Present

Also present:

Mr. J.J. Deutsch, Department of Finance.
Mr. T.N. Beaupre, Department of Trade and Commerce.

III. RAW MATERIALS; INTERNATIONAL DISCUSSIONS AND ARRANGEMENTS

8. Mr. Beaupne said that plans for international discussions on raw materials were still obscure and somewhat confusing. Both O.E.E.C. and N.A.T.O. had concerned themselves originally with raw materials but their discussions and plans had been superseded by the arrangement made between Mr. Truman and Mr. Attlee in Wash­ington. The plan for a central body on raw materials was also somewhat uncertain. The United Kingdom favoured tripartite membership (the United States, United Kingdom and France) while the United States favoured a rather larger membership. The Deputy Minister of Trade and Commerce had indicated, informally, that he thought Canada was inclined to favour the U.K. approach since any enlargement of the central body would make it very difficult to place a limit on membership and also since any attempt at "area" representation by one or two countries from any given area would be unrealistic. It was understood that under the plan the central body should be responsible for selecting the commodities to be considered and for determining the countries that should be invited to participate in each commodity discussion. There had already been an invitation to participate in a discussion on rubber. Determination of countries to participate in commodity discussion might give rise to difficulty. It was understood that Canada was not on the list of countries to discuss molybdenum, cobalt, wood and tin although we had an interest in each. Canada was on the list of countries to participate in discussions on copper and sulphur. Word had been sent to the Embassy in Washington that Canada would wish to be represented in discussions on all commodities of which it was an importer.

It was not at all clear how the commodity discussions would proceed, including that on rubber. There was some indication that the United States would like an arrangement which would keep rubber from the U.S.S.R. and satellite countries. It was not clear, however, what adequate inducement to the producing countries there would be. Possible proposals in relation to rubber were of special concern since it was the first commodity to be dealt with and might provide a pattern for future arrangements.

9. The Chairman said that it seemed doubtful whether a commodity discussion on rubber enabled the right approach in existing circumstances. Because of the charac­ter and location of the principal producing countries major questions of EastWest policy, which were now in a state of precarious balance, would be to a large extent involved. If one hope was that an arrangement might be concluded which would keep rubber from going to the U.S.S.R. and satellite countries, it had to be consid­ered that the producing countries were in a very weak position both politically and economically. If the economic interest of the producers were clear they would still have to hedge because of political considerations. However, it was not at all certain that they would consider their economic interests best served by an overall plan that in part aimed at holding down the price of rubber.

It did not look as though it would be possible to achieve a plan for international allocation along the lines of the Wheat Agreement. It might be possible to do some­thing if the approach were rather similar to the wartime arrangement for sugar that is, if the United States and United Kingdom or either took up the bulk of the exportable surplus with arrangements for resale. If there were plans for bulk con­tracts of fairly long duration there might be a real incentive to the producing countries.

It was possible that the plans should be looked at in relation to the Colombo Plan for economic development. The primary objective of the Plan was political to keep the countries from going to pieces in the next few years. It might be sensi­ble to have a plan for rubber under which there would be bulk purchasing com­bined with assurances that consumer goods and capital equipment would be made available to the producing countries. They did not wish to accumulate sterling bal­ances and some guarantee of a flow of actual goods would be necessary. On the other hand it might make action under the Colombo Plan easier for the contributing countries if it could be linked into a specific and immediate interest of the kind that would be apparent if there were a tie to raw material deliveries from the Asian countries.

10. Mr. Beaupre said it was difficult to see how any attempt at international allo­cation machinery through the commodity discussions could be made to work. With restricted membership in the discussions, many countries would feel badly left out and there was likely to be quite a bit of ill feeling. It might be possible to get participating countries to work toward comparable restrictions on their own use of materials but as to allocation the outcome of the tin conference had shown how difficult it would be to reach an arrangement.

11. The Deputy Minister of Finance said there might be some value in the discus­sions simply for consultation. They might provide a means by which there could be more coherent arrangements under which individual countries' contracts for future supplies could be entered into. It was difficult, however, to see any specific alloca­tion machinery working.

12. The Governor of the Bank of Canada said that it would not in all cases be satisfactory for Canada to have the United Kingdom and the United States acting together or separately as principal buyers. So far as the United Kingdom was con­cerned, it appeared that its present position had been made more difficult by contin­uation too long of restrictions on raw material purchases in an effort to build up gold and dollar balances. In effect, the United Kingdom had run down its commod­ity reserves in an effort to improve its financial reserves. In the change of circum­stances, it was the commodity reserve that was the more important. U.K. policy should have changed over in June and failure to make the alteration had cost the United Kingdom very dearly.

13. The Committee noted the report on international arrangements and discus­sions concerning raw materials.