Commonwealth Countries in South East Asia

1. India and Pakistan would welcome surplus wheat because there is in both countries a shortage of food grains and an understandable reluctance to utilize their very limited foreign exchange resources to pay for imported grain. There is relatively little hunger in Ceylon, which grows most of its own food, usually has a favourable balance of trade, and is in a relatively better economic position than India or Pakistan to purchase its own needs. Ceylon imports flour rather than wheat and lacks handling facilities for wheat. Malaya is a cash importer of wheat and although we have sold small amounts in the Malayan market, most of it is supplied by the Australians. It might well be disadvantageous to our own interests, and to those of the Australians particularly, to dispose of surplus wheat in Malaya.

2. In India and Pakistan there is always an actual need for food grains. There have been constant shortages of grain in India and Pakistan and substantial emergency shipments of wheat to avert famine have been made to both countries by Canada, Australia and the United States. Both countries suffer from chronic shortages of foreign exchange with which to buy commodities like wheat so that any shipment of surplus Canadian wheat would tend to ease their foreign exchange position. Agricultural production has been declining in India and Pakistan for the past two or three years. This lag in agricultural production has had, and is having, a critical impact upon industrial development planning in both countries. Crop failures and poor harvests have often made it necessary to divert badly needed funds from important development projects to purchase from abroad large supplies of food grains to feed people in famine-stricken areas.

3. For India any shipment of surplus wheat this year would be a very timely gift. The economic situation has been slowly worsening for the past year and one of the reasons behind this deterioration has been the failure of agricultural production to increase. The less India has to spend on food imports, the more will be available for projects of the Second Five Year Plan, upon the success of which may hinge the future of India as a democratic state. If the Indians should become convinced that democratic government cannot provide quickly enough the vital economic development to raise the standard of living, they may move toward the totalitarian experiment of nearby Communist China. It is in our interest that the Indian leaders should not lose heart and that they realize they can expect from the Western democracies sympathetic understanding of their enormous economic problems. Indian leaders are becoming very concerned about the economic situation (and with good reason), when the pace of their industrial development seems to be threatened and would welcome any foreign aid which comes without strings, particularly if it should come unsolicited.

4. In recent years there has been an almost constant shortage of wheat in Pakistan so that Canadian surplus wheat would always be very useful. Pakistan's foreign policy has always called for firm friendship with the Western nations despite the difficulty of elucidating this policy in poverty-stricken East Pakistan where many people have strong neutralist sentiments. The very slow rise in the standard of living has made the position of the Pakistani Government increasingly difficult. It is in our interests to do what we can to bolster up the Pakistani economy so that the neutralist forces of disunity in the country will find the economic climate less propitious for the growth of their organizations.

5. Our conclusion would be that, because of the serious economic crisis it is passing through, India should have the major share of the surplus wheat disposed of in the area, that Pakistan should have a substantial share. Ceylon has no requirement for wheat. We think Malaya would benefit most from other forms of aid, but if it were decided to dispose of some of the surplus wheat in Malaya then we might find it useful to consult first with the Australians.

Eastern European Countries

(1) Poland

There are important political advantages to be gained from offering some surplus Canadian wheat to Poland. Though Poland remains under Communist leadership, political changes have taken place there since last October which justify Western support. These changes have resulted in greater liberty of personal opinion, in the exercise of religion and to travel abroad. There has also been an effort to achieve a significant increase in the standard of living. Internationally, the changes have ended the Soviet Union's complete domination of the country.

2. While these changes, both domestic and international, do not fully satisfy either the Polish people or the Western nations, it is in our interest to encourage such developments. This is especially true of Poland's new measure of independence from the Soviet Union. This independence is probably more significant than the break between the Soviet Union and Yugoslavia in 1948. Poland, since it remains within the Communist bloc, is forcing the Soviet Union to modify its conduct, i.e. not to treat Poland simply as a dependency. When Yugoslavia broke with the Soviet Union, the Soviet leaders were able to cut all contact and treat Yugoslavia as an outcast. Poland's independence is also important because it is a path which could become attractive to Communist leaders in other satellites.

3. The Gomulka régime cannot be regarded as stable. The immediate danger of Soviet intervention appears to be over. Both sides have made adjustments and have reached a temporary modus vivendi. But Poland's economic problems, which are still increasing, constitute a major threat to the Gomulka régime. These difficulties might lead to trouble through a strike getting out of control, which would give the U.S.S.R. an opportunity for intervention on the Hungarian model. Alternatively Gomulka might be forced to turn to the Soviet Union for additional economic aid. The Soviet Union would only provide such aid if Gomulka were to undertake to modify the present régime. This would mean the end of the Gomulka experiment of a freer communism and of the most hopeful heresy which has occurred in the communist bloc.

4. Although Poland is a country with considerable potential wealth, Communist mismanagement and Soviet exploitation have caused distortions in the economy and left the standard of living at a desperately low level. The reforms of the present government will not have any significant effect for a couple of years. Indeed the freeing of the economy has led to an immediate worsening of the situation owing to inflation, absenteeism, speculation and general disorganization. In the interval before the Polish people get used to exercising economic self-discipline and the reforms take effect, Poland must look to the West for aid to fill the gap and prevent economic collapse.

5. Poland has already received some aid from the United States and other Western countries, but it has hoped for more. At the time it was argued in the West that the Western countries should be cautious in extending aid, for fear that it might provoke the U.S.S.R. It now appears that the Poles have correctly decided that they can safely accept considerably more Western aid than has been offered.

(2) Yugoslavia

6. Yugoslavia is the only other country in Eastern Europe to which it might be politically desirable to offer surplus Canadian wheat. Her position is quite different from Poland's. The domestic policy of the régime is probably less worthy of Western support than Poland's, and it is a fully independent state without the same divisive effect on the Soviet bloc. The major reason for giving aid to Poland, therefore, does not apply in the Yugoslav case.

7. An additional reason is the present orientation of the Yugoslav Government which is now responding to Soviet overtures for better relations. Yugoslavia over the past few years has followed a pattern of oscillating from appealing to the East to appealing to the West. As soon as one side has confirmed its friendship, Yugoslavia has immediately concentrated on appealing to the other, to make sure it would not become dependent. In the present circumstance, it would seem unnecessary for Western nations to go out of their way to give exceptional assistance to the Yugoslav Government.

8. A further argument against granting wheat to Yugoslavia is that this year she has had a first class crop.

9. The conclusion of this section is that Poland should have absolute priority over Yugoslavia if there is a question of offering surplus grain to Eastern Europe.

Conclusion

It would be almost impossible, and perhaps unsatisfactory as well, to try to make a definitive reply to this question without relating it specifically to the amount of surplus wheat which will be available for disposal. We suggest, therefore, that the problem might be broken up into three parts as follows:

1. 5-10 Million Dollars Worth of Surplus Wheat
   
   This amount of wheat would not go very far if divided between India and Pakistan. Both countries would welcome such a shipment and would find it useful but it would be too small a quantity to lessen their foreign exchange difficulties very much or to make the kind of favourable impression we might wish to create. In contrast this quantity of surplus wheat would be a very valuable contribution to the Polish economy during this critical period.
   
   We suggest that the entire quantity, if this amount of wheat is being disposed of, might be offered to Poland.

2. 10-20 Million Dollars Worth of Surplus Wheat
   
   This amount of wheat is large enough to make a valuable contribution to the economies of India and Pakistan. It would be desirable, in view of its larger size and its economic difficulties that India should, at this time, have the larger portion of such a shipment.
   
   In weighing the claims of India and Pakistan against those of Poland we have been swayed principally by the fact that India's and Pakistan's size, importance in Asia and membership in the Commonwealth make it necessary that our contribution be a significant one. We suggest, therefore, that this amount of surplus wheat could best be disposed in the Commonwealth countries of South East Asia.
   
   This would not leave sufficient wheat to make a substantial contribution to Poland as well. Nevertheless, it would be beneficial if a million dollars worth could be allocated to Poland. This would have a valuable psychological effect, indicating Western interest in Poland, and should also have the advantage of attracting Polish commercial purchases of Canadian wheat.

3. More than 20 Million Dollars Worth of Surplus Wheat
   
   If this amount of wheat is to be made available, it would be desirable to allot the greater part to India and Pakistan, but to offer about five million dollars worth to Poland.