In recent years preservation of the peace has depended upon the close political co-operation of the countries of the western world under the leadership of the United States. This leadership has been strengthened by the statements of United States aims in President Eisenhower's Inaugural and State of the Union messages. More recently, the President's comprehensive statement on the settlement of outstanding issues between the countries of the western world and the Soviet Union has given new hope to those who work for a real and enduring peace.

With the United States assuming both the moral and material responsibilities of leadership, actions have been taken which contribute to political co-operation and common defence. Through self help and assistance from the United States and Canada, the physical reconstruction of war-torn economies has been largely accomplished. Through the United Nations, armed aggression has been resisted. Through NATO the nations of the Atlantic Community have provided effective machinery of co-operation and are building a strong shield against aggression. Through the development of common institutions, such as those for the coal and steel industries and for defence, the countries of Western Europe are achieving increasing unity and strength. These accomplishments express the determination of the free peoples to maintain their security. In these efforts Canada has taken its part.

The question we must ask ourselves is -- do these great accomplishments respecting our political unity and security rest on an adequate foundation? There is increasing evidence that they are being endangered by the crucial inadequacy of policies affecting international economic relations. The co-operation and unity of purpose of countries of the free world in the political and defence fields have not been matched by the establishment of sound economic relations among them. This situation is even more disturbing in the light of recent developments in Soviet policies and tactics. The Canadian Government has been increasingly concerned over the continuing weakness and precarious nature of the international economic structure upon which our political and military co-operation is built.

Economically the free world remains divided within itself into dollar and non-dollar groups. The trade between these groups is limited by barriers and restrictions more complex than anything we have had in the past. Over a large part of the world discriminatory restrictions are the rule rather than the exception. The currencies of one group are not convertible into the currencies of the other. The international flow of private capital between them is at a minimum. Travel between the free countries is restricted by exchange controls. The consequences of this situation are becoming increasingly dangerous. The free world is failing to use its economic resources efficiently at a time when heavy burdens must be borne for the common defence. Efforts to achieve further increases in production and improved standards of living in many countries are frustrated by lack of markets and the inability to purchase sufficient raw materials and foodstuffs. During the past year economic output in Western Europe has failed to expand.

The economic and financial policies associated with the existing systems of trade restriction and currency inconvertibility do not contain the elements of a solution. Unless a joint effort is made to change the direction of affairs it is unlikely that the countries pursuing these policies will ever find their way back to freer trade and currency convertibility. On the contrary, the evidence indicates that the prolonged use of the existing policies aggravates the underlying difficulties because they provide the wrong economic incentives and lead to an inefficient use of resources. The continued weakness of many economies is manifest in the repeated financial and trade crises which have occurred in recent years. For some time the fabric of international economic relations has been held together through the provision of special assistance, improvised measures and other expedients. It would appear that the value of expedients is being rapidly exhausted.

The unsatisfactory condition of international economic relations, the dangers and weaknesses resulting therefrom, are matters which are now in the forefront of our common problems. They are a challenge to the vitality and endurance of our free societies. Concerted and determined efforts to build a stronger economic framework cannot be long postponed without grave risks to our common security and prosperity.

A further reason for early action is that constructive developments are already taking shape overseas. Many of the countries in the non-dollar area have themselves re-examined the bases of their economic policies. They have become convinced that a change in direction is necessary in the interests of both their own welfare and the unity of the free world. At the recent Commonwealth Economic Conference, in which the Canadian Government participated, the economic problems of the free world were examined from a wide and constructive viewpoint. The Canadian Government was impressed by the desire and determination of the sterling members of the Commonwealth to work toward the progressive achievement of an expanding, more prosperous and more united economy throughout the free world. These discussions have resulted in certain concrete proposals which have been discussed with representatives of the United States Government. If these initiatives are met with a ready and co-operative response in the United States, these countries will be encouraged to move in the direction of freer trade. If the response is not encouraging, it is likely that other voices will be heard. The Canadian Government strongly hopes that the close attention which the Government of the United States has undertaken to give to these proposals, and to possible alternative courses of action designed to achieve the same ends, will lead to early and positive results.

It is clear that any effective effort to remove the existing divisions and barriers between the economies of the free world, through the re-establishment of multilateral systems of trade and currencies, will entail many adjustments in both debtor and creditor countries. These aims, and the adjustments which they involve, can only be accomplished through a collective effort in which the debtors and creditors assume the roles and responsibilities which are appropriate to their circumstances. In such a collective effort not only the participation but the whole-hearted co-operation of the United States is indispensable.

Even if the United States were not the political and military centre of the free world the nature of United States commercial policy in its widest aspects would have a decisive role in the development of the collective effort which is required. This follows inescapably from the size and strength of the United States economy and from its predominant position as the principal creditor in world payments. The debtor countries also have important adjustments to make in their economic and financial policies. These adjustments, however, cannot, without adequate and appropriate action by the United States, bring about the improvement in economic relations which is necessary for maintenance of our common prosperity and defensive strength.

The adjustments in United States commercial policy which would appear to be desirable, have been widely discussed both inside and outside the United States. Many proposals have been advanced, some of which are extreme. We understand fully that extreme changes are not practical; nor, in our view are they necessary. What seems to us to be required is a significant purposeful and timely advance in the removal of barriers and uncertainties so as to provide reasonable opportunities for mutually advantageous trade with other countries to widen and expand. The adjustments which are needed in the present circumstances are very largely a logical extension and a fulfilment of measures which the United States itself has pursued and advocated for many years. The further progress which is sought is in harmony with both the general national interest and the international political realities of today.

There have been in recent months a number of careful studies in the United States pointing to the specific steps which might be taken to reduce barriers to trade. Without going over all this ground in detail, we have thought it useful to indicate some of the directions in which adjustments in present United States trade policies would be particularly helpful.

Perhaps the most important single step from a practical point of view would be the development of an effective programme for the gradual reduction of excessive tariff barriers. The United States, Canada and other countries have, since the end of the war, made significant progress to reduce their tariff levels on a large list of goods. This process, however, has not gone far enough. Despite the many reductions already made, experience has shown that there remain wide categories in the United States tariff where the rates are formidable or insurmountable. Having regard to the strong creditor position of the United States an improvement in this situation is all the more necessary.

Another feature of present United States tariff policy which has proven particularly troublesome is the uncertainty that flows from the numerous escape clauses which surround the existing laws. There is a widespread feeling among traders that successful efforts to sell in the difficult United States market will be countered by increases in tariff rates whenever there are signs of real competition. Greater certainty in tariff treatment would encourage other countries to undertake the necessary efforts and expense to build up their markets in the United States. The deterrents resulting from continuous uncertainties in tariff treatment constitute a serious barrier to the expansion of trade.

A further series of trade obstacles, often more restrictive than the tariff itself, are the highly complex and outmoded customs procedures and administrative barriers associated with the formalities of importation, The position in the United States regarding this matter has been the subject of numerous complaints by Canadian exporters, as well as by exporters of many other countries. Customs valuation procedures render it extremely difficult for manufactured goods to make their way into the United States market from abroad. The early passage of a Customs Simplification Bill would introduce reforms which are long overdue in the field of customs valuation. It would fulfil commitments entered into by representatives of the United States almost six years ago, and make a timely and valuable contribution to our common objectives of expanding world trade. It is encouraging to note that the President has recommended early action on this matter.

Much attention has been directed to the restrictive effects of the "Buy America" Act. Because of the requirements of this legislation outside suppliers are often denied access to an important segment of the American market, even though they have proved themselves to be fully competitive. The relaxation of the provisions of this Act would be of material assistance in promoting mutually advantageous trade with friendly countries, and at the same time make possible substantial savings in public expenditures.

High restrictive and protectionist policies in the field of shipping continue to hamper the efforts of overseas countries to expand their dollar earnings. Effective economic co-operation would seem to require that countries be encouraged to expand their efforts in fields where they are particularly efficient. Shipping is clearly a field where we in North America are not as competitive as many of our overseas trading partners. In the interests of our common strength and prosperity, the liberalization of shipping policies, consistent with the maintenance of vital security interests, would constitute a valuable step in achieving better allocation of the resources of the free world.

The Canadian authorities appreciate that the formulation of long-term foreign economic policy in the United States in respect of these and other matters is a considerable task encompassing many difficult issues and calling for the most careful study. We in Canada have been encouraged by the recent steps taken to initiate comprehensive studies of all the issues involved. We are hopeful that these studies will lead to constructive results. In this connection the Canadian Government wishes to emphasize the importance it attaches to moving forward as expeditiously as possible. In its view there is at this time a real opportunity for a decisive move towards freer trade and currency arrangements. Overseas countries are showing a genuine desire to break out of the restrictive ring that surrounds them and divides the free world. At the same time there is evidence that the balance of opinion in deficit countries in favour of more liberal policies is precarious and can easily be upset by excessive delays or fear that the United States is unwilling to co-operate in a common effort to improve trading relations. For this reason we believe that it is of the greatest importance that the United States administration should give, as soon as possible, clear evidence that it would be willing to play its full part in a collective approach to strengthen the economic foundations of the western alliance.

In recent months another danger has appeared more plainly. The recent moves of the Soviet Union indicate clearly that it intends to exploit to the full any weaknesses and divisions in the economic structure of the free world. A situation in which our world remains economically divided and where expansion in output is frustrated by lack of access to markets and inability to purchase raw materials and foodstuffs, provides the Soviet Union with the maximum opportunity to hold out the lure of alternatives. The ultimate aim of the Soviet Union is, of course, to weaken our political unity and our defensive strength. It is significant that recently in Geneva and elsewhere the Communist countries have followed up their political moves with a trade offensive whereby they dangle attractive-looking promises of trade in precisely those goods which our overseas allies are having difficulty in selling in the United States market.

The Canadian Government understands that it is the desire of the United States administration to continue present trade policies pending the outcome of the comprehensive studies which are now in progress. In this connection we have noted the President's request to Congress that as an interim measure the Reciprocal Trade Agreements Act be extended for a period of one year. Numerous developments in the meantime, however, raise the fear that the commercial policy of the United States is in serious danger of being altered in a fundamental way before the process of formulating a new foreign economic policy has been completed. The Canadian authorities are gravely concerned lest the adoption of some of the restrictive proposals now under consideration have the effect of seriously prejudicing future policy.

In connection with the proposal to extend the Reciprocal Trade Agreements Act for one year, it is understood that Congressional Hearings are now taking place on a Bill which, if adopted, would lead immediately to a grave deterioration in trading relationships between the United States and its partners in the free world. This Bill, and others, contain provisions to impose restrictions on the import of petroleum and to increase the tariff rates on lead and zinc. New and wider escape clauses and peril point provisions are also introduced. In the field of agriculture it is understood that proposals are now under consideration which would have the effect of applying sweeping new policies of import controls on a number of important agricultural products of interest to many countries in addition to the import controls now in effect. Many, if not all, of these restrictive proposals are directly contrary to the undertakings of the United States under present trade agreements.

While these proposals have not been implemented thus far, they constitute serious danger signals. If these proposals are allowed to develop, they would destroy the opportunities for progress which now exist. They would cause a serious deterioration in present economic relations with grave consequences for all the countries of the free world. Such a development would be looked upon as an abandonment of United States leadership in the vital sphere of economic relations. It would lead to a multiplication and further extension of trade and currency restrictions which cannot fail to have a serious impact on the welfare and security of the free world.

It is necessary in this connection to refer more specifically to the implications for the future of Canada-United States relations of the restrictive proposals now under consideration in Congress. The Governments of Canada and the United States are associated at present in a wide variety of co-operative enterprises designed to contribute, not only to the strength of North America, but also to the strength and prosperity of the entire peace-loving world. This co-operation has been especially close and effective in matters of trade and finance. Both countries have fostered the development of mutually profitable trade and for some decades now have attempted to solve their trade problems, not by restrictive measures, but by the progressive reduction of barriers to trade. Under these policies our mutual trade has risen to unprecedented heights so that today the commerce which crosses our common border is greater than the trade between any other two countries. Each country is by far the other's best customer. Along with this trade there has developed a close and extensive relationship over the whole field of economic, financial and industrial endeavour.

If the restrictive proposals such as those now under discussion in the United States were adopted, it would lead unavoidably to a reversal of many years of solid progress in the development of mutually advantageous economic relations. Such a reversal would have a serious and direct impact upon large and important industries in both countries. It would lead to an inefficient and wasteful use of resources and weaken the basis of our economic and defensive strength.

One example illustrative of a possible trend will suffice to indicate the dangers inherent in the restrictive proposals now being advocated. In the past few years Canada, as part of an effort to improve our combined strength, undertook to expand the output of base metals, including lead and zinc. Proposals now before Congress provide for higher duties on lead and zinc which would be increased further if the prices of these commodities decline. This would have the effect of making Canada a marginal supplier, so that the full brunt of any price adjustments would fall on Canadian producers. When the United States is again short of lead and zinc, it might be very difficult to persuade Canadian producers again to take the risk of serving as marginal suppliers to the United States. Other proposals to increase restrictions against Canadian goods, including petroleum, oats and other agricultural products, would have similarly damaging effects and in this way weaken the fabric of both the United States and the Canadian economies.

For years now Canada has consistently sought to follow liberal policies in its trade relations. Canada has resisted getting entangled in regional trade and currency arrangements of the kind that are bulwarked by discrimination against the United States, because we are convinced that sound economic relations cannot be built on discrimination and regionalism. The Canadian Government is firmly convinced that it is desirable to continue these trade policies in the interests of both our countries. Its ability to do so is dependent upon the conviction that the United States will follow a similar course. If, however, fresh restrictive measures were imposed in the United States against Canada's basic exports, it would be increasingly difficult for Canada to maintain these liberal, multilateral trade policies and to continue to resist pressure for restrictions and discrimination against the United States.

The world has in the past experienced the consequences of failure to maintain satisfactory international economic relations. We have seen during the thirties a spreading paralysis of our economic life and the deterioration in our political relationships which have accompanied a breakdown in world trade. Experience of that period has shown that no single country, no matter how powerful, can be safe and prosperous in isolation. Political co-operation is not possible without economic co-operation. If this has been so in the past how much more so is it today when we are confronted with a shrewd and powerful adversary determined to reduce our strength -- eager to exploit every weakness.

It is because we are convinced that more liberal international economic policies are essential to the success of our joint efforts for resisting this threat, for achieving peace and building the sound prosperity of the free world, that we have felt compelled to put forward these views and to point to the real dangers inherent in the present situation. We are confident that the United States Government, aware of the seriousness of these matters, will take advantage of the opportunity which now exists to provide the leadership necessary to move forward towards more satisfactory economic relations. We in Canada have consistently supported all measures leading to maximum co-operation between us. Like the United States, we have made substantial aid available to help our allies regain their economic health and to build up their defences. Canada can be counted upon to play its full part in partnership with the other free nations in the collective efforts necessary to establish better economic relations. These we regard as basic to the maintenance of peace, and the solidarity, security and prosperity of the free world.