The discussion which we had with Mr.Macmillan last week was most informative. During our conversations Mr.Macmillan reviewed the problems of present international importance in considerable detail.

Mr. Macmillan told us that the President and Mr.Dulles were endeavouring to be as helpful as possible to their friends in the Commonwealth. However, Mr.Macmillan felt that the leadership which President Eisenhower and Mr.Dulles would give the free world might not be as great as could be hoped for. At present, the United States Administration was particularly concerned with the amendments to the McMahon Act, which involves the exchange of information about atomic developments, the extension of the Reciprocal Trade Agreement Act and the passing of the Mutual Aid Bill.

We were told by Mr.Macmillan that the amendments to the McMahon Act were very important to the United Kingdom since they would authorize the United States to provide the United Kingdom with information about certain aspects of atomic developments of considerable value to the United Kingdom. With this information the United Kingdom would be in a better position to consider the question of the suspension of nuclear tests possibly early next year. Mr. Macmillan related this problem to the technical discussions which will commence at Geneva in July on atomic inspection and on the detection of nuclear explosions.

Mr. Macmillan mentioned that the United Kingdom wanted the Armed Forces of the Federal Republic of Germany to be equipped with atomic weapons. Among other reasons was the fact that the burden of defense expenditures should be shared more equally among Western Europeans.

Mr. Macmillan said that the United States had agreed to the British view that no atomic weapons now held by the Strategic Air Command in the United Kingdom would be used without the explicit permission of the United Kingdom Government. This provision also applied to American I.R.B.M.'s eventually to be located in the United Kingdom. However, the United States had no veto on the activities of the United Kingdom Bomber Command equipped with atomic warheads of United Kingdom manufacture.

Mr. Macmillan had found President Eisenhower and Mr.Dulles still lukewarm about a summit conference. The Americans were very reluctant to expose President Eisenhower to the type of rugged negotiation which could be expected at a summit conference with Khrushchev and the other Russian leaders. The Prime Minister of the United Kingdom told us that the British public favoured a summit conference. It was considered essential in view of the heavy burden of taxation for defence, apart from any other important considerations, that all possible avenues of approach for reaching some understanding with the U.S.S.R. must be explored. Mr.Macmillan was, however, not very hopeful about the progress towards understanding with the U.S.S.R. which might result from a summit meeting. However, he was confident that the U.S.S.R. did not want to start a general war in the next few years, although he thought that the cold war on the economic and political fronts would continue for a long time to come, and the U.S.S.R. would be pressing the West in economic and political warfare amongst the uncommitted nations.

Mr. Dulles, we were informed, placed great emphasis on the technical discussions which are to take place at Geneva next month. If any progress were made there this would facilitate a favourable decision by the United States.

We gathered from Mr.Macmillan that he felt that a summit conference would also be desirable from the aspect of forestalling any intentions which General deGaulle might have for bilateral discussions with the Soviet Union. If General deGaulle were to do this, there might be some risk of disruption to some extent of the relations of France with its NATO partners. Mr. Macmillan has so far not been able to fathom what the French under General deGaulle plan to do. Mr.Macmillan therefore felt it would be much better to have a summit meeting with General deGaulle in attendance, rather than giving the General a chance to move ahead on his own.

Developments in the Middle East in recent weeks were also discussed. Mr.Macmillan told us that the guarantee of the United States and the United Kingdom to the present Government of Lebanon still stood. Hesaid that Mr.Dulles had been very firm when they had discussed it in Washington. Intervention would only be made at the request of the Lebanese Government and in accordance with Article 51 of the United Nations Charter. Mr.Macmillan said that the presence of the watch-dog commission in Lebanon would certainly have a bearing on what the United States and the United Kingdom did. However, the success of the Commission depended on the adequacy of its deployment of observers in the mountainous and inhospitable frontier terrain with Syria. Mr.Macmillan thought that if the United States had not proposed the guarantee to Lebanon and if the United Kingdom had not consented to it, that country might have fallen to Nasser. Public knowledge of the intention of the United States and the United Kingdom had probably impressed the Soviet Government which in turn had impressed Nasser and its wish to avoid a major international crisis. As a result of Khrushchev's advice Nasser may have sought through the United Nations ways of reducing his country's intervention in Lebanon without loss of face in the area. Mr.Macmillan thought that Nasser would probably renew his pressure on Lebanon later on, unless, of course, he was prevented from doing so by the United Nations Commission.

The Suez Canal was discussed briefly. We understood that the United Kingdom thinks that the United Arab Republic is being cooperative in the negotiations about surcharges for shipping in the Suez Canal as it wishes to obtain a loan for further development.

Mr. Macmillan told us that the United Kingdom intended to press forward with its plans of promoting local self-government for the Turkish and Greek communities in Cyprus.¹⁰¹ Foreign affairs and national defence would, however, remain as a prerogative of the United Kingdom. Mr.Macmillan showed his understanding of the feelings of the Turks.

In the discussion of economic matters, Mr.Macmillan expressed disquiet about the slackening in the rate of economic growth that had been experienced in many parts of the free world. This was particularly disturbing in view of the continuance of rapid rates of economic growth within the Communist bloc. During his visit to Washington, Mr.Macmillan had discussed with the United States authorities the probable course of the present recession there and, as a result of the conversations he had had on this subject, he was fearful that the Administration might not take such early and substantial action as the situation seemed to require. In the United Kingdom, too, there had been some slackening in the rate of economic growth. The brakes had been applied deliberately in order to curb inflationary tendencies and to safeguard the reserves. Before long, however, Mr.Macmillan thought that circumstances would permit a further expansion of the United Kingdom economy.

Mr. Macmillan was confident that the Commonwealth Conference would be a notable success. But if success were to be achieved, the temptation of using the Conference as an opportunity for intensifying restrictions against non-Commonwealth countries must be resisted. It was important that whatever was done at the Montreal Conference should facilitate, and not hinder, economic cooperation with the United States. It must also be borne in mind that the meetings in NewDelhi of the International Bank and of the International Monetary Fund would follow hard on the heels of the meetings in Montreal, and careful attention must be paid to making the two sets of discussions mesh as well as possible.

There was at present throughout the world a relative scarcity of working capital with which international trade could be financed. The United States authorities now recognized this problem and were moving with increasing firmness to try to meet it. Mr.Macmillan had been given to understand in Washington that at the meetings in NewDelhi the United States in all probability would be willing to participate in some appropriate initiative to increase world liquidity. For the moment, however, while Congress was still in session, there was some nervousness about any possible public discussion of these issues. It must also be recognized that neither Congress nor the Administration would find much appeal in a financial operation designed merely to rescue sterling.

No doubt the Montreal Conference would be distinguished by some agreements on matters which the public might consider to be of only technical interest. In addition, Mr.Macmillan hoped that the Conference would result in some achievement which would impress ordinary people throughout the Commonwealth as justifying it and sealing it with success. The proposal that, in Mr.Macmillan's opinion, was most likely to meet this requirement was the proposal for a Commonwealth bank. Hewas aware that it could be argued that a Commonwealth bank was unlikely to mobilize additional savings, either within the Commonwealth or from other sources, and that in practice the existence of such a Commonwealth institution might lead to a reduction of lending to Commonwealth countries by the International Bank. But none of these possible objections to the proposal should be regarded as insuperable. In particular, he was not convinced that a Commonwealth bank would fail to secure for investment purposes additional savings within the Commonwealth. The Indian maharajahs and the merchants in Hong Kong had savings which were not now making any contribution towards the economic development of Commonwealth countries. To mobilize these savings, it might also be necessary to mobilize a Commonwealth mystique. It was on grounds such as these that Mr.Macmillan advanced his case for a Commonwealth bank.

In reply to questioning, Mr.Macmillan agreed that a dismantling of discriminatory import restrictions would be in the United Kingdom's own interest and, indeed, that it was the policy of the United Kingdom Government to move towards complete non-discrimination as quickly as possible. However, he did not think that it would be possible to make a decisive announcement on this subject at the Commonwealth Conference. More precisely, he stated that he did not think the United Kingdom would be in a position by September to announce either the complete removal of discrimination or its disappearance over a short period of time. Mr.Macmillan gave a number of reasons for this view. In the first place, it would be necessary before taking decisive action of that kind to see more clearly what the probable course of the United States recession would be. Secondly, it would be necessary to await the outcome of the meetings of the International Monetary Fund and the International Bank in NewDelhi. Finally, he argued that a further element of uncertainty was introduced into the situation by the possibility perhaps it should even be called the probability that there would be a financial crisis in France within the next two or three months.

When it was suggested that a wide initiative might profitably be taken by the forthcoming Commonwealth Conference in an attempt to make commodity prices more stable, Mr.Macmillan, without dealing with that possibility directly, expressed the personal view that it was more important to increase effective demand for primary products than to maintain their price. In this field the United States had a unique responsibility since any efforts that it might make to expand the purchasing power of its consumers would not be hampered by a shortage of exchange reserves. When it was suggested that it would have a good affect on the world trade in wheat if the United Kingdom were to rejoin the International Wheat Agreement, Mr.Macmillan said that the United Kingdom Government had already taken a decision to be represented at the conference that would be meeting this fall to consider the re-negotiation of the Agreement. The United Kingdom would examine with an open mind any new agreement that might be formulated.

In the course of his remarks about the current negotiations for a European free trade area, Mr.Macmillan gave an assurance that the United Kingdom would continue to pay close attention to the interests of Canadian agricultural producers in the United Kingdom market and would ensure that their interests were not adversely affected. If it proved necessary to make some concessions concerning agriculture, they would have to be borne by domestic producers in the United Kingdom. What would be involved, in other words, would be horticultural products; and if easier access to the United Kingdom market for such products were granted to continental suppliers, those who would suffer would be United Kingdom growers of fruits and vegetables. No agreement would be entered into by the United Kingdom which would worsen in any way the competitive position of Canada's agricultural exports in the United Kingdom market. In the negotiations, the United Kingdom would also bear in mind that in the past Canada had shipped to the United Kingdom a wider range of agricultural commodities than at present, including particularly cheese and pork products, and that it was the wish of the Canadian Government that Canadian producers should have an opportunity in future to export such commodities to the British market, if the prices of such Canadian commodities could be made competitive.

Referring to the recent report of the Canadian Tariff Board on wool fabrics, Mr.Macmillan inquired whether, in the view of the Canadian Government, it was necessary to follow the Board's recommendation and increase the preferential rates of duty. After listening to a description of the difficulties which the Canadian woollen industry had been experiencing and to a statement stressing the modest nature of the tariff increases that had been proposed, Mr.Macmillan seemed to acquiesce, although reluctantly, in the proposed increases in the preferential rates of duty.

SIDNEY SMITH

¹⁰¹ Pour un compte rendu élargi des discussions avec le premier ministre Macmillan sur la question de Chypre, voir le document 272.
For an expanded account of the talks with Prime Minister Macmillan on the Cyprus question, see Document 272.