The military plans of the twelve North Atlantic countries call for increasing expenditures of money and increasing use of resources for defence. The objective is a common one but the countries differ in their abilities to provide men, equipment and supplies. Both Canada and the United States are relatively well placed to contribute some equipment without charge to other NATO countries in order that the common burden may be shared more equitably.

2. It is now proposed that a study should be made by officials of the twelve countries in order to assist in the process of burden-sharing. All the NATO countries have agreed to this study except Canada. The Canadian representatives have told the others that Canada is willing for them to proceed, and that Canada will supply factual material, but that Canadians may not take any part in the study without government authority.

3. The proposed study falls into two parts. Canadian officials are generally agreed that one part is satisfactory and the other is not. The satisfactory part of the study involves the pooling of certain past statistics and certain estimates for the coming year; these would relate to defence expenditures and how they affect national production, trade, budgetary position, etc. The unsatisfactory part of the study is more extensive statistically and appears to include matters which are political in nature rather than economic; it includes a survey of the capacity of each country to devote resources to defence and a report on what factors are to be considered important in assessing a country's ability to share in this common burden.

4. In several meetings Canadian representatives have objected to and opposed the undertaking of the second part of the study. They have pointed out that the obstacle to increased defence expenditures in all countries concerned is not only economic capacity but political willingness and capacity. However our representatives have not been able to make a single convert to their views. A question has therefore arisen whether, instead of accepting the majority decision, we should refuse to take part and simply supply factual material. The matter is set out in some detail, with some of the pros and cons, in an attached memorandum which has been before the senior officials of departments principally concerned (The Panel on Economic Aspects of Defence). Upon this Cabinet direction is now required.

5. I believe strongly that we should take part. We have played a leading and an honourable role in the North Atlantic Treaty; we should never stand apart from our allies except for the strongest reasons and for reasons that they will readily understand and accept. The present case, in my opinion, is not of great importance and if we alone stood aside from a burden-sharing study our motives would most surely be misunderstood.

6. The proposed study is not intended to supply all the answers to burden-sharing questions. It will only provide some sort of guide; a basis but not the only basis. It may turn out to be quite unimportant or impractical and, like so many reports, be pigeon-holed. If so, we would certainly have made a mountain out of a mole-hill. We may well have scruples about asking our officials to speak on political matters; but other countries are in exactly the same constitutional position and they do not share our scruples.

7. If the study turns out to be important and influential, what risks do we run if we take part?

(a) The most important risk, I suppose, is that the report may suggest we should set our defence sights or our mutual-aid sights uncomfortably high. If so, I believe we must face that issue when it arises. All the other countries are running the same risk.

(b) Another risk is that Canadian aid, relatively small in comparison with United States aid, may be regarded simply as a drop in the bucket. The proposed study is largely, although not solely, designed to meet United States needs; the United States administration requires a lot of ammunition to get mutual aid appropriations through Congress and the study will supply some of it. Thus Canada, and distinctive Canadian aid, might become submerged in a general operation between the United States of America and Europe and we would not get the gratitude or the credit we deserve. There is, of course, a risk here; but we are surely not very likely to retain the gratitude and esteem of our allies if we maintain our present position regarding the burden-sharing study which they apparently agree to be useful not merely in relation to United States aid but as part of the general mobilization of increasing North Atlantic resources for defence of the whole area.

8. But while there are risks if we do take part there are also risks if we do not and I believe the latter are the greater:

(a) There is the risk that we will be misunderstood. Indeed it is hardly a risk at all; it is certain that other countries will believe we' are holding back from the study because we are not prepared to foot our fair share of the bill;

(b) There is the risk, again almost a certainty, that the report will be less palatable and more embarrassing to us if we do not take part, merely supplying our factual material for .others to present as they wish;

(c) There is the risk that, if we stand aloof, all by ourselves, we will be subjected to even greater pressures than if we took a full part;

(d) There is the risk that our work and usefulness in other North Atlantic fields may be damaged. In this regard our High Commissioner in London has written as follows regarding the proposed study: "Even if the primary purpose is to facilitate United States assistance, it is surely one of substantial interest to us; not as a recipient of United States aid but as a ,country in the North Atlantic area which has an interest in the improvement of the defence of that area. In any event, if this exercise is to have some connection, however remote, with eventual political negotiations regarding the defence efforts of the various NATO countries, and if those defence efforts are in turn to affect (and be affected by) NATO military planning, it is rather hard to see how participation in this particular exercise can be separated from participation in other NATO activities of more direct interest to us."

9. Accordingly, for all these reasons, I recommend that Canadian officials be authorized to take part in the proposed study.

10. I should add that my colleague, the Minister of Finance, does not share my views.

L.B. PEARSON

[PIÈCE JOINTE/ENCLOSURE]

Note

Memorandum

[SECRET]

Ottawa, November 20, 1950 BURDEN-SHARING IN NATO

(Note: On November 14th, the Economic Defence Panel discussed a memorandum on this subject, together with some supporting papers. The present memorandum contains some revisions of the original one, and stands by itself without supporting papers.)

1. In recent weeks a number of papers have been produced in NATO on the subject of burden-sharing, notably a U.K. paper on the "philosophy" involved and a U.S. paper on the economic analysis required. The proposals fall into two parts:

The "Philosophy"

2. It is convenient to comment on part (b) first. In this field Canadian views found many supporters. The extreme U.K. views (which are said to be those of Mr. Gaitskell and which involve a conception of "sharing the wealth" that certainly goes beyond anything acceptable to the Canadian Government) were very greatly toned down. As it stands, this part is probably unobjectionable except for the word "multilateral" in para. 1 (B). Nevertheless, it is important to recognize that the U.K. attitude exists and also that the French proposed "pooling of resources" even before the British proposed "sharing the burden". The philosophy of the U.K. Government is, of course widely different from that of the U.S. Administration; but it so happens that the idea of "sharing the burden" happens to fit in, just at the moment, with the need of the Administration to convince Congress that the U.S.A. is not carrying virtually the whole burden itself.

How far are Economic Estimates Useful? - NATO Proposals and Canadian Objections

3. Part (a) consists of four paragraphs. It is the opinion of the Departments of Finance and External Affairs that the first two paragraphs are satisfactory. Under these paragraphs the background estimates needed for an approach to burden-sharing would be put together. They would be focussed on the expected impacts of defence expenditures in the year 1951-52 and would cover the following items in each country:

use of material and manpower; distribution of gross national product; budgetary and monetary position; and balance of payments.

The study would also "describe and evaluate the effectiveness of the measures being taken or proposed to deal with these impacts." It is agreed that this work would be useful.

4. The second two paragraphs of Part (a) are not considered satisfactory. Under these the study would be extended -

(i) to assess the ability of each country to devote resources to defence, (which would necessarily involve a survey of "the sources and uses of each country's aggregate economic resources");

(ii) to report on "the importance to be attached to the various considerations" involved in burden-sharing; and

(iii) to comment on the effects and practicability of different mechanisms for transferring burdens (but riot to propose the nature or amount of transfers).

5. The Departments of Finance and External Affairs agree that these proposals are unsatisfactory for the following reasons:

(i) A complete survey of each country's aggregate economic resources is a monumental task, only to be undertaken if it is really useful;

(ii) In fact, given the basic estimates outlined in para. 2 above, burden-sharing is a matter for political decision, not for estimation by "experts". In Canada (and, indeed, in the United States as well) the amount of aid provided will be guided at least as much by domestic needs and undertakings as by estimated overseas requirements. Hence the material outlined in para. 3 above is not only of doubtful usefulness but may become positively misleading and embarrassing;

(iii) While an international civil-service might make an objective study under para. 3 above, it is quite impossible to expect such a study from national representatives. No man on the group can put forward his country's position objectively; each is in duty bound to aid and protect his country as far as he can. Hence the report which emerges will not in fact provide a suitable objective basis for equitable burden-sharing.

Choices Before Canada

6. Canadian views, along the lines expressed in the preceding paragraph, have been put forward during the past two weeks in London, but with virtually no success. All the other NATO countries are ready and willing to go forward with the whole of the proposed study. Canada can participate:

(i) Fully,

(ii) Partly, or

(iii) Not at all.

7. Partial participation is really not practicable. Canada can scarcely go through the limited motions involved in para. 3 above while all the rest go through the much more extensive motions involved in paras. 3 and 4 together. Canadian representatives would be in the invidious position of supplying partial information about their own country, and approving or disapproving parts of reports, parts of chapters, parts of paragraphs, or even parts of sentences. Our representatives should not be placed in such a position. In fact, the choice lies between full participation or none at all and this choice raises more fundamental considerations than appear at first sight.

The Case AGAINST Canadian Participation

8. The chief pressure for the extensive analysis (para. 4 above) comes from the United States officials. They wish to have massive economic paraphernalia in order to support MDAA appropriations in Congress. In short, they wish to get, for MDAA purposes, the same sort of comprehensive material that they have collected in the past in Paris through OEEC for ECA appropriations. The purpose of the material is, at least supposedly, two-fold; first, to secure as large. a pie as- possible and, second, to serve as a guide in slicing the pie. (Actually, as has appeared in ECA and is emerging in MDAA, the pie is sliced in large measure on political considerations).

9. In the past Canada has been scrupulously careful to avoid being a beneficiary under lend-lease, ECA, or MDAA. Canada has taken all sorts of special precautions to avoid dependence on the U.S.A. and to avoid getting into the same boat as the U.K. and European countries. Similarly, when Canada has given aid to overseas countries it has been done independently in a pattern of our own, and not merely as a minor adjunct of U.S. aid. If we go in for the full-fledged U.S. exercise in burden-sharing are we exposing ourselves to two dangers: we may be exposed to the same pressures from the U.S. as if we were receiving U.S. aid and, at the same time, we may be expected by other countries to put in our Canadian two-cent's worth just as a slight premium on top of the American dollar.

10. Even if we do not share in this particular exercise, we should continue to share fully in the other work and the responsibilities of NATO. This exercise is one that is apparently necessary between the U.S.A. and the recipients of U.S. aid. We are involved neither as a giver nor a receiver; hence we do not take part in it.

The Case FOR Canadian Participation

11. The arguments for non-participation are strong; but the arguments for full participation are strong also. We ourselves may feel convinced that the extensive economic exercise (para. 4 above) is useless or even misleading; but, after full discussion of our views, we have not been able it) persuade a single one of our Atlantic partners to agree with us. They are all ready and willing to go ahead, and they have all had experience of this sort of exercise in the OEEC - ECA operation. We have had no experience. What basis have we for our views that it is useless or misleading; is everyone out of step but Canada? We have already made it plain that we will not accept MDAA aid; if we went forward with the exercise, along with the others, we could also make it clear that, as in the past, our own giving would not be on the same basis as the United States - indeed, in a pinch, we had always been a good deal more generous.

12. Thus our position may not be too strong in claiming that we should stay outside the exercise. But, far more important, some very undesirable results might flow from our decision to stand apart. We would appear to flout the principles of "pooling resources" or "sharing the burden" on which France and the United Kingdom have laid such stress and to which we can, at least in a limited degree, subscribe. Moreover, if the Atlantic Pact is going to work at all it will only work if individual countries are willing to accept majority decisions. Thus we are in danger of doing serious damage to the whole fabric of North Atlantic unity, a fabric which Canada has done so much to build and strengthen. And finally, and most invidiously, our motives would never be understood; we would always be suspected of willingness to play the game only as long as it did not cost too much, of unwillingness to allow our partners even to look at the rich resources that we might be devoting to the common cause. Thus we would lose the respect and confidence of other countries and, in a measure, lose our place of influence and prestige among them.