The first decision has already been taken, which is to participate in the conference. This decision is correct, not only because our reluctance to participate would be misunderstood in the other Commonwealth countries as well as in Canada, but also for the very important reason that by participating we can help to influence the direction in which the discussions at the conference proceed and the eventual outcome of the conference. Although the fact that we are not a member of the sterling area places us apart from the other Commonwealth delegations in economic discussions, the experience of the last conference of Commonwealth Finance Ministers demonstrated clearly that our views are listened to with respect, and the detached attitude we are able to adopt towards certain of the problems enables us to exert considerable influence over the discussions. Fundamentally this is because no member of the Commonwealth wishes to see Canada placed in a position where its membership in the Commonwealth proves to be an embarrassment.

The other difficult decisions of policy with which Canada will be faced are indicated by certain of the factors which the United Kingdom Prime Minister has used to justify the calling of the conference. For instance, he refers to the importance of discussions with the Government of the United States soon after the November election and the necessity of Commonwealth countries adopting a common outlook towards issues arising in such organizations as the Fund,6 the Bank,7 GATT and ECOSOC. It has been our policy to avoid giving the United States justification for regarding the Commonwealth as a medium for "ganging up" against the United States. Moreover, our special ties with the United States and the fact that we are not a member of the sterling area makes it often difficult for us to find common ground with other Commonwealth countries in the approach to economic problems.

The conference is being called in answer to a rather insistent demand on the part of a section of the Conservative Party in the United Kingdom. This section is perhaps more vocal than influential, but it has the powerful support of Lord Beaverbrook, Lord Camrose and Lord Kemsley and the papers which they control. This group have been urging the closer economic consolidation of the Commonwealth as an exclusive trading block. More specifically, they have directed their attack against the provisions of GATT which preclude the increase of existing preferences or the introduction of new preferences. In other words the policy they advocate is the extension of the system of preferences which were originally sponsored by Canada and found widespread application in the decisions of the Imperial Economic Conference held at Ottawa in 1932.

The movement towards closer economic cooperation among the Commonwealth countries finds a ready response in Australia and New Zealand and also to some extent in South Africa but it is clear that doubts about the feasibility of such a policy are widely held among responsible circles in the United Kingdom and among an influential group of Australian officials.

In some cases these doubts spring from a realization that trade rivalry is the factor most likely to introduce discord into the Anglo-American alliance. Good relations between Commonwealth countries and the United States are greatly facilitated if controversial trade questions can be kept in the background. GATT has been successful in achieving this objective. In other cases the doubts arise from a realization that the building-up of an exclusive trading block for the purpose of sheltering Commonwealth industries from American, German, and Japanese competition is unsound economically and likely to defeat the ultimate objective of the convertibility of sterling.

The recent repudiation by the United States Congress of the State Department policy directed towards the freeing of trade barriers is undermining the support for GATT in many Commonwealth countries, including Canada. There is only need to mention in this connection the failure of the United States Congress to pass the Customs Simplification Bill and the passing of the Andresen Amendment to the Defence Production Act which imposed quotas on the import of dairy products into the United States, These actions by Congress inconsistent with the policy of the State Department have meant that the United States has forfeited, for the time being, its leadership in the movement towards freer world trade.

The General Agreement on Tariffs and Trade (GATT) itself is not a very secure instrument in that it is receiving only provisional application to the extent consistent with the existing legislation. Accordingly it is difficult to defend GATT as the basis for the further development of freer world trade. However, the standstill on the increase of preferences is the effective quid pro quo which the United States received for reductions in United States duties and it is inconceivable that the new administration could maintain the reduced duties granted to commonwealth countries in the face of a repudiation of the main concession received by the United States. More than any Commonwealth country Canada would suffer from the general break-of GATT and the restoration of United States duties to the Hawley-Smoot level.

Apart from GATT, it must also be admitted that the Fund, the Bank and ECOSOC have failed to fulfil the high hopes originally held for them. Accordingly, a new initiative in the direction of more liberal international economic policies is desirable. The important questions to be resolved are the timing and method of such an initiative. From this it follows that the Canadian role at the forthcoming Commonwealth Economic Conference should not only be negative but also positive. Besides resisting any tendency to form all or some of the members of the Commonwealth into an exclusive trading block, we should endeavour to direct the discussions towards the manner in which an approach might be made by Commonwealth countries to the United States whereby existing international economic agencies could be re-constituted so as to be more effective instruments for the freeing of international trade. This approach to the United States should not in any sense take the form of a "ganging up" of Commonwealth countries. It should rather be a constructive approach by which those elements in the United States who realize the obligations of that country as a creditor nation may exert an influence towards having the United States once more assert its leadership in the field of international economic cooperation.

It is encouraging that the Acting United Kingdom High Commissioner's letter, transmitting the telegram, refers to the fact that the proposed economic conference will supersede the Finance Minister's conference scheduled for next January and also that the two working parties on convertibility of currencies and economic development within the Commonwealth will be continuing their meetings and presumably reporting to the conference. It would be sound policy for Canada to treat the economic conference as in every way stemming from the Finance Ministers Conference with the change in name being mainly for the purpose of embracing a wider range of Commonwealth economic problems, including those of trade. If this course is followed it would be easier to define our objectives as those of leading the Commonwealth towards sound economic policies, which could provide a basis for the eventual convertibility of sterling and an approach at the appropriate time to the Government of the United States for a new initiative towards freer world trade.

If these general objectives meet with approval, it is recommended that a suitable group of Canadian officials should be assigned the task of preparing the ground for the conference, particularly with a view to securing instructions from the Government prior to the meeting of Commonwealth officials which is to be held for the purpose of preparing for the conference.⁸

L.D. W[ILGRESS]