Present:
Mr. R.B. Bryce, Secretary to the Cabinet, (Chairman)
Mr. F.W. Bull, Deputy Minister of Trade and Commerce
Mr. H.B. McKinnon, Chairman of the Tariff Board
Mr. K.W. Taylor, Deputy Minister of Finance
Mr. J.E. Coyne, Deputy Governor of the Bank of Canada
Mr. R.M. Macdonnell, Asst. Under-Secretary of State for External Affairs
Mr. L.W. Pearsall, Department of Agriculture
Mr. W.P. Chipman, Privy Council Office, (Assistant Secretary)
Also Present:
Mr. M.W. Sharp, Associate Deputy Minister of Trade & Commerce
Mr. J.J. Deutsch, Assistant Deputy Minister of Finance
Mr. C.M. Isbister, Department of Trade and Commerce
Mr. J.F. Parkinson, Department of Finance
Mr. S.S. Reisman, Department of Finance
Mr. L. Rasminsky, Bank of Canada
Mr. A.E. Ritchie, Department of External Affairs
Mr. A.R. Kilgour, Department of External Affairs
Mr. A.E. Richards, Department of Agriculture

. . .

IV. COMMONWEALTH FINANCE MINISTERS' MEETING ¹⁸

25. The Assistant Deputy Minister of Finance said that before the conference began the British had taken stock of their position and that of the sterling area and arrived at the conclusion that no further major step in the area of convertibility could be taken in the immediate future. This had a limiting effect on the discussions at the conference. The agenda for the meetings was routine in nature and covered the usual subjects.

The first item discussed was the position of the sterling area and the outlook for the immediate future. The sterling area in the last eighteen months had been in overall surplus and for the next six months expected to continue in overall surplus - but at a somewhat lower rate and with smaller additions to the reserve.

As in previous meetings, following the forecast for the next six months, there had been a discussion of import policies in the light of the forecast. No changes in policy had been called for. The United Kingdom would continue the trend toward the freeing of trade in raw materials and foodstuffs. Other Commonwealth countries had not indicated any new developments with the exception of the South African non-discriminatory policy on certain imports from the first of the year.

The conference next reviewed the decisions of previous conferences and last year's Prime Ministers' conference on the collective approach as the policy of the sterling area. ¹⁹ At this time, two major points came up for discussion - the possible impact of a U.S. recession on the collective approach and, in the light of practices in 1953, the question of whether it was still realistic to expect the United States to adopt good-creditor policies.

On the question of a recession there had at the beginning been a good deal of uncertainty and some apprehension. The discussion had probably reduced, to a certain extent, the fear of a serious or prolonged recession. We had said we anticipated the possibility of a shallow and relatively short recession and it had been concluded that prospects were not such as to justify any change in the course of present policies. The British - although somewhat more pessimistic - were in general agreement that no change in course was necessary at present, but wished to keep in close consultation with Commonwealth countries in case of a downturn. They had, indeed, indicated that they might consider the use of some of their reserves to ride out a short-lived recession rather than resorting to restriction of imports.

On the subject of U.S. good-creditor policies the Canadian delegation had been gratified at the realistic approach displayed by Commonwealth countries toward the situation in the United States. There was a realization that the expectations of last March were too optimistic and that it was unlikely that any dramatic changes would take place in U.S. policies. At the time of the meeting, the Randall Commission had not, of course, reported and there was hope that positive progressive steps might be taken, albeit slowly.

From the discussions, the position of Western Europe with respect to the collective approach seemed disappointing. Little progress had been made in plans for adapting the European Payments Union to convertibility, and little initiative in this direction was being shown. It appeared that West Germany was most interested in convertibility, followed fairly closely by Belgium and the Netherlands. There seemed little interest in other countries, possibly because they found the present system too comfortable. The United Kingdom had indicated that a new effort would be made this year to encourage some enthusiasm toward convertibility in EPU countries.

As far as the attitude of individual Commonwealth countries toward convertibility could be assessed, there appeared to be no attempt to quarrel with, or hold out reservations against, the collective approach as the common programme of the sterling areas, although no mention had been made of timing. The Asiatic Commonwealth countries appeared, in this respect, to have swung into line in the realization that sterling must be re-established in the interests of all as a respectable currency.

It had been noticeable that protectionism was rampant in some countries. It appeared that the views of some groups in certain countries would be difficult to change and therefore, in practice, it would be difficult to move toward the liberalization of trade.

As a final comment, there was some evidence that the monetary and fiscal situation in some countries was somewhat strained. Australia appeared close to inflation and there was some possibility of a similar situation developing in the United Kingdom.

In summary, it was encouraging that, in the formal sense, the immediate future of the sterling area appeared satisfactory and that there was a better understanding, on the part of Commonwealth countries, of the United States position.

26. Mr. Rasminsky agreed generally with Mr. Deutsch's excellent summary. He did feel, however, that although the record appeared good there seemed to be an impression that for domestic political reasons the U.K. Chancellor of the Exchequer would have an increasingly difficult task in moving toward convertibility, especially because of the lack of U.S. good-creditor policies and the possibility of a recession. This would indicate that, although the objective was not being abandoned, there would be very careful thought given to the timing of any moves.

Other sterling area countries, while, in general, agreeing with the collective approach, appeared somewhat less enthusiastic than a year ago. Most countries had eased up on their deflationary policies. Australia, New Zealand, the United Kingdom and Ceylon appeared to be in an inflationary stage and it did not seem likely therefore that there would be much pressure on the United Kingdom from other sterling area countries, except possibly India, for moving toward convertibility.

27. The Deputy Minister of Trade and Commerce reviewed developments in the trade field. In the beginning he had been depressed about the attitudes revealed at the conference but, in private conversations, he had received a degree of encouragement.

In discussions in Canberra, officials had offered to recommend relaxation in certain import controls - notably salmon (up to $500,000); newsprint (up to 45,000 tons) and increased quotas of pulp, soft-wood lumber, agricultural machinery and typewriters. In the broader field, officials said specific proposals, in cases where Canadian goods would undersell U.K. goods, would be considered.

In New Zealand, officials had agreed to prepare a list of items on which concessions might be made. As in Australia, there were certain political difficulties in the way of any measure to free trade, but it seemed that they would be particularly receptive in cases where it could be shown that Canadian items would be cheaper than other imports. New Zealand had asked us to consider buying some butter and cheese from them.

The timing of the talks with Australia and New Zealand appeared good, and some encouragement might be taken from their outcome.

28. The Assistant Under-Secretary of State for External Affairs asked when, barring unexpected developments, Finance Ministers might be expected to meet again.

29. Mr. Deutsch said the assumption was that the meetings would be held annually.

30. The Deputy Minister of Finance said that the collective approach would likely be raised at the joint United States - Canadian Committee on Trade and Economic Affairs meeting. ²⁰ The United States obviously would be unwilling again to be placed in a position where they appeared to be pushing the collective approach. Presumably, we also should not appear to be in this position. The decision on timing was not for us to make.

31. Mr. Parkinson suggested that, with respect to the collective approach, it might be recommended to Ministers that, while the question of timing was not one for Canada to decide, we might assist in the achieving of the objective as much as possible; for example, in supporting a scheme of assistance by the International Monetary Fund. It might also be suggested to the United States that convertibility and the removal of trade restrictions would be advantageous both to them and to us.

32. The Committee, after some further discussion:

(a) noted the reports by Messrs. Deutsch, Rasminsky and Bull on the Commonwealth Finance Ministers' Conference; and

(b) agreed that on the question of the collective approach it should be recommended to Ministers that the Canadian position should be one of neither encouragement nor discouragement but that we should be prepared to assist the achievement of the objective in any reasonable way possible.