I am attaching a copy of the draft memorandum¹⁴⁶ prepared by the Inter-departmental Committee on External Trade Policy which it was thought Ministers might wish to leave with the U.S. Cabinet members with whom they will be meeting on Thursday. I understand that Mr. Howe will be discussing this draft with the Prime Minister early this afternoon.

2. Of the various points made in this draft memorandum, you might wish to give particular emphasis to those which would seem likely to have some appeal to Mr. Dulles. For example:

(a) you might think it desirable to emphasize the demoralizing effect which pressure by the U.S. to have its obligations waived (or a split between the U.S. and Canada on this issue) would be likely to have on international cooperation generally. It is quite possible that the U.S. could induce the necessary number of contracting parties to agree to such a waiver but only in return for a weakening of the obligations imposed on those countries under the GATT. For the U.S. to secure a waiver on such terms (with Canada, the principal country affected, continuing to oppose it) would appear to be very short-sighted. The shadow of cooperation under the GATT might have been retained, but the substance would have been largely lost. Such a deterioration in the position of the GATT could hardly fail to have damaging effects on the prospects for genuine and meaningful cooperation not only in the economic field but possibly in other areas as well;

(b) you might wish to refer specifically to the injurious effects which such a situation would have on attitudes in Canada towards the United States and, hence, on relations between the two countries; and

(c) you might draw attention to the observation in paragraph 3 of the memorandum that "in particular, if such a waiver were in effect, or likely to come into effect, it would be most difficult for the Canadian Government to take part in tariff negotiations under the Agreement." You might refer to the hope of the United States that Canada would be able to join in the tariff negotiations involving Japan next month. While it would be difficult at any time for Canada to enter into negotiations affecting trade with Japan (especially since our most-favoured-nation rates which are now applicable to Japanese goods are relatively low), the Canadian authorities have been attempting to find some basis on which Canada could participate in such negotiations. If, in addition to the problems which negotiations involving Japan would ordinarily present, it was now to appear that our trade in agricultural products with the United States was likely to be subject to a general waiver of U.S. obligations, it would be virtually impossible for Canada to contemplate joining in the proposed negotiations (particularly as many of the concessions which might benefit Japan would have to be negotiated with the United States). Accordingly, apart from the difficulties which such a waiver would create for possible Canadian participation in subsequent general tariff negotiations, the U.S. Administration should appreciate that the more immediate decision concerning negotiations with Japan would almost certainly be adversely affected if the U.S. were to insist on the waiver which it is now seeking. Although we are (like Mr. Dulles) fully conscious of the desirability from a political point of view of helping to ease the admission of Japan fully into the GATT, insistence by the U.S. on its proposal for a waiver would make this practically impossible.

3. In short, it might be represented to Mr. Dulles that the present U.S. proposal (which we regard as unreasonable in itself) would:

(i) adversely affect international [economic] cooperation generally [and this weakens political co-op];

(ii) damage [each of which is other's best customer & I hope closest friend] relations between the United States and Canada;

(iii) impair Canada's ability to enter into tariff negotiations [under GATT] aimed at making Japan a full member of the GATT.¹⁴⁷

Mr. Dulles might be asked whether he really considers that it is worth incurring these consequences in order to get complete freedom (or at least greater freedom than would seem to be necessary) for the U.S. in agricultural matters.

4. Supplementary background material is being prepared and should be available either later today or tomorrow morning.

5. Meanwhile, you might wish to have the attached paper entitled "GATT Review - Positions and Policies"?¹⁴⁸ which was prepared for a recent meeting of the Inter-departmental Committee.

R.M. M[acdonnell]
for Under-Secretary of State
for External Affairs