Dear Mr. Minister:

You have taken over the portfolio of Secretary of State for External Affairs at a time when NATO has to face some very grave problems. Some observers describe these problems as growing pains but others think that the Alliance is no longer growing and may even be losing strength. In view of the importance we have attached to the development of NATO ever since its creation, I thought that you might be interested in receiving a report from this Delegation. This may be an appropriate time for such stocktaking since the problems with which we are faced at this mission are also fairly acute on the economic front which we are expected to cover through our associate membership in the OEEC. Our comments have been made under the following general headings:

I - NATO defence
II - Atomic policy of the Alliance
III - Political consultation
IV - Economic developments
V - Conclusions

I - NATO DEFENCE

General

1. The NATO defence concept is based on the prevention of war, by creating the greatest possible deterrent to war and by maintaining the means of defending this deterrent. The deterrent consists of the nuclear deterrent and the shield forces, now armed partly with tactical nuclear weapons as well as with conventional arms.

2. At the present time the nuclear deterrent is made up of the United States Strategic Air Force, supplemented by the United Kingdom Bomber Force and IRBM sites in the United Kingdom and Italy. The two bomber forces are under the control of their respective govern-ments. The IRBMs in the United Kingdom are under joint United States-United Kingdom control. The IRBMs in Italy are under the joint control of SACEUR (General Norstad) and the United States and Italian Governments.

3. The shield forces, which consist of both army and air force units and which are under the command of SACEUR, have been established in Europe for the purpose of ensuring the integrity of the NATO area. They also have as their object the deterring of war by forcing a potential aggressor to realize that a probing action or an accidental encounter, if followed up, must lead to hostilities. The shield forces are supplemented by the NATO naval forces, needed for protection of lines of communications in the North Atlantic, for denying, to Soviet submarines, access to the North Atlantic, for protection of the North American area against guided-missile submarines, and for other naval tasks in the NATO area.

4. In late 1957 the Supreme Allied Commanders introduced MC 70, their Minimum Essential Force Requirements Study¹¹⁰. The total force requirements defined in this study for the period up to the end of 1963 have been approved by the North Atlantic Council for planning purposes. At the same time the Council has recognized that the force requirements currently envisaged for 1962 and 1963 would require further review in the light of new capabilities of both the West and the Soviets.

5. During the 1958 Annual Review it became obvious that countries, in general, had not been able to make a detailed assessment of the implications of the new force requirements and consequently they could not yet forecast future military planning with much precision. However, it was apparent that full implementation of MC 70 over the 1959-63 period would require considerably greater expenditures on defence than NATO countries are making at present. With regard to the years immediately ahead, this was also true. At the same time the Military Authorities were able to derive from countries' replies sufficient information about planning in the fields of forces and equipment to enable them to arrive at a preliminary judgment of the situation and to indicate the major problems to be solved and the scope of effort required to overcome them. Document MC 39/10, a report by the Military Committee on the Military Implications of the 1958 Annual Review, brought to the attention of all NATO countries the serious impact of the shortfall of forces reflected in the 1958 Annual Review on the capability of the major NATO Commanders to carry out their assigned tasks and missions during the period through 1961. MC 39/10 gives a comprehensive analysis of the present military posture of the Alliance and it is only possible in this brief to touch on the main deficiencies which have been noted.

6. There are shortfalls in M-day and 1st Echelon units as well as low manning levels in the M-day units; there are delays in the build-up of nuclear capable units; there is a lack of adequate support units; much of the conventional material with which major Army units are equipped no longer corresponds to present-day requirements; naval forces are seriously lacking in anti-submarine and anti-mine capability; construction of new ships, modernization of equipment and refitting of older ships is imperative; in the air forces there are serious delays in the formation of surface-to-air missile units and all weather fighter squadrons; there is insufficient dispersal of airfields and units; there is an inadequate strike reconnaissance capability; and there is a serious deficiency in anti-submarine-warning aircraft.

Canadian Participation in NATO Defence

7. As far as Canada is concerned, our present forces in Europe are roughly as follows. The RCAF is represented in Europe by our Air Division, which comprises eight squadrons of F-86 day fighters and four squadrons of CF-100 all-weather fighters, a total of 272 aircraft. Personnel strength in Europe is about 6500.

8. The Army's contribution in Europe is a Brigade Group consisting of three infantry battalions and supporting arms and an armoured regiment. The Canadian Government has also taken the decision to provide two Lacrosse Launchers, associated fire control equipment and six missiles for use by the Brigade Group in Europe; this equipment, however, has not yet been procured. Personnel strength in Europe is about 5500.

9. A further Army commitment is the build-up of the Brigade Group in Europe to a full division as soon after the outbreak of hostilities as possible. It is understood that this commitment is now under review in the Department of National Defence but that no decision with respect to withdrawing from it has yet been taken.¹¹¹

10. The R.C.N. has undertaken to provide to SACLANT, in the event of hostilities, an aircraft carrier and 42 other surface vessels of various types. In addition to these surface vessels and associated carrier-borne aircraft, the RCAF is committed to provide to the Maritime theatre of operations 48 maritime patrol aircraft.

11. While the naval vessels and naval aircraft to be assigned to SACLANT would clearly play a part in the defence of Canada in the event of war, the above contributions to NATO defence are, in the main, in addition to Canada's contribution to the defence of the Canada-United States region of NATO, our principal role in which is our participation in NORAD.

12. From the NATO viewpoint, the two most effective categories of the Canadian Mutual Air Programme since its inception in 1950/51 have been transfers of equipment and NATO aircrew training. Transfers of equipment have contributed by far the largest part of the programme. In the years since 1950/51, Canada has supplied her NATO partners with military equipment totalling more than $1,000 million in value and, though most of this has been equipment surplus to the requirements of Canadian forces, it has been of real value to our allies. Recently it has become increasingly difficult to find an adequate supply of useful up-to-date equipment in service stocks.

13. Canada has only undertaken specific production for Mutual Aid when there has also been a requirement for the item in question on the part of the Canadian Services. This was done in instances when the Canadian Services' requirements alone did not permit of economic production runs. The Staff have implied from time to time that Canada could use part of its production potential for mutual aid without relation to Canadian Service needs. Canada has consistently endeavoured to provide spares for equipment given away, either from Service stocks or from production. This is in contrast to the United States. The latter in the main do not now furnish follow-on spares for United States conventional type equipment already transferred.

NATO Attitude Toward Canadian Part in NATO Defence

14. Canada's contribution to NATO defence has always been highly regarded by NATO itself and by member governments, both because of the quality of our forces and because of the relatively satisfactory level of our defence expenditures. In present circumstances, when all NATO countries are faced with re-equipment problems and with rising defence costs, our defence effort is being scrutinized both from the point of view of our readiness to re-equip our forces to keep pace with modern weapons developments and from the point of view of our readiness to spend money on defence at a rate which will make this possible and also enable us to continue mutual aid to our partners. While the concept of relating defence expenditures to gross national product has never been accepted by the Canadian Government, the NATO staff tends to think in these terms and to try to apply this criterion to Canada and other countries. Apart from this, there is a fairly ingrained tendency to regard Canada as a country which, broadly speaking, can afford to spend more than at present on defence if necessary.

15. It is the function of the NATO Annual Review to assess the state of NATO defence and to stimulate member countries to make such further efforts as seem appropriate to increase the scope and effectiveness of their contributions and thus to enable the alliance collectively to meet more fully the requirements of the NATO military authorities. Within this general context, Canada, like other countries, receives recommendations from NATO each year.

16. The following resumé is based on the recommendations addressed to Canada at the conclusion of the 1958 Annual Review and contains my present appreciation of some of the important points to which we will probably have to address ourselves at this year's Annual Review examination next October. It has been written before receipt of our replies to the 1959 Annual Review Questionnaire and before the Parliamentary debate on the defence estimates. The reply to the 1959 Questionnaire will, of course, form the basis of our presentation at the NATO examination; however, my present resumé takes account of the main outlines of Canadian defence policy as outlined, for example, in the Defence White Paper.

17. On defence finance it has been recommended that Canada raise defence expenditures during the period 1959-63 as may be necessary to meet the qualitative and quantitative requirements of MC 70. Present indications are that the level of our defence expenditures in the current fiscal year will be about the same as last year; no forecast of expenditures beyond the 1959-60 fiscal year has been made. Since our 1960-61 defence estimates will be under preparation at about the time of our Annual Review examination in October, we will doubtless be questioned closely at that time regarding the expected level of defence expenditures in 1960-61.

18. The NATO recommendation on the air division is to reach an early decision on its future role in order to decide on modernization at the earliest possible date, emphasis to be placed on an increase in all-weather capability during the period covered by the 1958 Annual Review (i.e., 1959-61).

19. The recent decision to re-equip the eight F-86 squadrons will be welcomed in NATO. The reduction in the number of aircraft from 24 to 18 will be understood if the type of aircraft procured is such as to provide at least equivalent fighting power per squadron. At the same time, to avoid any impression that we intend to cut the effective size of our air division, it would seem desirable not to rule out now the possibility of the four CF-100 squadrons being re-equipped in due course. Also, in view of the latter part of the recommendation on the air division, it is further hoped that it will prove possible to maintain the CF-100 squadrons in Europe during the 1959-61 period or thereabouts; this would not increase the all-weather capability of the air division but it would maintain its present capability.

20. The NATO recommendations with respect to the Canadian Army contribution to the NATO Shield are as follows:

(a) accelerate the provision of suitable ground nuclear delivery systems for the Canadian Army Brigade Group in Germany;

(b) complete arrangements to move the balance of the 1st Canadian Division to Europe promptly after M-Day;

(c) provide balanced non-divisional combat support for the Canadian contribution to ACE; and

(d) continue to build up the manning level of M-Day forces in Europe at least to minimum SHAPE standards.

21. On (a) it is to be hoped that we will be able to say that a definite order for Lacrosse missiles for the Brigade has been placed, and that we will be able to forecast an approximate delivery date. We are asked in MC 70 to provide tactical nuclear weapons beginning in 1959. Since we have chosen the Lacrosse, which will not be available for some time, we cannot meet this date; but it would be desirable to indicate how soon we expect to provide the equipment. If this cannot be done, it would be advisable to make clear (if this is the case) that the indefiniteness arises only from inability on the part of the United States suppliers to give a delivery date.

22. SACEUR continues to attach considerable importance to recommendation (b) on arrangements for moving the balance of the 1st Canadian Division promptly to Europe after M-Day. This being the case, it is to be hoped that, if the United States Maritime Commission has indicated that it can move the balance of the Division, information to this effect can be given at our examination.

23. We have never felt any obligation to accept recommendation (c), and we understand that the Minister of National Defence is opposed to (d).

24. The NATO military authorities have been anxious to obtain a more firm commitment from Canada with regard to the number of Category A escort vessels which, in an emergency, would be made available to SACLANT by 1963. While the difficulties of making a more firm commitment are appreciated, any further precision we can be given on this score would be salutary.

25. The NATO recommendation to Canada on mutual aid is to maintain at least the present level of mutual aid by increasing, to the extent possible, deliveries to its allies of equipment of recent manufacture. This contrasts with the present state of affairs. There has been a very heavy shortfall in deliveries under our 1958-59 mutual aid programme; the 1959-60 vote for mutual aid equipment is $60,000,000 as compared with $90,000,000 in 1958-59; for 1960-61 there is very little suitable equipment in service stocks, and there has so far been no disposition to provide mutual aid equipment from direct production. If, for these reasons or for financial reasons, it should be decided to eliminate our mutual aid equipment programme as of 1960-61, we would be left only with the relatively small part which consists mainly of contributions to NATO common infrastructure and NATO budgets. These payments are made by all NATO countries on a cost-sharing basis, and the United States does not include them in its mutual aid programme.

26. The downward trend in Canadian mutual aid occurs at a time when the United States is maintaining its mutual aid to NATO countries at a high level. While Congress did not agree to the Administration's request for an increase in its total mutual aid programme, reports indicate that the amount going to NATO countries will be at least as large as previously. At the same time, because United States mutual aid is more and more concentrated on the new weapons of which it is virtually the only supplier, there is a tendency in NATO to look to Canada for continued provision of modern weapons of conventional types.

27. A new approach to the future of Canadian mutual aid might be developed from the idea that Canada is able to produce certain modern equipment - e.g. Caribou transport aircraft, Bobcat armoured personnel carriers - which are of value to her allies, and that she is willing to supply such equipment on a payment basis, or to facilitate its manufacture under licence in other member countries. Within the spirit of interdependence certain fields might be recognized as being strictly appropriate for Canadian equipment, thus avoiding duplication and competition with our Allies. As an adjunct to this strictly business programme, we might include a relatively small mutual aid content. This might range from substantial in the case of the poorer NATO countries to nil in the case of the more prosperous. This approach, while recognizing that there are a few NATO countries that still need mutual aid, would take the emphasis away from aid and would make use of the aid concept to make it more and more possible for Canada to supply equipment of real quality to her partners while assisting in the maintenance of the Canadian defence production base.

28. In concluding these paragraphs on NATO defence I should mention that, at the Ministerial meeting last December, a resolution on defence was adopted. Its object was to find some means whereby the Secretary-General might take special steps to improve the state of NATO defence. This resolution is now being implemented by means of a process whereby the NATO military authorities have direct discussions with national military authorities with the object of assessing, inter alia, the cost to the country in question of meeting the military authorities' requirements and the readiness of the country in question to do this. While this procedure does not differ essentially from the long-standing practice of bilateral talks between NATO and national military authorities, the scope and depth of the present enquiry is much greater and the current talks are held at the highest level - i.e., Ministerial. On the NATO side, the Interna-tional Staff, for the first time, is associated with them. However, NATO is concentrating first in this connection on the European countries, and we do not expect this type of discussion with Canada to be proposed by NATO in the near future¹¹².

29. I should also add that a number of new ideas regarding the manner in which NATO defence might be planned and directed, ranging from proposals to give national governments acting collectively a greater share in responsibility for NATO defence policy, to proposals to revise or replace the Annual Review, are being mooted in NATO circles; however, none of these ideas is yet sufficiently advanced to warrant further comment here. So far as the Annual Review is concerned, while some consider it is now ineffectual and too automatic, Canada has always strongly supported this NATO procedure. 30. My final observation relates to this year's Annual Review examination. It has been decided that, instead of covering a large range of fairly detailed questions, it should concentrate on a few main issues affecting a particular country. It is impossible to predict the issues on which the NATO Staff and the examining countries will wish to concentrate in the case of Canada. We think, however, that, now that the future of the air division seems assured, the NATO enquiry this year will be directed principally (though not exclusively) at the level of our defence expenditures and our ability to maintain our contribution to NATO defence at an effective standard in relation to modern weapons requirements and in relation to the NATO asserted need for a continuing Canadian mutual aid contribution of at least the present size. We think that, even though we continue to reject the concept of relating defence expenditures to G.N.P., we (like all countries) will have to be prepared for a NATO effort to make a fairly searching examination of Canadian economic and financial policies as they relate to our capacity to increase defence expenditures.

31. We fully recognize here the cogency of official views in Ottawa on mutual aid, and we understand the desire of the Government not to increase defence expenditures. The above analysis is intended chiefly to provide as accurate an appreciation as is possible at this stage of the probable NATO attitude toward the Canadian defence effort in the course of this year's Annual Review.

II - ATOMIC POLICY OF THE ALLIANCE

(The information under this heading is taken from memoranda already submitted to you by the Department.)

1. The policy on atomic weapons could be summarized as follows:

Intermediate Range Ballistic Missiles

2. The United States offer of IRBMs was made at the 1957 December Ministerial Meeting¹¹³ in the following terms:

3. "The United States is prepared to make available to other NATO countries IRBMs for deployment in accordance with the plans of SACEUR. Nuclear warheads for these intermediate missiles would become part of the NATO atomic stockpile system. Such intermediate missiles deployment would be subject to agreement between SACEUR and the countries concerned and to agreement between each such country and the United States with respect to materiel, training and other necessary arrangements."

4. According to the information available, the IRBM delivery systems and missiles, minus warheads, are supplied by the United States to the host country in the first instance. They are then assigned on the basis of a bilateral agreement negotiated by SACEUR with the host country, to those forces of the host country which come under SACEUR's operational command with SACEUR retaining full and direct operational command over the weapons in both peacetime and wartime. SACEUR maintains that he must exercise such control in peace and war because it is the type of weapon which must react quickly in the event of an all-out nuclear assault on the NATO area - and partly because the weapons themselves would be prime targets.

5. The United States offer to provide stockpiles of nuclear warheads for IRBMs is conditioned by their reservation of custodial rights. A further condition is that, in the event of an emergency, the warheads would, on the authorization of the President of the United States, be released to the custody of the appropriate NATO Supreme Allied Commander for employ-ment by the NATO IRBM units under his command (and not to European Governments or national forces directly).

6. Although no NATO pattern has been clearly established, the agreements concluded in the case of Italy are relevant.¹¹⁴ According to the information available, an agreement was concluded between SACEUR and the Italian Minister of Defence and a second agreement between the United States and Italian Governments. The former would appear to be what SACEUR has described as "a special command arrangement." The significant passages in this agreement provided:

1. "the decision to launch the missiles will be taken by SACEUR upon agreement with the Governments of Italy and the United States" and

2. the nuclear warheads would remain in the custody of the United States.

The second agreement contained the same important provisions, but included much greater detail regarding the provision of the missiles to Italy.

Tactical Nuclear Weapons

7. (a) Delivery Systems (e.g. Honest Johns, Lacrosse, etc.)

There is no evidence that there are specific conditions attached to the United States offer to supply NATO governments with ground-to-ground, ground-to-air, and air-to-air missile delivery systems. It is clear that the United States is willing to turn over these delivery systems to national governments for deployment with their forces under either national or NATO command. SACEUR has said that these systems normally are offered by the United States under military assistance programmes, and become the property of the recipient nation. He does not consider it necessary to control directly in peacetime these delivery systems which have a more limited range and which would be used in a supporting role.

(b) Nuclear Stockpiles for Tactical Weapons

The stockpiles of nuclear warheads remain under United States custody in peacetime wherever they are located. In the event of hostilities they are released, on the authorization of the President, to the appropriate NATO commander for employment by the forces under his command. They are not provided to the European governments or the national forces directly.

Separate bilateral arrangements are negotiated between the United States and the NATO nations concerned regarding the storing of such warheads on national territories.

The storage facilities (as opposed to the warheads) are to be financed as part of the NATO common infrastructure programme.

8. The situation described in the preceding paragraphs has proved to be generally acceptable to most members of NATO until recently; now, however, that several members of the Alliance are being provided with nuclear weapons, practical difficulties, particularly over the use of the warheads, are bound to arise. The Government of General de Gaulle is giving us a foretaste of things to come.¹¹⁵ It is not unlikely and it may even be necessary that the atomic policy of the Alliance will have to undergo fairly substantial changes in the years ahead if some cohesion in that most important field is to be maintained. It is too early to suggest what solution may be found. It can be said however that until a solution has been found the Alliance will be unable fully to co-ordinate its atomic policy.

III - POLITICAL CONSULTATIONS

1. A few years ago it was frequently said, often without much conviction, that NATO was more than a military alliance. These statements were defensive. It was realized that the political side of the alliance was under-developed and that the whole field of non-military co-operation needed to be re-examined. The exigencies of the Korean war and the recurrent crises in Europe had given the military side of NATO preeminence; and indeed the very idea that a military alliance could at the same time serve non-military purposes of an emerging community was new and needed time to take root.

2. The growth of political consultation in NATO was forced by two rather different circumstances. In the first place Mr. Dulles and a number of other Western leaders realized by the spring of 1956 that in the more relaxed atmosphere which followed the two Geneva confe-rences of 1955, the Western alliance would have to prepare itself for competition with the Soviet-Chinese bloc primarily in the political and economic field, and not merely in the Atlantic area but on a global basis.

3. A Committee of Three (the Foreign Ministers of Canada, Norway and Italy) had already largely completed their study of non-military co-operation in NATO¹¹⁶ when the Suez crisis broke. The shock of such a blatant failure to consult on this Middle East issue at first divided the alliance deeply but later compelled the December Ministerial Meeting to adopt the recommendations of the "three wise men" and to give the Permanent Council of NATO the impetus to carry out political consultations which have become increasingly more important in each successive year.

4. At the Spring Ministerial Meeting in Washington this year, Mr. Spaak reported that although progress in political consultation had undoubtedly been made, the development of this side of the alliance was not proceeding sufficiently rapidly to keep pace with the expansion of the Soviet threat. The co-ordination of a Western position, for example in preparation for the present Geneva conference, was a laborious procedure that put the NATO countries at a disadvantage in competing with rapid Soviet manoeuvres, which could be executed without fear of ructions either in public opinion or among the other governments of the Warsaw Pact.

5. Nevertheless the progress made in the field of political consultation in NATO is real and solid. Mr. Spaak's criticisms of the procedures, while valid, reflect the difference of procedure necessary in an alliance of free countries, as compared with the Soviet organization of Eastern Europe.

6. To measure the progress, it is only necessary to compare political consultation in NATO during the Geneva conferences of 1955 with what has been happening before and during the present Geneva conference. Without going into detail, it is broadly true to say that in 1955 there were no advance consultations, the Council was kept informed in a rather general way of the progress of negotiations and after it was all over there was a little discussion with one of the senior participating French officials. This time, there have been discussions in the NATO Council almost every week since the Berlin crisis broke in November. The Council has not been given detailed information on Western fall-back positions but in other respects there has been ample opportunity for the views of all members of the alliance to be made known to the participants and taken into account. During the actual negotiations, there has been less discussion in the Council (since only those on the spot could take responsibility for negotiating tactics), but the Council has been kept fully informed on the proceedings in Geneva, including a fair summary of the private soundings and negotiations.

7. In return for views exchanged, the only specific obligation which NATO governments have implicitly accepted in the field of consultations on East-West negotiations is to give the NATO Council at least 48 hours' notice, before delivery, of the text of any official government notes to the USSR or satellite governments on such general questions as Germany, European Security, Berlin or Disarmament. This gives the other NATO governments a chance to comment.

8. Political consultation in NATO, however, cannot be judged solely on conclusions in one sector - East-West relations. In other sectors, where the problems have either been more delicate or where the NATO interest was less direct, the results have been less satisfactory.

9. Under Mr. Spaak's chairmanship, the Council has come to accept - and expect - political consultations on any question anywhere in the world which one of the members of NATO wished to raise for discussion. Thus the Netherlands have brought up Indonesia (especially arms exports from NATO countries), the United States have raised Quemoy and the off-shore islands, the British and Italians have raised the Middle East, and the Germans Africa. There also have been discussions during the last two years over the development of restricted links, chiefly in the field of exchange of information, with other regional alliances and this evolution has given rise to some discussion of political objections (Canadian and Norwegian) to such links.

10. It is now fairly well accepted in NATO that neither exchanges with other regional alliances (Baghdad Pact and SEATO), nor discussions in the NATO Council of problems beyond the treaty area, can in any way extend the responsibilities and commitments which member governments have assumed under the North Atlantic Treaty. The incipient attempt to establish real links between regional alliances seems to have been abandoned and exchanges of views on, for example, Middle-East and African problems are explicitly on the basis that no attempt be made to develop a common NATO policy in these areas. The Council's object is rather to discuss questions of common concern in other areas of the world so that NATO governments will not (as has happened in the past) "trip each other up," to use Sir Frank Robert's phrase, in ignorance of one another's policies. Indeed, in a recent study of Africa, there is specific acceptance of the doctrine that some diversity in the policies of NATO governments is not only inevitable but desirable, since in the under-developed areas the colonial powers can obviously not play the same role as is open to those members of the alliance that are not (in the eyes of the under-developed countries) tarred with this brush.

11. At the same time, there are problems even within the treaty area with which the Council has never had the courage (or the imprudence) to grapple, and there are other problems of the same order where the Council has either failed or been only partially successful. The prime example in the first category is Algeria, and in the second Icelandic territorial waters and Cyprus.

12. Although Mr. Spaak has, from the viewpoint of some delegations, been pushing political consultation in NATO almost too fast and too far, he has been among the most emphatic in resisting French efforts to develop an inner circle, or political standing group, where world strategy in both the political and military fields could be discussed and correlated in a manner impracticable in a Council of 15. General de Gaulle never explicitly suggested that USA-UK-French consultations should be developed within NATO and he has indeed sought to do so outside of NATO. His shock tactics, in apparently making French co-operation on a number of military questions contingent on closer political consultation, have not commended themselves to the alliance as a whole. French suggestions that the Algerian policy of France should be supported in the United Nations by the members of the alliance in return for French co-operation have also been ill-received.

13. The Canadian approach to political consultation in NATO seems to have varied somewhat with the expansion of consultation itself. In theory we have always favoured as intense consultation as possible in the NATO Council; in practice, of late, we have been less forthcoming than some other members of the alliance in exchanging views or have shown some reticence in agreeing that certain subjects be discussed, mostly because we have feared that consultation might in due course lead to additional commitments. This cautious approach on our part has been the more noticeable since two of the great powers in the alliance, the United States and the United Kingdom, and some of the smaller powers such as the Netherlands and Italy, not to mention Iceland, have used the NATO forum more and more frequently to raise issues which either were not in the Treaty area, or not ripe for discussion, or were being discussed in another forum. On the other hand, the same caution has also applied in reverse in accepting the situation whereby the question of Algeria, for example, be not raised in Council. This Canadian attitude has over the last few months, it seems to us, gained fairly general acceptance in Council and, in a sense, some of our past worries have become obsolete. In any case, on the record of the past two years - and we should bear in mind that political consulta-tion in its present form only really began two years ago - there would seem to us to have been a reasonable give and take between the larger and the smaller members of the alliance, and it would be difficult for us to say whether the process of political consultation has tended to increase the support for Big Power policies in other areas, or has on the contrary tended to modify those policies in a way which could not have been achieved through bilateral diplomacy alone. Both judgments may be true. In any event, Canadians (who have had a much longer experience of such consultations through our Commonwealth Association) have little to fear from political consultation in NATO now that the guide-lines have been fairly well established. Indeed our experience so far, from the point of view of this delegation, has been that we can have more influence by stating our point of view positively and participating in such consultations that we can by taking rear-guard actions to limit their scope.

14. A further important consideration, particularly from our point of view, is worth recording here; it was mentioned earlier that over the last few months the United States and the United Kingdom have shown an increased tendency to raise in Council for discussion more and more problems - even of a peripheral interest to NATO - such as Quemoy, the Middle East and Africa generally, etc. It would seem in the Canadian interest that such exchanges should continue to take place, thus affording London and Washington a further opportunity to co-ordinate their policies and at least reduce to a minimum the possibilities of frictions which were so acute at the time of Suez. Seen from here, at the rate political consultation is developing, another "Suez" seems to be most improbable. This in itself is a major achievement and should not be overlooked.

15. There is the related advantage that in the Council North American and Western European countries get a better understanding of each other's views with the possibility that in due course their policies will be more and more co-ordinated. This is particularly important at a time when centrifugal tendencies are rapidly developing in Europe.

16. The habit of political consultation is growing but is not growing wild. Its growth is inhibited by four controlling factors:

(a) The power of decision rests entirely with member governments;

(b) The security of NATO consultations is only relatively good, though press leaks more often come from national capitals than from the Council;

(c) Issues that are delicate as between NATO governments can be exacerbated by premature discussion; and

(d) No government will consult on a matter of national interest to which it knows its allies will be opposed (e.g. the French decision to withdraw part of their Mediterranean Fleet from NATO control in wartime).

17. These inhibitions apply to consultations in Council. They apply less to informal contacts between delegations and to private initiatives of the Secretary-General which help to bridge what would otherwise be a dangerous gap.

IV - ECONOMIC DEVELOPMENTS

1. As I mentioned in the introduction to this letter, our associate membership in the OEEC and the accreditation of this mission to the Organization brings us into close contact with the difficulties which the European countries are encountering in their attempts to develop a broader basis for European economic co-operation. Thus, to complete the picture, I shall attempt in the following paragraphs to outline the broad framework within which these problems are being considered.

2. As you know, the Organization for European Economic Co-operation was formed following the initiative of the then U.S. Secretary of State, George Marshall, who on June 5, 1947, suggested that European countries should co-operate in carrying out a joint programme for economic recovery with the help of the United States. As a result a Convention was signed on April 16, 1948, under which the seventeen member countries pledged themselves to promote production, remove obstacles to trade and to strive for financial stability with full employment.

3. In June, 1950, Canada and the United States accepted an invitation to associate themselves with the work of the Organization. Thus, while not contributing to the general budget of the Organization, both countries have been given a special status permitting their representatives to attend all meetings of OEEC bodies and to take part in discussions without being legally associated with the decisions taken.

4. For ten years following its inception in 1948 the Organization was vigorous and dynamic but at the end of last year two important developments cast a shadow over its future activities:

(a) The Breakdown of the Negotiations for a European Free Trade Area

Between October, 1957, and the end of 1958 work on trade questions, which are the most important aspect of the Organization's activities, was concentrated on negotiations for an agreement to associate with the European Economic Community (created by the Treaty of Rome) the other eleven OEEC countries which are not members of the Community.¹¹⁷

Agreement was reached after a year of negotiations on a reasonably large number of points but it was found impossible to overcome deep-rooted differences resulting from the absence of a common tariff. There is, I think, general agreement that the basic cause of the breakdown in the Free Trade Area negotiations sprang from the absence of the political will in France to negotiate a wider economic association which would subject French industry to further significant competition.

(b) The Achievement of External Convertibility

In large part as a reflection of their financial strength, in December, 1958, all member countries (except Greece, Iceland and Turkey) declared their currencies convertible on external account and automatically removed any financial advantage there might have been in importing from one source rather than from another. The result is that subsequent discussions on intra-European trade and payments liberalization were bound to contain a large element of artificiality. Western European countries are now more than ever directly accountable to the GATT for a removal of discriminatory trade controls. And it is for the International Monetary Fund to determine when the position of each individual country will permit to proceed with the complete elimination of all quantitative restrictions.

5. As a result of these developments a new situation had come into being and consideration had to be given to the next steps.

6. So far as the Free Trade Area negotiations are concerned, French intransigence seemed to make impossible their resumption in the foreseeable future. As a consequence the United Kingdom in a desire to compensate for the loss of actual and potential opportunities in the markets of the Six and to seek a broader seventeen-country Free Trade Area through a different route decided to open negotiations looking toward an industrial Free Trade Area among suitable members of the non-Six (Sweden, Norway, Denmark, Switzerland, Austria and Portugal). If such a Free Trade Area is negotiated by the end of 1959 the United Kingdom would see in it the possibility of a bridge to resumption of negotiations of a broader Free Trade Area presumably under the aegis of the OEEC. On the other hand, if, contrary to U.K. expectations, the little FTA does not lead to the resumption of successful negotiations for the broader Free Trade Area, it will, U.K. authorities argue, form a viable economic unit which will in part at least compensate the United Kingdom for any loss of its export opportunities in the common market.

7. It is perhaps not for me from this limited vantage point to attempt a judgment as to the efficacy of the little Free Trade Area, either with respect to its influence in bringing about the all-European Free Trade Area or in achieving a degree of viability which would in itself justify its creation. On both these counts, however, I share the scepticism of those more directly concerned in Ottawa. Even if a little Free Trade Area of a "liberal and outward-looking character" were developed, in the short run Canadian commercial interests would be affected to some degree; and as there are legitimate doubts that the limited FTA would stimulate an accelerated rate of economic growth in the markets of its participants, it is at least doubtful that we could expect to find adequate compensation in the longer run. Even if the little FTA were to be fully in accord with the relevant provisions of the GATT, I would have some concern about its effect on the development of a truly multilateral trading system.

8. It is probably true that in the economic sphere as well as in the political the difficulties and uncertainties centre around French intransigence. The broader Free Trade Area does not commend itself to French industry; France has nothing to gain and something to lose in the short run if it were to participate in a wider area of vigorous competition. While future prospects are uncertain, there remains of course a possibility that decisions will be made at the highest political level in France to push ahead with the broader FTA negotiations. At the same time it must be recognized that whatever would be likely to emerge in the foreseeable future would probably be difficult for us to accept. While one could argue that the achievement of external convertibility in Europe and the financing strength on which it is based would make European countries, including France, less inclined to negotiate in an inward-looking Free Trade Area, the history of the negotiations to date must leave one at best somewhat disenchanted.

9. So far as the OEEC itself is concerned, it has faced the prospect of looking backward and attempting to deal with present problems using older techniques no longer appropriate under present circumstances or of finding new fields to explore (or old ones to exploit more vigorously) in order to supplement what might be called its residual activities in the field of productivity and nuclear energy.

10. Last April the OEEC Council passed a resolution establishing an Economic Policy Committee which would meet two or three times a year and whose membership would normally be Deputies to Ministers of Finance or Economy. While the establishment of this Committee is in part a reflection of the emotional need to continue co-operation, it also reflects to some extent the conviction that in conditions of convertibility closer economic co-operation or co-ordination among member countries of the Organization is required. An attempt was made when the Committee was formed to persuade the United States and Canada to become full members of the Committee and to bind the two countries, "to co-ordinate their economic policies" with those of the European full members. While no precision has been given to the work of the Committee or to the meaning of the "co-ordination" which its terms of reference imply, full membership would involve the possibility of recommendations to the Governments of Canada and the United States. Both the United States and ourselves, while welcoming the establishment of the new Committee and agreeing to participate in its meetings, have declined the obligations of full membership.

11. In present fluid circumstances the future work of the Organization and even its continued existence are unclear. Its lifeblood, measures for trade co-operation, has ebbed away; trade co-operation is now no longer fully appropriate for discussions in a regional forum. But the Organization will not die (if at all) slowly and the desire to co-ordinate economic policies in conditions of convertibility are to some extent susceptible to discussion in a regional forum, particularly with the participation at least in the discussion of the United States and Canada.

12. I have tried to present above in capsule (and I hope digestible form) a historical survey of the work of the Organization. I have mentioned its difficulties in adapting itself to its new environment and have referred to certain possible fields in which its future activity might be concentrated. I have indicated that "co-ordination of economic policies" is an ill-defined objective even in the European sense. I should add also that there is no disposition on the part of the United States to do much more than tolerate this European exercise and there will certainly be no disposition to accept European judgments as to the efficacy of monetary, fiscal or commercial policy in the United States. As I think it is true that OEEC activities in the field of agriculture and in relation to under-developed countries would run a serious danger of overlapping or duplicating work which has already been initiated under the aegis of the GATT, the so-called residual functions of the OEEC in the field of European nuclear energy, productivity and scientific and technical manpower would scarcely by themselves justify the continued existence of the Organization in its present form.

13. Despite, therefore, its useful past the Organization's future is at best uncertain and it seems unlikely that it will be possible in the coming years for it to emulate its previous dynamism. Nevertheless Canadian and United States association with the work of the OEEC must, for political reasons, be continued. The withdrawal of the association of the North American countries would without doubt cause the collapse of the Organization or, still worse, tend to make its discussions and decisions much more inward-looking and restrictive. To a large extent I suppose it is true that our own attitude with respect to the Organization and its work must be conditioned by the attitude of the United States. And the United States which continues to give its full support to the smaller European regional grouping created by the Rome Treaty seems anxious to keep the Organization alive while, at the same time, avoiding increased commitments on its part. One can also see the possibility that the Organization will provide the framework within which economic agreement could be reached between the industrial Free Trade Area and the Seven (if it comes into existence) and the six members of the European Economic Community.

14. In NATO a Committee of Economic Advisers has been set up. While its establishment is often considered as tangible evidence of the desire of member governments to pursue the non-military aspect of the North Atlantic Treaty, its work has been limited by the difficulties involved in regional economic co-operation and the existence of other competent international organizations to deal with economic and financial problems. A major study which the Committee of Economic Advisers has undertaken relates to the Sino-Soviet economic offensive and its effect particularly in the under-developed countries. It could be argued that taking into account the membership of NATO and the relative secrecy of its deliberations, this is probably the only forum in which the Soviet economic offensive and its ramifications could profitably be discussed. At the same time there is little evidence to suggest that the United States will be prepared to consult with its NATO partners on a multilateral basis with respect to such international economic problems of mutual concern. Rather the United States regards the Committee of Economic Advisers as a forum in which ad hoc problems can be raised and ad hoc solutions devised.

15. In assessing the relative efficacy of the Committee of Economic Advisers it is well to bear in mind that it is a new and relatively untried Committee. It is fair to note that the calibre of representation on the Committee as well as that of the International Staff which is devoted to its work is not such as to give much hope for a significant future. But more basically the effectiveness of its operations will depend on the extent to which the United States is prepared to consult on and discuss in this forum problems of mutual concern such as the Soviet economic offensive which are not wholly susceptible of review in other international agencies.

16. With respect to the prospects for European or, for that matter, North Atlantic economic co-operation, I am afraid that I have painted a rather gloomy picture. I have mentioned my doubts, which I believe are shared by those directly concerned in Ottawa, regarding the desirability of a limited Free Trade Area among the seven European countries. I suspect too that despite our earlier endorsement of the principles of the broader all-European Free Trade Area (which would now probably include Spain - a very recent member of the OEEC), there are some who feel as I do that the likelihood in the near future of a liberal outward-looking Free Trade Area being formed is not particularly good. Certainly a seventeen- or eighteen-nation trading arrangement in Europe would have a preponderance of the voting and vote-getting power in the GATT. And while one would not expect irresponsible action, the fact remains that the European nations concerned are by no means as enamoured by the General Agreement as we and the Americans are. At a time when less orthodox proposals are being put forward in the context of the Sino-Soviet economic offensive, perhaps we should place somewhat more emphasis on the efficacy of conventional methods which, if properly and vigorously employed, would be adequate to meet most, if not all, of the problems involved. So far as trade is concerned existing international institutions such as the GATT provide the most appropriate framework for healthy and mutually beneficial intercourse among the nations of the free world. What may be required therefore is a new dedication to and a vigorous pursuance of the principles of GATT as offering the best method of meeting the Sino-Soviet economic challenge. The NATO study to which I have referred to above could conceivably result in new decisions being taken at the highest possible level reaffirming the adherence of all NATO countries to the principles of the GATT.

V - CONCLUSIONS

1. NATO has celebrated its 10th anniversary this year. It was launched under the pressure of the Soviet military and ideological challenge in Europe. The challenge has been met: not one inch of European territory has fallen under Soviet domination during the last ten years; Communist parties throughout Western Europe have had their ups and downs during the same period but generally are on the decline. The threat from the Soviet Union continues to exist, however, at present in an acute form in Berlin. It is therefore necessary for the Alliance to maintain its defensive position with a view to neutralizing Soviet conventional and nuclear forces, and for countries of the Alliance economically and politically to be healthy enough to resist Communist inroads.

2. While Soviet military power and, to a lesser extent, Communist ideology still threaten the European members of NATO, new forces have come to play either within or without the area covered by the Treaty, some of which may be as noxious now as the possibilities of Soviet invasion or Communist subversion were in 1949. The dangers from within are mostly due to the fact that some members of the Alliance - France politically, West Germany economically and soon militarily - have acquired a fresh vitality which creates new and at times awkward situations for NATO as a whole, but particularly for United States leadership. The main outside developments are the emergence of independent states in Africa and the Middle East - most of which were colonies of NATO countries - and technological developments in the Soviet Union which have created an atomic stalemate between the United States and the USSR.

3. Some argue that NATO has been late in facing up to these new developments while others say that the Alliance was not meant to cope with issues such as the emergence of new nationality and the Soviet economic offensive. Strong arguments can be found in support of either thesis. In the end, however, the internal contradictions of NATO are the result of the nature of the Soviet challenge and of its interpretations. The basic question is whether NATO governments, once seized of the magnitude and the urgency of these new developments, will decide that NATO is to continue to operate with its present terms of reference and develop "a Maginot line complex," to use Mr. Spaak's expression, or whether it should expand its activities in new fields and areas to meet the expanding and changing Soviet challenge.

4. Most of the stresses and strains that shake the fabric of NATO today can be found in the positions taken by the Great Powers on this basic issue:

The United States, the natural leader of NATO, over the last two or three years have not given the sort of inspired leadership which would have knit the Alliance more closely together. There is however an aimless eagerness in Washington vis-à-vis NATO which, if properly directed, could be rewarding;

The United Kingdom seem to have decided to use NATO as a forum for consultation on political issues while retaining at the same time their full freedom of action in the economic field, a relative freedom in this atomic field, and maintaining a special relationship with the Commonwealth.

France under General de Gaulle is deliberately playing down the importance of NATO. It wishes to assume the leading role in Continental Europe and thus join in the Councils of Washington and London. Its contribution to NATO is subordinated to Algeria and national developments in the atomic field;

West Germany and Italy hesitate between fairly full integration in the Europe of the Six and wider Atlantic concepts.

5. It is in this context that the Canadian position has to be seen; in summary, as outlined in the preceding paragraphs, it is as follows. As regards defence, the decision taken by the Government to re-equip the Air Division will place us in good stead with our Allies and particularly with the NATO military authorities. This will strengthen the hands of the Canadian Government in NATO generally with the consequent ability to influence NATO policies. In the atomic field Canada may have a role to play in trying to formulate a more generally acceptable control system. There is one important specific Canadian interest here since the two Canadian wings still stationed on French soil may in due course have to be provided with atomic stockpiles which have been refused by the French Government to U.S. squadrons.¹¹⁸ This problem will require careful scrutiny. On political consultation we have been alert to its importance as well as to its limitations, and have shown a caution which is now more or less generally shared by most of our partners. In the process however the United Kingdom and the United States have been fairly forthcoming in this field and this trend should be encouraged since it is most valuable from our point of view. In economic matters we find ourselves unable to support the different regional organizations which are or may be set up unless they are of a "liberal and forward-looking character," although we support developments leading to closer European co-operation.

6. On the whole, therefore, it can easily be demonstrated that "there is no weakening in our support of NATO," as the Prime Minister said at the Michigan State University on June 7, 1959.¹¹⁹ A word or two of caution, however, should be recorded. Progress towards economic integration in Europe, if it is to be pursued vigorously by the Six, will normally lead to more intense political co-operation. There are already straws in the wind. It is likely that so long as France and West Germany remain as closely united as they are under the leadership of General de Gaulle and Chancellor Adenauer, the trend towards European integration will continue. If during the same period the Alliance remains static, the end result is likely to be a serious cleavage between Continental Europe on the one hand and North America on the other. This has never been in our interest. Nor for that matter would it be in our interest that the relations between West Germany and France be weakened. We are therefore confronted with a dilemma which in the end can only be solved in bringing Continental Europe and North America even closer together. The lead can only come from Washington if such a venture is to be successful. The future of NATO in non-military fields rests with Washington as heavily as does its future as a military Alliance. The question therefore for us in the final instance - if it is thought that a serious cleavage between Continental Europe and North America should be avoided - is whether we wish to use whatever influence we have with the U.S. administration to bring them to a better appreciation of the new dangers and potentialities of the Alliance. This is not a new role for Canada to play; it has acquired a new dimension and a new urgency in the nuclear age.

Yours sincerely,
JULES LÉGER

¹¹⁰Voir le volume 24, les documents 181 à 204./See Volume 24, Documents 181-204.

¹¹¹Voir/See Document 102.

¹¹²Voir le volume 24, les documents 321 à 324./See Volume 24, Documents 321-324.

¹¹³Voir le volume 24, les documents 243 à 256./See Volume 24, Documents 243-256.

¹¹⁴Voir le document 95, note 63./See Document 95, footnote 63.

¹¹⁵Voir le volume 24, les documents 286 à 289./See Volume 24, Documents 286-289.

¹¹⁶Voir le volume 22, les documents 520 à 543./See Volume 22, Documents 520-543.

¹¹⁷Voir le volume 24, les documents 471 à 491/See Volume 24, Documents 471-491.

¹¹⁸Voir les documents 95 à 98./See Documents 95-98.

¹¹⁹Voir Canada, ministère des Affaires extérieures, Déclarations et Discours, 1959, No 22.
See Canada, Department of External Affairs, Statements and Speeches, 1959, No. 22.