Reference: Our telegram No. 1181 of December 27.

The Ministerial Examination Group on Convertibility met under the Chairmanship of Mr. Butler on January 12, for the purpose of discussing its report to the Council (GMC(54)13 rev. 2).¹² The morning was devoted to the discussion of Part I of the report, which dealt with trade questions, and the afternoon to Part II, on payments. It soon became clear that the Chairman had a carefully thought out plan for dealing with this subject and matters never showed any real tendency to get out of hand. He later proposed, and his suggestion was accepted by the Group itself and also by the Council, that whereas it would be possible to take a resolution on Part II (Payments) providing for immediate further action in the form of a mandate to the Managing Board of the EPU, Part I should be put on ice, so to speak, for reconsideration by the Group or its Deputies after the GATT talks had finished.¹³

2. Sir Hugh Ellis-Rees, as Chairman of the Group of Deputies, introduced Part I of the report, stressing the difficulties which had been encountered in its preparation, largely because of the work on the same subject being carried on "in another place". He was immediately followed by the President of the Board of Trade, who indicated that the United Kingdom, though like others, not entirely satisfied with all details of the report, was prepared to accept it as describing "broadly the kind of trade pattern" to be aimed at. He made specific reference to the section on bilateral agreements, which he commended as providing for an early and extensive study of the problem, and to paragraph 7 on the progressive removal of trade barriers. This paragraph sets out a difference of opinion between Members regarding the further removal of quantitative restrictions as providing "a fruitful means of making further progress towards the achievement of their common objectives" and those who consider the early reduction of high tariffs as the most pressing problem. Mr. Thorneycroft indicated that the United Kingdom supported the first view.

3. In the debate which followed, no delegate opposed Part I as a whole, but a number again stated the positions of their governments on specific points. The United States gave a general approval on the same lines as the United Kingdom. The Canadian statement followed shortly after that made by Mr. Randall Burgess. You will note from the attached text that Mr. Wilgress firmly and unequivocally stated our position on the abolition of all trade discrimination, including that arising from the application of regional trading rules. Owing to the way the agenda was handled, there was no extended debate on these questions in the Council itself and this was therefore the only general statement that we made.

4. At the beginning of the afternoon session, the Chairman asked Sir Hugh Ellis-Rees to outline the procedure proposed for dealing with the trade section of the report. Sir Hugh then proceeded to state that the morning's discussion had shown that this part of the report was acceptable as a broad survey of the problems to be faced, but also that a detailed brief was not at present possible, particularly until the results of the GATT meetings were known. He therefore suggested that the Chairman should ask the Council to note the work done to date and, by means of an entry in the minutes, to request the Convertibility Group to meet again after the GATT negotiations were finished to see if any agreement could then be reached. As noted above, this proposed procedure was accepted, without debate, by the Convertibility Group and later by the Council itself.

5. A debate on the Payments section of the report revealed the following principal positions;

United Kingdom: reiterated its previously expressed unwillingness to give any undertaking now on fixed exchange rates; stated that any mandate to the Managing Board of the EPU should provide for a study of all methods of transferring EPU capital to the proposed European Fund; indicated that it did not regard the provision of continuing machinery for multilateral compensation along the present lines of EPU as being necessarily indispensable and endorsed the approach on this subject adopted in paragraph 22 of the report.

United States: welcomed the plan for a European Fund, repeated the view that the assets of EPU originally provided by the United States must be transferred to the Fund and stressed that the United States would expect to have the same rights vis-à-vis the new Fund, including a voice in the ultimate disposition of their assets, as it at present enjoyed with EPU.

Sweden: (speaking through Denmark which is the Scandinavian Representative on the Group): repeated its view that the European Fund should be postponed until the economic circumstances in which the Fund would be operating were better known, though it did not propose to stand in the way if others wished to go ahead, only reserving its position on eventual participation; and make the second point that the loan terms of the new Fund, if it were set up, should not be competitive with private credit.

Benelux and Switzerland: were concerned about paragraph 22 on multilateral compensation and wished to have something in the report to establish that the provision of continuing machinery for multilateral compensation was necessary and would be studied; the Swiss preference was for assuring multilateral compensation through private institutions on the basis of agreed multilateral arrangements among governments and central banks.

Denmark: reiterated its position that the arrangements under consideration for setting up the Fund would not supply sufficient incentives to creditor countries to take appropriate action to rectify imbalances; despite strong pressure from the United Kingdom and Germany, and from the Chairman himself, the Danish Delegate therefore refused to agree to the deletion of the sentence at the end of paragraph 7 which recorded that one Member considered that countries in "extreme and persistent over-all creditor positions" should be required to pay their contributions before calls were made on other Members.

Germany: made a proposal, which was accepted, that some sort of general preamble should be drafted which, for public consumption, would "maintain the momentum" of the move towards convertibility; the German Delegate also repeated his earlier statements to the effect that, though detailed work on the arrangements for setting up a Fund should go forward at once, there should be no binding commitments undertaken until the circumstances in which the Fund would have to operate were better known.

6. In the light of the diverse views expressed, it was obviously not possible either to limit or to give precision to the mandate transmitted to the Managing Board of the EPU. The attached draft resolution (CES/348) was therefore proposed and adopted. You will note that it agrees to continue the operation of the EPU after June 30, 1955 and instructs the Managing Board, (1) to report to the Council by April 16, 1955 on the conditions on which, and the period for which, the EPU might be extended, and (2) to study simultaneously the conditions for setting up a European Fund and submit detailed proposals to this end by the same date.

7. In answer to specific enquiries from the United States and Switzerland, it was made clear that the Managing Board of EPU was meant to take into account both the report of the Ministerial Group and the views expressed at the current meetings. As the Chairman said, somewhat wearily, "the resolution excluded nothing".

8. Immediately after the resolution was adopted, M. Faure asked to speak and announced that, since the EPU was to be continued, France intended, before June 30, 1955, to repay part of the non-consolidated portion of its debt in the Union. He stressed that no multilateral or bilateral bargaining was involved. The details would be given to the Managing Board the following day and the operation would be carried out immediately.

9. The final section of the report, Part III, Organizational Matters, was also left to be examined by the Ministerial Group or its Deputies, after the GATT talks had terminated.

10. On the whole, it appears undeniable that Mr. Butler, as Chairman of the Ministerial Group, skilfully separated the wheat from the chaff and made it possible to "maintain the momentum" of the work on convertibility without becoming involved in a debate on trade policy which could only have been conclusive at the expense of being unfortunate.

Paul Tremblay

Mr. Chairman,

Members of the Ministerial Group are already aware of the importance which the Canadian Government attaches to the ultimate reestablishment of a freely operating multilateral system of world-wide trade. We regard it as an important step in this direction that each country should move towards the general convertibility of its currency as quickly as its own individual circumstances permit. The report now before us for consideration examines the problems which might accompany this move to convertibility, both from the financial side and from the point of view of the trade rules which could or should be accepted and enforced.

It is no criticism of the work of the Ministerial Deputies to say that the report they have drafted shows marks of their efforts to reconcile views which at some points have been divergent; but in these circumstances it is I think particularly important that we should not, in our search for an agreed formula, lose sight of the original and overriding objective - clearly stated in the report itself - which is the freeing of trade, the removal of quantitative restrictions and the abolition of discrimination on an eventual world-wide basis.

It must be recognized that the adoption of convertibility by some of the major trading countries might create a situation in which there would be a strong temptation to resort to restrictive and discriminatory practices to cushion the impact on the economy of one country or another. It is the Canadian view that the only healthy approach to this problem is to proceed as far as possible with the removal of quantitative restrictions now - before convertibility - and thus to minimize the possible dislocation consequent upon C-day.

We therefore welcome the proposals which are to be considered at this meeting of the Council for a substantial increase in the already high degree of trade liberalization achieved by the Members of OEEC among themselves. But it would, in the view of the Canadian Government, be regrettable if intra-European trade liberalization were to be regarded as an end in itself and were in any way to derogate from the world-wide liberalization which is the pre-eminent objective of us all. The transition from the smaller to the larger area of liberalization is bound to have some effect upon the patterns of trade. It is our view, however, that such changes when brought about by the move towards world-wide multilateral trade would be, in fact, an indication of healthy flexibility and would also undoubtedly be in the long-term interest of the countries concerned.

Canada, as an associate Member of the OEEC, is glad to recognize the value and scope of the work that the Organization has done and is doing. Its activities have been conducted on a high - indeed an unprecedented - level of international co-operation. Its achievements in helping to rebuild the European economy and in freeing a large and important area of world trade from the restrictions consequent upon the crippling effects of the war, have done much to prepare the way towards the restoration of a freely functioning trading system throughout the world. In view of these great achievements and of the ultimate purpose which we consider they serve, the Canadian Government has, up to the present time, been prepared to accept the fact that purely intra-European liberalization does, in effect, imply discrimination towards the rest of the world. But after the adoption on convertibility and the elapse of what we would hope would be a strictly limited transitional period, there would, in our view, no longer be a valid reason for maintaining, for its own sake, a regional trading group which was in any sense exclusive or discriminatory. We would rather hope that the spirit of co-operation and frank discussion which has pervaded the activities of the OEEC might be transferred to the larger field and play its part in the common effort to frame and to make effective world-wide rules for the freeing of trade.