The Yugoslav Request - Recent Developments

We have received two calls in recent weeks, one by the Yugoslav Minister and another by one of his officials, each asking that Yugoslav assets still held by the Canadian Custodian should be released. (These assets amount to approximately $330,000.) They have been met sympathetically but told that immediate action may be difficult because it may not be possible to dissociate the release of Yugoslav assets from the release of Italian assets and the latter subject is tied up with extensive negotiations with the Italian authorities. We must however give some more definite information to the Yugoslavs very soon.

2. You will recall that the Yugoslavs have asked for release of their assets intermittently since 1945. However, until recently Yugoslavia was considered to be an "iron curtain country" and as a matter of general policy no releases were made to such countries.

3. The situation is now changed in two respects. First, Yugoslavia has split off from the other iron curtain countries. Second, unlike other governments of iron curtain countries, the Yugoslav Government has agreed to make payments to Canadians whose property has been taken over under postwar nationalization policies. An agreement on this subject was reached between the United Kingdom and Yugoslavia, the United Kingdom acting on behalf of other Commonwealth coun­tries including Canada. As a result of these changes I assume that you would wish our Custodian to release Yugoslav assets as quickly as he can. Would you please confirm that this is so?¹¹

The Position of Negotiations with Italy

4. The complication in the situation, and the possible cause for further delay, arises from the position of Italian assets held by the Custodian. As you know, there have been prolonged negotiations on this subject dating back to 1947. The release of assets is related by the Peace Treaty to the settlement of Canadian war claims against Italy. In addition the Italians have made their settlement of our military relief claim dependent upon a satisfactory agreement relating to the release of assets.¹²

5. Just over two months ago our Ambassador in Rome put forward a final Cana­dian proposal for a lump-sum settlement of war claims to be associated with imme­diate release of Italian assets. We were not at all hopeful that the Italians would accept the settlement we proposed, and our Ambassador has heard informally that they are going to turn it down. In retrospect it is probably true to say that there was no lump-sum figure on which agreement could have been reached, having regard to the protection which the Canadian Government had to give to Canadians with war claims, and having regard to the protection which the Italian Government had to give to Italians affected by these claims.

6. In anticipation of a formal turndown Canadian officials have agreed on the next step, for submission to Cabinet. Canadian claims would be handled through exactly the same procedures as are being applied to United States and United King­dom claims. A formal release of Italian assets held by the Custodian would be announced but the Italians would be warned that releases were most unlikely to outrun settlements of Canadian war claims. It is believed that this proposal would be satisfactory to the Italians.¹³ In short we may well be very close to the end of these prolonged and often acrimonious negotiations. It must be admitted that while a good deal of the difficulties and delays may be attributed to the Italians a most important cause of the delay has been our own insistence¹⁴ on trying to get a lump­sum settlement which lies outside the terms of the Peace Treaty.

Three Possible Courses of Action

7. If we now announce the release of Yugoslav assets the Italians will undoubt­edly be upset. As you know, they are very conscious of their position as a partner in the North Atlantic Treaty. Further, there are sections of the Canadian public to which Yugoslavia appears as simply an atheist-communist country. These sections might be concerned if Yugoslavia appeared to get preferred treatment over Italy. Therefore a strong case can be made for delaying the release of Yugoslav assets until a similar announcement might be made in a few weeks; at worst it should be a few months.

8. Alternatively we might proceed with the Yugoslav release and announcement and let the Italian chips fall where they may. After all it seems unfair to penalize the Yugoslavs because of our inability to settle matters quickly with the Italians. Further, although the Italians are now allies, the Yugoslavs were on our side in World War II when the Italians were fighting against us.

9. Another possibility is that we might start releasing Yugoslav assets but make no public announcement about it in the hope that, for the time being at least, the Italians would not hear of it. This might suit the Yugoslav authorities who are under pressure from Yugoslav individuals who want to get at their assets. On the other hand it has not got the political advantages in Yugoslavia or elsewhere that a public announcement of a friendly gesture by Canada would carry; and if our action did leak out to the Italians, as is likely, we would get the worst of both worlds.

10. Would you please advise me which of the following policies the Canadian officials should follow:

(i) Delay the release of Yugoslav assets, and its announcement, until a similar announcement can be made regarding Italian assets. (The Yugoslav authorities could of course be told immediately that the policy was settled in principle but that there would have to be some further slight delay in implementing it).

(ii) Immediate release of Yugoslav assets together with an announcement, regardless of the Italian position.¹⁵

(iii) Immediate release of Yugoslav assets but with no announcement in the hope that the Italians would not hear of what we were doing.¹⁶

A.D.P. H[EENEY]

¹¹ Note marginal:/Marginal note:
Yes-of course L.B.P[earson]

¹²Voir le document 902./See Document 902.

¹³ Note marginal:/Marginal note:
I hope so L.B.P[earson]

¹³ Note marginal:/Marginal note:
who is "our" L.B.P[earson]

¹⁵ Note marginale :/Marginal note:
I am inclined to favour (ii) above but would like to have a word with you about it L.B.P[earson]

¹⁶ Note marginale :/Marginal note:
Mr Moran-Mr Plumptre: As you can see the Minister is inclined to favour the course described in 10 (ii) but before taking this action feels we should give Désy a chance to comment
A.D.P.H[eeney] Mar 17