Present

. . .

TRADE NEGOTIATIONS WITH HUNGARY

10. The Secretary of State for External Affairs reported that Hungary wished to enter into a most-favoured-nation trade agreement along the lines of the agreement of last February between Canada and Russia.¹³⁸ It had been agreed that Hungary could send a delegation here to negotiate an agreement on the understanding that she would buy approximately 150,000 tons of wheat each year during the life of the agreement. Should an agreement be negotiated, substantial sales of other Canadian products could not be expected and it was unlikely that Hungary would succeed in selling in volume in Canada. However, Hungary would probably wish to open a trade office in this country which would add to the difficulties of Canadian security authorities. The Hungarians would also likely press for credit on which to buy wheat but it had already been made clear that this could not be discussed within the context of the proposed negotiations. If they wanted export credit insurance on shipments in excess of the contractual amount, their application could be considered on its merits.

There was not much value in an agreement of this nature but an assured market of 150,000 tons of wheat a year for three years would be desirable.

The Minister recommended, with the concurrence of the Ministers of Trade and Commerce and of Finance, that officials of the departments concerned be authorized to negotiate with a view to concluding an agreement along the lines of the Russian arrangement made earlier in the year, and that the quantity of wheat to be purchased each year should be 150,000 tons if possible, but not less than 100,000 tons, and be sold for cash.

An explanatory memorandum was circulated

( Minister's memorandum, Oct. 2, 1956 - Cab. Doc. 187-56?)

11. During the discussion the following points emerged:

(a) While wheat sales were of course desirable, it was surprising that they should be made to communist countries when Egypt was able to buy wheat from Russia at below world prices. However, Russia had always sold wheat grown in the southwest part of the country to markets in Europe and the Middle East, while importing substantial quantities for eastern Siberia.

(b) These negotiations were, in the Hungarian view, preliminary to the establishment of diplomatic relations. If this happened, the Canadian mission in Czechoslovakia would be asked to look after our interests in Hungary. It would be hard to refuse a Hungarian request to establish a trade office in Canada but this should be in Ottawa to minimize security problems.

12. The Cabinet approved the recommendation of the Secretary of State for External Affairs regarding trade negotiations with Hungary and agreed,

(a) that officials of the interested departments, headed by Mr. Mitchell Sharp, Associate Deputy Minister of Trade and Commerce, be authorized to negotiate with the Hungarian delegation;

(b) that the delegation should aim at the conclusion of an agreement along the general lines of the agreement of February 29th, 1956, between Canada and the U.S.S.R., and that in particular they should insist upon similar escape clauses as well as upon an Hungarian undertaking to purchase an appropriate quantity of wheat each year during the life of the agreement; and,

(c) that the quantity of wheat to be purchased annually should be 150,000 tons if possible, but in any event not less than 100,000 tons, and should be for cash.

. . .