On September 19 the General Committee of the United Nations approved the inscription of an item proposed by the Secretary-General on the clearance of the Suez Canal and further recommended that it be considered in plenary. The date on which the item will come up for consideration will, of course, depend upon the speed with which the preceding agenda items are disposed of, but I do not think that we should lose any time in determining what our stand is to be on the main question to be considered - the means by which the cash contributing nations are to be reimbursed. As you know, Canada contributed $1,044,045.00 (U.S.).

2. I attach memorandum [sic] on three separate but interrelated aspects of this issue, the most important of which is that setting forth in detail a proposal for the repayment of the cash advances on which a decision is now necessary. We understand the proposal has the support of 8 of the contributing nations and is acceptable to the Secretary-General. As it involves no additional disbursement of funds on the part of Canada, and provides for a phased reimbursement in full of our cash advance, you may feel that you can instruct the Delegation to support it without having to take the matter to Cabinet. You may wish, however, to discuss it with the Prime Minister who has taken considerable interest in this subject during the summer.

3. The remaining two enclosures,? on dredging and the use of the Anglo-French ships, are included in case you should wish to examine in greater detail two of the main issues which may arise in connection with the Assembly's consideration of the repayment scheme. The Delegation will of course be instructed to seek further guidance from the Department should difficulties arise on either of these issues.

J. L[éACUTE;GER]

[PIÈCE JOINTE/ENCLOSURE]

Note

Memorandum

Confidential

[Ottawa], October 4, 1957

SUEZ CANAL: REPAYMENT OF ADVANCES

In a note of January 17, 1957,⁴⁷the permanent representative of Canada to the United Nations informed the Secretary-General that the Government of Canada was prepared to advance up to $1 million in response to the Secretary-General's appeal for interim funds to meet the current costs involved in the initial work of clearing the Suez Canal. It was the understanding of the Canadian Government at that time that the funds being advanced were intended exclusively for the purpose of interim financing of canal clearance operations and that the interim advance would be repaid as soon as funds became available under a "general financing programme" to be arranged by the Secretary- General. The "general financing programme" referred to, envisaged the provision, under arrangements which had not been worked out at that time, of funds estimated variously from $30 to $40 million to finance the complete rehabilitation and operation of the canal after its first clearance had been completed. The cost of complete clearance and restoration of the waterway itself was estimated at from $20 to $30 million. The Secretary-General's immediate objective in seeking interim funds was to secure from $10 to $15 million to get the canal clearance started with the least possible delay. In response to the Secretary-General's appeal, the following amounts (in United States dollars) were provided by the countries shown:

2. The actual cost of clearance has been considerably less than expected, indeed, less than the amount of funds contributed. Accordingly, no general financing arrangements have been found necessary, the problem being simply to devise a scheme for repaying the advances. The total cost of clearance as it will appear in the Secretary-General's accounts will amount to $8.35 million. On the face of it, this would involve simply refunding the balance in the clearance fund (approximately $2.85 million) to the cash contributors and raising through appropriate means the balance then owing to the cash contributors. However, the Secretary-General's accounts include three items which may be disputed as legitimate costs:

1. $250,000 for post-clearance dredging;
2. $200,000 in reserve, because, inter alia, the figure for dredging costs is not yet finally determined; and,
3. $500,000 for United Kingdom and French claims for salvage services rendered during the United Nations clearing operation.

3. Leaving aside the question of these potentially controversial items, the Secretary-General and representatives of interested governments have considered four main schemes for discharging the United Nations responsibility for the cost of canal clearance:

1. a waiver by the cash contributors;
2. a general assessment of the members of the United Nations;
3. the creation of a fund through voluntary contributions; and,
4. a surcharge on ordinary canal tolls.

The conclusion has been that the last method is open to fewer practical objections than the others and has the added advantage that over a period of time the cost of canal clearance will be distributed more equitably among those who have benefited from the canal's early clearance.

THE SURCHARGE SCHEME

4. The two difficulties which attend the adoption by the United Nations of a surcharge scheme are,

1. on both political and legal grounds, it is regarded as impossible to make the surcharge system compulsory; and,
2. a voluntary surcharge system will require the co-operation of a large number of states with conflicting and often emotional attitudes towards the canal.

5. The Soviet bloc's co-operation can be discounted from the start, but in addition, there is likely to be substantial opposition to any United Nations scheme that is intended to reimburse the United Kingdom and French governments for their services. These governments did furnish salvage services during the United Nations canal clearing operation, with United Nations agreement but not at the request of the Secretary-General, and they now insist, for reasons of domestic prestige, that these claims must be satisfied, if they are to lend their support to any surcharge plan. On the other hand, no surcharge plan can succeed without their co-operation since the United Kingdom alone controls shipping that accounts for 40 per cent of Suez Canal toll revenues.

6. The Secretary-General has refused to recognize that he has any authority to pay these Anglo-French claims and therefore intends to refer them to the General Assembly. In recognition of the undesirability of exciting possible criticism of the Anglo-French position, the United Kingdom and United States authorities and the Secretary-General have therefore agreed, subject, so far as the Secretary-General is concerned, to the general concurrence of the cash contributing governments, that the following method of repaying cash contributors and satisfying the Anglo-French claims should be adopted:

(1) The Secretary-General, in consultation with the British and French Governments, would evaluate the clearance work which had been performed under United Nations auspices. The Secretary-General would include the resulting figure as an item in the Suez Canal clearing cost account to be submitted as part of his report to the General Assembly, presumably at the time when the Secretary-General would request approval of such a report and would recommend that the sums advanced toward clearing the canal be repaid by means of a surcharge arrangement.

(2) The Secretary-General would make it clear that a distinction must be made between clearing work on the Suez Canal, carried out independently of the United Nations and such work done under the auspices of the United Nations, and that only items in the latter category are included in his canal clearing cost account.

(3) The British and French claims, as evaluated by the Secretary-General, would figure as a firm obligation in the clearing cost account (and could thus be more properly considered as invoices which the United Nations is obligated to pay). The actual payments, however, would be identically timed with and identically proportionate to payment to the cash contributors from the uncommitted cash balance and from the surcharge revenues. No surcharge revenues would thus be required for direct payment to the U.K. or France, though a full synchronization of their payments with the payments to the cash contributors would exist.

(4) On their part, the U.K. and France would lend their full support to the surcharge plan and would extend their best efforts to obtain the cooperation of shipping interests with such a plan.

The Secretary-General believes that there is a reasonable prospect of obtaining support for this scheme from important countries concerned such as Egypt and India.

7. Despite the shortcomings of the proposed surcharge scheme, which will in fact be voluntary (although this will be played down in public explanations of it) and which may not prove to be acceptable in its present form to a number of members of the United Nations, eight of the eleven cash contributing governments, including the United States of America, have already agreed or given an indication that they consider the scheme worth trying. The main arguments for this conclusion are that, if a means for securing repayment of advances is not found at the twelfth session of the General Assembly, there will be little prospect of doing so at subsequent sessions; and that, since the United Kingdom shipping interests will pay such a large part of the surcharge revenues, the risk of a failure of the surcharge scheme because of insufficient support in the General Assembly must be balanced against the need for United Kingdom cooperation in making the surcharge system effective.

8. It is recommended that the scheme proposed by the United States and accepted by the United Kingdom and the Secretary-General should be approved on behalf of Canada and that instructions to that effect be issued to the Canadian Delegation to the twelfth session of the General Assembly.

⁴⁷Voir/See Volume 22, Document 228.