Consideration was given by Cabinet last December to the visit of an official Canadian Government trade mission headed by the Minister of Public Works to Portugal, Spain, Italy, and Greece. The question arises as to what preparations should be undertaken in advance of such a visit to facilitate the improvement of trade relations with the countries concerned, and in particular to increase salt cod exports to these countries. The present Memorandum indicates that there exist possibilities of improving Canada's trade relations with Portugal and Spain and of expanding the opportunities in those markets for exports of Canadian salt cod.

2. Since 1952, when facilities for the sale of Newfoundland salt cod in payment for sterling came to an end, Newfoundland's salt cod exports to the Mediterranean markets have been on a dollar basis and have faced increasing difficulties. Newfoundland salt cod sales to the Mediterranean markets which, prior to Confederation, represented over 40% of Newfoundland's salt cod exports, have declined sharply in recent years due largely to import and exchange control measures maintained by those countries. Shipments to the Mediterranean area fell from 47.5 million lbs in 1950 to 16.5 million lbs in 11 months of 1953.

3. While the fishing industry of Newfoundland is gradually being diversified, about two-thirds of all fishermen (involving about 20% of the total population) are still dependent on the production of salt cod. Further, the loss in the Mediterranean markets has the effect of diverting salt cod shipments to the Western hemisphere markets and results in a weakening of prices for salt cod for all Eastern Canada.

4. In an effort to maintain salt cod exports to the Mediterranean area, the Canadian Government has:

(1) Used its good offices in recent years to assist the trade in its private negotiations with Portuguese importers and licensing authorities;

(2) Entered into a special understanding with the Spanish Government in 1952 for the establishment of an exchange quota for the purchase of Canadian salt cod in return for removal of the Canadian duty on olives;

(3) Conducted annual negotiations with the Italian Government for the allocation of dollar exchange.

While these ad hoc measures have helped to market salt cod, they have failed to achieve an adequate volume and to provide an assured basis for this trade, and have not prevented uncertainties each year during the season when shipments are made.

5. The problem for salt cod exports is somewhat different in character in each of the Mediterranean countries. In the case of Italy and Greece there would appear to be no particular opportunity for formal trade negotiations at this time. It is considered, however, that the difficulties in Portugal and Spain stem largely from governmental regulation in those countries and that the position for Canadian salt cod exports might be improved through intergovernmental negotiations.

6. The objective of the proposed negotiations with Portugal and Spain would be to sell more salt cod in these markets. At this stage, it is felt that the first objective in Portugal and Spain should be to obtain commitments for the non-discriminatory treatment of Canadian salt cod. Failing this, the objective should be to obtain commitments for an adequate minimum import quota for Canadian salt cod on a continuing basis.

7. It is proposed that these objectives should be combined with the negotiation of new direct trade agreements with Portugal and Spain to replace the pre-war United Kingdom Treaties which now govern Canada's commercial relations with these countries. On general grounds it is considered desirable to secure independent and improved trade agreements with these countries providing, of course, that they are willing to enter into formal trade agreements with Canada. Furthermore, the recent establishment of diplomatic relations between Canada and Spain and the conclusion of United States economic agreements with Spain would make this an appropriate time for reviewing Canadian-Spanish commercial relations. While most-favoured-nation tariff treatment is exchanged under the present Treaties, certain Spanish colonies in Africa and the Portuguese colonies in Africa and Asia are not covered by the terms of these Treaties, and imports into Canada from these possessions are subject to General Tariff rates. The proposed trade agreements with Portugal and Spain (including their overseas territories) would be along standard most-favoured-nation lines, and would include provisions for the non-discriminatory treatment as between imports from dollar sources.

8. In addition to the extension of most-favoured-nation treatment to the colonies, Canada can offer Spain and Portugal new tariff concessions on some of their principal exports to Canada. These are items such as olives, olive oil, cork and cork products, almonds, anchovies, and spices. While these commodities are not of special importance in Canada's trade and are not competitive with domestic products, it is felt that they would provide an adequate basis for the kind of negotiations contemplated and that they would be of substantial interest to the countries concerned. In most of these items Spain and Portugal are our chief suppliers - they are not items therefore which have must value in GATT negotiations (neither Spain nor Portugal is a member of GATT).

9. The extension of most-favoured-nation treatment to the colonies, while not of much interest to Spain, would be a valuable concession to Portugal. The difference between the General Tariff rate and the most-favoured-nation rate is significant on a number of the products of the Portuguese colonies such as coffee, copra, cocoa, and nuts. Since Canada imports these items in substantial quantities from other countries receiving most-favoured-nation treatment, it would seem that the granting of similar treatment to the Portuguese territories would open up considerable opportunities for them to sell in this market.

Recommendations

(a) In view of the above considerations, it is recommended that Cabinet authorize the initiation at an early date of negotiations for trade agreements with Portugal and Spain along the lines proposed, and that an initial approach to these governments should be made through our Missions in Lisbon and Madrid. (The location of any subsequent negotiations would be determined in consultation with the Spanish and Portuguese authorities to suit the convenience of the participants.)

(b) In addition, it is recommended that representatives of the Departments of Fisheries, Trade and Commerce, Finance, and the Department of External Affairs should be responsible for the conduct of such negotiations under the chairmanship of the representative from the Department of External Affairs.

It is understood that Cabinet will be kept informed of the progress of these negotiations and that if it should appear necessary at a later stage to depart from the principles outlined in this Memorandum, the matter will be referred to Cabinet for further instructions. ¹²

L.B. Pearson
Concurred in:
C.D. HOWE
Minister of Trade and Commerce
D.C. ABBOTT
Minister of Finance
J. SINCLAIR
Minister of Fisheries