A. GENERAL COMMENTS AND REPRESENTATION

1. The Fourteenth Session will open on May 11 and will last approximately three weeks. This Spring session marks a change in the administration of the GATT whereby two short sessions of the Contracting Parties each year will take the place of a single annual session lasting longer. The next session will be held in Tokyo at the end of October when a ministerial meeting will be held. No plans have been made for a meeting of Ministers at the Fourteenth Session.

2. As in the past, the main task of the Contracting Parties will be to administer the General Agreement and to seek solutions to problems which arise from its application. The Canadian delegation should look for general guidance to the policy positions developed at the Commonwealth Trade and Economic Conference last Fall⁹⁷ and to the instructions for previous GATT Sessions and should participate in the forthcoming discussions with a view generally to safeguarding Canada's trade interests and maintaining the integrity and effectiveness of the GATT.

3. At this session a number of items will arise which are of particular concern to Canada. Amongst the most important are the Canadian request for authority to renegotiate bound items in the textile schedules and a number of issues involving discrimination and restrictions against Canadian exports. The Montreal Commonwealth Conference set in motion new initiatives towards the removal of trade restrictions and discrimination. At the IMF and IBRD meetings in New Delhi proposals were adopted to provide for an increase in international liquidity and in the resources available for economic development and thus to provide a more secure basis for expanding world trade. At the end of last year the United Kingdom and other Western European countries formally introduced external convertibility for their currencies, thus in the Canadian view, removing the financial basis for discrimination in their import systems. This will be the first GATT Session held in the new circumstances of external convertibility for the major trading currencies and it is important that progress towards the removal of restrictions and discrimination should be accelerated in the trade field. A position has been reached in many countries where the restrictions against Canadian exports should disappear shortly or be substantially reduced. There are, however, strong pressures in Europe, particularly as a result of the formation of the European Common Market, for the maintenance of discriminatory restrictions and for the setting up of new discriminatory quota arrangements, and efforts are likely to be made by many countries to obtain GATT approval for such arrangements. Many of the issues being considered at the GATT Session, such as the question of German import restrictions, the balance of payments consultations; and the implementation of the Rome Treaty, bear directly or indirectly on the question of discrimination and the manner in which these issues are dealt with in the GATT could set important precedents for our future trade.

4. It is recommended:

That a Canadian Delegation should attend the Fourteenth Session; that Mr. M. Schwarzmann, Department of Trade and Commerce, should be Chairman of the Canadian Delegation; that the following officials should be included in the Delegation:

J.F. Grandy Department of Finance
M. G. Clark Department of Finance
W. Lavoie Department of Trade and Commerce
C.J. Dobson Department of Agriculture
J.E. Hyndman Department of External Affairs
W.F. Stone Permanent Mission to the European Office of the United Nations
and that an officer from the Department of National Revenue should be included in the Delegation if required.⁹⁸

B. AGENDA: QUESTIONS OF PARTICULAR INTEREST TO CANADA

(a) Expansion of International Trade

5. At the last GATT Session, in response to demands by the primary producing countries and against the background of the Commonwealth Conference, the Contracting Parties decided to initiate a programme for the expansion of trade under three broad headings:

(i) Projects for future reduction of tariff barriers, in the light of a U.S. proposal for a new round of tariff negotiations to take place in 1960;

(ii) Reduction of agricultural protectionism;

(iii) The possibilities of encouraging the export trade of under-developed countries.

Three special committees were set up to implement this programme and each of them held initial meetings in February and March. They are to submit their reports and recommendations to the forthcoming Session of the GATT. Canada is a member of all three committees.

6. It is recommended that with reference to tariffs, the Canadian Delegation should be guided by the decision of the Canadian Government to participate in a new round of multilateral tariff negotiations as proposed by the U.S. The Canadian Delegation should also seek the most appropriate methods for the examination and negotiation of the common tariff of the European Common Market with a view to safeguarding the terms of access for Canadian exports to the European community. As regards agriculture, the proposed consultation procedures should be directed to the reduction of unnecessary agricultural protectionism and the limitation of surplus disposals which impair normal commercial trade. On the problems affecting trade of under-developed countries the Canadian delegation should consider sympathetically in concern with other Contracting Parties the possibilities which exist to improve the trade prospects of these countries.

(b) Consultations on Quantitative Import Restrictions

7. Consultations are scheduled at this Session on the restrictions being maintained for balance of payments reasons by France, the United Kingdom, New Zealand and South Africa. These consultations will be of particular importance in the new circumstances of external converti-bility of major trading currencies in Europe.

8. In view of the importance of securing the freest access possible for Canadian exports, Canadian representatives should participate actively in the balance of payments consultations and should press for substantial and rapid progress in the removal of quantitative restrictions where these no longer appear to be justifiable. Where restrictions are still applied in a discri-minatory manner, the Canadian delegation should seek to have it clearly recognized that in the new circumstances of external convertibility for all the major trading currencies discrimination is no longer justified and should accordingly be speedily eliminated.

9. The Netherlands has recently advised the GATT that it has taken steps to eliminate all import restrictions applied for balance of payments reasons. However, the Netherlands has retained restrictions on a number of agricultural products and on a few basic materials. This poses a problem for the Contracting Parties similar to those experienced with Germany. The Canadian delegation should cooperate with other delegations in seeking the early removal of these restrictions and should in no way agree to arrangements providing for the retention of discrimination.

(c) German Import Restrictions

10. Germany has been maintaining import restrictions in contravention of GATT since 1957, although no longer in balance of payments difficulties. This raises critical issues for other Contracting Parties as it disturbs the balance of rights and obligations under the Agreement and sets a dangerous precedent in international trade. No satisfactory solution has yet been offered by Germany.

11. There are indications that for various political and economic reasons, the Germans are anxious to achieve a settlement at the Fourteenth Session and they have shown a disposition to move in the direction of meeting the concerns of GATT countries. The chances of achieving an acceptable settlement seem better than at any time in the past or perhaps than they are likely to be in the future. The Germans are reported to be prepared to remove at an early date their restrictions on most items other than agricultural and related products. However, Germany does not seem to be prepared to reduce the general level of her extensive import restrictions on major agricultural commodities, not to take real measures to remove the discrimination now in effect in favour of other European countries.

12. The Canadian delegation should cooperate in working out a settlement of this important issue providing for the early removal of most German restrictions. If necessary the delegation should be prepared to agree to a waiver of short duration for a limited list of agricultural products which would provide for increasing access to the German market and the removal of discrimination. If it appears that a settlement cannot be reached on this basis a report should be made and further instructions requested.

(d) The European Common Market

13. The issues raised by the establishment of the European Common Market continue to be subject to detailed appraisal and examination by the Contracting Parties in the light of the terms and objectives of the GATT. The GATT provides the only world-wide forum where concerted pressure can be brought to bear on the Common Market with a view to influencing the development of its commercial policies in an outward-looking and non-restrictive direction.

14. A number of important developments in the European Common Market have taken place in recent months. The Common Market countries proceeded on January 1 of this year to the first reduction of tariffs (most but not all of which were extended on a MFN basis) and enlargement of quotas as among themselves. The six countries are now engaged in working out the level of their common external tariff for a number of products of importance to Canada such as aluminum, lumber, synthetic rubber and salt cod. The first long-term agricultural contract pursuant to the provisions of the Rome Treaty was recently concluded between France and Germany covering the delivery of French wheat and other grains to Germany over the next three years. In addition, consultations took place with the Six during and since the Thirteenth Session with respect to trade in certain commodities where the interests of certain countries could be damaged by the arrangements for the association of the French and Belgian overseas territories with the European Common Market. Canada participated in the consultations on tobacco.

15. It is recommended that the Canadian delegation, in cooperation with other interested countries, while indicating its sympathies with the political objectives of the Rome Treaty, should continue to press for safeguards and assurances concerning access to the Common Market for our exports and seek arrangements within GATT for continuing scrutiny of Common Market developments.

(e) Canadian Tariff Negotiations Regarding Textiles

16. In September 1957 the Minister of Finance referred the whole of the textile schedule to the Tariff Board for study and recommendations. To date the Board has submitted reports on woolen yarns and fabrics, cotton yarns and fabrics, cotton manufactured products and textile wastes. The Board has also held hearings on synthetic fibres and fabrics and its report is expected shortly. The Board still has to hold hearings on hosiery and knit goods, manufactures of wool, narrow fabrics, hats and caps and a number of miscellaneous items.

17. When presenting the Budget for 1959, the Minister of Finance explained that it was the Government's policy to initiate action on individual groups of items as soon as practicable after receiving the Board's recommendations. He went on to say that we are, however, bound to act within the framework of our trade agreements. The Textile Reference contains 200 tariff items of which 140 are bound in our GATT Schedule.

18. Under the GATT tariff rates are bound against increase for firm periods - usually three years. At the end of each bound period contracting parties have an opportunity to renegotiate items. However, Article XXVIII of the Agreement provides that "in special circumstances" a member may be authorized to enter into negotiations for the modification of tariff concessions during a bound period. Since the present bound period does not expire until the end of 1960, implementation of the policy of initiating action on the Tariff Board recommendations on textiles as soon as practicable will involve securing authority to enter negotiations before the present bound period ends.

19. An item has been placed on the Agenda of the Fourteenth Session requesting authority to renegotiate these textile items. The Delegation should make every effort to secure this autho-rity. This would clear the way for the negotiations to proceed.

(f) Lead and Zinc

20. The U.S.A. claim that their lead and zinc restrictions are in accordance with the escape clause provisions of GATT (Article XIX), which in certain carefully defined circumstances, permit a country to take temporary emergency measures against imports which threaten serious injury to domestic industries. These GATT procedures provide for consultation with the countries affected by such emergency action and, if satisfactory agreement is not reached, authorize the countries adversely affected to take compensatory measures within a ninety-day period to restore the balance of the agreement (e.g. by increasing their tariff rates in a discriminatory manner against selected goods from the U.S.A.)

21. At the last GATT Session Canada and certain other countries expressed their serious concern about U.S.A. import quotas on lead and zinc. The Canadian Delegation expressed the view that these restrictions are unjustifiable and constitute an impairment of rights under the GATT. On Canadian initiative, the Contracting Parties at the last Session passed a resolution extending until the Fourteenth Session the period during which any such compensatory action might be taken by affected countries or parties.

22. In order to retain the right under GATT to seek compensation from the United States or to take compensatory measures at some later stage, the Canadian Delegation should seek to extend for a further period the time limit under Article XIX of the GATT during which such steps may be taken. In addition, the Canadian Delegation may in concert with delegations of other interested countries initiate GATT consultations with the United States with a view to maintain pressure for the removal of these restrictions and to counteract the possibility of their intensification.

(g) Canadian Restrictions on Turkeys and Frozen Peas

23. The United States has on repeated occasions expressed serious concern about the Canadian import restrictions on turkeys and the special customs values imposed on imports of frozen peas. There is a possibility that the United States may decide to raise formal complaints against Canada in the GATT on these issues unless satisfactory assurances are given as to modification of Canadian policy in this respect. Open discussion of these matters in the GATT could prove embarrassing and could prejudice the Canadian Delegation's effectiveness in dealing with other much more important issues. The present restrictions on turkeys appear to be inconsistent with Canada's obligations under the GATT and have not been notified to the GATT under any of the relevant procedures. The continued need for special values on frozen peas are also open to challenge under the GATT.

24. The Canadian Delegation should seek to dissuade the United States from instituting formal complaints against Canada with respect to turkeys and frozen peas and should inform the U.S. Delegation that the need for these special measures is currently being reviewed by the Canadian Government. (The Department of Trade and Commerce is currently inquiring of other interested Departments about the possibility of doing away with these restrictions and depending on the outcome of these consultations, may be submitting a draft Memorandum to Cabinet for consideration by the Ministers concerned.)

(h) French Restrictions on Synthetic Rubber

25. About a year and a half ago France established a new system of priority import quotas for synthetic rubber which gave certain U.S. suppliers a preferred position relative to the Canadian supplier and limited Canadian access to the important French market. These priority quotas gave preferred treatment to U.S. suppliers who were prepared to use part of their proceeds from French sales to help finance a French synthetic rubber plant. At the urgent request of Polymer Corporation, the Canadian Government made strong formal protests to France expressing serious concern about this type of discrimination, urging that it was contrary to the GATT and warning that if the situation was not resolved satisfactorily Canada would consider taking compensatory measures against France in accordance with GATT procedures. The French Government formally rejected Canada's protest, claiming that their system of restrictions on synthetic rubber was fully consistent with the balance of payments provisions of the GATT and that in practice no real damage had been done to the Canadian supplier. In spite of this stand, and doubtless as a result of the pressures exerted by Canada, the French authorities have in recent months entered into negotiations with Polymer Corporation and agreement has now been reached whereby Polymer is assured of obtaining licences for at least their normal level of sales in the French market. As part of this arrangement Polymer is prepared to leave a portion of its earnings for use in France. It is understood that Polymer consider this to be a satisfactory solution to their problem.

26. While these arrangements would appear to remove Canada's complaint of damage to her trade, they do not of course resolve the issue of principle raised by the use of import restrictions for the purpose of inducing investment. This could assume great importance for Canada in concrete trade terms, as the Common Market develops, for Canadian firms could not compete with the larger U.S.A. firms in investing in Europe and could as a result be faced with trade restrictions.

27. This issue would raise complex legal issues in the GATT and a clear cut legal finding against France might not be easy to obtain. In circumstances where the damage has been remedied it would seem unnecessary for Canada to institute formal GATT proceedings against France at this time. It is recommended that the Canadian Delegation should inform the French Delegation at the GATT Session privately that the Canadian Government continues to be concerned over this issue of principle but that in view of the arrangements that have now been made to safeguard Canada's supplier position to the French market, it has been decided not to proceed with the institution of compensatory measures. The Canadian Delegation should also use the opportunity provided by the Consultations on French balance of payments restrictions to register its view on the issue and to urge the elimination of discrimination in the French restrictive system and the removal of restrictions so far as these are no longer needed to safe-guard the French balance of payments.

(i) Yugoslavia and Poland

28. Yugoslavia and Poland have both applied for association with GATT. The accession of state trading countries to GATT poses numerous and complex problems in the establishment of a satisfactory and meaningful exchange of rights and obligations with other Contracting Parties. However, there are advantages in encouraging a closer association of those countries with Western oriented institutions such as the GATT. Commercially, any meaningful steps towards multilateral non-discriminatory trading arrangements on the part of Poland and Yugoslavia would provide increased access to these markets for Canadian exports. Canada already accords MFN treatment to Yugoslavia and Poland. Their association with GATT would not require Canada to give them more favourable treatment than they now receive.

29. The Canadian Delegation should as in the past respond to these requests in a positive way and should make constructive efforts to achieve arrangements for association as approximate to full membership as possible. It is unlikely that a majority of Contracting Parties will be prepared to move very far in this direction at the present time. The Canadian Delegation should be prepared to support and accept at this Session formulas of association for Yugoslavia and Poland which are acceptable to a majority of the Contracting Parties, which are as meaningful as possible, involve an equitable balance of rights and obligations, and which do not prejudice the possibility of full membership at a later date should the trading systems of these countries make this possible.

(j) Restrictive Business Practices in International Trade

30. At the last Session of the GATT it was decided to appoint a group of experts to study and recommend whether, and if so how, the GATT should deal with restrictive business practices in international trade. This group of experts is scheduled to meet next June and to report to the GATT by the end of the year. It would appear desirable for Canada, without commitments at this stage, to participate in the work of this study group, since by so doing Canada will indicate her continuing interest in the principle of curbing restrictive business practices in international trade, and will have a hand in shaping any recommendations that may emerge. The Canadian Delegation should, accordingly, indicate that Canada is prepared to make available an appropriate official for participation in this group of experts.

[JOHN G. DIEFENBAKER]
Acting Secretary of State for External Affairs
[GORDON CHURCHILL]
Minister of Trade and Commerce
[DONALD FLEMING]
Minister of Finance

⁹⁷Voir volume 24, chapitre 3, 3e partie./See Volume 24, Chapter 3, Part 3.

⁹⁸Approuvé par le Cabinet le 7 mai 1959, sous réserve de l'inclusion d'un agent du ministère du Revenu national dans la délégation du Canada.
Approved by Cabinet on May 7, 1959, subject to the inclusion of an officer from the Department of National Revenue in the Canadian delegation.