Dear Mr. Pearson,

The attention of my Government has been drawn to a statement issued to the press by Mr. Gardiner on the 2nd January in which it was said that the United Kingdom had agreed to purchase Canada's surplus of beef, bacon, eggs and cheese for the years 1948 and 1949 and that the prices and quantities would not be affected by any further discussion of financial relationships at the end of the three months covered by the recent agreement.

As you know, while financial arrangements were recently reached between the two Governments to cover the period up to the 31st March next, no arrangements were made as regards the period thereafter. Thus while the Canadian Government entered into no commitment beyond the 31st March, 1948, as regards the provision of Canadian dollars, the United Kingdom Government entered into no commitment beyond that date as regards the provision of United States dollars.

My Government think it important that this statement of their position should be on record. They recall that their attitude was reflected in the statement made by Mr. Mackenzie King in the House of Commons on the 18th December that "the United Kingdom will itself decide how to dispose of its present limited financial resources in the way most effective for its recovery."

In this connection you will recall that when the exchange of correspondence was being drafted in order to record the agreement reached the fifth paragraph of your letter to Sir Percivale Liesching read:

"There is no credit commitment on the part of the Canadian Government for 1948 beyond the three months period." In the reply to this letter as drafted by Sir Percivale Liesching the corresponding paragraph read as follows: "I note from paragraph five of your letter that there is no credit commitment on the part of the Canadian Government for 1948 beyond the three months period. Equally under this settlement there is no commitment on the part of the United Kingdom Government to provide United States dollars in 1948 after the expiry of the three months in question."

On the 17th December there was prolonged discussion upon the second sentence of Sir Percivale Liesching's draft, in the course of which it was stressed from the Canadian side that the form of this second sentence would cause embarrassment if it were included in correspondence which might subsequently be made public. On his side, Sir Percivale Liesching made it clear that unless this sentence or a sentence of equivalent effect was included in the exchange of letters he would be unable to agree to the exchange of correspondence proposed. It was accordingly agreed that in order to meet the point of presentation raised on Sir Percivale Liesching's draft the sentence in question should read as follows:

"I note also the following words from the agreed statement made by Mr. Mackenzie King to-day: 'the United Kingdom will itself decide how to dispose of its present limited financial resources in the way most effective for its recovery'."

The letter was signed on the understanding that the text finally adopted had the same meaning as the original version, namely, that the United Kingdom Government, no less than the Canadian Government, were uncommitted as to the means by which payments for supplies from Canada after the 3I st March would be financed.

My Government feel that it would be unwise in present circumstances for either Government to anticipate the results of the further conversations which are to take place before the 31st March regarding the means by which supplies of foodstuffs from Canada will be paid for over the longer period mentioned in Mr. Gardiner's statement.

Yours sincerely,
ALEC CLUTTERBUCK