At a meeting of the Interdepartmental Committee on External Trade Policy of August 19, the question of granting Most Favoured Nation treatment for Japan was considered, and I understand that the Cabinet Committee on External Trade Policy will discuss this subject at its next meeting.

The United States Government has expressed its intention of placing this question on the agenda for the second session of the Contracting Parties of the General Agreement on Tariffs and Trade, being held this month in Geneva. This follows an unsuccessful attempt by the United States Governmem at the Havana Conference to obtain reciprocal exchange of Most Favoured Nation treatment with the Occupied areas of Germany and Japan. A further unsuccessful effort was made to include in the E.C.A. bilateral agreements an undertaking that the E.R.P. countries would grant such privileges to Japan. As a result of the strong objections raised by European countries, particularly the United Kingdom, this provision was removed from the final agreements.

The United Kingdom resisted on the specific grounds that there was no necessary connection between Japan and European recovery, and that in addition, prior consultation with other members of the Commonwealth was necessary. It is understood that the British remain opposed to the granting of M.F.N. treatment and intend to state at Geneva that they have not had time to consider the matter adequately, in consultation with their domestic industries, of which the textile manufacturers would he the hardest hit, or with other Commonwealth governments. They propose to seek a postponement of the issue. The Interdepartmental Committee is in agreement with its Sub-Committee that, from an economic point of view, the granting of M.F.N. treatment to Japan would be desirable. It is in the interest of Canada that the Japanese economy operate on a viable basis. The world needs the textiles which Japan would be in a position to produce, and it might be difficult for Canada to justify opposition to steps that would develop healthy commercial and trade arrangements in the Pacific area, Japanese markets, if revived, could become of considerable importance to Canada.

The Committee, however, recognized that in the light of past Japanese practices, such treatment for Japan should only be granted on the basis of adequate guarantees from the responsible authorities in Japan.

It will be recognized then that in this instance Canada has an interest in M.F.N. treatment for Japan different from that of the U.K. Government, and more similar to that of the United States Government, although the latter is carrying the major portion of the present burden of Japanese deficits. Apart, however, from purely economic considerations, the granting of such treatment to Japan may cause difficulties within Canada, particularly with the Canadian textile industry. Neither the Committee nor the Sub-Committee have attempted to assess the domestic political aspects of this problem, and perhaps you will he able to examine this side of the matter at the meeting of the Cabinet Committee.

L.B. P[EARSON]