This matter was discussed today in the Interdepartmental Committee on Exter­nal Trade Policy. Mr. Abbott will probably raise it in Cabinet tomorrow.

2. Some three weeks ago Mr. Hector McKinnon reported from Torquay to Mr. Abbott that the Cubans were demanding elimination or at least some reduction in our Empire preference on sugar. This preference of approximately a cent a pound means that virtually all Canadian imported sugar comes from Empire sources and the great bulk of it from the British West Indies.

3. The question was reviewed by officials who concluded that the cent-a-pound preference had little economic advantage for Canada. Canadians were paying an extra cent for their sugar; on the other hand the advantages which Canada had obtained in exchange for the preference - advantages for Canadian exports in the West Indies and other Empire markets - had been largely wiped out by the dollar­saving import restrictions of the sterling area. On the other hand Canada cannot reduce the preference without getting the concurrence of the Empire countries con­cerned who would certainly raise objections. The United Kingdom has been faced with grave economic and political difficulties in the British West Indies in recent years. The Canadian preference is working in a way that helps the United Kingdom to ensure steady sales of West India sugar in Canada at prices nearly one cent above the Cuban price. West Indian production is likely to remain relatively inefficient and the extra cent is considered valuable.

4. Accordingly Mr. Abbott sent instructions back to McKinnon to say that Can­ada was not willing to open the whole question of Empire preference on sugar at this time. It was pointed out that the Torquay negotiations were drawing to a close. The hope was held out that we would be willing to bargain on a broader basis at a later date.

5. However, the Cubans have refused to take no for an answer and they have considerable reason on their side. They might claim that Canada was refusing to bargain in good faith under the GATT in which all members are bound to pursue the objective of lowered tariffs and preferences. They have asked us for sugar con­cessions before and have been refused. They can point out that the sugar policy of the United Kingdom is designed not merely to maintain but actually to expand sugar production in relatively inefficient places, including the British West Indies, and this in competition with the relatively efficient Cuban operations.

6. Accordingly the Cubans have now warned that if we continue to refuse to negotiate on sugar they will consider withdrawing tariff concessions that they made in Canada's favour at Geneva four years ago. Unfortunately they made concessions to us on at least two items which are politically vulnerable in this country: codfish and seed potatoes.

7. Of course we might hit back. Their exports of products such as pineapple to us are politically sensitive in Cuba. On the other hand it would be a most unhappy situation if, when the general results of the Torquay negotiations were brought into Parliament later this session, the most spectacular result was active trade warfare between Cuba and ourselves at the particular expense of exporters in our Maritime Provinces.

8. At the Interdepartmental Committee it was generally agreed:

(a) We should not simply stand pat on our refusal to negotiate the sugar preference.

(b) The matter should be explored further both with the Cubans and also with the United Kingdom. At some stage a three-cornered discussion might prove necessary.

(c) Possible Canadian concessions might be:

(i) A moderate reduction of the Empire preference, i.e. a reduction in the MY.N. rate while the Empire rate remained the same. The chief effect of this would be that the United Kingdom and/or the West Indies would get a slightly lower price for sugar sold to Canada; at present they sell at the Cuban price plus almost the whole of the one-cent preference. Thus the long term subsidy to high cost sugar areas would be reduced. On the other hand the Cubans would not sell any sugar to Canada in the immediate future so it is doubtful whether they would accept this offer.

(ii) A bulk purchase of non-Empire sugar (from Cuba and other sources). The purchase would cover a certain quantity of Canadian imports - say 100,000 tons out of our current imports of 600,000 tons. Surprisingly enough this would not damage the United Kingdom or the West Indies to the extent that would appear at first sight. The Commonwealth and Empire are not self-sufficient in sugar. The United Kingdom is already buying several hundred thousand tons of Cuban sugar (and is negotiating a long term contract with Cuba at present). If Canada buys less sugar from the West Indies and more from Cuba the United Kingdom will presumably buy more from the former and less from the latter. Hence the need for three-cornered discussions mentioned above.

(iii) A variant of (ii) would be to allow a certain quota of non-Empire sugars -say 100,000 tons - to come into Canada at Empire preference rates. It was the opinion of the Interdepartmental Committee that this device was rather less clean-cut and less certain in its effects than the bulk purchase.

(d) If any of the three concessions mentioned above were offered to the Cubans it would be in return for substantial new tariff concessions by Cuba in favour of Canadian products, if possible, products of the Maritime Provinces. In other words we would not offer a concession merely to induce the Cubans to maintain the status quo.

9. The conclusions of the Interdepartmental Committee seem to be acceptable from the point of view of this Department.²

A.D.P. H[EENEY]

² Le 9 février 1951, le Cabinet a décide que la délégation à la Conference Torquay ferait savoir à Cuba et au Royaume-Uni que le Canada était disposé à acheter 100 000 tonnes de sucre cubain en vertu d'un contingent ou d'un achat en vrac.
Cabinet agreed on February 9, 1951 that the delegation to the Torquay Conference indicate to Cuba and the United Kingdom that Canada was prepared to buy 100,000 tons of Cuban sugar under a quota or bulk purchase arrangement.