This morning I attended a meeting at 11 o'clock in the office of the Deputy Minister of Finance to discuss with Mr.s' Jacob, Secretary-General of the Netherlands Ministry of Finance, certain problems which Mrs Jacob has come to Canada to raise with the appropriate officials. Also in attendance were Mr. Bob Bryce and Mr. Sid Pollock, both of the Department of Finance. This was intended solely as a preliminary discussion to ascertain exactly the points which the Netherlands representative wished to clear.

2. After this meeting was concluded Dr. Clark asked Mr. Bryce and myself to remain behind while we considered in more detail some of the implications of these matters. Dr. Clark intends seeing Mr. Abbott late this afternoon and he felt that it might be desirable to have conversations some time tomorrow with other Cabinet Ministers concerned, including Mr. St. Laurent, in order that some policy guidance could he obtained before we meet again with Mr.s' Jacob, which is set tentatively for 3 o'clock tomorrow afternoon. Accordingly, I will set out briefly below the points at issue, as you may wish to brief Mr. St. Laurent.

(a) Netherlands Loan

Mr.s Jacob estimates that something in the neighbourhood of $85,000,000 of our total credit of $125,000,000 has been used or allocated. He was unable to give a firm figure because he has not the details of certain purchases which have been made recently from the Department of National Defence. He indicated that the Netherlands might wish an extension of the expiry date of this credit, which is April 30th, 1947, and he was told by Dr. Clark that if it was anticipated that the total amount of credit would be used up within a month or two after the end of April it would not he necessary to amend the existing agreement since the Netherlands could draw the remaining funds and deposit them in the Bank of Canada. However, if the commitment of the unexpended portion of the loan might he stretched over a period of some 6 months, it would of course he necessary for us to arrange for an extension of the existing agreement.

Mr.s Jacob stated that he might also wish to apply for an additional credit of some $50,000,000 to buy commodities such as textiles, steel, leather and caustic soda, all of which, as you know, are in extremely short supply in Canada, although our position in caustic soda has improved slightly in the past few months. I understand that it is most improbable that the Canadian Government would wish to grant any further credit at this time.

(b) Dutch Guilders

The Netherlands Government advanced to the Canadian Army guilders to he used to pay Canadian troops in Holland. Dutch guilders came hack into Army channels in a number of ways, mainly from currency exchanges when troops were being posted out of Holland and from payment of mess accounts and Auxiliary Services sources. The net result was that the Army accumulated about 48,000.000 guilders more than the amount drawn from the Dutch Government. These were made up of 41,000,000 old guilders frozen in September, 1945 and 7,000,000 new guilders which were issued after September, 1945. The latter are still legal lender in the Netherlands and could he used for purchases in that country. but this is a procedure to which the Dutch object, as they maintain that the entire amount was reeeived through black market operations. For the sanie reason they refuse to give us any credit for the 41,000,000 old guilders. If this entire amount is to he written off, it might, in my opinion, be difficult for the Minister of National Defence to explain our policy satisfactorily in the House.

It was the expressed view of Mr. Bryce that virtually all of these guilders were acquired by black market operations and might well be written off without asking the Netherlands Government to accept any liability for them. I do not entirely share this view becattse having had some slight experience at the other end on the mailer, and having seen the manner in which these guilders were acquired, examples of which I gave to Dr. Clark this morning. I submit that many of them did not come into possession of the soldiers by any illegal method. Dr. Clark indicated that he concurred in this view and did not feel that it should be a complete write-off. In reply, Bob Bryce stated that he did not think we should go further than asking to have the 7,000,000 new guilders credited to us which would be available for purchases in the Netherlands over a stated period of time, I think we should request at least this much, and although it is a matter primarily for the Department of National Defence, I feel that we could similarly justify a claim for credit on a proportion of the old guilders.

Before any firm decision is reached on this point, we should consider the fact that we are also claiming a sum for military relief which I refer to below and which the Dutch are also to some extent resisting. There will of course be a ceiling on the amount which we can collect from the Dutch, and it may he that our claim under military relief can be advanced on firmer ground than our claim for the payment of the guilder account.

(c) Military Relief

As you know, supplies of clothing, food, etc. were issued to civilians in Holland through the Civil Affairs organizations of the Army, and although it is not possible to identify the percentage of the Canadian contribution to the central pool which in fact found its way into Holland, we are entitled to a percentage of the collections from the Northwest Europe countries. The exact figure of our percentage has not yet been agreed upon but is still under discussion in the meetings which have been going on over a prolonged period in Washington. It is reasonably safe to assume that Canada's proportion of these collections will be in the neighbourhood of 5%, and according to the calculations of the Department of Finance 5% of the total billings submitted to the Netherlands Government by the Combined Military Authorities. will amount to approximately $14,000,000.

The United States have written off their military relief claim against the Netherlands as part of their general war settlement claims. The United Kingdom has given no indication of its intention to write off its proportion and apparently intends to try to collect. Some time ago we received a formal note requesting Canada to take action similar to that of the United States, but replied that we were unable to waive our claim.

The argument of the Dutch Government is that it should not have to pay for these supplies because of the hardship and suffering which its people were at that time undergoing and have since borne, and because of the difficulties which Holland is experiencing in the matter of rehabilitation. It is the view of the Department of Finance that we should he paid some Canadian dollars either on military relief or the guilder account and that it is our military relief claim we should press, as a satisfactory settlement with the Dutch will assist materially in our efforts for settlement with the other European countries.

(d) Custodial Matters

It was pointed out by Mr.s' Jacob that certain difficulties are being experienced under the procedure which has been set up for the release by the Canadian Custodian of Dutch assets in Canada. He stated that Dutch investments in Canada including dividends and accrued interest thereon amounted, he thought, to about $110,000,000. The size of this figure was something of a surprise to all of us. The investments are mainly in International Nickel, C.P.R., and certain chemical companies. This is a question which he proposes discussing this afternoon with the Assistant Deputy Custodian and it is probable that with him he will be able to iron out the existing difficulties. The present procedure, which is similar to that in effect between Canada and France, is not working particularly satisfactorily and at the present time the Custodian's office is preparing a submission to Cabinet which provides for some changes in the present procedure. I am not sure that the two complaints which Mr.s' Jacob voiced this morning are well founded because he complains (a) of delay. It is my understanding that much of the delay has been in Holland where applicants for release of their assets have had some difficulty in obtaining the application forms which have been supplied to the Dutch Government by our Custodian. It is intended that these should be distributed to those people in the Netherlands who are on a list which was prepared by our Custodian and furnished to the Netherlands Government; (h) of the difficulty in preparing the certificate of ownership which the Canadian Custodian requires. This document must certify particulars of ownership and the bona fides of the applicant declaring that no belligerent enemy interest is involved. Here again there have been instances where the applicants have experienced great delay in obtaining this certificate from their Government. Mr.s' Jacob said that the preparation of the certificate created considerable work because it was found necessary to trace the title of ownership back to 1939. Although such a practice was never contemplated by our Custodian, it is possible that such a search is necessary to enable the Dutch Government to certify that no enemy interests are involved. However, these are technical matters which I think can be best solved between Mr.s Jacob and Mr. Mathieu⁶ and we will he brought in only if some differences of opinion arise on the overall plan.

Mr.s' Jacob touched on the possible necessity of Dutch investors having to sell their holdings in Canada after the release of the Custodian had been obtained. I do not think this would produce any problem for us, as under the existing foreign exchange regulations they would he unable to withdraw the proceeds from Canada. The sales might be carried out on the New York market, however, which would produce some undesirable results, which is a matter of more particular concern to the Department of Finance and the Foreign Exchange Control Board.

(e) Dollar Balances

There has been correspondence with the Dutch on the question of releasing cash balances in our respective countries for the purchase of goods and commodities in the one country for export to the other. This would be an extension to the Netherlands of the plan which is now in operation with the French and is a matter which may come up in tomorrow's discussions. I think the Department of Finance may resist permitting the Dutch to use their dollar balances in Canada for the purchase of commodities for export to the Netherlands unless we can arrive at some satisfactory solution of reimbursement under military relief and/or the guilder account.

H.O. MORAN

⁶A.H. Mathieu, séquestre suppléant adjoint. A.H. Mathieu, Assistant Deputy Custodian.