In connection with the Minister's remarks this morning regarding the status of the mutual aid item in the estimates of the Department of National Defence, I have now spoken with Mr. Elgin Armstrong, the Assistant Deputy Minister in charge of finance in D.N.D.

2. Mr. Armstrong confirms that the allowance for mutual aid in the present Defence estimates is some $100 million below the figure for last year. He also confirms that this figure has been agreed between Mr. Campney and Mr. Harris and that the estimates containing this figure are on the verge of, or in the process of, being printed.

3. According to Mr. Armstrong, D.N.D. has prepared a paper on the Mutual Aid Programme for consideration by the next Cabinet Defence Committee and he expects that copies of this paper will be available later today or tomorrow morning. He realizes that it is a little anomalous to have this matter discussed in the Cabinet Defence Committee at the same time as a more or less final figure is apparently being included in the printed estimates. He assumes that Cabinet Defence Committee will, however, be more concerned about the composition of the programme than about the total.

4. I told Mr. Armstrong that our Minister was disturbed that agreement had evidently been reached regarding the size of the programme without inter-departmental consultation - or at least without consultation involving this Department. He recognized that this was regrettable but observed that the figure for the programme became almost inevitable when a ceiling was set for total defence expenditures. He did not suggest that informal conversations which had taken place previously with officers of this Department constituted "consultation". He remarked that formal consultation, particularly at the ministerial level, had been made a little difficult by the fact that the Ministers concerned had not been in Ottawa at the same time very frequently. The proposed Cabinet Defence Committee meeting was being arranged at about the earliest date feasible.

5. In the circumstances, you may wish to suggest to Mr. Drury, or Mr. Taylor in Finance, that the final printing of the part of the estimates containing this figure should at least be deferred until after the Cabinet Defence Committee meets.

6. In connection with any conversation which you may have with the Minister on this situation you may wish to have in mind the two memoranda flagged on the attached file.

7. The first of these is dated October 25 and contains information given to me by Mr. Armstrong at that time about the current thinking in National Defence.¹ It will be noted from paragraph 5 of that memorandum that I had warned Mr. Armstrong that "no doubt anything which Mr. Pearson might have said regarding a possible reduction in mutual aid was related to the likelihood of increase in certain other expenditures of interest to this Department such as our contribution under the Colombo Plan". The second memorandum, dated December 8, passed on to the Minister certain information which had been given to us informally at a meeting of the Sub-Panel (when, incidentally, we had made it quite clear that we did not regard this informal notice as constituting "consultation" and had added that we believed Mr. Pearson had told Mr. Harris only a few days before of his dissatisfaction with a reduction of anything like $100 million in the Mutual Aid Programme).² In that memorandum we explained some of the difficulties standing in the way of a substantial increase in the programme and indicated the possibility that the programme might be reduced still further if the F-86's were to be withdrawn. We concluded that "since the programme will need to be settled shortly, (the Minister) may wish to discuss it with Mr. Harris and Mr. Campney before the NATO Delegation leaves for Paris; and with Mr. Howe after arrival in Paris".

A.E. RITCHIE

P.S. The Department of National Defence estimates including the figure for mutual aid have been approved by the Treasury Board as a whole as well as by Mr. Campney and Mr. Harris.