As you know, this matter was considered by Cabinet on June 15, following an offer by Poland to buy wheat and rye on credit. The Minister of Trade and Commerce was authorized "to inform Poland that the Export Credits Insurance Corporation would be prepared to enter into a contract of insurance for the sale of a maximum of 250,000 tons of wheat, valued at approximately $22.5 million, on the terms of 15 per cent cash at time of purchase, with the balance of 85 per cent payable 12 months, from the date of shipment if payment were guaranteed by the Polish government". It was decided that "export credits insurance be not extended to cover sales of rye".

The wheat transaction was agreed to on June 29 by an exchange of letters? between Mr. Sharp of Trade and Commerce and the Polish Chargé d'Affaires. The relevant papers are attached. The salient features of the transaction are that an authorized Polish National Trade Organization will obtain the wheat from Northern Sales Limited, an agency of the Wheat Board. The credit, covering 85% of the shipments, is to be extended by a commercial bank. The Canadian Government enters into the transaction by insuring the exporter under the Export Credits Insurance Act.

The Canadian Government has made similar arrangements during the past three years to facilitate the sale of wheat to Brazil and Yugoslavia. In both cases payments have been made on due date, although in the case of the latest arrangement with Yugoslavia we have recently been informed that the Yugoslav Government would like to postpone payments. (This information has not, of course, been made public.)

The United States does not sell wheat on credit to Iron Curtain countries. The United States has, however, provided surplus wheat to Yugoslavia as well as to a great many "friendly" countries. This method of disposing of surplus grain tends to disrupt normal commercial markets and normally involves payment in local currencies. Argentina sells wheat to several Iron Curtain countries on a barter basis but this is not comparable with our transaction with Poland, or with the United States surplus disposal programme. Australia shipped £295,000 worth of wheat to Poland in 1949-50 and 262,000 bushels of wheat to Rumania in 1954-55. We have no information that either of these shipments involved credit arrangements, although this is possible. Australia shipped £122,000 worth of wheat to Communist China in 1950-51.

Our arrangement with Poland can, I think, be regarded as a straight commercial transaction. The initiative came from the Polish Government, which wanted to buy our wheat "on credit" and which was clearly not prepared to pay cash for more than a small percentage. It was felt that the Canadian Government would be justified in authorizing export credits insurance to cover the deal, as had been done in the case of similar sales in the past to Yugoslavia and Brazil. (Incidentally, according to our information, there has been no Government-backed sale of wheat on credit to Czechoslovakia, as was indicated in the House by the Prime Minister.)³¹ This decision, of course, is consistent with our general policy of trading in non-strategic goods with Iron Curtain countries.

Even the export credits aspect is not entirely new. Between 1947 and 1949 exports to Poland of rags and hides totalling about $600,000 were insured by the Export Credit Insurance Corporation, as were shipments of hides to Czechoslovakia totalling $2,800,000 in 1949. These arrangements, unlike the arrangement for wheat to Poland, were made directly by the Corporation and did not come under Section 21 which requires Government sanction and backing of the consolidated revenue fund. Nevertheless they do indicate that there are precedents for insurance of commercial deals worked out with agencies in Iron Curtain countries so long as this can be done in a business-like manner.

To my knowledge the Government has received no formal requests for wheat on credit other than those mentioned in this memorandum. (I am, of course, leaving out of account the wheat which we have provided to Pakistan and India on a grant basis inside and outside the Colombo Plan.) The Polish deal will probably sharpen the interest of grain merchants who make a practice of "shopping around" among wheat-consuming countries to see if the latter would be interested in buying wheat on credit from exporting countries. The Department of Trade and Commerce is not worried by this prospect; they have had "feelers" from such merchants in the past and they will examine any firm offers which develop on their merits - for example, a possible deal with Hungary which Cabinet has approved in principle. In any case most countries consider it uneconomical to buy wheat on credit.

Mr. Black of the United States Embassy enquired about the wheat deal with Poland by telephone on Tuesday. We gave him the salient facts, stressed that it is a straight commercial deal and referred him for details to the Department of Trade and Commerce. We believe that, while the United States authorities might be disposed to regard the arrangement we have made with Poland as regrettable politically, the Departments of government in Washington concerned with disposal understand our motives. In fact, we understand that they have considered disposing of such surpluses to Iron Curtain countries but have so far been restrained by general policy considerations.

J. L[ÉGER]