On January 23rd the Chargé d'Affaires and the Commercial Attaché of the Polish Legation conveyed to my Department a request for export credits guarantee covering the purchase of another 200,000 tons of wheat, plus a small quantity of barley, on the same terms as the guarantee authorized by Cabinet by P.C. 1955-1034 dated July 7, 1955 for 250,000 tons, namely 15 percent cash and 85 percent payable at the end of twelve months from date of shipment.

All of the 250,000 tons covered by the original guarantee have now been purchased but less than 100,000 tons have yet been shipped. Payments will fall due over the period September, 1956 to March, 1957. The outstanding liability of the Export Credits Insurance Corporation will be about $17 million. All the wheat purchased was grade No. 5. The Polish representatives indicated that the 200,000 tons now under negotiation will be of the same grade.

In addition to the wheat purchased under the export credits guarantee, Canadian exporters have made cash sales to Poland of 30,000 tons of wheat and three cargos of rye.

At the last session of the United Nations in New York, the Polish Vice-Minister of Foreign Affairs indicated to the Canadian Delegate, Mr. Martin, that Poland intended to buy substantial quantities of wheat from Canada from year to year. The Polish representatives confirmed this statement on January 23rd. In reply to a question they also affirmed Poland's intention to meet payments when they fall due and denied any intention of pleading inability to pay because of insufficient sales of Polish goods in Canada. Current surplus earnings in the United States would be available for this purpose.

Trade sources have informed the Department that Poland has already entered orders for 100,000 tons of No. 5 wheat, 90,000 tons from Eastern ports and 10,000 tons from the Pacific coast for delivery before the end of the current crop year, subject to authorization of the export credits guarantee. These conditional purchases tend to confirm the statement made by the Polish representatives that half of the 200,000 tons will be required during the current crop year and the remainder after the 1956 crop is harvested.

If at the time of the original request Poland had placed its requirements for current year at 350,000 tons rather than 250,000 tons, I would have been prepared to recommend acceptance on this basis. Even if the figure had been 450,000 tons covering a somewhat longer period, I should have thought that it deserved careful consideration particularly since Poland wished to purchase No. 5 wheat of which there were such large quantities. The request has, in fact, been made in two instalments and it is necessary to consider with respect to the second instalment, whether:

(a) It should be turned down;

(b) A counter offer should be made requiring a larger cash payment at time of shipment;

(c) The same terms should be accepted for a part of the requested amount, say 100,000 tons, to be shipped during the current crop year;

(d) It should be accepted in full.

The Canadian Wheat Board would welcome another substantial sale of No. 5 wheat for shipment during both the current and coming crop years. It cannot be assumed that the existing demand for this grade will continue indefinitely. On the other hand, the wheat trade is ordinarily carried on a cash basis and it is not desirable to encourage the practise of selling wheat on credit.

The probability is that, if we refuse the guarantee or stiffen the terms appreciably, Poland will obtain the wheat elsewhere - from Australia, for example, which is said to be offering 18 months' terms with quarterly repayments. Diversion of demand to other sources at this juncture would probably mean that Poland will not be a continuing market for Canadian wheat in the future.

On balance, therefore, I would be inclined to recommend acceptance of another 100,000 tons on the same terms, namely 15 percent cash, 85 percent at the end of 12 months, involving an additional credit risk of about $6.8 millions.¹³² If, however, it is felt that some stiffening of the terms is considered desirable, I would be prepared to agree to a counter-proposal along these lines, although I believe we run the risk of losing a substantial and continuing market for Canadian wheat in Poland.

C.D. H[OWE]