You will recall that in May 1954 we entered into an agreement with the United States for the establishment and operation of a joint Royal Canadian Navy-United States Navy experimental sound surveillance station at Shelburne, Nova Scotia.⁸⁰ Under the agreement the United States Navy built the station (using Naval construction battalions) and the two Navies share responsibility for its manning, the R.C.N. supplying the commanding officer and 50% of the staff. The agreement also provided that after a period of evaluation which was not expected to exceed three years Canada would have the right at any time on one year's notice to take over complete responsibility for the operation and manning of the station.

2. Since that time there has been discussion in the P.J.B.D. about the proposed construction of two additional stations - one at Cape Canso, Nova Scotia, and the other at Cape Cook, Vancouver Island. Some months ago the Canadian Government authorized surveys to be carried out for these two additional stations without prejudice to a decision on their construction.

3. In the course of the discussions in the P.J.B.D. the Canadian Section indicated that it would not look with favour on the use of Naval construction battalions if it were decided to proceed with the building of these stations. At the January 1955 meeting of the Board the Canadian Chairman stated "it would be very desirable that plans should therefore be based on flexible fiscal arrangements so that the construction might be accomplished by means appropriate to the particular circumstances of each case".

4. In April of this year the State Department called in an officer from our Embassy in Washington and proposed that the United States should supply the very expensive deep sea cables which are required for the stations and the special detection equipment, that the two countries should jointly take care of the installation of the equipment, and that Canada should erect the buildings. The estimated cost to Canada would be about $3 million.

5. This proposal was referred to the Department of National Defence and in June Mr. Drury commented as follows:

"On the basis that these two stations would cost approximately $4 to $6 million each, there might not be too much financial difficulty in agreeing to an equal division of costs. I had in mind, however, that the precedent for these two would certainly be extended to further stations of this character which are now in contemplation and might also serve as a precedent for further possible air defence installations.

"I think, therefore, it is important that we try and get a look at the overall picture and try and evolve a policy which will be generally applicable to all proposals of this sort.

"I suggest, therefore, advising the United States authorities that we are still considering this question and may not be able to provide a definitive reply for some time. If it is necessary to proceed with these at an early date, perhaps the United States might undertake their construction on the understanding that the division of costs would be settled at a later date."

6. I replied to Mr. Drury that the Department of External Affairs would advise the United States authorities that their proposal was still under consideration and that it might not be possible to provide a definite reply for some time. I added, however, that this Department was reluctant to accept his further suggestion that if it is necessary to proceed with the construction of the stations at an early date the United States might undertake this on the understanding that the division of costs would be settled later. I said that we did not believe it to be desirable for the project to be launched until the position with respect to Canadian participation is settled both in respect of construction and of manning. Moreover, if the Americans were authorized to proceed in the absence of a Canadian decision on these matters it would be difficult for us to reject the request which they would no doubt make for permission to use Naval construction battalions in building the stations.

7. On July 6, I received a letter from General Foulkes,? copy attached, which argued that this system of submarine detection was still of an experimental character and that Mr. Campney was not prepared to concur in the Americans' suggestions at this time for the following reasons:

(a) because of the doubt about the size of the defence vote in the coming year it would not be prudent to accept additional financial commitments at this stage;

(b) the R.C.N. has not yet put forward to the Chiefs of Staff any proposals for sound surveillance stations to cover the Canadian approaches, and it has not yet been established that there is a Canadian requirement for these stations;

(c) any such arrangement as that suggested by the United States might create a precedent for other United States defence requirements in Canada and until such time as we have had an opportunity to study all the U.S. defence requirements it is not considered prudent to establish a rate of manning or a proportion of sharing costs on these Naval projects.

8. General Foulkes then suggests that in order not to hold up the United States proposals for the two additional stations, the Chairman of the Canadian Section of the P.J.B.D. should be authorized to indicate to the U.S. Section that Canadian officials would be prepared to recommend to the Government the construction of these two additional stations on the same basis as for the Shelburne station. This would mean that the United States would pay the whole cost of construction and installation and that, during a period of evaluation of up to three years, the R.C.N. would provide the commanding officer and half the staff. The arrangements to be in effect after that time would be dependent upon the decision of the Canadian Government. In his letter General Foulkes did not refer to the manning arrangements I have just mentioned but in a subsequent telephone conversation with Mr. Wershof he asserted categorically that these were the arrangements which National Defence would follow.

9. In his letter General Foulkes suggested that General McNaughton might urge the Americans not to propose the use of construction battalions for the Canso station but that the same objection might not apply in the case of the station on Vancouver Island because of its inaccessibility. In his conversation with General Foulkes, Mr. Wershof said that if External Affairs did agree to General Foulkes' proposal that we would seek, at least in the first instance, to persuade the Americans to use civil contractors for both stations and that, if the Americans put forward strong arguments in favour of using construction battalions on the West Coast, we could consider them further.

10. A point which we should bear in mind is that if the system is successful the Americans are likely to propose the construction of up to four additional stations in Canada.

11. I should be grateful if you would let me know whether you are agreeable to the suggestion made by the Department of National Defence or whether you prefer to have the matter considered first by Cabinet or Cabinet Defence Committee.⁸¹ In this case General McNaughton would merely state that the matter is under study by the Canadian Government and that a statement would be made later.⁸²

J. L[ÉGER]