During my visit to Moscow it is evident that the Soviet authorities will wish to discuss the possibility of a trade agreement providing for the exchange of most-favoured-nation treatment between Canada and the USSR. Canada has most-favoured-nation agreements with three Communist countries, China, Czechoslovakia and Poland.

At present Soviet exports to Canada are subject to our general tariff rates which in most cases are substantially higher than the most-favoured-nation rates. In the case of the USSR the tariff is of less commercial importance than in most countries since import decisions are taken by the Ministry of Foreign Trade. The Canadian tariff is less of an obstacle to Soviet exports to Canada than it would be if Soviet sales were in private hands; nevertheless most-favoured-nation treatment could be of some commercial value to the USSR.

Trade between the USSR and Canada is not very extensive at present. In 1954 our exports to the USSR amounted to $4,854,000, consisting of pulp, canned meat, barley and hides. Imports totalled $687,000, principally fur skins.

It is unlikely that the exchange of most-favoured-nation treatment would by itself bring about any significant increase in trade. As the natural resources of the two countries are similar rather than complementary, a large volume of trade is in any case improbable. There is probably some scope for expansion however. From time to time the USSR imports from other countries some non-strategic commodities which could be supplied by Canada, including wheat and coarse grains. Canada is a market for certain products which the USSR exports to other countries such as cotton and phosphates; the commodities the USSR normally exports are not such as would create difficulties for Canadian industry.

The principal Soviet motive may well be political - a desire to consolidate the relaxation of tension that followed the Geneva conference and to put its relations with Western countries on a more "normal" basis. The USSR is the only major country that does not receive most-favoured-nation treatment in Canada.

The mere exchange of most-favoured-nation tariff treatment would be a rather one-sided bargain unless it was accompanied by an undertaking by the USSR to purchase over a reasonable period significant quantities of certain important Canadian products, including wheat. (In 1938 Canada and the USSR reached agreement in principle on a trade agreement in which Canada would have granted most-favoured-nation treatment in return for a Soviet commitment to purchase from Canada goods valued at $5 million a year. The war interrupted these negotiations).⁵⁴ Politically the conclusion of such an agreement would not be undesirable; it could make some small contribution to the improvement of our relations.

I recommend that, if I am approached by Soviet Ministers on the question of a most-favoured-nation trade agreement, I should indicate that the Canadian Government would give favourable consideration to an agreement along the foregoing lines, provided that the USSR would undertake to purchase adequate quantities of important Canadian products, including wheat, over a long enough period.⁵⁵

L.B. PEARSON