On May 3, 1949, Cabinet approved a recommendation that negotiations be undertaken with Italy and other countries "to effect the best possible lump-sum set­tlement for the satisfaction of war claims and for the release of enemy assets".²⁴

2. Cabinet agreed on May 2, 1950, that a continued effort be made by Canadian officials to negotiate a lump-sum settlement for Canadian war claims against Italy.²⁵

3. Negotiations were first conducted with the Italian authorities in Ottawa and latterly through our Embassy in Rome. Various proposals and counter-proposals were submitted. In the beginning there was a wide gap between the amount offered by the Italians and that which the Canadian officials were willing to recommend for acceptance.

4. Last December we offered a settlement based on the payment of 725 million lire for all our war claims, with a few minor exceptions. The Italians contended that large portions of the Aluminium Company's claims were not eligible for compen­sation and made a counter offer of 460 million lire. We could not accept the Italian contention and submitted a revised offer whereby all the Aluminium Company claims would also be excluded from a lump-sum settlement and would be submit-ted with the other excepted claims separately to the Italians along lines provided for in the Peace Treaty. The amount of this offer was 290 million lire made up by deducting the Aluminium Company claims from 725 million lire and adding 38 million lire to account for new claims filed since December. We undertook to release Italian assets once agreement on our war claims had been reached. How­ever, this release is a long process and it is our intention to retain at all times suffi­cient assets to cover all our claims until this lump-sum payment is ratified by the Italian Parliament.

5. The Italians linked their payment of $1,300,000 under the Military Relief Set­tlement reached in February, 1950, to the release of their assets and hence to the settlement of war claims. They said that it would be difficult for them to submit the Military Relief Settlement for ratification without having obtained agreement for the release of Italian assets held in Canada, but they have undertaken to submit both this present Agreement and the Military Relief Settlement to their Parliament at the same time, once arrangements are completed covering the release of their assets. Should there be any undue delay in the seeking of this ratification our Ambassador in Rome will be instructed to take the matter up with the appropriate authorities.

6. At the beginning of his stay in Ottawa for the N.A.T.O. Council meeting, Mr. De Gasped had a talk with the Prime Minister and they agreed that steps should be taken to effect an early settlement of Canadian war claims and the release of Italian assets. At the same time word was received from Rome that the Italian Ministry of Foreign Affairs was agreeable to a settlement based on the payment of 290 million lire.

7. It was thought advisable to take advantage of Mr. De Gasped's presence in Ottawa to complete an exchange of Notes with him embodying the proposals we had made. There was no opportunity to seek Cabinet approval of the details and, of course, the principle of a lump-sum settlement had already been approved. There­fore after consultation with the Minister of Finance and the Secretary of State this exchange of Notes took place on September 20 and the Notes were signed by Mr. De Gasped and myself, respectively.²⁶

8. With the concurrence of the Minister of Finance and the Secretary of State, I recommend that Cabinet approve the intergovernmental agreement entered into between Canada and Italy by this exchange of Notes which provides for the satis­faction of Canadian war claims, the payment of pre-war commercial debts owed to Canada and for the release of Italian assets vested in the Custodian, for the follow­ing reasons:

(a) It is politically desirable;

(b) Our claimants will receive satisfaction more quickly than if the relevant provi­sions of the Treaty of Peace with Italy had to be complied with;

(c) We will avoid many disputes before Conciliation Commissions and the costs thereof;

(d) The Military Relief Settlement will be presented for ratification.

9. I understand that the Ministers concerned will be requesting from Cabinet directives for the disposition of the lump-sum received in settlement and for the processing of the war claims affected by this Agreement.²⁷

L.B. PEARSON

²⁴ Voir/See Volume 15, Document 40.

²⁵ Voir/See Volume 16, Document 988.

²⁶ Voir Canada, Recueil des traités, 1952, N°. 21./See Canada, Treaty Series, 1952, No. 21.

²⁷ Approuvé par le Cabinet, le 13 octobre 1951./Approved by Cabinet, October 13, 1951.