I attach for your consideration a memorandum on this subject which was drafted after extensive discussions between officials of this Department and the Department of Trade and Commerce. In view of the importance of the forthcoming Consultative Group meeting in Paris on April 13 and 14, it was thought desirable to lay the matter before Cabinet. As a first step the attached memorandum was sent to the Deputy Minister of Trade and Commerce under cover of a letter dated March 24, with the request that we be informed as soon as Mr. C.D. Howe had approved it (with whatever modifications he wished to make) so that we could then seek your concurrence.

We have just learned, however, that Mr. Howe has approved the memorandum but does not think it should go before Cabinet. He has indicated that if you also agree with it we might send it off to Paris by tomorrow's bag (Friday noon) for the guidance of Mr. Wilgress, who has agreed to head the Canadian delegation now that Mr. Harold Stassen is definitely going to head the United States delegation. Mr. Denis Harvey of the Department of Trade and Commerce will probably fly over to Paris for the meeting.

I would be grateful to learn at your early convenience whether:

(i) the memorandum meets with your approval, and

(ii) you agree with Mr. Howe that there is no need for it to be considered by Cabinet. ¹⁵

R.A. M[acKay]

Secret
Ottawa, March 30, 1954

During the past six months or more an international debate has been going on, particularly in Europe, over the question of whether trade between the West and the Soviet Bloc should be increased. The cessation of open hostilities in Korea, the levelling off of economic activity in Europe coupled with the decline in United States aid and the recent Soviet drive for increased trade, have all given added impetus to the pressures that are building up for the relaxation of present strategic controls over East-West trade. Prime Minister Churchill's statement on this subject in the House of Commons on February 25 has stimulated the controversy and focused the attention of Western governments on the need to re-appraise at an early stage their attitudes towards trade with the Soviet Bloc. ¹⁶

2. Canada's interest would seem to lie in ensuring that full account is taken of the security aspects of this problem, the importance of maintaining the unity of the Western governments in the face of disruptive Soviet tactics, and the need for keeping the impact of controls on Canada's economy to the minimum consistent with the first two objectives mentioned above.

3. The appropriate forum for a discussion of this subject by representatives of the Western governments is the secret Consultative Group (C.G.), which was established informally in Paris in 1949. Canada, the other NATO member countries, West Germany and Japan all belong to this Paris Group. Its Co-ordinating and China Committees (COCOM and CHICOM) have the task of co-ordinating the policies of the Participating Countries in the field of controls over movements of strategic commodities to Soviet Bloc destinations. To this end they keep under continual review three types of lists which can only be modified with the unanimous consent of all Participating Countries.

These are:

List I-commodities under absolute embargo.

List II-commodities whose strategic significance depends upon the volume exported to the Soviet Bloc or upon their qualities and possible defence uses. Items on this list are described in detail and export quotas are allotted to Participating Countries for some of them. A complex procedure has been worked out to provide for exceptions to this type of quantitative and qualitative control, and it is explained in the attached copy of COCOM Document 470. (Annex A).

List III-commodities of low strategic importance not under control but which are carefully watched in case the volume of shipments should reach levels which warrant their being placed on List II.

4. It was largely for the purpose of implementing Canada's COCOM and CHICOM commitments that the new Export and Import Permits Act was cast in the form of Bill 374 (especially Sections 3(a) and (b)). Ministers will, of course, be familiar with Mr. Dickey's reference to these responsibilities in the course of his statement to the House on March 16. ¹⁷

5. In the past Canada has not played a particularly active role in the Paris Group. As most of the C.G. meetings have been of a largely routine nature, Canada has usually been represented by members of the missions in Paris, whose participation has generally been rather passive. This year, however, an exceptionally important C.G. meeting is to be held in Paris on April 13 and 14 (possibly continuing after a fortnight's recess). It is expected to mark a turning point in the West's trade relations with the European Soviet Bloc. (No changes are foreseen in connection with controls over trade with Red China until after a Korean settlement, but the forthcoming Geneva meetings may open up that question this summer).

6. Perhaps the most important items on the agenda for the meeting are:

(a) Development of the trade policy of the Soviet Bloc in its bearing on the work of the Committee.

(b) Review of the present system of international controls (lists and methods).

(c) Adoption of a common attitude on control policy during future international economic conferences.

These will provide the framework for a debate on the future of the West's strategic control policies. The United States Government is known to mistrust the Soviet Bloc's motives in seeking increased trade with the West, and to look upon recent trends as reflecting little more than a shift in Soviet tactics in the trade sector rather than as a genuine desire on their part for more trade. While the United States will probably be willing to compromise somewhat with the European countries at the C.G. meeting, they nevertheless hope embargo controls will remain fairly extensive and even more effective. Their position is outlined in the attached statement of March 9 by the United States COCOM delegate (Annex B). Also attached (Annex C) is a statement made on March 8 by the United Kingdom delegate, which indicates that the United Kingdom will press for the reduction of the area of control (by redefining what items are really strategic) and probably also for the elimination of Lists II and III, with tighter controls over the remaining List I. Both the United States and the United Kingdom agree, as a result of the Berlin Conference, that the West should now think in terms of a prolonged period of tension just short of war. The majority of European countries will quite likely support the United Kingdom, and Canada's position will consequently assume increased importance. If Canada supports the United States, some compromise will have to be worked out which would not entirely satisfy the Europeans and might well lead to an undermining of the control system later on. If, however, Canada supports the Europeans, the United States will be isolated and will probably have to give way to a greater extent than they would like. Naturally both sides are anxious to have Canadian support, and they look to Canada to come to the meeting with an unprejudiced and objective attitude, untrammelled by political complications such as afflict relations between the United States and the European countries.

7. This matter has been discussed inter-departmentally and, on balance, it is considered that it would appear to be in Canada's best interests to support the liberalization of trading relations between the West and the Soviet Bloc (excepting North Korea and Mainland China). There is a need to reduce the impact of controls on Canada's economy and on relations with other friendly countries. If we were very selective in the commodities we control, but able to enforce our controls rigorously, we could hope to continue enjoying wide-spread political support in Canada for a control system aimed primarily at items involving clearly overriding security interests. Otherwise, it might be politically embarrassing to ask Canadian commercial interests to make sacrifices for no apparently good reason if Western European countries do no uphold similar embargo policies.

8. In the circumstances, I recommend, with the concurrence of the Secretary of State for External Affairs that:

(i) Authority be granted to the Secretary of State for External Affairs and to myself to appoint an appropriate Canadian delegation to the forthcoming C.G. meeting in Paris. (It is believed that Mr. Harold Stassen, the Head of the Foreign Operations Administration, may be the chief United States delegate).

(ii) The delegation be authorized to agree at its discretion to modifications that may be proposed in present COCOM international embargo Lists I and II provided they are supported by a clear majority of the Participating Countries, subject to the following basic considerations:

(a) It would appear to be to the advantage of the West for controls on trade to be the minimum consistent with the need to safeguard important security interests.

(b) Whatever controls are maintained should be enforced with the greatest possible effectiveness.

(c) The need for Participating Countries to apply for exceptions to embargo lists should be eliminated as far as possible by transferring the more important items to List I and freeing all others to the extent that this can now be done with reasonable safety.

(d) No exceptions at all to List I should be envisaged, but present exception procedures (Annex A) governing List II should be broadened to take into account political, commercial, social (i.e., unemployment) and other considerations apart from purely strategic ones, provided that the C.G. should not get involved in subjects beyond its competence, such as broad commercial policy.

(iii) The question of relaxations of controls over trade with the Far Eastern Soviet Bloc should not be considered until after the United Nations embargo resolution of May 18, 1951, is rescinded.