthy investigation, a recommendation was made to this house on April 13, 1939, showing that the revenues of the country would be enhanced by $4,700,000 if these measures were put into effect. The tariff board recommended a tax of three cents per pound on fats used for shortening and two cents per pound on inedible fats. This estimated revenue was based upon a consumption of 125,000,000 pounds of edible fats and 65,000,000 pounds of inedible fats. The second point is the fact that there would be an increased return to those producing cattle and hogs.

Another important consideration was the fact that there would be conservation of waste. Because there was practically no market for animal fats, the tendency to waste had grown up. The market used to be in Chicago, but we could not get into that market because of the imposition of the three cents excise tax.

This legislation is being introduced in an effort to conserve foreign exchange. Prior to the war these commodities were purchased largely from the United Kingdom and British empire countries. That practice had some merit because from $7,000,000 to $10,000,000 of Canadian funds went into the British market. When the war started we were all anxious that as many Canadian dollars as possible should go to the United Kingdom, and the adoption of the recommendation of the tariff board was not particularly pressed. Great Britain, however, soon required all the fats she could get and exports were stopped. In 1939 38 per cent of our imports came from the United Kingdom; in 1940 these had dropped to 14 per cent; in 1941 they had dropped to 2 per cent, and the minister has told us that they are now negligible. What obtains with regard to the United Kingdom, obtains also with regard to empire countries. The difficulty is that these products are still coming in to the tune of 208,000,000 pounds from Brazil, China and the Dutch East Indies. United States dollars must be found to pay for these commodities. Whereas $1,000,000 in United States funds was sufficient to provide for our imports in 1936 and 1937, I think I am safe in saying that to-day United States dollars are required for 95 per cent of the imports of these commodities.

The minister has said that he has not the figures for 1941, but we have the figures for 1940 which show that $7,000,000 in United States funds were used to pay for the imports of this commodity out of a total import value of some $8,000,000. To-day we are forced to provide United States dollars to pay for a commodity previously purchased from the United Kingdom and British empire countries.

The next point is the loss of a revenue of $5,000,000. When the hon. member for Rose-town-Biggar (Mr. Coldwell) was speaking in t'he house last night he said that our party had no alternative to offer. A definite alternative with regard to the raising of revenue is the putting into effect of the recommendation of the tariff board on reference No. 99, which was tabled in April, 1939. This would provide a revenue of at least $5,000,000 per year, and there would be an indirect benefit through the conservation of waste.

Why should we bring in 65,000,000 pounds of inedible fats from Brazil and China to provide for our soap production when the fat

War Exchange Conservation Act

production of this country is not being fully utilized? I was not at Petawawa this week when hon. members visited that camp, but one hon. member told me that he saw evidence of waste. He saw a bucket of fat going into the garbage can, from which no return could be had. The proper conservation of waste in this country would replace at least 20,000,000 to 30,000,000 pounds of this particular commodity. When this legislation is passed I hope that those charged with the responsibility of issuing permits will see to it that everything is done to conserve and use our own supply rather than to permit these commodities to come in without restriction.

The only excuse we have for not adopting this recommendation is that it would affect the United. Kingdom agreements. At a previous session my hon. friend said that our friends in the United Kingdom did not desire such legislation. There is no import from any of the British possessions, and we are in the embarrassing position of having to supply seven to eight millions of United States dollars, and also of sitting here as a parliament and, one time out of a hundred, not adopting a recommendation which came from a body which is a creature of this parliament, namely, the tariff board, which made its recommendation respecting the application in reference No. 99. I do hope that those charged with issuing the permits will give very serious thought to the permits they issue.

When it was asked in this house how many United States dollars were supplied to take care of the imports of these commodities the reply, in effect, was that the bureau of statistics kept the figures and the foreign exchange control board did not keep a duplicate set of figures on these different commodities. A little generosity on the part of the government, or a little consideration for the member who asked the question, would have resulted in the information being readily supplied. Only about five importers of any consequence import these commodities, and they import ninety per cent of the total imports. In fifteen minutes a clerk in the foreign exchange control board could run over the imports of these five large organizations, whose names are all on Hansard-I remember putting them on myself some years ago- and the government could have obliged the house by giving an answer without our having to criticize in these strenuous times and demand that the information be brought down. The answer given to that particular question was not fair to the house, Mr. Chairman. It might have been the truth that the bureau of statistics compiled the records, but the government could have obliged us by giving the main items. The minister knows them,

because he referred to them the other night when he introduced his resolution. Here is a good opportunity to save some foreign exchange and at the same time help our general economic position.

Mr. ILSLEY:

There is one statement to

which I should like to take exception, and that is that there are no imports of vegetable oils now from the British empire.

Mr. HARRIS (Danforth):

Four-tenths of

one per cent from the British empire.

Mr. ILSLEY:

No, it is about 18 per cent of the totai imports of 1940.