1. The establishment of the Free Trade Area of the Seven is moving forward rapidly ("The Seven" consist of the United Kingdom, Norway, Sweden, Denmark, Switzerland, Austria and Portugal. "The Six," comprising the European Common Market, consist of France, Germany, Italy, Belgium, Netherlands and Luxembourg.) The initiative for this plan has come largely from the United Kingdom and the United Kingdom Government has decided to go ahead, whatever may be the position of other Commonwealth Governments. At present attention is focussed on proposed trade arrangements amongst the Seven; but not the exclusion of possible special arrangements in the future between "the Seven" and "the Six" (the European Common Market) or of general relationships with the Commonwealth and the World trading community.

2. The development of European trade arrangements is one of the subjects on the agenda of the forthcoming meeting of the Commonwealth Finance Ministers in London, commencing September 22. This meeting will provide an opportunity for Canada and other Commonwealth countries to express views. On the assumption that Commonwealth views could influence the shape of the arrangement, but not the basic decision of the United Kingdom to proceed with the Free Trade Area of the Seven, it is proposed that the Canadian delegation should take the following positions:

Canada and the Free Trade Area

3. The arrangements for a Free Trade Area of the Seven will raise difficulties for Commonwealth exports to the United Kingdom and to the other associated countries. Canada's trade interests in the proposed Free Trade Area are directly affected. Developments under this plan will inevitably involve loss of tariff preferences in the U.K. market for important Canadian products and also relatively less favourable treatment in the markets of the other partners. It would be a matter of serious concern if the shape of the Free Trade Area of the Seven were to entail further narrowing of the access for Canadian goods in these markets.

4. With this in mind, Canada should place on record in London her expectations that the Free Trade Area of the Seven will avoid a narrow regional approach and take fully into account the interest of outside countries. To this end Canada should seek appropriate assurances from the United Kingdom. In particular the United Kingdom should be asked to give an undertaking (which should include tariff preferences, the use of quantitative restrictions or any other devices affecting trade) to safeguard Commonwealth interests covering the field of agriculture and the fisheries in its market (except for items such as bacon with respect to which the United Kingdom has already made commitments).

5. In addition, the United Kingdom should be asked to prevent the emergence of "reverse preferences" against Canadian products. This could arise in respect of several of our exports which are at present dutiable in the United Kingdom market (e.g. automobiles and synthetic fibre textiles).

6. Finally, firm assurances should be sought from the United Kingdom that there will be no quota discrimination against Canadian goods in favour of other partners in the E.F.T.A. and that any existing discrimination should be progressively reduced and eliminated entirely within a reasonably short period of time.

Canada, the Free Trade Area and the Common Market

7. The impetus for the creation of the Free Trade Area of the Seven derives from the U.K. belief that this will provide the basis for an accommodation with the Common Market coun-tries in the form of a comprehensive European association. The nature of this broader grouping remains a matter for future negotiations. It will have an important impact on Canada's trade and the trade of other third countries which cannot be predicted at this time.

8. Under these circumstances, Canada should avoid commitments so that the Canadian attitude can be determined from time to time in the light of actual developments in European trading arrangements. At the same time, it should be pointed out to the United Kingdom that the Canadian Government will keep under close and continuous observation developments towards a broader European association; that the development of restrictive arrangements in Europe would raise serious commercial policy issues for Canada; and that Canada would be particularly concerned should any arrangements be made which might affect our agriculture and fisheries interests in the United Kingdom market.

Canada and World Trade

9. As a result of improvement in the trading position of the United Kingdom and European countries, increases in their reserves of gold and dollars, and the convertibility of their curren-cies, the opportunity now exists for a fresh attack, in the GATT and the International Monetary Fund, on trade restrictions and discrimination.

10. The United States have informed us that they will be launching a frontal drive against trade discrimination through existing world institutions and also on a direct country-to-country basis. The United Kingdom, as one of the world's major trading nations, should be urged to play a full part in the pursuit of these multilateral objectives irrespective of its present preoccupation with regional arrangements in Europe.³⁰⁵

D.M. FLEMING

³⁰⁵ Approuvé par le Cabinet le 17 septembre 1959./Approved by Cabinet on September 17, 1959.