The meetings in Washington will begin at 11.30 a.m. on January 6 in the State Department. The following will be in attendance on the United States side:
Mr. Dillon, who is Acting Secretary of State in Mr. Herter’s absence
Mr. Anderson, Secretary of the Treasury
Mr. Upton, Under-Secretary of the Treasury
Mr. Tuthill, Director of European Regional Affairs, Department of State
Mr. Leddy, Special Assistant to Mr. Dillon
Mr. Armstrong, Economic Counsellor, United States Embassy, Ottawa.
Mr. Anderson will attend for the first part of the morning meeting. At the end of the morning meeting there will be a luncheon offered by Mr. Dillon, which Mr. Anderson will not be able to attend. He has, however, indicated that he would like to receive Mr. Fleming between 2.30 and 3.00 in his own office. It is expected that the meetings with Mr. Dillon would be reconvened in the afternoon and be concluded in time for the party to return to Ottawa by dinner time.

2. Attached for your information is a paper briefly outlining the background to the United States initiative and the latest version of the proposal which we understand Mr. Dillon will put before Canadian Ministers during the meeting.

3. There is also attached a copy of a background paper concerning the principles involved in any consultation on aid to the under-developed countries.

[PIÈCE JOINTE 1/ENCLOSURE 1]
Note
Memorandum

Confidential

Ottawa, January 5, 1960

UNITED STATES PROPOSALS FOR ECONOMIC CONSULTATION

The Paris meeting will include most but not all of the Western European OEEC countries (including Switzerland and Sweden, who are not members of NATO), a representative of the EEC Commission, the United Kingdom, the United States and Canada. The United States has rejected a Canadian suggestion that Wyndham White, the Executive Secretary of GATT, be invited, although they have suggested that Canada might be responsible for liaison with GATT and that this be mentioned in the Communiqué after the Paris talks. Australia and New Zealand have also received a negative reaction to their suggestion that they be associated with the Paris talks. Mr. Dillon will attend and we understand that the United States will encourage other countries to be represented at the ministerial level. It is expected that Canada will receive an invitation formally from France, as the host, within the next few days.

2. The United States initiative at the present time covers the need for consultation on both aid and trade. While these are inter-related questions, particularly in so far as policies towards low cost imports, stabilization of commodity prices, etc., form an important element in helping the under-developed countries, the factors affecting the organizational aspects for consultation on aid are quite different from those affecting trade, and are being dealt with in a separate paper.

3. The United States initiative has developed hastily following immediately on a quick trip of the European capÉtats by Mr. Dillon, and there may still be differences of approach yet to be resolved in Washington between the State Department and the Treasury. The Dillon initiative which began as an attempt to ensure that United States trade interests did not suffer through any special preferential arrangements which might be set up between the Six and the Seven, (particularly at a moment when there is some concern in the United States over the trend of the balance of payments), and an effort to persuade Western European countries to assume a larger share of aid, has now been blended with a desire to focus high-level attention on the political problems inherent for NATO in the creation of the Six and the Seven. An important factor will be the United States assessment of United Kingdom interest, which until now has been to regain its political and commercial leadership in Europe through linking the Six to the Seven, and how this can be reconciled with their concern that an association of the two groups might lead to new preferential discrimination against North American exports.

4. United States intentions are still imprecise but we have been informed that Mr. Dillon may suggest that the meeting in Paris agree on the following procedures:

(a) A committee of the Paris participants be set up at the official level to discuss trade questions and particularly matters affecting the Six and the Seven — the United States would presumably press for acceptance by the others that the 1960 tariff conference provided useful machinery for reducing differences between the two blocs.

(b) A smaller committee of aid donor countries (including Japan, who would not be a participant at the first Paris meeting, and excluding Benelux at the latter’s suggestion) might be constituted to review questions of economic development and aid to the under-developed countries. This group would not make specific recommendations on burden-sharing but would review the existing aid operations, e.g., the International Bank, the Colombo Plan, etc.

(c) The Ministers should appoint a committee of three or four “wise men” to study whether a new consultative organization was warranted and what would be its functions. The “wise men” committee would be composed of representatives from the United States, the United Kingdom, and a candidate acceptable to France and Germany. A neutral might also be included. The names of Burgess, Plowden and Marjolin have been tentatively mentioned. The “wise men” would report independently to all 20 OEEC countries. If they recommend that a new organization be set up or that OEEC be reorganized to deal with these matters, a meeting of the 20 OEEC governments at the official level would be convened to draft a charter. These proposals would then be submitted to governments for approval and such organization as emerged would take over the consultative functions of the two committees described above.

5. We understand from reports from the Embassy in Washington that the United States thinking has been proceeding rapidly over the holidays and that Mr. Dillon should be in a position to develop these and other ideas more fully with Canadian Ministers on January 6.

[PIÈCE JOINTE 2/ENCLOSURE 2]
Note
Memorandum

Confidential

Ottawa, January 4, 1960

CONSULTATION ON AID TO UNDERDEVELOPED COUNTRIES

The United States, in the course of its recent initiative on economic co-operation in the North Atlantic area, has been advocating some form of continuing consultation, or perhaps coordination, in the field of aid to underdeveloped countries.¹ It is by no means clear what the precise intentions of the United States Government are or the extent to which the other Big Four Governments support them. Some crystallization of United States ideas will presumably have taken place by the time of the consultations which are to precede the January 14th Ministerial Meeting of the OEEC and we may then be faced with definite proposals. At this stage we might at least try to identify the policy questions that will arise for Canada if proposals are made for new initiatives, in a North Atlantic context, on aid to underdeveloped countries.

A variety of possible forms of consultation on aid have been mentioned. They include:

(a) continuing informal consultation, without setting up any new institutional framework;

(b) the establishment of a committee of “wise men” to make recommendations for further action;

(c) utilization of existing regional institutions (OEEC or NATO) for consultation and perhaps co-ordination;

(d) creation of a new institution on a North Atlantic regional basis or with wider membership;

The pattern of Canadian external assistance up to the present has been to extend most of our aid to Commonwealth countries through the Colombo Plan but to make substantial contributions as well to United Nations programmes and organizations. Any of these new approaches raises questions for Canada of the probable effects on our own aid programmes and also of the effect on the total volume of external aid available to underdeveloped countries as a whole. If we are to be invited, as appears likely, to participate in new collective activity of some kind in this field we must weigh the possibility that our freedom of action may be circumscribed or that we may be subjected to undesirable pressures to alter the pattern of our aid. We must also consider whether the proposals would in fact serve to increase or make more effective the aid actually available for development purposes.

A major concern on the part of the United States in the past few months has been to encourage European countries to increase their aid to underdeveloped countries. Undoubtedly one of the objectives the United States has in mind is that consultations on aid will provide an opportunity for further pressure in this direction. We too believe that Europe, especially Germany, can and should make a greater effort but it does not automatically follow that formal consultations on aid, or new institutional arrangements are necessary to achieve this end. It should be possible to spur the Europeans within the framework of existing institutions or simply through bilateral discussion. On the other hand, if the Europeans themselves desire to take collective action on aid to underdeveloped countries is it necessary that the United States and Canada be direct participants. We are already extending aid on a scale substantially greater than most European countries.

We should not assume without question that consultation in the field of aid is desirable. Nevertheless there are reasons why consultation on aid should not be too lightly dismissed. One consideration for Canada is that we should not give the appearance of dragging our feet in an operation which was publicly proclaimed in the 4-Power communiqué of December [21],² and which has acquired substantial momentum. We have established ourselves as persistent advocates of political consultation in NATO and while there is, in fact, no real analogy between consultation in that sense and consultation on aid to underdeveloped countries, the distinction may not be readily apparent to the public.

There can be no question that there is need for a much greater total volume of effective aid. It may well be that the time has come to impart a fresh impetus to the aid programmes of the Western world and that the over-riding question is how best we can carry out the “push.” If this is the prime objective of the proposals that are now in the air, we should treat cautiously any suggestion for new institutions. There are enough institutions in this field already to absorb all the resources that are likely to be made available in the foreseeable future and multiplying the number of aid-giving organizations does not necessarily multiply the quantity of aid. It may only spread it more thinly. We should avoid creating new institutions if existing ones can do the job.

The “fresh impetus” approach would seem to call, not for continuing consultation, but for a one-time operation carried out with a good deal of publicity. Ministers of all the Atlantic countries might meet specifically to discuss aid and issue a general pledge to devote substantial resources to aiding underdeveloped countries. Or the Ministers might commission a small, representative group of outstanding individuals to survey the field and make recommendations for further action, if any. This sort of exercise would present fewer problems for Canada’s own aid programmes than a continuing process of consultation. The International Bank is already engaged in something of this kind. Its President, Mr. Black, recently asked Sir Oliver Franks, Herr Abs and Mr. Joseph Dodge to undertake a survey mission to South Asia. Their terms of reference are restricted, however, and unless they could be broadened by agreement with the Bank it would be necessary to appoint another group with different terms of reference.

If institutional arrangements for consultation on aid are thought necessary, the choice hinges to a considerable degree on the reasons why it is thought desirable to consult, and the degree of coordination that is aimed at. As already mentioned, these points are by no means clear at present. But some factors bearing on the suitability of alternative institutions as vehicles for consultation in this field ought to be borne in mind. One important question is whether any institution confined to the North Atlantic area is broad enough. While it is true that nearly all the countries in a position to extend aid are in the Atlantic region, Japan, Australia and New Zealand are not and they deserve consideration. Some means might, however, be found to associate them with an organization based on the Atlantic community.

There is also the question whether it is desirable to consult about aid to underdeveloped countries without taking account of the views of the underdeveloped countries themselves. It may be argued that there exists in the United Nations an institutional framework for one kind of consultation between donors and recipients of aid and that what is now contemplated is a different kind of consultation. The underdeveloped countries may, however, regard North Atlantic consultation on a subject so vital to their interests with some apprehension and their attitudes are an important consideration. The presentation of aid is a matter of no less significance than its content. If it is impractical to associate any underdeveloped countries with the proposed consultations it would seem desirable to explain to the more important of them what is contemplated and to endeavour to allay any misgivings they might harbour.

If we were to join with the Europeans in some form of continuing consultation on aid we would in all probability be subjected to a degree of pressure to extend aid to countries which are thought by other members of the group to warrant special attention. Greece and Turkey have already given notice that they will continue to seek to establish the principle that they, the poorer members of NATO, should have first claim on aid from other North Atlantic countries. In the light of our special concern for Commonwealth countries and the size of our contributions to multilateral programmes we have so far avoided committing ourselves to economic aid to Greece and Turkey but we will have to face this question in any new North Atlantic discussion on aid.

This is one specific example of the pressures on our own aid programmes that are inherent in participation in almost any form of consultation on aid. If consultation consists of anything more than a mere exchange of information it implies some willingness to modify national policies and it is for consideration whether it would be in Canada’s interest to limit our present degree of flexibility in this field. It remains to be seen whether the United States would in fact be prepared to adapt its policies to a co-ordinated Western aid programme and on the evidence so far available it is doubtful that she would be willing to do so. In fact it has not been convincingly demonstrated that co-ordination of aid programmes is either possible or desirable.

Canada has resisted in the past suggestions that aid be co-ordinated under the aegis of NATO, on the ground that it is a purely regional alliance and in the eyes of many under­developed countries it is a suspect organization. It is to be hoped that this idea will not be revived.

In examining the advantages or disadvantages of OEEC as a possible forum for con­sultation on aid some account must be taken of the fact that the trade policies of the indus­trially advanced nations of the North Atlantic area are as important a factor in the economic progress of underdeveloped areas as direct forms of aid. There is evidence that many of the European countries are concerned to use the new economic institutions that are being constructed in Europe to protect themselves against competition from low-cost producers and manufacturers in the Afro-Asian world. This aspect of the situation might weigh against the use of a regional organization like OEEC and in favour of a more broadly based institution. On the other hand OEEC is already in existence with a potential for adaptation to a new role.

When decisions are taken on Canadian policy toward these various proposals our interests in trade and aid will have to be weighed jointly. On the other hand, although trade and aid are inter-related the same approach is not necessarily appropriate to both sets of problems, despite their juxtaposition in the United States initiative on economic co-operation. Consultations on trade in a North Atlantic context may prove to be more or less advantageous to Canada than consultation on aid. There is some evidence of a tendency on the part of the United States to go ahead with consultation on aid to underdeveloped countries regardless of what happens to the rest of its proposals for North Atlantic economic co-operation.

¹ Voir volume 26, chapitre V, 4e partie./See Volume 26, Chapter V, Part 4.

² Voir/See “Special Communiqué on Economic Situation,” Department of State Bulletin, Vol. XLII, No. 1072 (January 11,1960) p. 43.