Public interest was aroused last spring by newspaper reports that the Ford Motor Company of Canada, allegedly on instructions from its United States parent company, had declined an order of cars offered by the Communist Chinese. It was widely reported at the time that this action was taken in order to conform with United States regulations which prohibit all transactions with Communist China, even by the foreign subsidiaries of United States companies. The Prime Minister and the Minister of Trade & Commerce both stated publicly that this matter would be investigated and it was, I  understand, also briefly discussed at a Cabinet meeting on April 3. Since then officials of this Department and of the Department of Trade & Commerce have been investigating the problem and the facts now appear to be fairly well established.

2. The Foreign Assets Control Regulations issued by the United States Treasury forbid trading with Communist China by United States citizens and by companies controlled in the United States; they also provide penalties for breaches of the regulations. While it is not possible to assess how genuine the alleged order for cars was and whether or not it was refused by Ford of Canada on instructions of its parent company, the Department of Trade & Commerce is satisfied that the regulations in question have had a detrimental effect on certain Canadian exports. It is also true that the United States regulations have extra-territorial effect. The practical effect of this for us depends in large measure on the extent to which there is a divergence in United States and Canadian policies with regard to trade with Communist China.

3. Several drafts of a Memorandum for Cabinet have been prepared on this subject but it has not seemed necessary to submit them until now in view of the fact that United States officials, aware of the concern of the Canadian Government, have been actively considering possible remedies. The Minister of Trade & Commerce has, of course, been kept informed of these developments. Now, however, there have been indications of some slackening of interest on the part of United States officials and the Minister of Trade & Commerce accordingly asked that a brief paper, with appropriate recommendations, be set before Cabinet. The preparation of this paper has been undertaken by the Department of Trade & Commerce on the basis of our earlier drafts and I attach, for your information, a copy of the text† which has been approved by the Minister of Trade & Commerce and will be introduced by him in Cabinet. Also attached is a supporting paper,† giving some of the details of the investigations of Canadian officials into this question; this paper will not be tabled in Cabinet but is of some interest.

4. Although the attached memorandum is not, perhaps, in quite the form which we would have recommended had we been given responsibility for its preparation, its substance and recommendation carry our judgment.[SU'66']<fn>[SU'66']Note marginale:/Marginal note: OK [Sidney Smith][ci]<efn> We think that the recommendation that our Ambassador in Washington should leave an aide mémoire with the State Department and also provide certain supplementary information verbally, will be useful in maintaining United States impetus behind action designed to find a solution to this problem.

5. It has not been decided when this matter will be discussed by Cabinet but I think that it would be desirable that it receive attention in the near future, if possible. This would permit our Ambassador to take whatever action may be decided well in advance of the visit of President Eisenhower and Mr.  Dulles to Ottawa. Even if this matter is not discussed during their visit, there may be renewed public interest in the question at that time.⁶⁷[SU'67']<fn>[SU'67'][ci]<efn>

J. L[éger]

⁶⁷Note marginale:/Marginal note:
Mr. Couillard: We hope the enclosure will be discussed soon by Cabinet. K[LAUS] G[OLDSCHLAG] 23/6