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No. 2 1445.

DESPATCH.

5th NOVEMBER, 1861.

STATING that Imperial Government have no
objection to Reciprocal Free Trade between
B.N.A. Colonies being established.

COPY OF ORDER IN COUNCIL,

Approved 23rd November, 1859

On a communication dated 21st inst., of the Hon. the Minister of Finance stating
that it is desirable to extend the arrangements whereby certain productions of the
B. N. A. Provinces are reciprocally admitted free, so as to include all articles, either produced or manufactured, within the said Provinces;

That it would also be important to ascertain how far it might be practicable to
assimilate the Tariffs of the several Provinces so as to permit entire Free Trade
between them. And he recommends that Your Excellency be requested to communicate
with the Lieutenant-Governors of New Brunswick, Nova Scotia, Newfoundland
and Prince Edward Island, for the purpose of ascertaining whether the Governments
of those Provinces are prepared to unite with Canada in recommending Legislation
for the purpose of establishing the reciprocal free interchange of all productions and
manufactures of the respective Provinces; and further, to enquire how far it might
be practicable to assimilate the Tariffs of the several Provinces so as to permit entire
Free Trade between them.

The Committee concur in the recommendation of the Minister of Finance, and
submit the same for Your Excellency’s approval.

(COPY.)

No. 34

DOWNING STREET,
12th April, 1860.

SIR,

I have the honor to acknowledge the receipt of your despatch, No. 122, of the
24th November, enclosing a copy of a Report of a Committee of the Executive Council
of Canada, approved by yourself, in which the Committee recommend the establishment of reciprocal Free Trade between the British Provinces in North America.

Having referred this Report for the consideration of the Lords of the Committee
of Privy Council fur Trade, I transmit a copy of their Lordship’s reply.

I have, &c.

NEWCASTLE.

The Right Honble. SIR E. HEAD, Bart.

Mr. Booth to the Under Secretary, Colonial Office.

OFFICE OF COMMITTEE OF PRIVY COUNCIL FOR TRADE,
Whitehall, 14th March, 1860.

SIR,

The Lords of the Committee of Privy Council for Trade, have had under their
consideration your letter of the 23rd December last, transmitting for their opinion,
by direction of the Duke of Newcastle, a copy of a Despatch from the Governor of
Canada, enclosing a Report by a Committee of the Executive Council of the Province,
recommending—

Firstly—The extension of existing arrangements by which certain productions
of the British North American Provinces are reciprocally admitted duty free, so as
to include ail articles the produce or manufacture of such Provinces.

Secondly—The assimilation of their respective tariffs so as to permit complete
freedom of trade between them.

I am to request that yon will submit to his Grace the following observations on
the subject of these propositions:

My Lords have on several former occasions expressed their objections to the
policy of the arrangements which the first of these recommendations proposes to
extend. They more especially desire to refer the Duke of Newcastle to their letter
to the Colonial Office of the 26th June, 1855, which was communicated by Sir Wm.
Molesworth in a Circular Despatch of the 11th August of that year to the Governors
of the several West Indian Colonies.

To the opinions expressed in that letter, and in the Circular Despatch of Sir
Wm. Molesworth, my Lords still adhere.

The distinct and formal nature, however, of the proposal now under consideration,
and the strong disposition which has been repeatedly evinced by some of the
North American Provinces, and West India Islands, to enter upon the course of
legislation to which Her Majesty’s Government on that occasion thought it necessary
to object, has led my Lords to consider whether it may be possible in any degree to
meet the views of the Executive Council of Canada without seriously compromising
the rules of commercial policy, which, in their opinion, it is of the highest importance
to maintain.

The fundamental principle of the policy of Free Trade is that no duty of Customs
shall be imposed except for the purpose of Revenue. To give effect to this principle,
it is necessary either to levy import duties upon those articles alone, which are not
produced in the importing country—or to place an Excise or internal duty equal in
its amount to the import duty upon those articles which are produced both at home
and abroad.

[Page 2]

In accordance with these rules it will be found that nearly the whole Customs
revenue of the United Kingdom is derived from articles to which one or other of
them is applicable.

In the year 1858, the net revenue received from the Duties of Custom, upon each
of the following articles, was:

Coffee, £ 440,000
Currants and Raisins, 432,000
Sugar and Molasses, 5,842,000
Tea, 5,186,000
Tobacco, 5,432,000
Wine, 1,703,000
Spirit, 2,264,000
Total 21,299,000

The total net revenue derived from Customs, in that year, having been only
about £23,830,000.

The changes in the Tariff of the United Kingdom at present under the consideration
of Parliament, will, when completed, effect a large further reduction in the
revenue derived from articles other than those enumerated above.

If similar conditions of production and financial requirement existed in all the
portions of the British Empire, there would be nothing in the strictest principles of
Economical Law, to prevent them from forming a vast Commercial Union, with a
Common Tariff, and complete freedom of trade between them.

So far, however, from such similarity existing, the British Crown embraces in
its rule, countries exhibiting almost every conceivable variety of boil, climate, population
and wealth, rendering the conditions both of production and consumption so
diverse as to preclude the possibility of any common commercial system.

Any general assimilation of Tariff, therefore, or Freedom of Trade between all
the different portions of the British Empire, is altogether impracticable, so long as it
is found necessary or expedient to make external trade a medium of taxation.

It remains to consider how far it is possible to admit this policy in the case of
particular portions of the possessions of Her Majesty, such as the group of the North
American Provinces, the Australian Colonies, or the West Indian Islands.

It is easily conceivable that there may exist in two or more distinct possessions
of the Crown, such an identity of character, both as regards their industrial and their
financial condition as to render their commercial union compatible with the maintenance of the rules of Imperial policy which have been indicated above; and wherever such identity is found, there appears to my Lords to be no reason, so far as commercial principle is concerned, to deter Her Majesty’s Government from giving their
assent to any such union, if it be desired by the several communities concerned.

The advantage of such an arrangement between the Colonies so contiguous as
the North American Provinces, divided as some of them are only by a land or river
frontier, are sufficiently apparent.

The maintenance of different tariffs, and of inland Custom Houses, is obviously
both expensive and inconvenient, and must very seriously interfere with the natural
operations of trade.

In the case of the Australian group of British Colonies, the expediency of their
adopting a common tariff has, on former occasions, been considered by Her Majesty’s
Government, and although the measure has never been carried into effect, it is probable,
that if practicable, it might be attended with similar advantages.

The group of West Indian possessions do not present altogether similar conditions,
nor do their motives of commercial union appear so decided.

At the present time, however, it is only necessary to consider the case of the
North American Provinces, but in sanctioning any measure of the nature of that
under discussion, it must be recollected that a precedent will be established which
will make it more difficult to resist future extensions of the principle which is would
involve.

It cannot be denied that the commercial conditions of the five provinces in question
present a great similarity of general characteristic.

[Page 3]

In all of them the principal industries are in connection with the field, the forest,
or the sea.

Their exports are, with some varieties, principally flour, grain, butter, and
cheese, potatoes, timber and lumber, coal, cattle, fish, furs and skins. Their imports
chiefly manufactured goods and colonial produce, sugar, tea, coffee, tobacco, spirits
and wine.

Their financial wants and resources must of course vary with circumstances,
but there seems to be no essential obstacle of an insuperable kind to their Commercial
Union.

In the abstract, therefore, it seems probable that such a measure as that under
consideration might be adopted with regard to these provinces, without in any way
infringing the principle of taxation which Her Majesty’s Government desire to
observe.

For such purpose it would be only necessary for then to raise the whole of
their Customs revenue from articles which none of them produce, such as tea, coffee,
tobacco, sugar, wine, or from articles from their own produce upon which they
could place corresponding internal duties such as spirits.

In all of them, however, an important part of their Custom duties are levied
upon articles which they themselves produce, and upon which it would be very
inexpedient to place such internal duties as should countervail the duties upon
importations.

So long as this is the case, and from the experience afforded by the recent Canadian
tariff, there seems no immediate prospect of a charge in this respect, my Lords
are unable to preceive how an exclusive exempting from import duties, applicable
to their respective produce, can be sanctioned without giving a serious extension to
the protective system in Her Majesty’s Colonial possessions, to the partial adoption
of which, my Lords have on several occasions expressed their strong objection.

They are, therefore, of opinion that the assent of Her Majesty’s Government to
the first proposition of the Executive Council of Canada, should be given except
under the following condition, viz:

That any exemption from import duty applied to the produce and manufactures
of these provinces respectively, shall be equally extended to
all similar produce and manufactures of all Countries.

This condition appears to my Lords to supply a self-acting rule, under the operation of which two or more British possessions may at any time avail themselves of
the advantages which must result from complete freedom of trade between them,
whenever, and whenever only, they can do so consistently with their own well-understood interests and with those of the Empire at large.

More than this, my Lords do not think such colonies could themselves desire,
except from a wish to afford protection to each other’s productions, an object which
Her Majesty’s Government cannot be expected to promote.

The second proposition of the Committee of Council, viz.: the assimilation of
the tariff of all the North American Provinces, is probably considered by that body
as in a great measure dependent on the adoption of their first recommendation.

So far as this is the case, my Lords can, of course, only approve of it subject to
the qualifications which they desire to enforce with respect to that recommendation.

It is not, however, necessarily dependent upon the former arrangement, and
regarding it as a distinct proposal, my Lords can only say that on abstract grounds
there can be no possible objection, either of principle or policy to its adoption by the
common consent of all the Legislatures concerned.

In practice, however, the effect of such an assimilation upon the commercial
interests of the Empire in general, and the Colonies in question in particular, must
depend entirely on the mode in which it is carried into effect, and it cannot be
denied that the recent policy of Canada, as exhibited in the Tariff of 1859, presents a
serious obstacle to the proximate realization of such a report

The Tariffs of all the other North American Provinces are more favorable to the
principal exports of the United Kingdom than that of Canada, which, if not protective
in its intention, is certainly so in its effect.

[Page 4]

Their common adoption, therefore, of the Canadian duties, or of any nearer
approximation to them than exists already, would, in the opinion of this Board be
open to decided objection unless it can be shewn that the financial condition of each
of the provinces in question afforded a justification for such a measure similar to that
which was admitted in the case of Canada.

I have, &C.,
JAMES BOOTH.

The Under Secretary of State,
Colonial Office.

No. 34, 12th April.

GOVERNOR’S SECRETARY’S OFFICE,
Quebec, 2nd May, 1860.

SIR,

I am directed by His Excellency the Governor General, to enclose a Copy of a
Despatch and Enclosure from the Secretary of State, and to request you to report to
Council on the matter.

I have the honor to be,
Sir,
Your obedient servant,

R. T. PENNEFATHER,
Governor’s Secretary.

The Honorable,
A.T. GALT,
&c., &c., &c.
Finance Minister.

MEMORANDUM.

The Minister of Finance has the honor to report to His Excellency the Governor
General in Council upon the Despatch from His Grace the Duke of Newcastle, dated
12th April last, and upon the Report of the Lords of the Committee of Privy Council
for Trade, dated 14th March last, on the subjects of the establishment of reciprocal
Free Trade between the British Provinces of North America, and an assimilation of
their respective Tariffs.

In their remarks on their first subjects, my Lords distinctly admit that the
identity of production and similarity of condition, render an arrangement for
reciprocal Free Trade between Colonies contiguous as the North American Provinces
“sufficiently apparent”—and that “the maintenance of different Tariffs and
of Inland Custom Houses is obviously both expensive and inconvenient, and must
very seriously interfere with the natural operation of trade.” My Lords further state
that “there seems to be no essential obstacle of an insuperable kind to their commercial
union,” and that the measure contemplated might in the abstract be adopted
without infringing the principle of taxation, which Her Majesty’s Government desire
to observe. But my Lords proceed to state that “it would only be necessary for them
(the Colonies) to raise the whole of their Customs Revenue from articles which none
of them produce, or from articles of their own production on which corresponding
Excise Duties could be imposed.” That this condition could not be observed, my
lords immediately proceed to demonstrate, by stating that “in all of them, however,
an important part of their Customs Duties are levied upon articles which they themselves produce, and upon which it would be very inexpedient to place such internal
duties as should countervail the duties upon importations.” And my Lords, believing
that there is no immediate prospect of a change in this respect,” are unable to perceive
how an exclusive exemption from Import Duties applicable to their respective
produce, can be sanctioned without giving a serious extension to the protective
system in Her Majesty’s Colonial Possessions, to the partial adoption of which my
Lords have on several occasions expressed their strong objections.” They are
therefore of opinion that the assent of Her Majesty’s Government to the first
proposition should not be given except, under the following condition:

“That any exemption from Import Duty applied to the produce and manufactures
of these Provinces respectively, shall be equally extended to all similar Produce
and manufactures of all countries.”

[Page 5]

Upon this condition, my Lords, remark that “more than this they do not think
such colonies could themselves desire, except from a wish to afford protection to each
other’s productions, an object which Her Majesty’s Government cannot be expected
to promote.”

The undersigned respectfully submits that the condition proposed by my Lords
is inconsistent with the state of facts which is admitted by their report to exist—and
being calculated absolutely to defeat the object, becomes thereby opposed to the
development of Free Trade, which Her Majesty’s Government desire to establish as
the commercial policy of the Empire. This state of facts, and the conclusion drawn
from them, must either harmonize, or the conclusion must be erroneous, which is
believed to be the present case, and the undersigned states with great deference that
lie believes it arises from my Lords having given too contracted a view to the
principle of Free Trade.

My Lords state “the fundamental principle of the policy of Free Trade is that
no Duty of Customs shall be imposed, except for the purpose of revenue”—and they
deduce therefrom—”To give effect to this principle it is necessary either to levy
import duties upon those articles alone which are not produced in the importing
country, or to place an Excise or Internal Duty equal in its amount to the Import
Duty upon those articles which are produced both at home and abroad.”

The principle thus laid down and the deduction from it, do not, it is contended,
embody Free Trade, but are only the application of it so as to suit the peculiar fiscal
position of the British Islands. Free Trade bas a much wider significance and requires
the removal of all artificial burthens upon Trade. It cannot for a moment be argued that
under the principle laid down by my Lords, there is Free Trade between Great
Britain and America, while enormous duties are levied an tobacco, or with China,
while five millions of revenue are derived from tea. In both cases the removal of
the duty would vastly increase the consumption in the British Isles, and would stimulate Trade with these countries, while equally would the removal of their duties upon
British goods, increase the export to buy tobacco and tea. It is therefore argued
by the undersigned that the principle of Free Trade as stated by my Lords applies
only to the distribution of taxation in the most equitable manner over the people,
that it is necessarily subject to various modifications in its application, and that in
relation to the colonies, Imperial policy ought not to be governed by one rule of
economical science, but should be based upon wider and more general views, having
regard not only to their individual welfare, but also to their future as outlying portions
of Empire, strengthening Great Britain in proportion to their strength, and
weakening her in proportion as they are themselves weak and divided.

The undersigned has already ventured to state, as bis understanding of Free
Trade, that it is the unrestricted interchange of the labor, skill and capital of mankind.
The circumstances of the world and the jealousies of nations will probably for
ever Prevent its universal adoption, but an approximation should be sought wherever
practicable, and plainly it can be more readily attained between subjects of the sane
Empire than between foreigners, while it is also subject to interruption from war
or a change or national policy; my Lords themselves admit that it would be very
desirable to have one common Tariff and commercial system for the whole British
Empire, they regret that the diversity of soil, climate, population and wealth appear to
forbid this hope, but they state that the dependencies of the Empire may be capable
of being so grouped as to permit the application of the principle advantageously
to them.

This is precisely the object sought by the Canadian Government, they desire to
bring the North American Provinces under one system—to remove all restrictions on
trade—to exchange the fish and coal of one province for the breadstuff and timber of
another—and to carry out the true principle of Free Trade as fully as possible within
their own jurisdiction.

The Canadian Government go further, and believe that were the principle once
fairly at work here, the same system might be applied in the other Colonies, that
instead of fifty different tariffs and commercial systems under the British Crown,
they might easily be reduced to five or six. That it would then be infinitely more
easy than at present to harmonize them with each other, and with that of the Mother
Country, and while the financial requirements of the several portions of the Empire,
might yet render import duties necessary, they could be so arranged as to press most
lightly upon the general resources and industry of the whole people.

My Lords propose to attach a condition to the adoption of this policy by the
North American Colonies—which wholly forbids its acceptance. We are willing to
admit the produce and manufactures of each other, but we do not choose to place

[Page 6]

other countries on the same footing, from whom we receive no countervailing advantages—and to the manifest defeat of our policy of drawing more closely the bonds
which unite us as dependencies of the same Empire. My Lords must surely admit
that the proposition of Canada, is one that tends to remove existing restrictions upon
trade—even if it does not go as far as their Lordships themselves wish—that it must
increase the identity of feeling and interest between the North American Provinces,
—and that on both grounds it should commend itself to the approval of Her Majesty’s
Government.

In further illustration of the argument of the undersigned, that my Lords have
placed the grounds of their objections, on much too narrow a basis,—and that general
political questions must be considered in connection with the subject, it may be
desirable to point out, that the whole case of my Lords rests upon the maintenance
of a state of things in the North American Provinces, which is manifestly temporary,
and which in the case of Canada has already been changed by the Union. The argument
and condition of my Lords only apply so long as these Provinces remain with
separate legislative powers, the union of two or all of them would instantly give that
measure of Free Trade which Canada desires. If this result then would flow from a
political act which many statesmen, both at home and in the Colonies, believe desireable, why should not the Provinces now be permitted to benefit by a commercial
union, in anticipation of a more intimate political connection.

It appears to the undersigned that in the report of the Lords of the Committee
on Privy Council for Trade, another and important constitutional question is raised,
in regard to the right possessed by two or more Colonies, each possessing self-government, to arrange between themselves the terms upon which their commercial
intercourse shall be maintained. The views held by my Lords appear to point at the
assertion of a degree of contest on the part of the Imperial Authorities, which would
not be urged against the independent action of any one such Colony. The point in
question appears to the undersigned of great importance, and raises a new and more
extended view of the relations which Constitutional Colonies bear towards each other.
It appears therefore to the undersigned that it would be very desirable to have a
thorough exposition of the views of the Imperial Government on the question of the
powers of the several Constitutional Colonies to decide themselves upon subjects connected with their internal Trade, in order that a proper understanding may exist
and that the difficulty may be avoided of discussion arising hereafter upon action
taken by the Colonies.

A.T. GALT,
Minister of Finance.

20th August, 1860.

(COPY.) CANADA, No. 2.
Copy to the Finance Minister Dec. 30th, 1861.

DOWNING STREET,
5th November, 1861.

Mr LORD,—

I think it right to inform you that I have net overlooked the important subject
of the Minister of the Executive Council, forwarded to me by Sir E. Head in his
despatch No. 2 of the 2nd of January, relative to the establishment of a reciprocal
free trade between the British Provinces of North America, and an assimilation of
their tariffs. The Government of Canada thought it desirable to make an attempt to
accomplish these ends, and wished to know whether there would be any objection on
the part of the Imperial Government.

I have the honor to inform you that Her Majesty’s Government feel no wish to
offer an obstacle to any endeavor which may be made by the respective Provincial
Governments to bring about a free commercial intercourse between the North
American Provinces.

I have, &c.,
(Signed,) NEWCASTLE.