You will recall that in June, 1956 you received an Aide Mémoire, under a personal letter from the U.K. High Commissioner, following up a conversation he had with you concerning economic assistance to the Federation. A copy of the Aide Mémoire is attached.?⁸⁵

2. As a result of the U.K. approach it was agreed that a comprehensive study of Canada's relations with the West Indies should be undertaken. Senior representatives of all departments concerned have been meeting as the "Caribbean Group" and a good many papers have been produced by interested departments. The third and most recent meeting of the Group was held late in February. While no final recommendations have as yet been agreed for consideration by Cabinet, you will no doubt be interested to learn about the direction in which the Group is moving.

3. Capital aid. There has been general agreement that a distinction should be made between Capital Aid and Technical Assistance. Finance and also Trade and Commerce have warned against embarking upon a Capital Aid programme which could easily become a bottomless commitment and which might imply willingness on our part to underwrite the Federation's economic viability on a continuing and long-term basis. It is pointed out that although the U.K. has stated that it would expect to carry the major burden, it is naturally anxious to promote the concept of "burden sharing". (Exact figures as to the size of the U.K. burden are not available but their capital and technical assistance, in the form of grants and loans, apparently exceeds £4 million annually, or £8 million if aid to British Guiana and British Honduras is added.)

4. The Group has considered that the special problems and circumstances which have justified capital expenditure in Asia under the Colombo Plan apply only to a very limited degree in the Caribbean. Moreover, were Canada to agree to a Caribbean Plan, we could well expect to receive requests from other areas of the world (and indeed from other countries in the Caribbean area itself) which have needs fully as urgent and claims quite as deserving. In any event we have been handicapped through lack of firm information about the capital assistance needs of the Federation and the sort of priorities which it would put on these needs: we have not been able to advance considered proposals for a capital assistance programme for the Federation.

5. As a consequence there is emerging a consensus that such Capital Aid as may be provided to the Federation should be in the form of a once-and-for-all project in which the extent of our commitment could be defined and limited in advance to the fullest extent possible. In line with this approach broad support has been given to the suggestion that we should provide one or two new, small (1500-1600 dwt. tons) cargo-passenger ships which would be built in Canadian yards, at a cost of approximately $2 1/2 million each. Such a project, it is thought, would be appropriate to the needs of the Federation, and for historical and other reasons could suitably be offered by Canada.

6. The Group, however, have not committed themselves to such a recommendation pending a study of probable operating costs for the ships. Some members have expressed the fear that even if such ships were presented as a gift, the Federation or its agents could not operate them other than at a loss and hence (a) the Federation's financial deficit, inevitably appreciable for several years since its revenues are to be strictly limited by the terms of the Constitution, would be further increased; (b) the U.K., with continuing financial responsibility for the Federation, might have to shoulder a still heavier burden; and (c) Canada might find that the extent of her commitment was not so definite as had been supposed and we might have to consider a request for operating subsidies for the ships.

7. The factual study of costs referred to above has been completed but has not yet been considered by the Group. The study estimates that each ship would operate at an annual loss of $175,000 to $250,000 depending on the extent and regularity of its services. Too little is as yet known about the likely size of the Federation's revenues to measure the significance of such deficits. It is clear, however, that the operating deficits would be burdensome, particularly since it is known that the Federation's revenues will not be high; we understand that the likely inadequacy of these revenues is giving some cause for concern about the Federation's future.

8. Technical Assistance. Canada already extends technical assistance to the British West Indies, but on a very limited scale. (The greater part of this aid is provided indirectly through our contribution to the U.N.) The Group would probably be disposed to increase the amount of our direct technical assistance and to arrange for some planning and organization of it. It is considered that technical assistance is peculiarly well adapted to the Federation's needs and that it could be offered on a continuing basis since it is not likely to involve an excessive expenditure of funds. Projects to which assistance could usefully be directed would be in the usual sort of fields: Agriculture, Fisheries, Marketing, Health and Sanitation, Higher education, Radio broadcasting and other forms of communication. The limit of such assistance is more likely to prove physical than financial, having in mind our Colombo Plan and U.N. commitments, the limited availability of our training facilities, and the scarcity of suitable experts in some fields. In any event, no cost figure can be put at this time on an expanded technical assistance programme by Canada.

9. The "umbrella" for the extension of aid. It has been apparent that the Group would wish to recommend aid on a bilateral basis rather than as suggested by the U.K. "in association" with them and perhaps other countries. The views of the majority of the Group concerning an implied commitment for long-term and probably substantial expenditures have already been mentioned. The further point has been made that if a Colombo type programme were adopted, Canadian aid would be overshadowed by the level of U.K. aid.

10. There has of course been no desire on the part of the Group to offer advice to the U.K. (in reply to their request) on the question of consultations with Commonwealth and other countries including the U.S.A. regarding an economic assistance programme for the Federation. We informed Earnescliffe informally last July, at the suggestion of the Group, that we saw no objection to such consultations taking place.

11. Although we understand that the U.K. has in fact not yet approached other countries, it is not unlikely that she may eventually do so. Should the replies be such that a joint programme is eventually established, it is probable that some forum would be developed, perhaps along the lines of the Consultative Committee of the Colombo Plan. We have pointed out to the Group that Canada would find it difficult to stand aloof from such a Group. And yet our only basis of participation would be an unspectacular programme of technical assistance (our once-and-for-all grant having already been made). The probability of such an organization being established, however, is not thought to be very great at least in the foreseeable future. We have as yet no indication of probable U.S. views about a Caribbean Plan. We understand that they have always been careful not to do anything which might be interpreted as interference in the U.K. colonies. The American programme in the Caribbean as a whole, largely technical assistance (the bulk in Haiti, Cuba and the Dominican Republic) was about $4 million in 1956.

12. The Caribbean Group will meet at an early date to formulate recommendations and to agree upon the nature of our reply to the U.K. approach. As things now stand it is probable that the Group will suggest extension of a once-and-for-all grant, perhaps of ships, on a strictly bilateral basis. (The constitutional aspect is being studied - it is not certain that we could deal directly with the "Federation"). I think, however, you will agree that it would be unnecessarily blunt to inform the U.K. that, while we are prepared to offer aid to the Federation, we would not wish to do so in association with them.⁸⁶ Perhaps it would be preferable to state that we would be happy to associate with them - and with such other countries as have expressed to the U.K. their willingness to contribute - in a limited programme of technical assistance. We would add that we were planning to extend capital assistance on a bilateral basis and would inform the U.K. of the sort of aid we are prepared to make available.⁸⁷

13. Before discussing this sort of reply with the Group, we would wish to have your views on it and on the larger issues raised by the U.K. approach.

14. As you know, the Prime Minister last week answered a question from Mr. Balcom (Halifax) by saying that the "development of the Federation" was under study.⁸⁸

J[ules] L[éger]⁸⁹