Attached for your approval, if you agree, is a draft memorandum of instructions for the Canadian Delegation to the Thirteenth Session of GATT which begins in Geneva on October 16 which has been prepared in consultation with other Departments concerned and revised to take into account the discussions and conclusions of the Commonwealth Trade and Economic Conference in Montreal.¹²² The memorandum has now been approved by Mr.Fleming and Mr.Churchill, and the approval of Mr.Harkness is expected momentarily.

The main policy matters which are expected to come up for discussion at the Thirteenth Session are problems of trade in primary commodities, problems of trade in agricultural commodities, the maintenance of discriminatory import restrictions by Germany which are not compatible with its GATT obligations and problems relating to the establishment of the European Economic Community and the proposed Free Trade Area. It is expected also that questions may be asked concerning the import restrictions recently imposed by Canada on certain agricultural products under the Agricultural Stabilization Act or concerning the revision of the Canadian Customs Act (Bill C-51).

With regard to problems in primary commodities, it is proposed in line with the stand taken by Commonwealth countries in Montreal and in recognition of the importance of these problems for less developed countries to make known Canada's willingness to co-operate in any examination of these problems that may be decided and in particular to support the establishment of a study group on lead and zinc.

With respect to problems in agricultural commodities, the Canadian Delegation is instructed to support proposals for a review of existing GATT rules in this field with a view to strengthening them and making them as effective as the rules which apply to industrial products

On German import restrictions, it is proposed to continue pressing for the removal of remaining restrictions in accordance with Germany's GATT obligations. If, however, it should be necessary to modify this position, the Canadian Delegation is authorized to agree to a waiver conforming as closely as possible to the standard conditions imposed in such cases by the GATT which would place a time limit on the maintenance of the import restrictions and would require that they be administered on a non-discriminatory basis. In no case is the Canadian Delegation to agree to a waiver which would permit discrimination.

The discussion concerning the EEC and the proposed free trade area which will probably not be extensive will provide a further opportunity to press for satisfactory safeguards and assurances for the protection of the legitimate interests of third countries such as Canada. It is expected that consultations on problems posed by the association of overseas territories with the EEC will begin during the Thirteenth Session in accordance with the procedure which was agreed upon with the six EEC countries some months ago.

Other subjects which may be brought up at the GATT session or be the subject of informal discussions at that time are the new Canadian legislation and regulations concerning agricultural commodities and the recent amendments to the Canada Customs Act. The position that the Canadian Delegation is instructed to take on each of these subjects is set out in paragraphs 25 - 30 (pages 6-7) of the attached document.

D.V. LEPAN
for Under-Secretary of State
for External Affairs

[PIÉCE JOINTE/ENCLOSURE]

Projet d'une note

Draft Memorandum

MEMORANDUM OF INSTRUCTIONS FOR THE CANADIAN DELEGATION
TO THE THIRTEENTH SESSION OF GATT

A. MEETINGS AND REPRESENTATION.

1. The Thirteenth Session will open on October 16 and will probably continue to the end of November. It will be one of the regular annual sessions at which the Agreement is administered; any complaints that may have been advanced are considered and solutions are sought for particular points of difficulty.

2. In conjunction with the Thirteenth Session, it is proposed to hold a meeting of Trade Ministers in Geneva, as was done last year. A number of countries, including the United Kingdom and the United States, have indicated their intention of sending a Ministerial Representative to such a meeting, which it is expected will be held on October 16-18.

3. It is recommended that the Minister of Trade and Commerce should represent Canada at the proposed ministerial meeting.

4. It is further recommended:
   
   That a Canadian Delegation should attend the Thirteenth Session;
   
   That Mr.M. Schwarzmann, Department of Trade and Commerce, should be Chairman of the Canadian Delegation.
   
   That the following Officials should be included in the Delegation:
   
   Mr. C.A. Annis, Department of Finance,
   
   Mr. W.F. Stone, Department of External Affairs,
   
   Mr. G.J. Dobson, Department of Agriculture,
   
   Mr. W. Lavoie, Department of Trade and Commerce,
   
   and that an Officer from the Department of National Revenue and one from the Department of External Affairs who is posted to a Canadian Mission in Europe should be included in the Delegation if required.
   
   B. GENERAL COMMENT.
   
   

5. The proposed ministerial meeting would give Ministers an opportunity for a general exchange of views on problems in the field of international trade. It is also likely that, on the basis of the report on trends in international trade prepared by a group of experts which was set up in response to the demands made at the Twelfth Session by the primary producing countries, Ministers will wish to discuss the problems of trade in agricultural and other primary commodities. There is, in addition, a possibility that representatives of other countries will wish to bring forward problems arising in connection with their trading relations with Canada.
   
   C. AGENDA: QUESTIONS OF PARTICULAR INTEREST TO CANADA.
   
   A. Commodity Problems.

6. At this Session, Canada and the other contracting parties will have available to them, as a basis for a continuation of the debate on commodity problems which was begun at the Twelfth Session, a report on trends and developments in international trade. The two main issues in the previous debate were:
   
   

   1. Extreme short-term fluctuations in prices which affected the ability of less developed countries to contribute to the expansion of international trade and

   2. The question of the widespread use of protective devices in international trade in agricultural products. It was agreed that a panel of expert economists should be asked to make a study of these problems and attempt to clarify the issues. On the basis of this study it was hoped that the contracting parties would be able to decide on appropriate action.

7. It is recommended that during the discussion at the Thirteenth Session and in the light of the understandings reached at the Commonwealth Trade and Economic Conference, the Canadian Delegation should indicate a willingness to co-operate in any examination of these problems that the contracting parties may wish to undertake. In particular, the Canadian Delegation should support proposals to establish an international study group to advise on current trade problems in lead and zinc. It would further be appropriate to refer to Canadian participation in all existing commodity arrangements and study groups as a proof of Canada's interest in, and appreciation of, the problems now being encountered by many of the less industrialized among the contracting parties. If other problems arise on trade in agricultural or primary commodities the Canadian Delegation should be guided by the policy lines taken by Canada at the Commonwealth Trade and Economic Conference.
   
   B. Lead and Zinc.

8. The United States Government has imposed quota restrictions on imports of lead and zinc. While the quotas established for Canada appear to be less restrictive than those which apply to other suppliers, they are likely to have adverse effects on our exports of these metals to the United States which in 1957 totalled about $55million. These restrictions protect high-cost marginal producers in the United States and shift the burden of adjustment to world market conditions to outside suppliers. The imposition of import restrictions has serious implications with respect to future pressures that may develop in the United States for increased protection against imports of other products. It should be noted that this is the first time that the United States administration has on its own authority applied quota restrictions on any industrial product. The United States will presumably at the Thirteenth Session seek to regularize these new restrictions under the escape clause procedures (Articles XIX of GATT) which, in certain carefully defined circumstances, permit a country to take temporary emergency measures against imports which threaten serious injury to domestic industry. Article XIX of GATT provides for consultation with the countries affected by such emergency action and if satisfactory agreement is not reached, it authorizes the countries adversely affected to take compensatory measures to restore the balance of the Agreements. The Canadian Delegation should express Canada's serious concern about these import quotas and should state the view that these restrictions are unjustifiable and constitute an impairment of GATT. Regret and disappointment should be expressed that the United States should have taken this unilateral action at a time when steps were under way to search for international solution to lead and zinc problems in which all interested countries including the United States would play their part. The Canadian Delegation should direct its effort to seeking removal of these restrictions by the United States and obtaining agreement that the problems of lead and zinc should be considered in a commodity study group on the broadest possible basis. The Canadian Delegation should question the applicability of Article XIX of GATT to these United States measures and should reserve Canada's right to take compensatory action on imports from the United States if satisfactory solutions are not reached.
   
   C. The European Common Market.

9. There will be a further opportunity at this Session to review the arrangements for the setting up of the European Economic Community. The Treaty of Rome came into force on January 1, 1958; the institutions of the Community have now been established and the first step in the removal of tariffs and quantitative restrictions within the Community is scheduled to take effect on January 1, 1959. Most of the arrangements, however, remain to be worked out, including the level of the common external tariff for a number of products of importance to Canada, such as aluminum, lumber and synthetic rubber; and the details of the agricultural régime, which will affect trade in wheat and other products of interest to Canada.

10. During the last Session, there was a detailed examination of the Treaty in relation to its compatibility with the GATT arrangements. Though this examination went a long way towards clarifying the issues, no solution to the problems created by the establishment of the EEC was found and no satisfactory assurances which might safeguard the trade of Canada and other third parties were obtained. Subsequently, a procedure has been worked out to deal with the specific problems raised for the trade of individual countries by the association of certain overseas territories with the EEC.

11. The Treaty arrangements hold out certain dangers for Canadian trade. These are the possibility of

    1. More restrictive tariff barriers against a number of Canadian exports to Europe, particularly aluminum, chemicals, synthetic rubber and fish;

    2. A more rigid system of discriminatory import restrictions;

    3. A highly protective and regionalist trading arrangement for agriculture;

    4. New preferential trading arrangements between the countries of the Community and some of their overseas territories which would adversely affect Canadian trade in certain non-ferrous metals and in tobacco.

12. It is recommended that the Canadian Delegation, in co-operation with the other countries concerned, and while indicating its sympathy with the objectives of the Rome Treaty, should continue to press for satisfactory safeguards and assurances and should not acquiesce in arrangements which would unjustifiably impair Canada's trade interests. The Canadian Delegation should, in addition, seek to ensure that the consultations now to be arranged regarding the problems caused by the association of overseas territories are made effective and meaningful. Where it would seem to serve Canadian interests, it should also be authorized to support the development of similar procedures for dealing with other issues created by the establishment of the EEC. In this connection, the Canadian Delegation should discourage suggestions for seeking bilateral arrangements with the EEC (such as those reported to be under consideration by Australia and NewZealand) and should urge the maintenance of a common front in the GATT.
    
    D. Free Trade Area.

13. Representatives of the countries which would be members of the proposed FTA will be meeting in Paris during the early part of the GATT Session and will pursue their efforts to reach at least a preliminary agreement. It is recommended that the Canadian Delegation should, when the opportunity presents itself, emphasize in the GATT Forum the importance of outward-looking rules in the FTA. Reference should be made to the understandings reached at the Commonwealth Trade and Economic Conference on these matters.
    
    E. Revision of the GATT Rules as They Apply to Agriculture.

14. In view of the widespread protectionism that prevails in the agricultural sector, and of the waivers of GATT obligations that have been accorded to various contracting parties, there has lately been some pressure, particularly from Australia, for an overall examination of the GATT rules as they apply to agriculture. At the Thirteenth Session, proposals will likely be made for general review of GATT rules on this subject.

15. Agreement was reached at the Commonwealth Trade and Economic Conference that Commonwealth Countries should participate in a review of GATT rules on agriculture with a view to strengthening them. It was also agreed that in surplus disposals care should be taken to avoid damage to the interests of other countries and that there should be adequate consultation between the countries affected. In the light of these understandings the Canadian Delegation should support proposals for strengthening GATT rules on agriculture and should participate constructively in the discussions. Emphasis should be placed on the worldwide nature of the problems and on the importance of insuring that such countries as the United States are prepared to take appropriate action to abide by strengthened GATT rules. At the same time, special care should be taken to minimize the danger that the general question of a review of agricultural rules may prejudice progress in the examination of the Rome Treaty or in the consideration of German import restrictions.
    
    F. Review of Quantitative Import Restrictions.

16. Under the terms of the GATT, arrangements are to be made at the Thirteenth Session for regular consultations with all countries maintaining import restrictions for balance of payments reasons. This new procedure will give to contracting parties whose own trading interests are affected the opportunity to exert further pressure and to explore all possible means of reducing existing restrictions to a minimum.

17. In view of the importance to Canada of securing the widest possible removal of the quantitative import restrictions maintained by other contracting parties, and particularly of those applied on a discriminatory basis, it is recommended that the Canadian Representatives be instructed to co-operate actively in the preparations for these consultations. The Canadian Delegations should make special reference to the important initiatives taken by the United Kingdom and other Commonwealth Countries in removal of discriminatory restrictions and to the prospects for increased international liquidity which should facilitate speedy removal of discrimination by all countries.
    
    G. German Import Restrictions.

18. The Federal Republic of Germany, though no longer in balance of payments difficulties, still maintains import restrictions which affect a number of important agricultural and primary products, including wheat. The Intersessional Committee in April requested the German Government to report to the Thirteenth Session on steps taken to remove the restrictions, recommending further that in default of satisfactory action by Germany the contracting parties should authorize the suspension of such obligations or concessions on the part of other contracting parties as appropriate.

19. It is reported that Germany will seek to obtain a waiver which would allow for the continuation of agricultural restrictions for an indefinite period and on a discriminatory basis. On industrial products it is reported they will seek a more limited waiver. The position taken by the majority of the contracting parties, including Canada, at the Intersessional Committee, was that Germany's action in continuing to maintain quantitative restrictions was not compatible with its GATT obligations and that the Germans should, therefore, either remove the restrictions at once or ask for a waiver of the hard core type, which has a time limit and does not permit discrimination. Our recent information suggests that various compromise proposals may be put forward and may receive substantial support. It is recommended that the Canadian Delegation should continue to press for the removal of quantitative restrictions but should, if necessary, agree to a waiver which would conform as closely as possible to the hard core conditions and should in no case agree to a waiver which would permit discrimination.
    
    H. Accession of Poland.

20. 20. The Government of Poland has signified that it wishes to accede to the GATT. The accession of a state-trading country such as Poland poses numerous and complex problems in the establishment of a satisfactory exchange of rights and obligations with other members. There are, however, political advantages in encouraging the association of Poland with western oriented institutions such as the GATT and at the last Intersessional Committee the Canadian Delegation was instructed to join sympathetically in efforts to explore these problems.

21. It is recommended that at the Thirteenth Session the Canadian Delegation should support arrangements to explore further Poland's request and also methods of solving any related problems.
    
    I. Accession of Switzerland.

22. Tariff negotiations between Canada and Switzerland have recently been completed as part of the procedures for Switzerland's accession to the GATT. Swiss accession is complicated by the fact that Switzerland maintains agricultural restrictions which are inconsistent with GATT rules. It has, therefore, been proposed that special terms of accession should be devised for Switzerland which would take account of this situation and yet preserve the balance of the agreement from the point of view of other contracting parties. The Canadian Delegation should welcome the accession of Switzerland to the GATT and should support the formulation of appropriate terms of accession.
    
    J. Time and Place of the Fourteenth Session.

23. The Government of Japan is likely to renew its invitation to the contracting parties to hold the next session in Tokyo. The Executive Secretary has made a personal visit to Tokyo and has reported favourably on the arrangements envisaged by the Japanese Government. When a similar invitation was extended for the Twelfth Session, the Canadian Government took the stand that it preferred, on administrative and financial grounds, to hold that session in Geneva. It was not, however, inclined to sustain this objection if the majority of the contracting parties favoured Tokyo.

24. In view of the Executive Secretary's report, it is not feasible to sustain the claim that the administrative and financial disadvantages of holding a session in Tokyo are decisive arguments against it. The Canadian Delegation should, therefore, as was the case at the Intersessional Committee of GATT in April this year, express appreciation of the Japanese Government's invitation and indicate that the Canadian Government is prepared to support the holding of the Fourteenth Session in Tokyo unless there are strong objections from a majority of countries.
    
    D. CANADIAN PROBLEMS.
    
    (1) Canadian position vis-à-vis the GATT in the light of the recently imposed agricultural import restrictions.

25. Import controls are now being applied by Canada on butter, cheddar cheese, turkeys and skim milk powder. The present restrictions are inconsistent with some of Canada's obligations under the GATT. Provision is made in the Agreement for countries to be granted waivers in exceptional circumstances from certain of their obligations; a number of such waivers have been granted, with the approval of a two-thirds majority, to meet the particular difficulties of several member countries. They have usually included terms and conditions which look to the development of remedial measures by the country concerned and contained provision for imports under quota from traditional suppliers. It is unlikely that Canada could succeed in obtaining a waiver unless we were prepared to modify our present policies to meet the normal requirements of such waivers (e.g. reasonable quotas).

26. It is, therefore, recommended that the Canadian Delegation at the Thirteenth Session, in conversation with other Delegations, or if necessary in a formal statement, outline Canada's position in the same terms as adopted at the last session of GATT, namely by giving:
    
    

    1. An explanation of the special nature of the difficulties which have arisen;

    2. An assurance that the Canadian Government is not inflexible and will, as in the past, be examining these restrictions in the light of changing circumstances.

    
    
    (2) Position to be taken regarding the amendments to the Customs Act.

27. The effect of the recent amendments to the Customs Act is in part to revise (and furnish additional legal support to) existing valuation procedures, and in part to add new valuation provisions which may be invoked by the Governor in Council as a further safeguard against dumping.

28. A note, dated September 3, from the United States Ambassador stated that in the opinion of the Government of the United States some of the new provisions are inconsistent with the General Agreement on Tariffs and Trade and some are contrary to commitments undertaken by the contracting parties to the GATT. Specific reference was made to Sections 36(2), 36(3), 38, 39(1) and 40. Concern has also been expressed informally by the Japanese, the Italians, the Australians and others. The United Kingdom have raised questions on the compatibility of these provisions with GATT but have indicated that they themselves will not be raising this in GATT.

29. On the other hand, Canadian Ministers have stated that the amendments to the Customs Act are fully consistent with the GATT.

30. It is suggested that the Canadian Delegation to the Thirteenth Session of the GATT should:

    1. Make every effort to dissuade other contracting parties from instituting formal complaints under Article XXIII; and

    2. To this end, Canadian Delegation should be authorized to explain the Customs Act informally if requested to do so;

    3. If a formal complaint is made, request that its consideration be delayed sufficiently to permit instructions to be obtained from Ottawa, and for a senior official of the Department of National Revenue to come to Geneva.

Text Ends

¹²² Voir la 3 partie, chapitre III./See Chapter III, Part 3.