Dear Dr. Clark:

I am enclosing a memorandum prepared in this Department on "Canadian Con­tributions to External Relief and Development". Our Department has been very conscious of the difficulties in deciding on the recommendations we should make to the Government in the new field of external relief and assistance. To call this a new activity may be an exaggeration since we have had five years of post war experience in international grants, loans, relief and free transfers of one kind or another in addition to our major efforts in this field during five years of war. Nev­ertheless, it is still a comparatively novel field and one which has at times been the source of some misunderstanding and misinterpretation between different depart­ments of the Government.

We have had, I am convinced, a really tremendous record in this field. And it is this very record which, in a sense, creates special problems for us. Many countries - both those which are well-to-do and close to us, and those which are far from well-to-do and far away - have come to believe that we can be counted upon to contribute in a reasonable way to any worthy cause. In the post-war period, we did not build up slowly, as the United States have done to their present huge underwrit­ing of international obligations, economic and military. In a sense, our role has been complementary to that of the United States. When they were not undertaking large obligations, at least in relation to their national wealth, we were; when they began to play their proper role, roughly from the beginning of the Marshall Plan in 1948 on, we were properly able to cut down sharply our efforts in order to restore our own strength.

By 1950 the picture had begun to change, largely owing to the fact that the size of the international problem to be met was growing at an alarmingly rapid pace. In the field of defence, points of view and orders of magnitude have been changing very quickly. Present Canadian plans call for very large outlays and overseas assis­tance of a military type will no doubt have to be increased substantially. Although NATO has turned out to be in some respects a more cumbersome body than we had hoped, it has the possibility of becoming, and I think is becoming, an orderly body from which we can get a clear and sensible picture of our defence responsibilities. Plans, objectives and resulting obligations are, I am satisfied, competently handled at all stages.

On the non-military external aid side, however, the picture at times seems to be just about the opposite. Almost every time anyone goes to an international meeting anywhere, he is likely to come back with a bill. Sometimes it is a small percentage of a large bill, sometimes a physical contribution is called for, at other times the nature and size of the obligation are indeterminate and woolly - we are to give what we feel like giving and, understandably enough, we seldom feel like giving anything away with the exception of the odd bothersome surplus. One theoretical result is that we are at times called upon to make a percentage contribution to some remote activity over which we have little control, and in which it may be hard to find a clear direct Canadian interest. On the other hand, we may pass up useful activities where, along with a few other countries, we night make a clear and con­structive construction.

We would very much like to bring a good deal more order into this situation and develop a sound Canadian attitude. Accordingly, we have been putting together our thoughts on how the question of Canadian contributions to external relief and development could best be approached within the Government and within this Department. These thoughts are set out in the enclosed memorandum. No easy answer is offered as to exactly what we should or should not do, or what we should or should not contribute. The draft programme we have suggested is not designed to promote new expenditures. Rather it is an attempt to regularize and rationalize. Canada's position in regard to external assistance. I hope that you will find yourself in general agreement with our suggested approach and I shall look forward to receiving your views.

Yours sincerely,
A.D.P. HEENEY

[PIÈCE JOINTE/ENCLOSURE]

Note

Memorandum:

CONFIDENTIAL [Ottawa], January 27, 1951

CANADIAN CONTRIBUTIONS TO EXTERNAL RELIEF AND DEVELOPMENT

1. Canadian. Contributions Past and Present

1. During and immediately after the Second World War Canada gained an envia­ble reputation amongst the other free countries of the world. Canada became a leader in mapping out postwar policies - in the establishment of UNRRA, the Bank and the Fund, the United Nations itself, FAO, ICAO, and other specialized agencies. Further, Canadian leadership in the field of international policy was strongly backed up in the field of international finance. In UNRRA, the Bank, and the Fund, an appropriate Canadian contribution was readily forthcoming, and Cana­dian reconstruction loans to the United Kingdom and other countries in 1946 far outstripped, on any basis of comparison, similar programmes in the United States or any other country.

2. Since 1946 the position has been rather different. While Canada's wealth and national income has gone on growing at an unprecedented rate the amount availa­ble for external aid has shrunk. The course of events is shown in a detailed table at the end of this memorandum. In summary, the table shows that Canadian contribu­tions (credits and grants) to external relief, development and mutual aid during the past six fiscal years have been:

Millions of Dollars

* Note: in 1945-46 Canadian Mutual Aid amounted to $766.9 millions.

3. Canadian military commitments at home and abroad are now heavy and will become heavier. This means that external Aid for other purposes, known and unknown, will have to be scrutinized with special care. Moreover, experience in the past five years provides the basis for such scrutiny. The time seems ripe for a rather more orderly approach to the matter than has been possible in the past.

4. At the same time we must recognize that the successes of communism in Asia makes it necessary for us to act vigorously. The prevalent view among the under­privileged is that Technical Assistance and other programmes for the underdevel­oped are too small to have much practical effect. If we are to create an impression, and what is more, if we are really to do what we profess, we must in some direc­tions maintain and even increase our efforts and expenditures on external relief and development. This argument is obvious and would probably be generally accepted; the danger, however, is that although we accept it in principle, we will abandon it in practice. Because our budgets for military expenditure will rise, we will be dis­posed to cut down, or even cut out, our expenditures for economic and social programmes abroad. Because we will have increased need for technicians in the defence programme, we will be reluctant to spare good men for other countries. We, like the United States and United Kingdom, must be prepared to give some priority to the men, materials, and money needed for relief and development overseas.

II. Growing Requests in the United Nations and Elsewhere

5. Canada has contributed to a large number of very useful international program­mes since the war. Some of these have been of an emergency relief character: IRO, UNICEF and Palestine Refugees. In addition, in various United Nations bodies, we have approved the expenditure of money on many special studies and special assis­tance programmes. Most of this money has been well spent considering all the cir­cumstances; no apologies are due to anyone. We must go on using the United Nations for helping the less fortunate countries.

6. On the other hand we should recognize that there is increasing pressure from the under-developed countries to put up money through U.N. for their develop­ment. The Technical Assistance Programme may be considered as the transition between, on the one hand, money spent on research and special projects within the United Nations and its specialized agencies and, on the other hand, money for capi­tal development. Technical Assistance lies half-way between. Once the bridge has been built it will be difficult not to cross it. In the Commonwealth programme, developed during 1950, capital assistance followed logically and only a few months after technical assistance. And capital assistance means big money.

7. So far the United States and ourselves and certain other countries have resisted demands for capital assistance through United Nations channels. We have said that the International Bank represented the most that could be done in this field. The Bank makes loans that really are loans - with a reasonable expectation of repay­ment. When one goes beyond this into the field of grants-in-aid or gifts we claim that the United Nations is not a proper body to administer the money (by which we mean that the under-developed countries could out-vote us). We may be able to maintain this position for a time, perhaps indefinitely. However, we would be wise to arm ourselves with a pretty clear and consistent policy because we are sure to be attacked on all sides and in a number of international forums.

8. In the United Nations, apart from the Bank and Fund, each country has one vote. The under-developed countries have an overwhelming majority. There is a danger that they may vote programmes in their own favour. Moreover they can and do play ball with each other in getting the contributing countries to put up the max­imum amount of money for all assistance programmes. When a programme has been approved, a few contributing countries feel bound to accept it; these countries include the United States, the United Kingdom, Canada, Australia and a very few others. Most other countries are not in a position to give very much, but it must be admitted that some countries in a position to help have not apparently felt bound to accept the decisions of the United Nations.

9. What policies are we following, or might we follow, on the United Nations front when over-ambitious programmes for international aid are put forward?

(a) At present we fight each project on an ad hoc basis, getting it into as reasona­ble shape as possible - and then we pay our share of the bill. This has been rea­sonably satisfactory in the past. There is a danger that it will not be satisfactory in the future as the programmes get more ambitious and more expensive.

(b) As an alternative we might simply become irresponsible like many of the other countries and refuse to pay our share of the agreed bill. Nobody really wants to see Canada in this position.

(c) Another possibility under consideration is that the United Nations should work out a new scale of contributions for use solely in connection with international assistance programmes. Under it the United States might pay something like 60% of the total instead of a little more than 30% under the ordinary United Nations assessments. If such a scale of contributions were adopted, and contributions were then made compulsory instead of voluntary, it would at least enable the virtuous countries to point the finger of scorn at the others which refused to pay up. How­ever, there is not much hope of our getting a majority of countries in U.N. to accept the principle of compulsory contributions and without it the new scale of contribu­tions is not much use. Moreover, if the system really worked, the under-developed countries could work it very effectively to their own advantage.

(d) Most recently, at the last Assembly of the United Nations, the Canadian Dele­gation agreed to the establishment of a Negotiating Committee which would do an arm-twisting job on possible contributors. We only accepted this suggestion after other proposals had failed. It may prove a useful device in getting others to give. However, it does not solve the basic question: how much should Canada give and in what directions?

III. Changing Canadian Attitudes: An International Community Chest

10. In the past Canadian authorities have considered each project on its merits as it arose in the United Nations or elsewhere. Looking back - and also looking for­ward - this procedure seems to suffer from three defects:

(a) We leave ourselves wide open to back-scratching and log-rolling amongst the under-developed countries. They can and do gang up on us. We, on the other hand, have no clear line of resistance, no logical place at which we dig in our heels and say No.

(b) We cannot use our contributions to best advantage, having in mind both the general worldwide interest and also any special Canadian interests. We cannot con­sider effectively either the right timing or the right placing of our contributions.

(c) We are liable to become committed positively to supporting a programme merely by beginning a negative argument. A grandiose scheme is put forward; our representatives oppose it by taking a moderate and sensible position; a general wrangle takes place; a compromise is reached, the compromise is far better than the original proposal partly, perhaps largely, as a result of Canadian intervention; -and then - bingo! - the Canadian taxpayer is asked to put up a million dollars.

11. Ideally the remedy for this situation is quite simple. The Canadian Govern­ment should work out an annual programme of funds available for all projects. This would go up for parliamentary approval along with the annual estimates. Within the total approved by Parliament there would be a certain limited amount of discretion allowed to the Government; while most money would be earmarked a certain mod­est amount would not be. Additional money would only be asked in any year in the face of a very grave and unpredictable situation; Korean relief is perhaps an example.

12. It is suggested above that each year's programme should include a modest amount that is not earmarked for any particular project. The proposal is that this amount would be put by Parliament at the disposal of the Government to meet needs that could not be foreseen when the programme was placed before Parlia­ment but that had to be met before the next annual programme was presented. This proposal is certainly not one that will commend itself, without explanation, to the Government or to Parliament. Nevertheless, it is important. Two of the main pur­poses of the proposed arrangements are (i) to promote orderly and consolidated consideration of external aid proposals and (ii) to provide for emergencies. Neither of these will be achieved if there is no elasticity within each annual programme and if piecemeal consideration of additional items is still needed. The bulk of the pro­gramme would be earmarked; but a certain amount, small in relation to the total, would not be. Certain broad restrictions would, of course, be placed by Parliament on the use of this amount, but it would not be tied to a particular purpose.

13. In working out annual programmes over a period of years two sorts of deci­sion would be needed: decisions regarding the total sum to be made available and decisions regarding the individual programmes. These decisions would, of course, be inter-related.

14. Decisions would have to be reached on the projects that should be met in full, the projects that should be met in part, and the projects in which Canada ought not to participate at all. In short, over a period of time, we would have to try to work out some system of priorities in our international aid programmes. Priorities would have to be based chiefly on the four following factors and decisions between them would have to be made by Ministers;

(a) General programmes in which all members of the United Nations should share according to some recognized scale - e.g. UNRRA, UNICEF and IRO.

(b) Items for which Canada had in the past incurred special commitments.

(c) Items for which Canada had special responsibility.

(d) Items under which Canadian political and commercial interests might be advanced by contributions.

15. Decisions on individual projects would also be influenced by the total to be made available each year. The sum would, presumably, bear some relationship to what seemed desirable (or even respectable) in the international world we live in. In short, a Canadian contribution to an International Community Chest would be under consideration. We would have to pay attention to the needs, to our own capacities, and to the behaviour of other contributing countries.

16. The four preceding paragraphs sketch an ideal system. It is neat and logical. Unfortunately it cannot work out quite so neatly and logically in practice. It is not certain how far the Government or Parliament will really accept the theory of an "International Community Chest". It is also not certain whether, granted this the­ory, the Government will be willing to ask Parliament to grant any elasticity within the total sum to be made available. However, despite these difficulties and disad vantages, it is submitted that the general policy outlined in the foregoing paragraphs is the one which should be pursued.

17. If this policy is adopted the position of Canadian representatives in interna­tional discussions will be greatly changed. The total available from Canada will be known to all in advance. If one under-developed group succeeds in getting larger amounts from Canada it will be at the expense of others; they will compete instead of gang up. Our representatives will not feel bound to fight each item separately -and get committed to contributions in the course of the battle.

18. It would help the Canadian Government, both in its relations with Parliament and its relations abroad, if other important "contributing" countries adopted the same sort of approach. The United States is feeling its way towards the policy or policies suggested above. The Gordon Gray Report suggests the overall rate at which United States external assistance should be provided and gives advice as to the division of the assistance. This Report comes pretty close to being the policy of the United States Administration. Last year, for the first time, U.S. foreign aid programmes were consolidated before they were presented to Congress; this year the same policy is being followed. If the Canadian Government decides to adopt the same line it may be desirable to explore the outlook with the United States authorities and also, perhaps, with the United Kingdom and Australian authorities.

19. One further word should be said about the risk of sliding into financial com­mitments. (See paragraph 10(c) above). This risk is not confined to financial ques­tions. It arises in matters that appear at first sight to be purely political. An active foreign policy costs money, even if the policy is apparently confined to purely political affairs.

IV. The Programme for 1950/51

20. The basic programme for 1950/51 has been approved by Parliament. Cabinet may be asked to approve an additional item (further funds for Palestine Refugees). To date, therefore, the programme is as follows:

U.N. Technical Assistance 850,000

Commonwealth Technical Assistance 400,000

I.R.O. 2,100,000

Palestine Refugees 750,000

Palestine Refugees (Possible further contribution) 750,000

TOTAL 5,450,000

Cabinet has approved a further sum not to exceed $8,000,000 for Korean relief, but it is doubtful whether this will in fact be used.

V. Sketch of a Programme for 1951/52

21. The programme for the coming year might include the following items.

U.N. Technical Assistance Uncertain

Commonwealth Technical Assistance 400,000

UNICEF 750,000

Palestine Refugees 1,250,000

IRO 2,000,000 Colombo Plan Uncertain

Unallocated amount (say) 2,500,000

VI. Future Steps

22. If progress is to be made along the line suggested here other Departments concerned must be consulted. Most important is the Department of Finance. After consultation with that Department a more general consideration might take place in the Interdepartmental Committee on External Trade Policy.

23. After the necessary consideration by officials has taken place the whole ques­tion would have to be referred to Cabinet. It appears that approval should be sought for:

(a) The general programming approach involved in the concept of an International Community Chest (paragraphs 11-15 above).

(b) Consultation with other Governments in regard to the same approach (para­graph 18 above).

(c) Residual items in the programme for 1950/51 (paragraph 20 above).

(d) A programme for 1951/52 (paragraph 21-22 above).

* In this year Mutual Aid amounted to $766.9 millions.