With reference to the draft Wheat Agreement.† circulated yesterday?' I have been requested by Dr. G.F. Wilson, Director of the Wheat and Grain Division, Department of Trade and Commerce, to circulate the attached memorandum embodying his comments on the draft Wheat Agreement.

A.P. WHEELOCK

[PIÈCE JOINTE/ENCLOSURE]

Note du directeur de la Direction du blé et des grains
du ministre du Commerce

Memorandum by Director of Wheat and Grain Division,
Department of Trade and Commerce

[Ottawa], February 4, 1947

RE DRAFT WHEAT AGREEMENT

1. As the Preface states, the Draft as such:

Has not committed Governments in any way;

Is intended to assist Governments in preparing instructions for their delegations around a common basis;

Is intended to serve as an annotated agenda for the forthcoming International Wheat Conference.

2. The form of an international wheat agreement envisaged in the draft provides a balance of interest between wheat exporting and wheat importing countries. This balance is evident in the substantive articles including

Prices: $1.25 — $1.55 range;

Stocks: participating by importing countries as well as exporting countries in the carrying of reserve stocks in quantities to be agreed. Importing countries, however, are contemplated to carry reserve stocks of imported wheat only beyond the Export Programs and Basic Import Requirements: export programming both in periods of scarcity and surplus, with emphasis on equitable management of export supplies and equitable distribution of import requirements, and avoidance of restrictive measures except as an extreme resort;

Production: production or marketing management in exporting countries to conform with maximum stock provisions. Assurance by importing countries that whatever production policies they pursue, such policies will not reduce the basic import requirements each importing country agrees to take each crop year throughout the agreement.

In the preparation of the draft, the Council gave full consideration to the Final Report of the F.A.O. Preparatory Commission and to the I.T.O. Draft Charter. The principles of these documents are embodied in the draft, except in a few instances where the principles could not be practicably implemented.

Major Issues Likely to Develop in the Conference

Duration of Price Range. The Governments of a few importing countries have asked that the $1.25 — $1.55 price range remain in effect for three years only. The Canadian delegate and those of several other countries have recommended the $1.25 — $1.55 for four years. The United States favours the range for five years.

Paragraph 3 of Article IV provides for mandatory review of the agreement six months prior to the end of the third year. If this provision stands a compromise might be reached on a four year price range with review before the end of the third year.

An alternative would be to fix the range (presumably at a lower level) in the fourth and fifth years, and in this connection the United States Delegate has suggested $1.25 — $1.80 for the first three years, and $1.00 — $1.55 for the last two years.

It would appear preferable to leave the prices in the last two years open, with possibility of either upward or downward revision at the end of three years, rather than determining the distant range now.

Argentine Participation. To date the Argentine Delegate has indicated that his government will send a delegation to the conference, but has not indicated that his government is prepared to he a signatory to an agreement commencing August 1 next.

The present position of the United Kingdom government is that it will sign an agreement if all four major exporting countries (Argentina, Australia, Canada and the United States) are signatories.

The draft is drawn up in a way which would provide for practical operation (i) whether all substantial exporters and importers are signatories; or (ii) whether a country such as Argentina remains outside the agreement.

This issue is covered (i) by making the commitments binding on transactions between signatory exporters and signatory importers only; and (ii) by drafting Article IX (Basic Import Requirements) in such a way that the import commitments by the signatory importing countries can be agreed upward or downward depending on whether Argentina is a signatory or not.

Although Argentine domestic fiscal policy is quite inconsistent with participation in an international wheat agreement, the fact that all substantial importing countries have shown a decided interest in an agreement may compel Argentina to give way on its fiscal policy and adhere to the agreement. This issue can only be clarified in the conference. A suggested policy for the Canadian Government would be to encourage Argentine adherence, but failing that, to urge that the agreement be entered into with due allowances for Argentine trade outside the agreement.

Export Programs. The United States delegation has served notice of its dissatisfaction with a basic export program of 16 per cent as agreed under the 1942 Wheat Agreement. Its delegation has not stated, however, what basic export percentage the United States is seeking, and this will be revealed only at the Conference.

The present draft follows the 1942 Wheat Agreement in providing Argentina 25, Australia 19, Canada 40 and the United States 16 per cent of the first 500 million bushels of the total share of the four major exporting countries in the international trade in wheat annually.

Following this the Council is instructed to set export programs for signatory exporting countries other than the big four exporters, and to make allowance for the export trade of any non-signatory exporters. For example, these provisions might be amply met by an additional 50 millions to the initial 500 million bushels. Should the total international trade be estimated at 750 million bushels, however, this would leave the Council free to allocate a balance of 200 million bushels, based on prevailing supply conditions, among Argentina, Australia, Canada and the United States.

When these provisions were made in the draft, the United States delegate made no comment. They may satisfy the United States, but its position is reserved for discussion in the conference.

It is suggested that the Canadian government support these provisions.

Sales at Special Prices. These proposals originated in the F.A.O. Preparatory Commission. Briefly, they provide the United States or any other exporter an opportunity of producing in excess of its maximum stock limits and disposing of the excess, below the floor price, to countries such as India or China for use in approved nutritional programs.

The United Kingdom Delegate was under instructions (about which he was personally unhappy) to insist on the insertion of:

"The sale of wheat at special prices (below the floor) on a substantial scale for any considerable length of time is prima-facie evidence that the floor price in the case of that country (or countries) is too high ...

No other delegate agreed with this insertion. The United States Delegate said he would prefer to have the whole provision for sales at special prices dropped rather than agreeing to the above insertion.

From the Council discussions it appeared that the United States and India were the only two countries actively interested in making provision for sales at special prices.

5. Procedure

It is recommended, that apart from consideration of the broad issues referred to above, the Sub-Committee on External Trade refer the draft to a further sub-committee for detailed consideration and reference back to the Sub-Committee. The Sub-Committee should then report to the Cabinet Committee on External Trade for the purpose of obtaining cabinet instructions to the Canadian Delegation to be appointed to attend the conference.

The Sub-Committee may also wish to consider the general nature of delegation which should be appointed.

C.F. WILSON