The question of making more aid available through the UN to under-developed countries, which has been under discussion in UN forums for at least eight years, will very soon reach a decisive stage at the current meeting of the General Assembly. The question has come to an issue in the form of two competing resolutions: one calls for the establishment of a special UN fund for economic development (SUNFED); the other, put forward by the United States, calls for the expansion of existing UN Technical Assistance Programme and the setting-up of a special project fund.

2. For eight years a diminishing group of countries, including Canada, the US and the UK, have been able to prevent the issue being joined by temporizing, delaying, and diverting the pressure by procedural devices. This is no longer possible. Almost all of the UN membership, including the US, now favour the establishment of some type] of UN fund.

3. The nature of the resolutions now before the Assembly and their backing means that if they both go forward independently, they could both secure broad support in the General Assembly. This would not be in the interest of the United Nations, which now requires that it be given a positive and clear cut role in assistance to economic development. Nor would this be in Canada's interest. Canada would inevitably be pressed to support one or other or both of two UN programmes; neither would be entirely to our liking and yet neither could be ignored. Both these proposals cannot be voted down one at least will go forward. The developments in the last session of ECOSOC, which completely isolated Canada, the UK and the US on the SUNFED issue, make it clear that we cannot expect to defeat the SUNFED resolution by simply making a head-on attack.

4. However, the US proposal offers some possibility of manoeuvre. It has some attractions for the under-developed countries. Although it is not entirely to our liking, it might be modified in such a way that it could be used to contain the pressure for SUNFED. At the same time it could be made more acceptable to us. This Memorandum, after briefly reviewing the nature and history of the two proposals, goes on to recommend a course of action based on the assumption that Canada's interest requires that our Delegation intervene in the current debate.

5. SUNFED
   The under-developed countries, with some support from the U.S.S.R., have been pressing for the establishment of a SUNFED since 1948. It is generally recognized that such a Fund, to be effective, would have to be of the order of $250million. This would be made up of voluntary contributions by member governments; it would be used to assist underdeveloped countries by grants or low-interest loans for development projects which might not otherwise be financed. In 1953 the UN adopted a declaration put forward by the US that when there is a measure of internationally-supervised disarmament, a portion of the money thus saved should be used to establish such a UN fund.

6. Canada accepted this SUNFED idea in principle and voted for the 1953 resolution. However, more recently it has taken the position in the General Assembly that a decision to establish such a Fund should depend on two conditions being met: one, that there be suitable administrative arrangements; and two, that there be sufficient financial support to make the fund practicable, i.e., that there will be financial support from the US and the UK.

7. Neither of these conditions have been met. The current SUNFED proposal involves unfortunate administrative features, although the SUNFED countries have modified their views over the years in an attempt to meet our objections. Further, the US and UK continue to oppose SUNFED on the ground that it must await a measure of world-wide internationally supervised disarmament. In NATO the US has recently argued that the current SUNFED proposals conflict with western objectives in the under-developed countries, particularly in the Middle East, because they would create new opportunities for Soviet economic penetration.

8. The position of the USSR has been equivocal; it has supported the establishment of SUNFED without, at least until recently, offering a large and useable contribution. A Soviet contribution in the form of industrial goods and machinery has been mentioned. However, it has been reported that the USSR may announce a contribution of one million roubles ($25million at the formal rate of exchange but much less in real terms) when the SUNFED resolution is debated in the Second Committee.

9. In view of US and UK opposition and the reluctance of any other countries to offer substantial contributions, the underdeveloped countries had been willing until last summer's Session of ECOSOC to accept procedural resolutions for further study of this question which were designed to prevent any decision being reached. In July of this year, however, the under-developed countries in ECOSOC, supported and led by the Netherlands and France, decided to force the issue to a decision. A resolution was passed by ECOSOC calling for the early establishment of SUNFED. Only Canada, the US and the UK voted against this resolution.

10. The SUNFED proposal is now embodied in a draft resolution, which will come up shortly in the Second Committee. It is sponsored by the Netherlands, India, and Mexico; they can count on the support of a large number of other countries from Western Europe, Asia and Latin America. The resolution calls for the establishment of a United Nations Economic Development Fund to begin operations by January 1, 1960.

11. The U.S. Proposal
    The United States Administration has now come to consider that some expansion of economic assistance through the UN is necessary if the pressure for SUNFED is to be contained. Congressional leaders now accept this view. As put forward by the US Delegations to the UN and to NATO, as announced in Washington, and as contained in an aide-mémoire given to officials by the United States Embassy last Friday, the US proposes that, beginning in 1959 (a) the existing United Nations Technical Assistance programme should be expanded to $50million from $31million, and that (b) the scope of this programme should be broadened through the creation of a $50million special project fund to finance resources surveys, training centres, industrial pilot projects and research projects. The operation of this fund would be fitted into the existing machinery for administering the technical assistance programme; a preparatory commission would be appointed to define, among other things, the changes which it would be necessary to make in this machinery to ensure the effective use of the fund. The total effect of the US proposal would ultimately involve an increase in UN technical assistance expenditures of $69million. The US is willing to provide $15million of this increase, and possibly somewhat more in the initial year (1959).

12. American officials principally concerned with formulating the US counter proposal have emphasized to Mr.Dulles that they do not regard it as a permanent substitute for a SUNFED. But they do believe that if their proposal receives significant support from countries such as Canada and the countries of Western Europe, the pressure for the immediate creation of some sort of SUNFED might be deferred for several years. Further, they believe that an expansion and broadening of the UN programme would in itself be a useful and constructive move.

13. Evaluation of US Proposal
    In its present form the US proposal has two weaknesses. In the first place, it is questionable whether the existing machinery for administering the technical assistance programme could be satisfactorily modified to ensure effective use of the special project fund. Eight international organizations participate in the programme; the co-ordination of their activities through the Technical Assistance Board poses some very difficult problems. In the second place, the US proposal is not now formulated in terms which would be likely to induce under-developed countries to forego the benefits they hope to receive by pressing at this session for immediate establishment of SUNFED. At the same time it should be recognized that the US proposal represents a very significant step forward: for the first time the US is offering to finance capital projects through the UN. The Administration has persuaded Congressional leaders that to do any less would involve significant damage to US interests. The US will, however, continue to oppose SUNFED.

14. The US proposal does contain three features which make it attractive to the under-developed countries. It contains elements of the SUNFED proposal insofar as it involves the financing of some types of capital projects as distinct from the established technical assistance (training) programmes. Second, it involves United States participation in the financing on a grant basis of certain types of capital projects in under-developed countries through the United Nations. This is an objective which these countries have been striving to reach for some years; many of them are beginning to realize that they are unlikely to reach this objective if they continue to press for SUNFED now . Third, it calls for a sizeable expansion in the Technical Assistance Programme, and gives to this programme, which the under-developed countries strongly support, a fresh impetus.

15. The Canadian Interest
    It is possible that the US proposal could be presented to the under-developed countries in a fashion that might enable them to eventually abandon the SUNFED proposal permanently. Tactically, what is required is to present the US proposal in a way that would enable pro-SUNFED countries to proceed without loss of face in the UN. This would involve pointing out to them what will become obvious fairly soon in any event that the need for capital aid is being recognized by the establishment of a special project fund, and that the experience gained from the operation of this fund will be invaluable in deciding the future of capital aid in the UN. The Canadian Delegation could, by pointing out the implications of the US proposal, do much to divert pressure away from SUNFED. If the Canadian Government were willing to authorize the Delegation to take initiatives in this direction, it should be recognized that these initiatives would involve on our part a moral commitment to give financial support to any sound and realistic plan, which might result if our initiatives are acceptable.

16. As mentioned above, it is doubtful that the existing technical assistance machinery can be effectively adapted to administer a special project fund. However, the World Bank has demonstrated that, of all multilateral agencies, it can administer economic aid most vigorously and effectively. Its management has the confidence of the US and its machinery could, if necessary, be expanded to administer capital aid programmes financed by the UN. From informal conversations it is believed that the Bank would be willing to consider proposals to manage a project fund; senior Bank officials support the view that more aid channelled through the UN and on a grant basis is needed. Further, if the USSR wished to participate in a fund managed by the Bank, it would have to do so on terms and conditions which we accept and which would limit the possibility of Soviet penetration. While the Delegation should refer to management by the Bank as one possibility, it would not be desirable to give too much prominence to the case for management by the Bank. A definitive proposal in the General Assembly at this stage would merely encourage Soviet and satellite opposition and also the opposition of some under-developed countries which have criticized the Bank for its rigorous lending policies. Our main objective would be reached if the terms of reference of the preparatory commission which would be set up by the Assembly were wide enough to allow it to examine various alternative methods of administering the project fund. However, the Delegation would seek informal agreement from a broadly representative group of delegations (including the US and other potential contributors) that they will, in the Preparatory Commission, support a recommendation (toECOSOC and the Thirteenth General Assembly) to establish a special project fund managed by the Bank.

17. It should be noted that the US propose that it would double its present contribution to the technical assistance programme, thus raising the US contribution to $31million, if the total sum which all countries would make available could be raised from the present $31million to about $100million. The Canadian contribution to the existing Technical Assistance Programme now runs at $2million a year. Because the response of other countries to the US proposal is still not clear, it is difficult to envisage what an appropriate Canadian contribution might be. If the US contribution is to be doubled and the programme expanded from $31million to $100million, (as now proposed) all other contributors, taken as a group, would have to raise their contribution in 1959-1960 from $151/2million to $62million and to $69million in 1960-1961.

18. The Delegation has suggested that there might be some advantages in having a Canadian contribution in part tied to the purchase of Canadian capital goods, engineering services, etc. even though past experience shows that inconvertible contributions reduce the effectiveness of multilateral aid programmes and cause administrative difficulties. However, this question should not be decided now; it should be considered later in the light of the detailed proposals to be worked out by the preparatory commission. To make any decision now would unnecessarily restrict the freedom of manoeuvre of the Delegation.

19. If the Delegation is not authorized to take an initiative along the lines indicated above, a possible alternative is to continue either opposing or abstaining on SUNFED and to abstain on the US resolution. This would mean that perforce Canada would be silent in a debate of major importance. There will be inevitable pressures which will call for a decision as to whether or not Canada will play a part in a new UN operation. This decision would have to be taken only after the current proposals had been considerably advanced, when it might be impossible to have Canadian views on organizational and financial arrangements taken into account. In addition to these reasons there are even more substantial political reasons for not postponing a decision on this matter.

20. The demand for the establishment of a UN Fund has now secured the support of virtually all UN countries except the English-speaking members of the Commonwealth and the US. The proposal to establish a SUNFED has brought together into one camp our friends in Asia, our friends in Europe, and the Soviet countries. They have formed a working alliance to fight through an issue in which many feel a deep sense of conviction. Of course there are among the SUNFED group some delegations (e.g. Pakistan) who are not perhaps as thoroughly convinced of the merits of their case as others, but if the issue comes to a vote, the resolution will undoubtedly be accepted by an overwhelming majority. Canada will then be faced with the establishment in the near future of a new UN agency which neither we nor our closest friends support and in which neither we nor our friends will have a voice. New opportunities for Soviet mischief-making would be created. Thus we would soon find ourselves faced with having to consider whether or not we should make a financial contribution to this new agency in order to have some share in making its decisions.

21. It is therefore desirable to present and seek support for a more acceptable proposal. The chances of success for a compromise proposal are not clear. They turn on the willingness of the SUNFED countries and of the US to have their resolutions referred to the same preparatory commission. It is clear that proposals must be put forward which some of the SUNFED countries, such as the Netherlands, France, and possibly Pakistan, are prepared to support and for which they are prepared to use their influence with other pro-SUNFED countries. The Netherlands and France now find themselves in the uncomfortable position of siding with the Soviet on this issue, and may welcome an initiative which would enable them to re-align themselves with their major allies in the West. This sort of consideration may help the US to accept the necessary changes in their proposal.

22. In the light of these considerations I recommend⁵² that the Canadian Delegation to the UN be instructed as follows:
    1. The Delegation should present the Canadian view on the US proposal, as outlined in paragraphs 12 to 17 above, to friendly delegations; the Delegation is to indicate to them that Canada would be prepared to give sympathetic consideration to making an appropriate contribution in 1959-1960 to a multilateral aid programme similar to the one envisaged in the US proposal, provided that two conditions are met:

       1. that the SUNFED resolution is withdrawn, or if it is not withdrawn that it will be referred to the same preparatory commission as will be considering the US proposal, and that it is understood among major friendly contributors that in the commission it will be merged with the US proposal; and

       2. that the terms of such a preparatory commission are broad enough to include examination of the possibility of having the proposed capital aid fund managed by the World Bank.

    2. Subsequently, if in the judgment of the Delegation there is a reasonable measure of agreement that these conditions will be met, then the Delegation may indicate during the course of debate that if a sound and realistic plan emerges which commands broad support in the UN, the Canadian Government will give sympathetic consideration to asking Parliament to make a reasonable financial contribution. In the debate the Delegation should suggest that the preparatory commission to be set up should be authorized to examine the possibility of the proposed capital aid fund being managed by the World Bank and should seek membership for Canada on such a commission.

    3. When and if such a preparatory commission is established, and if Canada is a member, the Canadian Delegation should seek to ensure that the report of the preparatory commission recommends that suitable arrangements be worked out with the World Bank to manage the capital aid programme.

    4. If in the judgment of the Delegation the conditions are not met, then when the SUNFED and US resolutions come to a vote it should seek instructions from Ministers concerned as to how it should cast its vote.

SIDNEY SMITH

⁵² Approuvé par le Cabinet le 29 novembre 1957.
Approved by Cabinet on November 29, 1957.