1. The next meeting of the Canada-United States Committee on Trade and Economic Affairs has been arranged in Washington on February 16 and 17. The Canadian Delegation will, as usual, consist of the Ministers of External Affairs, Finance, Trade and Commerce and Agriculture who will be accompanied by their advisers.

2. An agenda has been informally agreed as follows:

Item I - Economic Outlook for Canada and United States

Item II - International Economic Policies and Prospects:

(A) Follow-up of Paris Economic Meetings, January 12-14

1) Trade Problems
2) Consultation among Capital Exporters
3) Reconstitution of OEEC

(B) Progress in Removal of Discriminatory Restrictions

(C) Problem of Low Cost Imports.

Item III - Canada-United States Trade Questions.

Item IV - Other Business.

Item V - Communiqué.

3. Item I (Economic Outlook for Canada and United States) provides for an introductory exchange of information and views. No instructions are required. Similarly no instructions are required for Item II(B) (Progress in Removal of Discriminatory Restrictions), Item IV (Other Business) or Item V (Communiqué).

4. Follow-up of Paris Economic Meetings, January 12-14 - Item II(A). It is proposed that the Canadian Delegation should take as background guidance the report on the Paris meetings which was approved by Ministers and presented to the House of Commons by the Minister of Finance on January 18.

5. Trade Problems - Item II(A)1. While the main trade interests of the United States in the Trade Committee which was established by the ad hoc meeting in Paris in January will probably relate to access to European markets for manufactured goods, Canada's primary interest will be in maintaining and improving access to European and United States markets for basic materials and agricultural products. In Washington, therefore, the Canadian Ministers should impress upon United States Ministers the need to take our interests in basic materials and agricultural products fully into account in the work of the Paris Trade Committee.

6. They should indicate that Canada, like the United States would not wish to see a preferential and discriminatory arrangement between the two European trading groups, but would prefer to see a more broadly based solution of the problems that are arising out of the emergence of tariff differentials in Europe. A broad solution would aim at reducing tariff differentials in Europe through multilateral tariff negotiations, the results of which would be extended to all countries on a most-favoured-nation basis. This is also believed to be the policy favoured by the United States. The Canadian Delegation should take the opportunity of emphasizing that for the success of this policy it will be most important for the United States to make the maximum use of its negotiating powers which under present legislation are in any case rather limited. They should also suggest that it is important for the United States to consider now what further negotiating power (e.g. power to allow duty-free entry) will be needed by the United States for the further negotiations which will have to follow in the next few years. The Canadian Delegation might also enquire whether thought is being given to different techniques of tariff negotiation. It may be pointed out that the Canadian Government, under existing legislation, has all the powers that might be required (and that this is believed to be the case in most other countries); however, the use to be made of these powers would, of course, depend in large measure on the powers and policies of other countries, particularly the United States.

7. The Canadian Delegation should stress the importance of continuing to press the European Economic Community to establish duty-free entry or low rates of duty for industrial materials in the common tariff and to try to find effective means of influencing the agricultural policies of the European Economic Community and other European countries along outward looking lines.

7A. Finally, the Canadian Delegation should express the expectation of the Government that, if the Trade Committee in Paris establishes subcommittees, the United States would support Canadian membership on any where matters of importance to North America are to be discussed.

8. Consultation Among Capital Exporters - Item II(A)2. The "Development Assistance Group" that is being set up as a result of the Paris meetings is to hold its first meeting in Washington on March 8-10. It will be recalled that this group consists of 8 countries, members or associate members of OEEC, each of which has a bilateral programme of aid to under-developed countries, and that its purpose under the Paris resolution is

"to meet together to discuss various aspects of co-operation in their efforts, and to invite other additional capital exporting countries to participate in their work or to meet with them as may from time to time appear desirable, and to consult with such multilateral organizations as the International Bank for Reconstruction and Development and the European Investment Bank."

The United States is proposing that Japan be invited to attend the first meeting and this appears to be acceptable.

9. United States Ministers, in various conversations with Canadian Ministers during the past two months, have emphasized that the Development Assistance Group would not become engaged in "burden sharing" - i.e., exercises, often of a statistical nature, designed to show that one country or another was carrying less of the burden of international aid than others and might be expected to increase its share. Canadian and U.S. Ministers agreed that efforts of this sort to put pressure on individual countries to increase their bilateral aid programmes could have unforeseen and undesirable results.

10. In an aide mémoire recently received from the United States (February 9, 1960) it is proposed that the Development Assistance Group should not only exchange views on "maximizing the effectiveness" of bilateral programmes but also on "increasing amounts." This suggestion, which is no doubt directed to European countries particularly Germany, has an element of burden sharing in it and should be examined carefully, with special regard to implications for Canada.

11. In general it would seem prudent for the Canadian Delegation to refrain from detailed discussion on the activities of the "Development Assistance Group" pending fuller information on the positions, not only of the United States but also of other countries, on the basis of which a Canadian position can be developed. In particular it is obviously undesirable to make any commitments in this field at this stage.

12. Reconstitution of OEEC - Item II(A)3. It seems clear that the reorganized OEEC will have three main fields of activity: review of general economic developments and economic policies in member countries; trade and payments; and aid to under-developed countries. In addition, like the present OEEC, it is likely to embrace more specialized activities relating, for example, to improvement of productivity and to nuclear energy.

13. It is proposed that the Canadian Delegation should take a generally positive and con¬structive attitude towards the reorganized institution, with due regard to Canadian relations with non-participating countries and the responsibilities of existing international organizations of which Canada is a member.

14. The reorganized agency should be consultative and advisory. The resolutions or recommendations that it may adopt should not be binding upon governments. Other inter¬national organizations, including GATT and the IMF, should be associated with it as appropriate. While all of the activities should in principle be open to participation by all members, some activities already undertaken by OEEC may best be continued on a purely European basis - e.g., the European Monetary Agreement under which an existing fund is available to help members surmount balance of payments problems. An attempt should be made to eliminate existing functions of OEEC which appear obsolete or redundant.

15. Canada should be prepared to contribute to the General administrative budget on the basis of an agreed scale. Contributions towards special objectives, as in OEEC at present, should be optional.

16. Problem of Low Cost Imports - Item II(C). Both Canada and the United States have been faced by increases of imports from Japan and other low cost countries that involve injury to domestic producers and hence might warrant defensive action under escape clauses of trade agreements (GATT). However both Canada and the United States, having their broader economic and political interests in mind, have tried to avoid taking such action. Considerable reliance has been placed on Japanese export controls.

17. It appears that both Canada and the United States (particularly Canada) have been accepting more than a fair share of low cost imports. Industrialized countries of Europe have retained rigorous discriminatory restrictions against imports from Japan and other Asian countries. It would appear that the best method by which Canada and the United States could obtain relief would be to persuade European countries to be much more accommodating. The Canadian Delegation should explore with the United States side the possibilities of further action in this field.

18. Canada-United States Trade Questions. The following paragraphs relate, first to matters which the Canadian Delegation would intend to raise, and then to other matters which, according to United States officials, their Delegation is intending to raise.

19. Oil. The Canadian Delegation should refer to the recommendations of the Second Report of the Borden Commission¹¹⁹ that the oil industry take vigorous and imaginative action very substantially to enlarge its markets. The Canadian Government believes that it is essential to the health of the Canadian oil industry that exports should increase. The Delegation should make it clear that Canada assumes that whatever success may attend the industry's efforts to expand sales in District V and in the Detroit-Chicago area would not call into question the existing United States exemption.

20. Energy. The Canadian Delegation might tell the United States Delegation about the establishment of the National Energy Board. They should indicate that it would be desirable to make appropriate arrangements for the exchange of information between the Board and the United States Federal Power Commission concerning decisions taken by either agency affecting the international movement of natural gas or electricity.

21. U.S. Restrictions on Agricultural Imports. The United States Tariff Commission has been investigating, at the President's request, whether the present quotas on Italian and Dutch cheeses could be enlarged. This enquiry does not cover cheddar cheese which is our main cheese export. If the United States Delegation raise questions regarding Canadian restrictions on dairy products, Canadian Ministers should urge that in the light of the general improvement of the position of the United States dairy industry, greater access should now be accorded to Canadian cheddar cheese.

22. Canadian Ministers should also query the need for the United States to maintain its very broad waiver from its GATT obligations in the field of agriculture.

23. United States Subsidy on Cotton Products. The United States maintains a subsidy on raw cotton exports. This is not available to domestic users of raw cotton in the United States. Instead a subsidy of equivalent effect is paid on exports of cotton products to compensate for the fact that United States manufacturers unlike their foreign competitors do not benefit from the subsidy on raw cotton. The subsidy on cotton products has the effect of giving United States producers and exporters a special incentive to expand their sales to Canada, and leads to some evasion of the Canadian anti-dumping law. Following complaints from the Canadian industry, the Canadian Government last autumn asked the United States to remove the subsidy on cotton products. Consultations took place in which the United States held out no hope that it would remove or substantially modify the subsidy. In the meantime the pressure from the Canadian industry has eased.

24. The Canadian Delegation should remind the United States side of the difficulties this export subsidy continues to create for us. (This would keep the matter open so that it may be pursued on a future occasion if this becomes necessary.)

25. Lead and Zinc. Ministers should register concern (as in the past) about the restrictions the United States still maintains on lead and zinc imports and urge that these be removed as soon as possible and not replaced by other forms of protection.

26. Uranium. Ministers should enquire whether there has been any change in the uranium outlook in the United States which would improve the prospects of sales of Canadian uranium to that market.

27. Surplus Disposal. While the Canadian side might express some appreciation of the efforts the United States has made since the last meeting of the Joint Committee to take our interests into account in planning barter transactions, they should point out that surplus disposal activity continues to be a source of difficulty in our trade relations. They should stress the continuing need for close consultation on all aspects of surplus disposal and also the need for policies aimed at avoiding the creation of surplus which give rise to these problems.

28. Valuation for Duty - Fresh Fruits and Vegetables. Section 40A 7(b) of the Customs Act sets out circumstances under which the Minister of National Revenue may declare values for duty of fresh fruits and vegetables when the market price in the exporting country has fallen below its normal level due to the advance of the season or marketing period. This section does not come into force until proclaimed. Consideration is now being given to the possibility of proclamation. At the last meeting of the Canada-United States Committee the United States Delegation sought and were given assurances that they would be consulted in connection with proclamation.

29. Canadian Agricultural Restrictions. The United States side may ask why it is necessary to maintain import restrictions on (a) dry skimmed milk, where price support has been discontinued, and (b) turkeys where very little of the quota allocated to the United States in 1959 was used.¹²⁰ If these questions are raised the Canadian side should indicate that these restrictions are kept under review in the light of changing circumstances.

30. Canadian User Charge for North Atlantic Air Route Facilities. Canadian Ministers should resist firmly any suggestion that Canada should withdraw this user charge, which has had to be instituted to defray some of the very heavy cost of maintaining air route facilities in Canada for aircraft flying the North Atlantic.

31. It is recommended that Cabinet confirm the foregoing instructions to the Canadian Delegation.

DONALD M. FLEMING