I. St. Lawrence Waterway

After the President's lunch for the Prime Minister at Blair House the President invited Mr. St. Laurent, Mr. Acheson, Mr. Steinhardt and Mr. Wrong to remain for a discussion. He began by saying that the Prime Minister had mentioned the St. Lawrence project to him at luncheon and had said that unless the joint projects for power and navigation were approved this year the Canadian Government would, because of a need for power in Canada, have to back the separate power proposal on the lines put forward by Ontario and New York. The Prime Minister emphasized the need for power in Ontario and referred to the possible development in the Lachine section of I/a million horsepower provided the waterway went through. The whole project, he thought, would have a very beneficial effect on the future relations of the two countries, because there was no serious question of anybody giving up anything and it constituted a great addition to the productive resources of them both.

The President remarked that he had gone into the matter very fully when he was first elected to the Senate and had never wavered from his conclusion that the whole project should be completed. He could not understand the attitude of a num­ber of mid‑western Senators who had opposed its approval, although he could see why Senators from the Atlantic seaboard took a different line. He indicated that he hoped that the present Congress would act favourably, but did not commit himself as to the action which he proposed to take to encourage its approval or whether he would support the separate power project if Congress failed to approve the 1941 agreement. He remarked on this that the separate project could only be constructed with the consent of the Federal Government.

Mr. St. Laurent commented on the diminution of opposition in the Province of Quebec. The President said that the chances in Congress looked better than Nth­erto, although the railway companies and unions continued to be strongly opposed.

II. Commercial Questions

The President cordially agreed with the remark by the Prime Minister that it would be in the interests of the two countries that trade should be as free from restriction as possible. He emphasized, however, the need for proceeding by stages so that the public would be satisfied that no serious damage was inflicted on the economy of either country by successive advances. There was no discussion of the way in which tariff barriers could be reduced in the near future. Mr. St. Laurent mentioned the great prospects of development of national resources in Canada, with particular reference to oil production and increased use of domestic coal, which would go a long way towards rectifying the normal Canadian adverse bal­ance of payments with the United States. The President said that he had recently received information on the prospects of oil development between the Canadian border and the Arctic Ocean, including an optimistic account of the possibilities of finding a large new pool in Alaska.

The Prime Minister brought up the problems of Canadian military procurement in the United States. He emphasized the economy, and indeed necessity, of the purchase by Canada in the United States of substantial quantities of equipment which it would be uneconomic to seek to manufacture in small quantities in Can­ada. He pointed out, however, that this would necessitate from the financial point of view an increase in U.S. military procurement in Canada of a restricted number of manufactured articles for the use of the forces, in addition to raw materials for munitions production.

The President expressed interest in this idea, and indicated that he would be glad to have it further examined. He and the Secretary of State agreed that they would have difficulty with their own Services, who liked to keep equipment production directly under their thumb, but he remarked that the decision in the final analysis would be his and that he would see to it that the Canadian situation was borne in mind.

The Prime Minister observed that people feel in Canada that they could manu­facture almost everything, but that they only wished to manufacture what could be justified on economic grounds. He mentioned our desire to have certain Canadian requirements placed on U.S. Service contracts, a procedure permissable under an act of 1941, and the hope that further legislation would be adopted which would permit Canadian purchases from stock. The Secretary of State, presumably refer­ring to the Inter‑American Military Assistance Act which failed of passage in the last Congress, remarked that a major source of difficulty was that a good deal of the equipment under it would be given away to Latin American countries whereas the Canadian Government proposed to pay for whatever they secured. He thought that this would make a substantial difference in the attitude of Congress towards Cana­dian procurement.

III. North Atlantic Treaty

The North Atlantic Treaty was briefly discussed. The Prime Minister empha­sized his view that its major value was as a deterrent to war, and that he believed that the Canadian people would support the commitment of Canada on these grounds, although the machinery of the treaty would have to be employed to increase the combined power of the parties to it.

He went on to say that it was most important to him that the treaty should not be a military alliance only, but should hold out the prospect of close economic and social collaboration between the parties. An article to this effect would be of the greatest value to him politically in securing the full acceptance of the treaty by the Canadian people.

Not very much was said by the President or Mr. Acheson on the subject of the treaty, and other pending questions in connection with it were not alluded to. W. Communication with Alaska

The President brought up the question of improving land communications with Alaska, saying that he had not yet had an opportunity of discussing this with the Secretary of State, but that he was familiar with proposals which were strongly supported in the Pacific Northwest. They desired both the extension of the Pacific Great Eastern Railway to connect with the Alaska railway system and the construc­tion of a road along the Rocky Mountain Trench. He mentioned that the cost of this road had been estimated as $18 million, and that one proposal was that it should be shared evenly between the governments of the U.S., Canada and British Columbia.

On the railway Mr. St. Laurent remarked on the desire of the Premier of British Columbia to dispose of the railway to one of the two great Canadian railway com­panies and his intention to improve it and increase traffic on it as a means of mak­ing this proposal attractive.

On the road the Prime Minister referred to the political difficulties in the way of federal contributions to highway construction in the provinces, but mentioned the Trans‑Canada Highway as an exception to the previous Canadian practice. He remarked that the Premier of B.C. would like to have the road built, but did not like the prospect of a third of its cost being paid by the province.

In general defence of improved land communications the President observed that Alaska was the crossroads of the air between Europe and Asia and that its development was currently seriously cramped by paucity of communications.

V. Wheat

The Prime Minister mentioned his concern at the possibility that the movement of wheat from Canada to the United Kingdom under the contract might be dis­rupted through the inability of E.C.A. to provide the U.K. with the necessary dol­lars on account of the large stocks of wheat in the United States. He pointed out that this would have a very serious effect, both economic and political, in Canada, and that it wouldalso cause difficulties between Canada and the United Kingdom. He mentioned that he understood that there was a prospect of this development with respect to shipments in the second quarter of 1949.

The President apparently was unaware that the matter was a very live one. He remarked that the wheat position in the United States was not one of such great over‑supply, adding that they contemplated a carry‑over of between 300 and 400 million bushels. Both he and Mr. Acheson appeared to agree that it would be most unfortunate if the U.K. were refused the dollars to carry on the Canadian wheat contract, and that some means must be found to avoid such a development. They indicated that he or Mr. Acheson would discuss the matter with the Secretary of Agriculture.

The President then said that the Canadian Government might help them in over­coming the difficulties raised by the United Kingdom to the conclusion of the Inter­national Wheat Agreement, a matter which had been considered by the United States Cabinet within the last day or two. He was very anxious that the wheat agreement should be signed and ratified in the near future, and the major obstacle to agreement was the position taken by the United Kingdom delegation in seeking to force the ceiling price down to a point well below what the United States could accept.

The Prime Minister said that he would go into this question and see what could profitably be done by Canada, remarking on the great Canadian interest in securing an agreement that would stabilize the price of wheat at a range between fixed points.

VI. Newfoundland Bases

The Prime Minister raised the question of the rights granted to the United States in the three Newfoundland bases by the Agreement of 1941 with the United King­dom. He said that after the union of Newfoundland with Canada it was the desire of the Canadian Government that the non‑military rights should be brought into accord with the principles laid down in the statement of February 12th, 1947, to govern defence co‑operation between the two countries. He pointed to the prospect of difficulties over smuggling customs free goods imported by post exchanges in the bases into neighbouring Canadian territory, and also mentioned possible diffi­culties over the extent of the jurisdiction over offenders which the U.S. could exer­cise under the Agreement.

The President remarked that he was familiar with the problems caused by smug­gling from post exchanges, and Mr. Acheson said that they were currently involved in a controversy over this in Trinidad. He expressed himself as desiring a mutually agreeable solution, and suggested, with Mr. Acheson's concurrence, that a detailed statement of Canadian desiderata should be submitted as the next stage. He recog­nized that there would be difficulty with the U.S. Services over the relinquishment of rights now enjoyed, but thought that he and the Secretary of State could cope with this so as to give Canada some satisfaction.

Mr. St. Laurent made it clear that there was no disposition on our part to chal­lenge the validity of the leases or of the rights accorded by the 1941 Agreement. What he hoped for was that an understanding would be reached between the two governments, perhaps in an exchange of notes, controlling the exercise of certain of the rights without impairing in any way the defence value of the bases. It would not be possible to reach a definite agreement until after the union of Newfoundland and Canada had become effective, since Canada has as yet no legal rights in the matter.

It was left that the issue would be pursued in due course with the Department of State.

VII. General Political Situation

In the course of the conversation Mr. St. Laurent told the President about the prospect that an election would be held in Canada during 1949. He said that the Canadian Government was happy to be able to continue to do business with a Democratic Administration in Washington, and he hoped that this sentiment was reciprocated so that the President would be sorry to see a change in Canada as a result of the election. Mr. Truman indicated his cordial assent. The Prime Minister remarked that one of his purposes in accepting the President's invitation to visit Washington had been to explain in general terms some of the current matters touch­ing on the interests of the United States in which the action of the U.S. Government might have an effect on the outcome of the election.

In general the discussion could scarcely have been conducted in a more cordial atmosphere, and one left with the feeling that it certainly should make easier the conduct of relations between the two countries in the future. The President dis­played every manifestation of good will towards Canada, and repeatedly referred to his earnest belief that the closest harmony between the United States and "its best neighbour" was an important object of his policy. He also showed his respect for Canadian political independence as being in the interests of both the countries.

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