Repeat to M.W. Sharp - Trade and Commerce.

We were called to State Department today to be informed that there are new deals in the process of development or that may be near completion concerning the disposal of surplus CCC commodities, particularly wheat.

2. It is being proposed that the CCC negotiate sales of wheat for local currencies or in exchange for other commodities without any regard to the orderly marketing of friendly countries or any other type of safeguarding clauses.

It is claimed that no authority is necessary as the CCC already has the authority to dispose of its surpluses at any price in world markets - specifically deals under study and these may be very near completion, involve 150-200,000 tons of wheat to Yugoslavia and 50,000 tons to Brazil.

3. It is important to understand that these types of operations are entirely divorced from the 550 deals ⁸² and represent new thinking that is based on the elementary facts; "we have surplus wheat, other countries are willing to barter for it or to buy it in local currencies, why don't we let them have it". This new concept of marketing is evidently not to be confined to wheat, but may well represent the new process by which it is hoped CCC may be relieved of the pressing burden of its surpluses.

4. In the case of Yugoslavia and Brazil, we have been privately informed that officials of these countries are actively pushing the United States to agree to sales of wheat for local currency or in exchange for goods or services. In view of the pressures from the Department of Agriculture and criticism of former State Department interference in sales of wheat under 550, these pressures are undoubtedly difficult to resist.

5. From conversations with relatively junior officers of the State Department, we are convinced that the most senior officers of that department cannot be convinced by their own officials of the serious repercussions this process of disposal will have on friendly countries. There is no doubt in our minds that the officials of the State Department would welcome our most energetic representations. We could start our message to the State Department by saying: "We have been informed that the United States may enter into agreement with other countries, notably Yugoslavia and Brazil, for the disposal of substantial quantities of wheat for local currencies or in exchange for other commodities or services. We also understand that these operations (and possibly others may be under consideration) are independent of any sales under Article 550 of the AAA. If this is so, it would appear that this is an important change in policy, and one that can hardly fail to seriously disrupt the orderly marketing of wheat".

6. We suggest an opening along these lines because of the confidential nature of the advice given to us by the State Department, and the necessity of not betraying confidences, since only part of the information given us was passed on as a result of official instructions.

7. We have informally told State Department that this news will be received with the greatest possible misgiving in Canada and have drawn to their attention the untimely nature of this development coming on the eve of the first meeting of our new joint committee, particularly as the disposal of the surpluses is on the agenda.