You asked for a review of the export of military equipment and aircraft to the Middle East during the last two years. You also asked for a review of the procedures relating to the control of such exports.

2. I attach a Table? showing by dollar value and by types of items the export permits for such exports to the Middle East which were issued from January 1, 1954 to December 31, 1955. I should point out that these figures do not cover actual deliveries, since there is necessarily a time lag between the issue of an export permit and the delivery of an order. I shall return below to the matter of this time lag. Delivery figures are not directly available, and we have so far been unable to obtain them; I assume that the permit figures attached are sufficient for your present purpose.

3. With regard to the steps leading up to the issue of an export permit there are two different starting points. Enquiries or requests may be directed to the Canadian Commercial Corporation, or to private Canadian companies which sooner or later get in touch with the Department of Trade and Commerce about the likelihood of obtaining an export permit. When the matter reaches a stage where an export permit is sought it is the Canadian supplier and not the foreign purchaser who makes application for it.

4. Approaches may take the form of general enquiries about availability, more formal requests for specific quotations, or firm requests to place an order. An order is not normally accepted or a contract signed without the supplier having received assurance that an export permit will probably be granted; this is true whether the CCC or a private firm is the proposed supplier. With regard to general enquiries or requests for quotations practice varies among private firms, but the CCC normally give us an opportunity to comment before giving a positive answer to any such enquiry or request which might have political implications. The private firms most active in this field are also accustomed to consult Trade and Commerce in such cases, but I am not aware of any formal obligation upon the supplier to contact the interested government departments prior to the stage of applying for an export permit.

5. Whether we are asked for our formal concurrence in the issue of an export permit, or for an advisory opinion at an earlier stage, we invariably consult the Joint Intelligence Bureau before acting. In routine cases the advice from the J.I.B. usually takes the form of a statement that they have consulted the appropriate armed service and that it has no objection to the proposed transaction. In more substantial cases they add an assessment of the effect, if any, on the military capacity of the country concerned or on the balance of strength in the area. In really doubtful cases we seek to obtain a clear opinion, as detailed as possible, of the military value of the item concerned and of the full military implications of releasing it to the country in question.

6. Having obtained this information, we form an assessment within the Department of whether our approval should be granted, should be refused, or should be given only subject to limiting conditions relating to quantity, rate of delivery, etc. Our opinion is drafted in the Economic Division in consultation with the political division or divisions concerned, and is communicated by letter to the CCC or to the Department of Trade and Commerce depending on where the request came from. Copies are of course sent to Trade and Commerce and J.I.B. in all cases.

7. I attach a copy of a paper which you approved on May 26, 1954, setting out the extent to which you have delegated to officials of the Department the authority to approve the issue of export permits in certain cases of specifically limited importance. When approval has been given in accordance with those procedures, by yourself or by me or by the Head of the Economic Division as the case may require, our decision is transmitted in a letter which is normally signed on my behalf by the Head of the Economic Division. While it is not formally required, the same procedures are normally followed when we are asked for our opinion prior to an actual application for an export permit.

8. The authority to issue export permits is vested in the Minister of Trade and Commerce, and I attach a memorandum dated January 21, 1954,¹³ which was approved by the Cabinet on March 10, 1954 setting out the conditions under which that authority is exercised. As you will observe, the Minister of Trade and Commerce is under obligation to obtain your prior approval in a variety of specified cases including shipments to troubled areas such as the countries of the Middle East. The manner in which your approval is obtained is set out in the preceding paragraphs, which include the arrangements you have approved for delegating the authority to approve in specified and limited cases.

9. It is my judgment that these various procedures, faithfully observed, are adequate. Early in this memorandum I referred, however, to the question of a time lag which could create difficulties if the situation altered considerably in that interval. This can come in at two stages, both between transmission of our approval to Trade and Commerce and the issue of an export permit, and between the issue of the permit and the completion of delivery. With your approval we would propose to discuss with Trade and Commerce the possibility of reducing the time covered by our approval and limiting it to a known period. Between the issue of the permit and the date of clearance through customs the Government has no direct contact with the transaction, and the latter date is limited only by the duration of the permit which now normally extends for one year from the date of issue. What we have in mind is that as a general rule permits should be valid only for a limited period (perhaps three or four months) from the date at which this Department grants its approval. Exporters would be asked to indicate the period they expect to require, and in particular cases of manufacture or reconditioning when the limited period suggested above is clearly insufficient, consideration could be given to issuing a permit of longer validity. If the time to complete delivery is likely to be too long, it might be decided to limit the initial permit to the standard period (of three or four months as suggested above) and require the exporter to re-apply for the necessary extension. Such a system would keep us far better informed than we are at present, and would ensure periodic review of outstanding orders.

10. It should be recalled that under the Act the Minister of Trade and Commerce "may amend, suspend, cancel or reinstate any permit ... issued ... under this Act." We are advised by Trade and Commerce, however, that to invoke this authority would be a very serious step indeed (with substantial financial consequences for the Canadian exporter) and that they would prefer to deal with this problem by means of tighter control procedures governing approval. I assume that we would also, from the point of view of our relations with the other countries concerned.

11. I should be grateful for any comments you may have, particularly on the proposal outlined in paragraph 9 above that we approach Trade and Commerce to try and reduce the time lag which can now develop between approval and delivery.

J. L[ÉGER]