sir,

I have the honour to refer to your despatch No. 1436 of December 28th with enclosed copies of the list of commodities which could be removed from export control at this time, and which would be removed from control if the action taken would not be considered as a failure on Canada's part to co-operate with the United states Government in controlling shipments to Argentina.

I am enclosing a copy of a memorandum which was left with state Department on January 2nd, along with a copy of the list of commodities under reference, with the object of providing a basis to discuss with the United states authorities informally their reaction to the proposed removal of these items from Canadian export control.

On January 3rd Mr. Scott was invited to attend a meeting in the state Department, presided over by Mr. Parsons. Others present included Mr. Gilmore, who took the lead in the discussions reported on in my despatch No. 2717 of November 21st, Mr. James Farris of the International Resources Division, also present at this previous meeting, Mr. Frederick Exton of the Munitions Control section,. and Mr. Shaetzel, representing Mr. Clair Wilcox, Director of the Office of International Trade Policy.

The meeting held on January 3rd covered substantially the same ground explored in November last, except that the urgency of this problem from the Canadian point of view was further emphasized, and it was moreover stressed that the removal of the items in question from the Canadian positive list would not, in our view, draw public attention to Canada's more liberal policy toward Argentina to the extent which the American officials feared, since our announcement would primarily be directed toward informing the Canadian export community that the commodities in question were no longer subject to export control except to very few destinations. This argument was not convincing to the Americans, who contended that our proposed action would seriously embarrass their position not only vis-à-vis Argentina, but would also lead to criticism from United states exporters who would claim that Canadian firms were in a position to expand their business with Argentina at a time when. American firms were being handicapped. This American view was expressed in spite of the fact that for some considerable time past exports have been freely licensed to Argentina, except for strategic materials and those in short supply, the only limiting factor being the requirement of an individual license as distinct from the privilege of exporting to what is called the K Group of countries without licenses for all commodities not specifically listed.

Attention was also drawn by Mr. Exton, who is responsible for the control of exports of armaments, munitions and aircraft, to the inclusion of toluol, an ingredient for the manufacture of explosives, and aircraft parts in our list. As regards the aircraft parts, Mr. Exton pointed out that the list did not show any distinction between military and commercial, and therefore in his opinion the status of aircraft parts was rather unsatisfactory. The opportunity was taken at this point in the discussion to enquire if the United states authorities would feel that their difficulties could be overcome by our removing certain items from the list. This suggestion brought forth no specific comment.

The American attitude throughout the meeting was substantially the same as the views recorded in my despatch No. 2717 of November 21st. In other words, they are still determined to retain Argentina in the E Group of countries under the United states export licensing system, pending the outcome of the conference of American Republics proposed for March of this year. Whereas in November no intimation was given that Canada would not continue to co-operate along similar lines, the intimation given at this meeting that we propose removing from export control the commodities on the list submitted upset the Americans considerably. Our view that the removal of these items from our export control would really have little effect on the volume of goods moving to Argentina was unconvincing.

In fairness to the opinions expressed by the Americans at this meeting, it should perhaps be mentioned that Mr. Farris in particular took several occasions to draw to the attention of his colleagues the fact that, to use his own words, "time had run out on the American export policy toward Argentina", and that for several months past they had not been able to offer any practical help to our export control authorities in regard to our operational problem. The opportunity was taken of Mr. Farris' support several times during the meeting, when a tendency developed for the Americans to inject the political aspect of this problem into the discussion, to emphasize that what we were trying to solve was the operational difficulty which results from the nature of our administration of export control, and not, on this occasion, to become involved in a debate on the political issues affecting Argentina. It was, as you will appreciate, difficult to keep the two separate, but the American officials present freely conceded their knowledge of the Canadian point of view, namely, that the United states was not effectively accomplishing its political objective vis-à-vis Argentina by means of economic restrictions.

It was also pointed out to the Americans that there were no effective measures to prevent the re-export from other Latin American countries to Argentina of a wide range of commodities no longer subject to the United states individual licensing system. They had no effective answer to this argument.

Reference was also made to the fact that other countries, notably the United Kingdom, have not seen fit officially to apply restrictive measures in their export control to Argentina.

At the conclusion of the meeting, although Mr. Parsons indicated that the matter would be further considered in the state Department, it was quite obvious that the United states reaction to these proposals was going to be unfavourable.

On January 5th Mr. Parsons informed the Embassy that the Pan-American section of the state Department had shown serious concern regarding the Canadian proposal, and that in view of the urgency which had been attached to the latter from the Canadian standpoint, instructions were being sent to the American Ambassador in Ottawa to ask the Canadian authorities to defer momentarily our proposed action to provide time for the state Department to prepare a note to me which it is expected will reiterate the views reported in my despatch of November 21st last, and at the same time express the hope that the Canadian proposal can be deferred for at least sixty days. It is apparently the American hope that within sixty days they may be able to finalize their attitude toward Argentina, following the outcome of the forthcoming elections in that country. Mr. Parsons explained that no reference would be made in their note to the informal memorandum left with him, but that the note will indicate that the United states authorities understand certain actions regarding Canadian export control toward Argentina are under contemplation.

Mr. Parsons conveyed the impression that the action which the state Department had decided upon resulted from the reaction of Mr. Spruille Braden to our proposals on having them brought to his attention on January 5th.

The highlights of Friday's meeting were conveyed verbally in a telephone conversation which Mr. stone had on January 5th with Mr. Pierce.

In addition Mr. Scott also reported informally by telephone to Mr. English in the Department of Trade and Commerce, with respect to certain of the operational details involved. Both these conversations took place before hearing from Mr. Parsons late on the morning of January 5th.

I have etc.
THOMAS A. STONE
for the Ambassador

[PIECE JOINTE/ENCLOSURE]
Mémorandum de l'ambassade aux États-Unis au département d'État des États-Unis
Memorandum from Embassy in United States to Department of State of United States

Washington, January 2, 1946

The Canadian Embassy wishes to draw the attention of the Department of state to informal discussions which have been carried on for some time with the United States authorities concerned in regard to the modification in the control of exports to Argentina.

Attached to this memorandum is a list of commodities which Canada could remove from export control, and which it is desired to remove from such control if the action taken would not be considered as a failure on Canada's part to co-operate with the United states Government in controlling shipments to Argentina.

The Canadian authorities responsible for the administration of export control are under constant pressure from the Canadian export community to reduce the number of items under export control, but such action cannot effectively be taken under the Canadian regulations without specifically listing the Argentine along with the blockade and former enemy countries.

It is the feeling of the Canadian authorities that the removal of the items on the attached list from Canadian export control would really have very little effect on the volume of goods moving to Argentina. On the other hand, it would greatly simplify the administrative work of the Canadian Export Permit Branch. Even with the proposed changes Canada would still be retaining an adequate control over the movement of all strategic materials to Argentina, for example, within the last three weeks an export permit application covering two hundred parachutes for Argentina was refused as it was obvious these parachutes would be used in the training of Argentine airmen.

It is also proposed to amend Clause 5 of the Canadian Export Permit Regulations by adding to the list of countries exempted from requiring export permits on all shipments. Clause 5 now reads in part "No person shall export any goods to any country, other than parts of the British Empire or the Western Hemisphere without first having obtained an export permit, except as provided in Regulation 31. For the purpose of this Order, the Western Hemisphere is defined as embracing all land west of longitude 30° east and west of the International Date Line".

Under the new proposal Clause 5 would read

"No person shall export any goods to any country, other than to parts of the British Empire; destinations within the Western Hemisphere and Possessions and Protectorates of the United states; Belgium, France, The Netherlands and their Colonies and Protectorates; Czechoslovakia; Denmark, Greece, Luxembourg, Norway, Poland, Turkey, U.S.S.R., Vatican City, Yugoslavia, China, Egypt, Iran, Iraq; without first having obtained an export permit issued by or on behalf of the Minister of Trade and Commerce."

This arrangement would have the effect of allowing goods in free supply to move to the liberated areas without export permits; however, as in the case of Argentina, even with these proposed changes there would still be adequate control over the movement of all strategic materials.

In the circumstances as recorded above, the Canadian Embassy would welcome the views of the state Department on the proposed modifications in the Canadian export control regulations.