Dear Mr.Schwarzmann,

1. We were delighted to have your telegram TC.2477 of October 8 and as soon as we had it deciphered we arranged for a conference with Maynier in order that we could determine the best manner of proceeding to implement the British offer of greater liberalization made in Montreal.

2. There are two general comments concerning your message which it is important to make at the start. The first point is that the original British proposal that was outlined in the restricted savingram sent from the Secretary of State for the Colonies, which Earl Maynier showed you, does not contemplate any retention of the Trade Liberalization Plan although it admits that the Canadian Government might not consider the amount of liberalization sufficiently attractive and might therefore wish to retain the present token import scheme. The savingram does not, however, make any reference to changing the administration of the scheme if there is to be any remnant. The second point that we should emphasize is that there is little that can be done in the West Indies in regard to the extension of the O.G.L. list in the first instance. This must be negotiated in London.

3. We are of course aware of the short time at our disposal in order to re-arrange these matters and it was in the hope of saving a few days that we sent off yesterday to External Affairs our en clair telegram No.96. Our thought was that you could immediately start discussing possibilities of the extension of the O.G.L. list with the British as a first step in bringing forward a general movement for liberalization. This letter will attempt to give you our ideas on how we might proceed and we are sending it by safe hand of T.C.A. so that you will have it a day or so before I reach Ottawa. Ibelieve that Williams will stay on in Ottawa for Monday or Tuesday or for as long as necessary. Although he is not the official immediately concerned, he has a watching brief over all of these matters and is deeply interested in them.

4. Earl Maynier was kind enough to let me borrow the copy of the savingram and we are enclosing a copy of it. Maynier did not suggest that Imake a copy although Iimagine he is sufficiently intelligent to believe that Iwould do so. The point is that the British will not know we have a copy of the savingram and, while Isee no reason why they should object to our having it, we should be very careful not to let them know that it is actually in our possession. Unfortunately we have had no time to copy the lists which are extensive, but since you are getting a copy from London Ihope that this will not be too serious an omission.

5. We think that you may be under a wrong impression when you say in paragraph 2 of your telegram that the United Kingdom proposals involve a change in the administration of the Plan. They suggest an abolition of the Plan as the first objective. Nor are we satisfied that the West Indies have a strong desire for the transfer of administration of the Plan into their own hands as you suggest in paragraph 6. This was a proposal made by Jamaica some time ago but we are not aware that the Jamaicans have pushed this question recently and certainly there has been no suggestion in Trinidad or in the other islands that they would like to take over the administration of the Plan. We would make a mistake therefore, Ithink, if we conclude that the West Indies would place heavy emphasis on taking over control if we ended up by having any Plan left to play with.

6. It seems to us that our first step in this problem is to decide just what we want to do. Clearly we are not going to reach all at one jump a complete abolition of exchange control or of dollar discrimination. The next objective presumably is to extend the O.G.L. list as far as possible. Until we know how far we can go in that respect it would be difficult to make decisions concerning what we should do with the Plan or how far we can push for a greater exchange availability on the commodities not freed.

7. As far as the abolition of the Plan is concerned, as you point out in your paragraph 6, this will depend on the extent to which we can obtain guarantees that commodities previously shipped under the Plan and not liberalized would continue to have access to these markets to a degree not smaller than that which they have at the present time. If the West Indies do raise the question of administering a remnant of the Plan then we must similarly exact some kind of guarantees, again as you suggest in your paragraph 6, that exchange control will not be used for protection purposes. Even without a Plan we will need to have some kind of general statement guaranteeing that the iniquitous habit which seems to commend itself to Jamaica will not be pursued.

8. Insofar as the retention of the Plan is concerned, it seems to us that we should aim towards its abolition. As you say in your paragraph 6, such a move might run into considerable opposition by certain companies who have benefitted greatly by the Plan. In some cases at least the benefits have not been confined to giving the companies access to exchange but they have in recent years given such companies protection in the market considerably beyond that provided in the Canada-West Indies Trade Agreement. Sooner or later these companies are going to have to come out into the open and to meet competition without protection provided by the token import scheme. Provided, therefore, that we can succeed in extending the O.G.L. list and obtaining suitable guarantees concerning the treatment of the remaining non-freed items, then it is our view that we should agree with the British and abolish the Plan. We acknowledge, however, that the provisions just stated may not be easy to achieve.

9. Concerning the possibility of extending the list of items on O.G.L. you may recall that, during our conversations with Sir Hilton Poynton in Montreal, we raised the question of where we would stand in the event that an examination was made of the lists of goods liberalized for the United Kingdom (and therefore offered for liberalization in the Colonies). We asked him specifically if it were to be found that the lists benefitted the United States more than us whether we would have the opportunity of negotiating with the British to add more of our commodities that had been specified in London to the O.G.L. List for the West Indies. Hestated that most certainly the question would be subject to further discussion. The way is therefore open to us to go to the British to negotiate an extended list. You say in your paragraph 3 that we should make some counter proposals to the West Indies. The West Indies cannot at this stage come into the question. They can only operate within the limits established from London. It is true that the savingram does give the West Indies the authority to add fresh and frozen fish and eggs to the list but beyond that they cannot go without authority from London. You ask us in paragraph 4 to press for O.G.L. treatment for a number of items specified in your paragraph. Unfortunately, while we have no doubt that the West Indies would give us full support, the first step must be taken in London.

10. As far as our original list submitted to the British in London is concerned, there seems to be some confusion between the interpretation of the new liberalized list as far as its coverage of our list is concerned. You will note that paragraph 14 in the savingram includes malt, non-insulated copper wire and cable, building board, paper board, pharmaceutical products except for certain anti-biotics, etc., primary steel, flour and polyethylene film and tubing. In your telegram you say that in addition to the above mentioned items you think that outboard motors, files and rasps and electrical equipment are also on the free list. We think that there is no doubt that outboard motors and power lawn mowers are included. Outboard motors are listed in paragraph 71.105 and power lawn mowers under 71.202, both items being clearly free in the list attached to the savingram. Similarly files and rasps are included under paragraph 69.912.

11. On the other hand electric meters, etc. seem to be excluded since these come under tariff paragraph 72.101 and it is only items specifically mentioned in that item that are to be liberalized. These items do not include the electric meters or other items included in our list except for generators and transformers.

12. We should, we think, request London to add the items included in your paragraph 4 to the lists of O.G.L. for the West Indies. We think, however, that permission has already been given for fish and eggs and we suggest that we should add to our demands electric meters, communications equipment, and the anti-biotics, etc., provided that Canadian companies think they can compete. These items so nearly complete the list of our demands that we wonder why you have left out macaroni and spaghetti, roofing papers, tires and tubes. We assume that it will not be possible to obtain all our requirements and the fact that the British have specifically exempted certain pharmaceuticals might suggest that it might be particularly difficult to have such items included. There is also the small matter of malt extract which we have already suggested to the Canadian suppliers we should negotiate with the British when this matter comes up for consideration. It is such a small item that there would seem to be no reason why we should not push for its inclusion, particularly since the Barbadian officials seem quite content to include it if the British would agree.

13. By way of argument for an extension to the lists we would think that you could make quite a strong case on the grounds that the present lists do in fact help the United States considerably more than Canada. We have not had the time to make a detailed study of the new lists and to analyse the recently freed items in relation to imports from Canada or the United States. A quick survey of the lists, however, and we have not the full S.I.T.C. list to enable us to check on each item, does seem to suggest that the United States is going to benefit from this move more than are we. Since we are all agreed that it is desirable to increase Commonwealth trade we would imagine that this argument would carry considerable weight.

14. In your paragraph 4 you point out that the U.K. list does not contain a number of products that are now on most West Indian O.G.L. lists. This was a point which we cleared repeatedly with the British in Montreal and they quite categorically assured us that any items now on the free list would continue to be so regarded.

15. While you are making your approaches to the British we should at the same time set out for the Federal Government the kind of guarantees that we would hope they could give us concerning the treatment of the commodities that remain off the O.G.L. list, whether or not there is to be a continuing token import scheme. If we will do this the Federal Government will undertake to send such criteria to the different island governments and ask them to comment on them, at the same time giving our proposals their blessing provided of course that they are in agreement with them. Assuming first of all that we agree to abolish the scheme then we suggest that we should propose that we should obtain written assurances that (a) the administration of future dollar allocations should not be designed to provide protection to local industry but should be on the basis of need and that items should be discriminated against only for balance of payments reasons. (b) we should ask that items which were previously on the token import scheme should not be denied access to the allocations by virtue of any decision that they are not considered essential, or for any other reason. It should be understood that in giving up the token import scheme we do so with the undertaking that the unit governments will set aside a quota at least equal to the dollar exchange expended on imports of those commodities in 1957, as long as the importers of those commodities are interested in continuing to import the commodities in question.

16. On the other hand if it is agreed that the Plan must be continued in truncated form, then we do not think we should raise the question of handing the scheme over for the administration by unit territories. If the islands or the Federation press us on that point we should give way, but until they do we think we should assume that we will continue to administer any remaining scheme. Doing so, however, we should insist that the eligible list should be abolished. We might also ask for a slight increase in the total amount of exchange available for the goods remaining on the scheme. We say a small amount simply because we do not think an outright increase in the total amount has any chance of being accepted and we are not at all sure that it would be desirable since we might have trouble in using up all of the exchange.

17. If we are forced to hand over the scheme for local administration then we must do so with even firmer guarantees. However, we are somewhat afraid that if we were to follow the proposals contained in your paragraph 8 without any quotas for commodities, Canadian companies might find themselves in the position of being unable to ship because their importers or agents might prefer to use their exchange for other commodities with a higher profit margin. Let us hope, however, that this question will not arise and that first the schemes will be done away with, or, failing that, that we will continue to administer a very much truncated remnant with complete freedom of action as to commodities.

18. It is going to be difficult to endeavour to tie up all these loose ends in time to have this new régime in operation by the first of next year. Nevertheless, provided we can talk to the British at once, we think that it could be done. Clearly it is most desirable that it should be done. It should tend to increase the interest in our Trade Fairs, but the main point is that it would give concrete evidence that we are pushing ahead with the results of the Commonwealth Trade and Economic Conference and also add stature to the Federal Government.

19. You will understand, of course, that in sending these lists to the Colonies the United Kingdom is not imposing its will on local government, all they are doing is seeing that the Colonies may liberalize to the extent indicated. We think that insofar as the West Indies are concerned there will be very little problem in having practically all of the items included in a wider O.G.L. list. Jamaica is perhaps the only Colony that will give trouble.

20. I hope that this letter will reach you before Iarrive but mails being such as they are Imay find myself talking to you about these things without giving you an opportunity to digest all of this spinach. Ithought you might also like to have a copy of the note which SirHilton Poynton sent to me in Montreal before Ileft. It is his interpretation of the message that they received from London dealing with the liberalization programme and which is spelled out in more detail in the savingram.

Yours sincerely,
R.G.C. SMITH

P.S. You will observe that throughout this we have used a small the in writing about the Federation of The West Indies. There is some confusion here arising from the fact that an announcement has just been made that the official title is now to be West Indies.

[PIÈCE JOINTE/ENCLOSURE]

La section des Colonies de la délégation du Royaume-Uni à la conférence commerciale et économique du Commonwealth au commissaire en Trinité

Colonies Section, Delegation of United Kingdom to Commonwealth Trade and Economic Conference, to Commissioner in Trinidad

CONFIDENTIAL Montreal, September 24, 1958

Dear Guy [Smith],

As promised at our discussion this morning, Isend you herewith the gist of the telegram from London about our dollar liberalization proposals as regards the Colonial territories:

1. All goods on U.K. Dollar O.G.L. list (including additions of machinery items) could be put on O.G.L. in the Colonies. The broad effect would be to put on dollar O.G.L. almost all items other than consumer goods, certain food stuffs and certain special items.

2. Colonies would be free to spend outside their dollar allocation any dollars required for (a) above.

3. Dollar allocations for 1959 would be at rate of 1957 expenditure on items other than (a) above, plus provision for items at (d) below in the case of Caribbean Territories only.

4. On token imports scheme some items would be absorbed by (a) above. This should represent a clear gain for Canada. We are proposing to the Caribbean Territories that 1957 expenditure on remaining items should be added to dollar allocations under (c) above and token imports scheme as such wound up.

5. Not all the items proposed by the Canadians for liberalization are included in (a) above, but our hope is that benefit to the Canadians arising out of (a) will more than make up for any expectations they may have had in the more limited field of token imports, which in any case apply only to the Caribbean Territories.

6. Full circular with our proposals is not likely to be despatched to Colonial Governments before Wednesday (24 ). Proposed liberalization date is 1st January, 1959.

7. We must await views of Colonial Governments before announcing publicly what liberalization they each propose to adopt, but Canadians may be informed of the full details of our proposals including full liberalization list, subject to Restricted security classification treatment.

Yours
A.H. POYNTON