No reply has yet been delivered to the U.S. Note of January 7, 1957,¹⁰² proposing a general tightening of the strategic controls and in particular of the controls applying to trade with Communist China. This is because we did not consider that this proposal should be supported, but on the other hand regarded it as undesirable to join the other governments participating in the control arrangements in formally opposing U.S. views. We had some hope that the Note represented a final statement of U.S. preferences preparatory to abandonment of the completely uncompromising position which the U.S. had heretofore displayed, and that it might be possible before long to reply in a manner which would serve to contribute constructively to the removal of anomalies in the control system on an agreed and workable basis. In the meantime all other participating governments have replied, more or less outspokenly from case to case but all negatively, to the similar U.S. Notes addressed to them.

2. Fortunately the U.K.-U.S. discussions at Bermuda led to, or provided the occasion for a shift in the U.S. attitude. This shift has been made public in press conferences by Secretary Weeks¹⁰³ and, a few days later, by President Eisenhower.¹⁰⁴ Agreement has now been reached that the general question of China controls will be discussed in CHINCOM (the standing committee supervising the arrangements for control of trade with China) early in May, and the U.S. authorities have this week sought our comments on certain specific proposals which they intend to put forward at that time.¹⁰⁵

3. The moment therefore seems propitious for sending a reply to the U.S. Note which might consist mainly of an exposition designed to make the forthcoming discussion as fruitful and constructive as possible. I attach for your consideration, and signature if you approve, a Note to the United States Ambassador which might serve this purpose. The text has been prepared in close consultation between this Department and Trade and Commerce, with the views of the Joint Intelligence Bureau and the Joint Intelligence Committee being incorporated. It is satisfactory to the various officials indicated, and while Mr. Howe has not seen it, Mr. Bull has discussed its substance with him and is satisfied that Mr. Howe concurs.

J. L[ÉGER]

[PIÈCE JOINTE/ENCLOSURE]

Note du secrétaire d'État aux Affaires extérieures
à l'ambassadeur des États-Unis

Note from Secretary of State for External Affairs
to Ambassador of United States

CONFIDENTIAL

The Secretary of State for External Affairs presents his compliments to the Ambassador of the United States of America and has the honour to refer to the Ambassador's Notes No. 161 of January 7, 1957 and No. 179 of January 18, 1957? concerning strategic controls. The first proposed an early meeting of the Consultative Group to discuss the possible tightening of the strategic controls, and the second in response to the request in Note No. 14 of January 16? from the Department of External Affairs enlarged on the reasons why the United States Government favoured such a tightening. In the period since these Notes were delivered circumstances and ideas have altered somewhat, and it might therefore be useful to set out first the Canadian Government's impressions of the present situation relating to strategic controls.

The Canadian Government continues fully to support the objectives of the general system of controls, and to regard that system as broadly satisfactory for the achievement of those purposes. It has therefore been concerned at the distortions which in recent months have been introduced into the operation of the system, in particular through the increasingly liberal use by a number of participating governments of the exceptions procedures applicable to trade with Communist China. These procedures have been applied more extensively than might reasonably have been expected, to a point where the integrity and effectiveness of the entire control system may have been threatened. Hence the Canadian Government agrees that means should be sought of preventing further injury, through undue use of exceptions procedures in connection with trade with Communist China, to the general system of strategic controls.

The Canadian Government recognizes, however, that the effective operation of the control system requires the full cooperation of participating governments. The Committees are, of course, unable to enforce compliance on participating governments which may be unwilling of themselves to enforce restraints on trade. When cooperation fails, the effects are bound to undermine each participating country's ability to abide by its own strategic control undertakings.

In giving careful consideration to the matters raised in the Ambassador's Notes the Canadian Government has therefore taken account of the views of other governments participating in the system of strategic controls. It is apparent that a number of governments have found it difficult or impossible to reconcile with their legitimate national interests the full content of the restrictions, currently in force, upon trade with Communist China. In the absence of agreement to reduce these restrictions significantly, they have chosen to subject the agreed procedures to some distortion so as to permit a greater volume of trade with China than a literal application of agreed procedures would have permitted. It appears that these distortions have arisen not as a result of any general dissatisfaction with the agreed procedures in themselves but as the only means available, short of open disavowal of the control system, of permitting the trade they feel should be allowed. Nevertheless the abuses and distortions which have occurred have weakened not only the restraints on trade with China but the effectiveness of the control system as a whole.

In seeking a solution of the China list problem it is important to re-establish unity of policy and uniformity of practice in the work of the Committees. In this situation it might be considered that two courses are open. The first would be to make no significant change in the existing classifications but to seek other means of retaining dissatisfied governments within the voluntary control system. It appears probable that this could be achieved only at the cost of further major erosion or distortion of existing procedures with respect to the system as a whole, including the application of these procedures to the European Soviet bloc where the arrangements have in general functioned with satisfaction to all participating governments. The second course, clearly preferred by the great majority of participating governments, would be by agreement to reduce significantly the restrictions on trade with Communist China to a level approximating that applicable to trade with the European Soviet bloc.

It is the view of the Canadian Government that the first course is not a sound and realistic solution, and that it should not be considered. It could only be temporary in nature, and damaging to the general control system. There remains, then, the course of reducing significantly the present special restrictions on trade with Communist China and confining such trade within defined procedures and licensing guides mutually accepted and agreed by all participating governments. From the close and effective collaboration in these matters between United States and Canadian authorities the former are no doubt aware of the Canadian attitude towards this possibility. Canada has been concerned to avoid encouraging abuses, and also of course to preserve the close collaboration so much valued by the Canadian Government and to avoid an apparent isolation of the United States. Canadian representatives have therefore refrained from expressing formally in the Committees views differing from those which have been expressed there by U.S. representatives. In substance it is the Canadian view that it is difficult to demonstrate the strategic justification for prohibiting the shipment to Communist China of the majority of the items in the China differential list, and that the criteria on which that list rests imply a policy approximating economic warfare rather than one of controlling strategic commodities. Canadian authorities hold the view that that differential list might be abolished or at least substantially reduced without significant prejudice to the security of the free world. Both in terms of consistency within the control structure, and of obtaining full support for the effective operation of the control system, it would now appear desirable that the elimination or substantial reduction of the China differential list should be agreed.

The Canadian Government welcomes the recent indications in statements by President Eisenhower and others that the United States Government is now prepared to agree to a reduction of the China differential list. It is the belief of the Canadian Government that, in the interest of preserving an effective system of strategic controls actively supported by participating governments, the multilateral discussions soon to take place should be directed towards a real and workable understanding on the question of trade with Communist China. The Canadian Government is confident that when such an understanding is achieved it will become possible through negotiation to settle such other lesser problems as may remain in the application of the strategic control system. In particular, it should then be possible to reach agreement to limit the use of exceptions procedures to cases where they are genuinely and properly applicable, thus restoring the healthy operation of the procedural arrangements in general.

In the light of the foregoing, it may be stated that the Canadian Government considers that action should be taken promptly along the lines already indicated with a view to bringing about an effective limitation of the use of the CHINCOM exceptions procedures. The Canadian Government does not wish to comment at the present time on the proposal that there should be a sharp curtailment of shipments of copper wire to the European Soviet bloc, a question which it is understood is being discussed with others more directly concerned. Finally, with regard to the suggested significant increase in the possibility of aggression or intensified subversive action by the Communist bloc in the Far East, the Canadian Government does not consider that there is sufficient evidence of this to require any general tightening of COCOM/CHINCOM controls. Such a tightening might, for reasons already indicated, tend to diminish the effective application of existing controls, and moreover might tend to increase international tension and hence itself increase the risk of war. In the light of these considerations the Canadian Government would not regard it as desirable to impose a general curtailment of shipments of all items under International List II quota control. The Canadian Government will, however, remain ready at any time to discuss possible curtailment of shipments of individual commodities which may be regarded as constituting a risk to the security of the free world.

L.B. PEARSON