Chapter III - United States

Part 1

Conversation Between the Prime Minister and President Dwight D. Eisenhower, Washington, January 18, 1961

315. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], January 19, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretaries to the Cabinet (Mr. Fournier), (Dr. Hodgson).

Conversation of Prime Minister with President Eisenhower

  1. The Prime Minister said that during his visit to Washington, where he had been the day before to sign the Canada-U.S. Columbia River treaty, he had been able to speak at some length with the retiring President of the United States. Mr. Eisenhower had told him in megatons the number of atomic bombs in the possession of the United States. This figure would indicate that no one else need ever have any. The views which the President now held on Khrushchev had greatly changed from those he held in June and in September 1960. He now thought that Khrushchev would be the only person who could preserve the peace. Khrushchev had to talk tough because of China. Mr. Eisenhower had said that, during his eight years in office, the Communists had made great progress and that by 1975, unless the West adopted more resolute policies, communism would spread throughout the world. He thought that the day was not too far off when the Russians would have to side with the West against China. He further believed that the U.S. policy should be not to withhold the control of atomic bombs but to make it available to all nations. After all, the French had the bomb now, the Chinese would probably have it within a year. He thought the new U.S. President, might have views along this line as well.
    With respect to assistance to underdeveloped countries, Mr. Eisenhower had said that he had come to the conclusion that such assistance really paid no dividend. The recipient countries were playing the neutralist game of opposing the principal donors one against the other. Previously, he had been opposed to hand-outs of surpluses but he appeared to favour them now. Countries like West Germany, France and the United Kingdom should be invited to do much more to help needy countries.
    He had said he would probably write columns in newspapers as well as a book, and would travel. He would like to bring the United States, Canada and Mexico closer together. No one had been able to work out the reasons for unemployment, and public works were no cure unless one could see ahead two years.
  2. The Prime Minister said he had discussed the sale of CL-44 aircraft with the President who had told him that it would be impossible at this time and it would most likely remain impossible for the United States to purchase this aircraft from Canada. The purchase might have been acceptable the previous June but there was now great deterioration in the American aircraft industry. Soon there would only be one large company, Boeing, left. Douglas would soon be out of business.
  3. The Cabinet noted the report of the Prime Minister on his conversation with President Eisenhower.
    . . .

Part 2

Canada-United States Relations

316. H.C.G./Vol. 7

Ambassador in United States to Secretary of State for External Affairs

PERSONAL AND CONFIDENTIAL. Washington, January 9, 1961

Dear Howard [Green],
At noon today, I had quite a long talk – about forty-five minutes – with Dean Rusk. He had invited me over to his temporary office in the State Department and, of course, I accepted at once. He is a personal friend of many years’ standing.

Rusk began by referring to your message to him of congratulations and good wishes and explained once more how it was, in the confusion between his two offices in New York and here, he had not made an earlier acknowledgement. I sent you by telegram today his personal message of appreciation and thanks.

Rusk said that he welcomed the opportunity of a private talk with me on Canadian-American affairs. I would, of course, understand that nothing that passed between us could be in any sense official; nor could we expect him at this stage to speak for the incoming Administration. These reservations I readily accepted.

Rusk then went on to speak of “the special relationship between Ottawa and Washington.” He wondered whether this could be maintained without arousing suspicion or resentment on the part of other close allies of the United States. It seemed to me that, while he personally accepted and favoured this relationship, he was raising the question of how it could best be maintained and developed without giving offence elsewhere.

In response, I referred Rusk to the long and respectable lineage of the Canada-U.S. partnership in, for example, joint defence and economic matters of mutual interest. I said that I had not myself encountered any difficulties with other allied representatives because of the informality and intimacy which was characteristic of our dealings with one another. Over the years a great deal of joint “machinery” had been built up for the conduct of our mutual affairs on many subjects and at various levels. This had not, in the past, attracted too much attention in other countries nor did I think that it was resented. Rather it was accepted, I thought, as a natural consequence of our continental and historic association.

In reply to Rusk’s next question as to the more important current matters of Canadian-American concern, I replied that these were in two main areas, defence and “economics.” Generally speaking, he would, in my judgment, be correct in assuming that our relations were fundamentally sound and friendly. The ties between our two countries were so numerous and so strong that any really serious divergence in major objectives was improbable. Each of our governments would certainly strive to prevent such an event. Nevertheless, within this generally satisfactory and, indeed, unique framework of friendship, there had developed, particularly in recent years, points of difference which had caused difficulty and which had given rise to misunderstandings and criticisms on both sides of the border.

Referring, first of all, to our economic relations, I went on, Rusk would be aware of some of the problems which presently confronted the Government and people of Canada in their dealings with their own internal situation and in their dealings with the United States. Our heavy recurrent trading deficits and the extent of U.S. acquisition of Canadian industry in recent years continued to be causes of serious concern in Canada.Footnote 2 In the face of an economic situation of some difficulty, the Government, as he might know, had recently adopted measures which affected American investors. Further measures were in contemplation, as U.S. officials were aware. From these policies, as well as in the normal course of trans-border trade, we were bound to encounter problems in which the points of view of the United States and Canada would differ. Fortunately, in this area of trade and payments, the objectives of policy in Ottawa and Washington were, in general, the same. Furthermore, there was active and continuing consultation between our two governments and these arrangements were, I thought, efficient and effective. In that connection, I described the joint Cabinet Committee on Economic Affairs; a relatively early meeting of this group would, I thought, be advisable as well as practicable, for he would find, I thought, that what the soldiers called the “staffing” of our problems in this area was good and up-to-date.

In the defence field, I continued, the situation was different and, it seemed to me, a good deal more difficult and complex. While it was true that the relations between our armed services remained uniquely close, I would be less than frank if I did not tell him that there existed on our side misgivings as to some elements, or perhaps more accurately some manifestations, in U.S. policy. It was also probably true to say that, on the U.S. side, there were reservations and worries as to the Canadian attitude and perhaps some growing doubt of the wholeheartedness of our support. Basically, I thought that these difficulties between us had to do with the exceptionally complicated and critical questions of the control and use of nuclear weapons. Here, as Rusk would recognize, our problem was, in many ways, the same or similar to that of other allies of the United States. This was not the time or occasion to go into the matter further but I felt that he should know that there was difficulties in this area.

I then referred briefly to two or three current problems in which we were involved with the United States, the Laos crisis and U.S. policy on Cuba concerning which we continued to have serious reservations.

Last, but of the first importance in your list of priorities, was the problem of disarmament. Here I hoped that we could cooperate actively in pushing forward toward effective negotiations and without undue delay. In that connection, I expected to arrange for Burns to come down to Washington before long and meet those who would be bearing the principal U.S.A. responsibility in the months ahead. We would respond with a will to the constructive leadership for which we hoped from the U.S. and which only the U.S. could provide.

Taking up my reference to disarmament, Rusk said that he sometimes thought that it would be more effective if we were to expend greater effort on particular aspects or areas (he cited prevention of an arms race in Africa) and the solution of the political problems which gave rise to distrust rather than to concentrate wholly, and to the neglect of practical solutions, on the “main highway” toward general and complete disarmament. (I did not take this to be in any way an evidence of coolness toward disarmament negotiations – the early emphasis by the Democratic leadership on disarmament organization and the senior appointments connected with it now forecast belie any such conclusion – but rather a disposition on Rusk’s part toward a pragmatic and practical working philosophy in this area.)

With reference to our mutual defence problems, I mentioned to Rusk the “meetings of consultation” which, over a number of years, had proved beneficial and expressed the hope that before too long such a gathering could be again convened. These meetings had the advantage of informality and frankness and provided opportunities for an exchange of views and a valuable basis for later consideration at the Cabinet level. I went on to refer to the joint Cabinet Committee on Defence which was another important mechanism for facilitating agreed solutions of our mutual affairs in this area.

Rusk observed that, apart from normal diplomatic contacts and those through the joint bodies I had mentioned, the fact that he and his son customarily went to Canada to fish might provide occasions for informal conversations with Canadian officials. I agreed that such opportunities would be suitable and welcome on our side. I added that, while it was obviously premature to propose any meeting in the immediate future between the Prime Minister and the President-elect, such informal meetings from time to time were in the tradition and very valuable. At some later stage, when the initial pressure of events was over, I felt sure that Mr. Diefenbaker would welcome an opportunity to talk privately with Mr. Kennedy.

Rusk then spoke of the careful consideration which was being given by the President-elect to his forthcoming diplomatic appointments. On this score, he pointed out that, whatever the rumours, they would remain entirely speculative and unconfirmed until after January 20th. Mr. Kennedy was quite firm on this. Further, we need not expect that important posts (such as Ottawa, he inferred) would be filled by “political hacks.” No doubt I would have (rightly) drawn the conclusion that the President-elect intended to play an active part in such appointments and in the conduct of U.S. foreign policy. We could look for strong leadership from the White House in this respect.

In our own case, Rusk reflected on the kind of person who would best fill the important responsibilities of Ambassador to Canada. I got no inkling as to who they may have in mind but believe that we may expect either a first-rate senior career officer of proven capacity, as was Livingston Merchant, or someone from outside the Service of standing and ability in whom the President has confidence.

I shall be able to tell you more of my talk when I see you in Ottawa later this month. All that I will add to this already long letter is that, in all he had to say to me today and in the manner of its saying, Rusk confirmed the opinion I already had of him as a man of unusual calibre and capacity as well as of strong personality and high character.

Yours sincerely,
ARNOLD HEENEY

317. A.D.P.H./Vol. 1

Ambassador in United States to Prime Minister

PERSONAL AND CONFIDENTIAL. Washington, November 3, 1961

Dear Prime Minister,
Yesterday my Military Attaché, Colonel H.W. Sterne, came to see me to report confidentially on a conversation he had had last Monday evening, October 30 (when I was in Ottawa), with the Military Aide to the President. The confidential memorandum which Sterne prepared as the basis of his report to me reads as follows:

“At a reception last evening, I had a conversation with Major General C.V. Clifton, Military Aide to the President. General Clifton spoke to me at some length on the desires of the President to maintain close personal links with the heads of other governments. He pointed out that the President is in frequent contact, either by telephone or personal letters, with Mr. Macmillan, Dr. Adenauer and General de Gaulle. He went on to say that until June of this year a similar relationship existed with Mr. Diefenbaker.

“Since that time the President has mentioned to General Clifton that for some reason this close personal contact with Mr. Diefenbaker has been allowed to slip. Gen. Clifton remarked that it may be that there is a tendency to take good relationships for granted but that he knows very well that the President is somewhat disturbed that Mr. Diefenbaker has not contacted him either by telephone or personal letter for some time. It was apparent that the President desires such contact, whether it be merely to say “hello” or to comment informally on points of mutual interest. In any event, he would like to re-establish their relationship because this is the way that he likes to work. Indeed, the President not only likes to have personal contacts with the heads of middle and great powers but also has a good deal of correspondence with the heads of the smaller countries.

“I asked Gen. Clifton if Mr. Kennedy had taken the initiative to resume personal contact and if it was now a case of the Prime Minister responding to him. General Clifton said that he did not know who had initiated the last conversation or private correspondence but that he does know that the President feels the rapport which existed until last June should be re-established.

“In speaking to me of this matter it was quite clear that Gen. Clifton was fully aware that I would inform you of the gist of his remarks and I can only assume that this is also the wish of the President. I might add that Gen. Clifton was born in Canada and has a very warm feeling for the country of his birth. Accordingly, I know that he is extremely anxious to help to maintain the best possible relationships at all levels between our two countries.”

This was a curious incident and I am not sure how much weight should be attached to what Clifton said. Sterne, as you will note, assumes that the President intended or, at any rate, expected that what he had said to Clifton would be passed to me and by me, presumably, to you. In this, Sterne may be mistaken or Clifton may have misunderstood the President’s intention.

On the other hand, Clifton has a good reputation and is, I understand, a personal friend as well as a close official companion of the President. As you will note, he is Canadian-born and is proud of it. I have little doubt that his own wish would be to see the closest and most friendly of relations between the countries of his birth and adoption. And, this being so, it may have been that, in speaking as he did to Sterne, he went further than Mr. Kennedy intended.

In any event, I think you may take it confidently that the President did express himself to Clifton as wanting to continue and develop the informal and friendly association with you that began soon after Mr. Kennedy’s inauguration. Whether, in saying that there had been no personal communication between you in recent months, the President had in mind the embarrassment caused you in September by the unfortunate and clumsy “leak” (by the White House staff) of your private exchange at that time,Footnote 2 I cannot, of course, judge. But I would not think it unlikely. If so, it might be, I suppose, that Mr. Kennedy was taking this roundabout way to reassure you of his desire for the continuance of a personal relationship to which I feel sure he does attach a great importance.

Whatever the explanation of this curious incident, I felt you should be informed of it at once. While I would suppose that there would be no question of any response on your part, it does occur to me that you would wish to have it in mind when the next occasion arises for you to have personal communication with the President.
You may count wholly upon Sterne’s discretion in this matter. He is an excellent officer.

Yours sincerely,
A.D.P. HEENEY

Part 3

Prime Minister’s Visit to Washington, February 20, 1961

318. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], February 21, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).

Report on Discussions with President Kennedy; Bunker Fuel Needed to Ship Wheat to China; Canadian Subsidiaries of U.S. Companies

  1. The Prime Minister said that he and Mr. Green would report more fully at another meeting of the Cabinet on the discussions held on the previous day in Washington with President Kennedy. The meeting had begun with a feeling of strangeness but had become most cordial. He had told the President, informally, that difficulties between the two countries would never arise if Mr. Kennedy followed the views he had expressed in a speech at the University of New Brunswick in 1957.Footnote 3
    The shipping companies concerned with the movement of Canadian wheat to Red China had placed orders for bunker fuel with the Imperial Oil Company in Vancouver. That company had consulted its head office in the United States, and an application had been made to the Foreign Assets Control. During his visit to Washington he had learned that the F.A.C. was proposing to veto the supply of the fuel on the ground that such a transaction by a company with any directors from the U.S. would be contrary to U.S. law. He had informed President Kennedy that such a ruling would be unacceptable to Canada, and that the matter of Canadian sovereignty in questions of this kind had been resolved with President Eisenhower in 1958. Announcement of such a ruling would be certain to provoke a storm of protest in Canada.
    The President had not at first appeared to realize the implications of the proposed ruling from the Canadian viewpoint. He had stated that the ruling would be entirely proper and that it was designed to contribute to the security of the U.S. He had stated that the U.S. directors of the oil company would be prosecuted if they approved the transaction. Subsequently, he had suggested that the shipping companies should obtain their oil from another company, but Mr. Diefenbaker had stated that the Canadian government would not interfere with contractual rights by designating companies that might supply the oil. Mr. Kennedy had then suggested that the Canadian government, or the Wheat Board, might apply for special exemption, but the Prime Minister had replied that Canada could not seek exemption from the application of a law which should not apply to Canadian companies in Canada. The President had stated that he would study the question further and would reply to the Prime Minister.
  2. The Minister of Agriculture said later that the ships in Vancouver were still unable to obtain bunker fuel from the Imperial Oil Company for the transport of the grain to Red China. The problem applied to other aspects of trade with China, for example The Robin Hood Flour Mills Ltd. had been unable to sell flour to China.
  3. The Cabinet,
    1. noted the statement of the Prime Minister on his discussion with President Kennedy on the previous day on the proposed sale of bunker fuel, by a Canadian subsidiary of a U.S. company, to shipping companies concerned with the movement of Canadian wheat to Red China; and,
    2. agreed that the Secretary of State for External Affairs and the Minister of Agriculture would discuss steps that should be taken to ensure that Canadian sovereignty was not infringed in the making of arrangements for the sale of grain to Red China.Footnote 4
      . . .

319. H.C.G./Vol. 7

Ambassador in United States to Secretary of State for External Affairs

PERSONAL AND SECRET. Washington, February 23, 1961

Dear Howard [Green],
I am enclosing a copy of the notes I made upon the White House conversations on Monday. I think they touch on all the main subjects discussed. You will note that they are arranged “topically” and not chronologically.

Yours sincerely,
ARNOLD [HEENEY]

[ENCLOSURE]

Notes by Ambassador in United States

SECRET Washington, February 21, 1961

Conversations Between the President of the United States and the Prime Minister of Canada, the White House, Washington, February 20, 1961

The meeting today between President Kennedy and Prime Minister Diefenbaker began at twelve noon in the President’s office in the West Wing. The talks continued through lunch in the Family Dining Room until about 2:45 p.m., when Mr. Kennedy accompanied Mr. Diefenbaker to the President’s office and farewells were made.

The participants were:

United States

  • The President
  • The Secretary of State (Mr. Rusk)
  • The United States Ambassador to Canada (Mr. Merchant)

Canada

  • The Prime Minister
  • The Secretary of State for External Affairs (Mr. Green)
  • The Canadian Ambassador to the United States (Mr. Heeney).

There was no agenda and from time to time the principals reverted to matters previously raised. The following notes mention the main subjects raised in topical rather than strict chronological sequence.

Canada-United States Relations: General

The President opened the conversation by referring to the importance of close and continuing contact between United States’ and Canadian authorities and to the great value he attached to relations of mutual confidence between the two countries which had so many common interests. He welcomed this early opportunity of informal conversations and exchange of views with Mr. Diefenbaker.

The Prime Minister expressed full agreement with the sentiments expressed by Mr. Kennedy. Good relations between the two countries were absolutely essential. This was why he had come down to Washington and why he too welcomed the opportunity of informal friendly discussion over the wide range of Canada-U.S. interests.

Such general expressions of view on both sides were reaffirmed later in the course of the conversations as particular questions came up in discussion. In fact, there was full agreement that geographical proximity, mutual economic involvement, joint defence interests and similar external aims rendered essential the closest of relationships between the two governments.

Africa: the Congo; South Africa

The Prime Minister enquired concerning the current United States’ appreciation of the situation in the Congo. Canada had a particular concern because of her military contribution (and her membership in the United Nations Advisory Committee). Further, within a fortnight, he would have to take a position at the meeting of Commonwealth in its new constitutional guise of republic of the Union of South Africa. In this connection, it was to be borne in mind that the non-white members around the table now numbered six. Developments in the Congo had exacerbated the problem of South Africa and the Canadian stand would be of importance to the Commonwealth’s future and to the relations of the West with African countries. How did the United States see the present crisis in the Congo developing?

The Secretary of State described the two phases of the Congo crisis – first, the internal situation, where the first problem was to restore order and establish a satisfactory basis for settled government and, second, the external political and parliamentary situation in the United Nations. Events within the Congo tended to upset negotiations between governments and in the United Nations. For example, the now reported killing of seven Lumumbist prisoners, just when it was hoped to agree upon an amended resolution in the Security Council where the United States were supporting the U.N. and the Secretariat, could well upset these delicate negotiations. The situation was very anxious and it was difficult to foresee the outcome.

Mr. Kennedy, at a later stage, wondered whether it would not be possible to have the African nations themselves take on more responsibility for African affairs, possibly through “an African O.A.S.” In present circumstances, the United States was involved in every difficult situation and tended to be blamed by all sides.

There was no conclusion reached or sought on these aspects of the African situation which was recognized as being one of great difficulty and danger.

Laos

The Secretary of State, at the Prime Minister’s request, described the current position as appreciated by the United States, in particular concerning the proposals for a neutral nations’ commission and for the return of the International Supervisory Commission. It remained to be seen which of these courses would afford the best avenue for achieving a genuinely neutral zone in Laos which was the objective of present United States policy. Perhaps the two proposals would tend to merge. The United States did not feel that an international conference would be helpful, at any rate at this stage. On the whole, the State Department was inclined to think that the neutral nations’ commission would be more likely to be productive, having in mind the unhappy Canadian experience with the I.C.C. in Laos and currently in Vietnam.

Here again, there was no attempt to reach any conclusion but there seemed to be general agreement as to the objectives of policy in respect to the neutralization of Laos. All agreed that a good deal would depend upon the attitude of India and, of course, upon the genuineness of the Soviet desire to eliminate Laos from the area of conflict.

Communist China: Recognition and U.N. Membership; Trade

The Prime Minister enquired whether there had been any recent change in the U.S. attitude toward Communist China.

The President replied that his Administration had been hoping that, through the exchange of journalists, possibly by the easing of some trade restrictions and other means (he referred to the association of Communist China with nuclear test negotiations), tensions might gradually be lessened and a tolerable relationship brought about between the United States and mainland China. But Peking had shown no disposition to move toward any easing of the present situation. Indeed the Chinese Communists continued their propaganda attacks, persisted in their rejection of any suggestion of a two-China solution and gave no encouragement to an improvement of relations.

The Secretary of State noted that thirty U.S. journalists had been given permission to visit mainland China but Peking had granted only one visa. The Chinese authorities had also brusquely rejected an offer by the U.S. Society of Friends to provide food for the Chinese population.

Mr. Kennedy said that he himself had been “anxious to do better” with Communist China but the Peking government persisted in their “deep belligerency.” This was a very obstinate problem, one particularly difficult feature of which was the future of Formosa.

Mr. Diefenbaker agreed about the difficulties of recognition and upon the intransigence of the Chinese Communist authorities. In that connection, he mentioned the opening in Peking of a bureau of a Canadian paper (which had actively campaigned for Canadian recognition) and its abrupt closing down by Communist authorities.

With respect to trade, Canadian policy was to do business with Communist nations but not in strategic goods.

Shipment of Canadian Wheat to China; Bunker Oil at Vancouver

The Prime Minister said the President would be aware of a recent substantial sale of Canadian wheat. Here, a serious difficulty had come to his attention concerning provision of oil bunkers at Vancouver for the vessels in which the wheat was to be shipped. A request for supply had been made of Imperial Oil which was a Canadian company controlled in the United States. The U.S. parent company (Standard Oil of New Jersey) had then enquired of the U.S. Foreign Assets Control authorities whether in such circumstances provision of fuel, by Imperial, would contravene U.S. law. The President would understand that, if there were any attempt by U.S. authorities to interfere with such a transaction which, irrespective of U.S. equity ownership or control, involved a Canadian company and a Canadian product, there would be a great outcry in Canada. A similar situation had developed some years ago when the Ford Company had intervened with Ford of Canada to prevent the possibility of any sale of trucks to the Communist Chinese.Footnote 5

The President said that he had recently gone into this problem. Mr. Diefenbaker would appreciate the fact that there was great sensitivity on the subject in the United States – as well as in Canada. Nevertheless, there should be some means of avoiding embarrassment on both sides.

Would the Canadian government request an exemption from the U.S. authorities, in which event it would be granted? Alternatively, was there some Canadian-owned supplier which could provide the bunkers? Mr. Diefenbaker said that neither of these expedients would meet the case as they would imply acceptance of the U.S. right to interfere with a purely Canadian transaction.

Mr. Kennedy responded that he would have the matter looked into further during the lunch period to see what procedure might be worked out. After lunch the President received a memorandum (through Mr. Dutton, Special Assistant to the President) from the Treasury.

After further discussion with the Prime Minister, Mr. Kennedy then suggested that Mr. Diefenbaker consider having Canadian authorities intimate to the Canadian company that they hoped and expected that the company would fill the order on the understanding that the White House would ensure that U.S. authorities would not seek to impose sanctions under U.S. law against U.S. owners or officers of the company.

Mr. Diefenbaker said that he would wish to consider this proposal further for he was uncertain as to the propriety of the Canadian government making such a request to the company. He made it quite clear once more that any intervention by U.S. agencies to prevent the sale of a Canadian product by a Canadian company would provoke very serious public reactions in Canada.

It was agreed that officials of the two governments would follow the matter up with a view to working out a solution and enabling the provision of the required bunker oil to be made.

Canadian Trade with Cuba

The Prime Minister said that he was glad of the opportunity to explain Canadian policy with regard to trade with Cuba. While Canada had not embargoed exports as had the United States, strategic good were not permitted. Further, U.S. goods were not allowed to be trans-shipped to Cuba through Canada. Canadian policy (which he had explained fully to President Eisenhower) had not in fact resulted in any important expansion of Canadian exports; indeed, recent figures showed them to be substantially below the levels of permitted U.S. exports under the embargo. This situation was not well understood in the United States.

Canada-U.S. Balance of Payments; U.S. Investment in Canada

The Prime Minister referred to Canada’s consistently large adverse balance of trade with the United States in recent years. The Canadian government had had to take certain measures to help in reversing this situation and to move current payments toward greater equilibrium. The U.S. government should understand and appreciate the Canadian difficulty, in view particularly of the current position of the United States. The measures taken by Canada were in no sense anti-American but necessary for the protection of Canadian interests and Canadian independence of action. U.S. investment had been welcomed in Canada but it was unsatisfactory for Canada to rely upon a large inflow of U.S. capital funds to balance the national accounts. Indeed the extent to which Canadian industry was owned in the United States, particularly in key undertakings such as oil, gas, minerals and manufacturing, was causing a great deal of concern among Canadians.

Mr. Diefenbaker said that he had been much impressed by the emphasis which the President had given in his messages to the Congress to the expansion of trade, to the OECD and to liberal commercial policies.Footnote 6 The Canadian Government, like the United States Government, were subject to great protectionist pressures. Low-priced imports, in particular from Japan and Hong Kong, were causing great difficulties for domestic producers and, with persistent and rising unemployment, these pressures were difficult to resist. It was, however, the Government’s hope that Canada would be able to effect increases in industrial production and alleviate the anxious unemployment situation without resort to measures contrary to its obligation under the GATT.

Mr. Kennedy expressed appreciation of the Canadian balance of payments position as outlined by the Prime Minister and expressed the opinion that, apart from particular cases, the whole problem of U.S. subsidiaries in Canada should be looked into carefully. He was fully sympathetic with what Mr. Diefenbaker had said about protectionist pressures, of which he had a good deal of experience himself. He had recently set up a Cabinet Committee to look into the question of low-price textile imports into the United States.

Canada-United States Defence Production

The Prime Minister said that the United States could be of material assistance in the current Canadian situation and add to the general strength of the two countries by allocating larger defence production to Canadian manufacturers. In that connection, he greatly appreciated the current effort being made by the Department of Defense as evidenced by the suggestion which had been put forward (within the last few days) for the production in a Canadian plant of fighters for allied countries (F104Gs). The figures in the joint defence production programme had been running in the last two years about three to two in favour of the United States. The Canadian Government wished to cooperate in every way with the United States in joint defence matters and a more equitable sharing of defence manufactures would facilitate such cooperation.

The President expressed satisfaction that the suggestion by the Defense Department with regard to sharing the F104G programme was favourably regarded by Canadian authorities. Invitation to the President to Visit Canada

The Prime Minister said that he wished to extend a warm invitation to the President to visit Canada and, if that were possible, for him to address a joint session of the two Houses before Parliament rose, probably by the end of June. Such an occasion would do a great deal to strengthen Canada-United States relations. The President would be seen on Canadian television and heard on Canadian radio throughout the country as well as, of course, in the United States. Nothing could give greater assurance of the friendship between the two nations as a visit by Mr. Kennedy in the early months of his Administration. If the Prime Minister could announce in the House of Commons that evening the President’s acceptance (without, of course, mentioning any date), this would be very helpful.

The President expressed appreciation of Mr. Diefenbaker’s invitation and said at once that he would like to accept and go to Canada at a time which would be mutually convenient. He thought it should be possible for him to do so sometime in June. He would, in any case, be agreeable to Mr. Diefenbaker announcing his acceptance in Parliament.

It was agreed, accordingly, that the Prime Minister should state in the House of Commons that evening that the President had accepted an invitation to visit Canada and to address a joint session of Parliament if a mutually convenient date could be arranged before the conclusion of the current session.

Canada-U.S. Defence Relationships

The Prime Minister mentioned reports of a speech which he had made in Port Arthur (on February 18) touching upon Canadian defence policy. What he had said had been wrongly reported in the Canadian press. This morning’s Washington Post, however, had carried an accurate account making reference to his emphasis upon the importance of the Canada-United States partnership. He had criticized those in Canada who would reduce Canadian participation in continental defence to mere “bird-watching.” Such a role would not mean more independence for Canada but subservience and reliance upon the United States.

“We will not,” Mr. Diefenbaker continued, “accept a policy which will lay upon the United States a responsibility which we should carry ourselves.” He wanted the President to understand the Canadian Government’s position in this which in turn was dependent upon the actions of the United States in cooperating with Canada in, for example, the sharing of defence production.

The President expressed appreciation of the position as outlined by the Prime Minister in this very important area of relationship between the two countries.

Canadian Policy with Respect to Nuclear Weapons

The Prime Minister explained the Canadian Government’s position with regard to nuclear weapons. As yet, no decision had been taken upon the equipping of Canadian forces nor concerning storage at Canadian bases (Goose, Harmon and Argentia). As the President would be aware, the Canadian Government had laid great emphasis upon disarmament and Canadian representatives had been active in efforts to move forward in negotiations. Decisions with respect to nuclear weapons would depend upon what progress were made. Canadian authorities were conscious of the danger involved in further dissemination of nuclear capacity and would not wish to encourage or accelerate this process. Nevertheless, the Canadian Government wished to be ready to take action promptly when the need arose. For these reasons, Mr. Diefenbaker continued, he proposed that detailed arrangements between the two governments on all aspects of our relations in this field should be worked out and embodied in an agreement (or agreements) ready for immediate execution when conditions made it necessary. Such an agreement (or agreements) would have to be based on joint Canada-U.S. control over custody and use, that was to say the Canadian Government would have to insist upon its right to decide (with the United States) how and when such weapons would be employed.

The President expressed appreciation of the position of the Canadian Government in this matter as explained by Mr. Diefenbaker. Possibly the formula employed in arrangements with the United Kingdom (the “double key”) would provide a useful pattern.

It was agreed that officials on the two sides would work out together a draft detailed agreement (or agreements) for storage, use and control of nuclear weapons in Canada on the basis described by the Prime Minister; such agreement(s) to be submitted to the two governments and to be ready to be put into effect if and when decision were taken by the Canadian Government.

Disarmament

The Prime Minister mentioned the importance which the Canadian Government attached to pressing forward with disarmament discussions in spite of the very difficult problems in the way of satisfactory agreement. The Secretary of State for External Affairs had been especially active in this field in the United Nations and elsewhere. Canadians continued to hope that realistic progress could be made.

The President then spoke of his own interest in disarmament and the action being taken by his Administration to strengthen the U.S.A. effort – first of all, in its own organization. It was expected that within the next day or two the appointment of an official to head U.S. organization on general disarmament (as Mr. Arthur Dean did on the nuclear tests negotiations) would be announced; both to operate under the general supervision of Mr. McCloy. The U.S. Administration had decided to give first priority to the nuclear test negotiations but also to intensify their examination of problems of general disarmament as well. In what area did Mr. Green think that some progress might be made?

The Secretary of State for External Affairs then described the course which had been followed by the Canadian Delegation at the United Nations after the collapse of the Ten-Nation negotiations. The objective of the Canadian resolution had been to get negotiations started again and to provide a mechanism for bringing to bear the views and ideas of other powers. It remained to be seen what course would be best when the Assembly resumed.

As to particular areas where some progress might be made – and the Canadian Government favoured a stage-by-stage approach – Mr. Green thought that there were a number where the Western and Soviet bloc views were not far apart – possibly the limitation of conventional arms was one department in which something positive might be done.

Meeting of NATO Heads of Government

The Prime Minister enquired what the President thought of the wisdom of convening a meeting of the Heads of NATO Governments. In his own view, such a meeting was desirable though the timing was important. It was understood that it could not be managed at the spring meeting of Foreign Ministers at Oslo but he thought that attention should be given to the possibility later on.

The President did not feel that an early meeting of Heads of Government would be productive. It would be necessary to prepare well in advance so that when the Heads of Government came together they would be in a position to have profitable discussions and reach decisions. At such a stage, a meeting would, in his judgment, be valuable.

Economic Situation; Canada and the United States

The Prime Minister made reference to the part played by farm organizations in the development of the ground work for Government agricultural policies. He had been interested to learn of the President’s interest and activity in the development of the Food for Peace programme. He had himself been long interested in the idea of a NATO food bank. Our arrangements for consultation on disposal of wheat surpluses were proving helpful.

Mr. Diefenbaker, in answer to an enquiry from the President, described the current and prospective situation in Canada, making reference to the increased unemployment which was causing grave concern and to measures which the Government were taking. In that connection, he had noted with interest the eight-point programme sent to Congress by Mr. Kennedy; action along six of these lines had been taken in Canada but the problem was stubborn and could not be solved solely by Government action. His economic advisers were by no means agreed in the advice which they gave concerning the policies best calculated to meet the situation.

The President referred to programmes proposed to Congress by his Administration and to the division of opinion in the United States as to the right line of action. For example, a tax-cut was recommended by some economists but Congressional opposition would prevent such a course. In his judgment, U.S. opinion in such matters was no longer emphatically either liberal or conservative; the public temper was one of moderation and it was within this framework that Government policies had to be designed.

Canada-U.S. Committee on Trade and Economic Affairs; Next Meeting

The President and the Prime Minister noted with satisfaction that a meeting of this joint Cabinet committee had been arranged for March 13 in Washington.

Canadian Legislation Requiring “Disclosure” by Foreign Entities

The Prime Minister made reference to legislation which the Government had just introduced in Parliament to require disclosure of the affairs of business corporations and labour unions whose headquarters were outside Canada. This would be resented in a number of quarters but was necessary in order to reassure public opinion concerning “foreign operations.”

Communiqué

The President and the Prime Minister approved for release at once a draft communiqué which had been prepared by officials.Footnote 7

A.D.P. H[EENEY]

Part 4

Visit of President John F. Kennedy to Ottawa, May 16-18, 1961

320. DEA/1415-N-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 1473 Washington, May 8, 1961
SECRET. OPIMMEDIATE.
Reference: Your Tel X-49 May 4.†
Repeat for Information: PCO (Bryce) Ottawa, PM Office (Robinson) (OpImmediate) from Ottawa.

Visit of President Kennedy; Meetings with Prime Minister

In attempting any outline of the subjects which the Prime Minister and the President may wish to discuss (and any “briefing” for Mr. Diefenbaker), it seems to me important, particularly as the time available is not repeat not long, that we should focus on the subjects of primary importance to the two countries. This would no repeat no doubt include certain bilateral questions of current concern but I would hope that the papers prepared for the two principals would deal chiefly with the larger multilateral problems.

  1. Presumably the first part of their talk would have to do with various aspects of the current world situation. The Prime Minister and the President would no repeat no doubt wish to exchange views on Soviet intentions and East-West relations in various sectors and on particular issues. They might then progress naturally, I suppose, to consider particular areas or situations where Canada and USA are both involved or concerned and which present or could present a threat to peace and security. After such a wider ranging discussion, they might go on to deal with any bilateral issues of especial importance or urgency.
  2. This approach would seem to me to suggest, after reference to the general exchange referred to above, some such outline as follows:
    1. Southeast Asia, Particularly Laos and also Vietnam. On present plans the Geneva Conference on Laos will have just begun. It would therefore seem to be valuable at that stage to have the two Heads of Government consider together the short and long term prospects for the area and the respective roles of Canada as a member of the ICSC, and USA as a member of SEATO and policies which might conduce to stability and independence. In this context there would naturally be some discussion of relations with Communist China.
    2. Latin America, Including Developments in Cuba. While the continuing Cuban crisis focuses attention on this one country and views would no repeat no doubt be exchanged on this problem, I would hope and expect that this would lead to a comprehensive exchange of views on the more general and positive aspects of relations in the whole western hemisphere, economic as well as political. The President can surely be counted upon to develop his ideas on the “Alliance for Progress” and an exchange of views in this area to which both governments are giving new and emphatic attention could, I think, be very valuable. The OAS could be discussed in this context.
    3. Europe, Including the Problem of Berlin and Germany. I feel reasonably sure that these problems will be very much in the President’s mind. The meeting could therefore provide a timely occasion for exploring the prospects and means for dealing with them. Our interest in being kept abreast of contingency planning arrangements might be stressed. Such a discussion would, as I see it, involve the future of NATO, including the defence position and means of strengthening the political and economic life of the Atlantic community.
    4. Africa, Including the Congo. Here the role of the UN could be examined and the Prime Minister would no repeat no doubt refer to the Commonwealth.
    Each of these subjects would lead logically into consideration of existing regional or international peace keeping machinery and the various organizations in which the two governments share membership and responsibility.
  3. Such a general review would also provide opportunity and occasion for discussion of outstanding UN problems, e.g. the prospects for disarmament negotiations, the future of UN and the role of the Secretary-General.
  4. As to Canada-USA bilateral questions, I should expect that our current and planned defence arrangements might profitably be discussed. Here the so-called “swap” deal might usefully be given a push (depending on how far negotiations have proceeded in Ottawa in advance of the visit). Much more complex and delicate, of course, is our relationship in respect of nuclear weapons and the various aspects of this problem which have been under discussion between the two governments for some time.
  5. Finally it is to be anticipated that the President and the Prime Minister will wish to discuss major bilateral and multilateral economic and trade matters. Your message lists a number of particular topics of current interest. My own view is that this portion of the discussion will be fruitful to the extent to which care is taken to limit the items to matters of primary importance and that the temptation to have current bilateral questions dealt with at the summit is resisted.
  6. In addition to the important economic aspects of subjects referred to in earlier paragraphs of this message (e.g. paragraph 3), the following seem to us to be the most important headings in economic and trade policy:
    1. Economic Development. This ranks very high in the current thinking of USA Administration. In terms of external economic aid, the India and Pakistan consortia are of immediate and particular interest. The new USA initiative for an international solution of the textile problem might also be raised in this context. Again, closely related is the general problem of commodity trade and, in particular, the possibility of the USA joining with other industrialized countries in moving towards the freeing of trade in tropical products and basic materials. The food bank proposal and its relationship to USA Food for Peace programme might also be discussed against this background.
    2. European Integration. USA has now made it clear that it would favour the full integration of UK into the European Economic Community. But it has also indicated it would not repeat not support all substantial derogations from the Rome Treaty to facilitate such a move. It seems to us that it would be most desirable to impress on the President the fundamental importance of the policy issues that are here involved for Canada (and other Commonwealth countries).
    3. USA Trade Agreements Legislation. The President will in coming months have to address himself to the renewal next year of USA Trade Agreements Legislation, which will set the pattern and direction of USA commercial policy. The Administration will be under increasing pressure from protectionist interests. I feel it is not repeat not too early to emphasize the great importance to the whole free world of the Administration obtaining broad and unhampered authority in the trade field.
  7. As to bilateral questions, these might perhaps be limited to the following two:
    1. Oil Bunkering Problem. I would hope that this could be put in the context of the more general issue of the extraterritorial effects of USA legislation.
    2. USA Barter Proposals. The immediate issue provides a further opportunity for a general discussion of USA surplus disposal policies. The Administration is currently reviewing its policy and it would, therefore, be timely to reiterate the seriousness of Canadian concerns.
    3. I have not repeat not attempted to recast the items in the form of a revised agenda. This can be done much better in Ottawa and you will no repeat no doubt wish to do it in consultation with Bryce and Robinson.
    4. If anything further of relevance develops in our talks with USA officials who are involved in advising the President on discussions in Ottawa, we will, of course, let you know.

[A.D.P.] HEENEY

321. DEA/1415-N-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 1552 Washington, May 13, 1961
SECRET. OPIMMEDIATE.
Repeat for Information: London, NATO Paris, Paris, Permis New York (Priority), Bonn (Priority) from Ottawa.
By Bag Moscow, Cairo, Delhi, Rome, Copenhagen, Brussels, Hague, Oslo, Karachi, Kuala Lumpur, Colombo, Jakarta, Prague, Belgrade, Warsaw from London, Rio from Ottawa.

USA Foreign Policy

In view of President Kennedy’s visit to Ottawa you may wish to have a tentative assessment of the Administration record to date in office viewed from this perspective. Four months in office scarcely provide a fair test of the capacity of the new Administration for the long term pull, but some trends are already evident.

  1. The present Administration moved into office on the basis of a narrow majority after a campaign which centred on USA world position and on whether the Republicans or the Democrats could best provide the necessary leadership to maintain and strengthen it. Domestic issues were assessed largely in this wider context. (President Kennedy’s performance in the domestic† and foreign economic fields will be the subject of separate telegrams.)
  2. The basis of any assessment at this stage must, of course, be directed mainly to the kind of leadership the President has sought to provide. There can be little doubt that the President’s accomplishments so far have surpassed expectations which, because of campaign criticisms of his youth and inexperience, were probably set lower by many people than might have been the case with an older and more established personality. Despite setbacks in both the foreign and domestic fields, including the recent Cuban fiasco, the President’s personal position remains strong and commands wide support.
  3. There are several factors in this initially successful approach to the problem of leadership: the impact of the President’s personality and conduct of policy; the stature of and sense of conviction imparted by the President’s principal foreign affairs and defence advisers; the confidence and enthusiasm which the top echelon has induced in the lower ranks of the Administration, the press, and the public; and finally, the impression of USA created abroad.
  4. On the whole, the President has been praised for the selection of his Cabinet and other principal foreign affairs and defence advisers. There has been a good deal of public amusement at the number of them chosen from academic life (and, in particular, from the President’s own university). But the retention of important figures from the previous Administration (Douglas Dillon and Allen Dulles), recourse to reputable figures in the democratic pantheon (Adlai Stevenson, Chester Bowles, Averill Harriman and Dean Acheson) and resort to former officials of known merit (Dean Rusk and Alexis Johnson, John McCloy, A. Berle) have done much to inspire confidence in the seriousness of the President’s intentions. Apart from one or two “family appointments,” many of the leading figures selected were generally believed not repeat not to have had more than casual previous contact with the President, and their appointments have been accepted as evidence of the President’s concern to base his choice on merit.
    Public Service
  5. While there are some misgivings on the part of the “old hands” at certain changes at the Assistant Secretary level in the State Department, on the whole the effect of the new Administration on the ranks of the professional public service in the foreign policy and defence fields has been stimulating. No repeat no doubt the foreign affairs experts (and others, no repeat no doubt) have been critical of the number of “task forces” – on Latin America, on NATO, Defence etc. – appointed by the White House, and the Pentagon has presumably found irksome the Presidential strictures on their public utterances on defence and other questions. But there is ample evidence that they find gratifying and inspiring the close and detailed interest being displayed by the new leadership in their endeavours. Of particular importance perhaps are the emphasis on initiative and originality in the public service, and the President’s desire to keep in close touch with all sectors of his Administration. Though some of the increased activity may hinge on the mere fact of a change in Administration rather than its character, enthusiasm in the departments concerned is general and not repeat not restricted along partisan lines. The relationship between the State Department and the White House advisers has not repeat not yet fully evolved.
    Public Impact
  6. In the Congress, and in the Foreign Relations and Defence Committees particularly, there remains a strong concern for the prerogatives of the Legislative Branch. In principle, however, the temper of Congress seems to have been to let the President have full rein until he has had time to look at the problems. The Presidential nominations in the foreign and defence fields have been largely approved without serious reservations, although Senator Fulbright has continued to assert his independence. Reaffirmation by the Administration of traditional tenets of USA foreign policy has had a reassuring effect, and there has been relatively little criticism voiced over specific policy issues that have arisen (Laos, anti-colonialism, Congo, etc.). Even the recent Cuba operation seems to have drawn mostly proforma complaints so far except from the extreme right wing who believe the Administration should adopt even stronger measures. It is probably safe to say, therefore, that Congress, and, especially the Senate, has formed a good initial impression of the new order.
  7. In contrast, the press has virtually, except for die-hard partisan publications, embraced the new Administration – and this despite the early announcement by Secretary Rusk that the provision of inside information on foreign and defence questions would be strictly balanced against the requirement of “quiet diplomacy.” (In practice, it is doubtful whether there has been any great reduction in the scale of information made available and presidential and Administration news conferences are almost bewilderingly frequent.) The President has, of course, benefited considerably from the self-imposed moratorium on a host of foreign and defence policy issues: the decisions on many crucial issues are not repeat not yet available for comment. On the other hand, a hard-boiled and energetic press corps could have long since chosen not repeat not to accord a respite if it had wished. Also, it is only fair to add that the reporters by and large favoured the Kennedy ticket in last autumn’s campaign, and have not repeat not yet, apparently, seen any reason to change their views. On most foreign policy issues, they have been distinctly more explicit than even the Administration could have been expected to be, in drawing attention to the enormity of the problems facing it.
  8. The public at large, like their more experienced compatriots in Congress and the newspaper world, gives the President strong support. The election campaign had conditioned them to expect a diet of reverses and a continued slump in prestige in any event, so that for USA to avoid any significant defeats throughout the Fifteenth UNGA and to get a man into space, even though after the Russians, have appeared as fair accomplishments. Cuba is a critical problem, and may prove to be even more so as the current post-mortem on the “invasion” proceeds, but the President seems to have kept his mind on the central problems of East-West relations, and to have done a reasonable job of putting the Cuban issue and other problem areas like Laos into perspective.
    Impressions Abroad
  9. Concurrently with Administration efforts to enlighten the public on these thorny issues, there has been an impressive flow of distinguished foreign visitors which enhances the general impression that the Administration is pursuing an active foreign policy. Particularly at this early stage and from this observation post, it is difficult to draw any definitive conclusions as to how effectively the new Administration has projected abroad a new and better “image” of USA. However, the reactions to President Kennedy of some of the distinguished foreign visitors mentioned above provide some indication that the initial impressions formed of the new President have been generally good and, in some important cases, even enthusiastic. Of the latter, it would seem, for instance, that Prime Minister Macmillan and Chancellor Adenauer, despite the disparity in the President’s age and theirs, were impressed with his grasp of affairs and his judgment. Even such potential critics as the Presidents of Ghana and Indonesia have, according to USA official sources at any rate, formed the same impressions. It is almost impossible to say what the Soviet Foreign Minister thought of the President at their March 28 meeting, although the indications are, particularly after Cuba, that Soviet authorities now realize that the change in Administration did not repeat not mean a radical shift in the direction of USA policy.
  10. Personal impressions are no repeat no doubt particularly important in an age of direct diplomacy. The new President seems to be keeping his average up, not repeat not only in personally receiving visitors from abroad, but in sending USA special emissaries to foreign parts. Secretary Rusk’s visit to New Delhi (as well as to SEATO, CENTO, and NATO) Dean Acheson’s European tour, Ambassador Harriman’s tours of Western European and Asian countries, Assistant Secretary Williams’ African and Ambassador Berle’s South American trips, and Vice-President Johnson’s Asian tour leave no repeat no doubt as to the Administration’s determination to set a fast pace.
    Attitudes of Administration in Foreign Policy
  11. In the end, however, it is going to be substantive positions on foreign policy and defence issues that determine the reaction abroad to President Kennedy’s stewardship. So far – and we would stress the necessarily tentative nature of any assessment at this stage – the new Administration seems to be in the process of attempting to reconcile a number of conflicting objectives in these fields.
    1. Perhaps most obvious is the contrast between the Administration’s espousal of a neutralist solution to the Laotian problem and its concerted efforts to extract commitments from the Latin American states to support USA opposition to Castro’s Cuba and to re-establish the Monroe doctrine.
    2. A conflict of interest also appears in USA relations with its North Atlantic Allies and with the Afro-Asian uncommitted countries, especially those in Africa. The Administration on the one hand has strongly re-affirmed support for NATO; for European economic and political integration; and for greater NATO consultation, especially in relation to non-NATO areas. It has offered significant USA strategic forces to NATO as an earnest of USA steadfast concern for European security. On the other hand, and particularly at the UN under Ambassador Stevenson’s imprint, there has been an intense effort to renew the historical identification of USA with the spirit of freedom, independence and nationalism. The conflict here is perhaps less in the minds of USA leaders and more in those of European Allies, especially Portugal over the Angola issue, and Belgium and the Netherlands over the Congo and West New Guinea respectively. Nevertheless it is clear that the impatient idealism of the New World, as expounded by the present Administration, will continue to pose a problem for the harmony of the Alliance.
    3. To some extent associated with the foregoing, involving a strong USA antipathy towards colonial economics, is the pressure of USA on its allies to expand their contribution to the task of extending aid to the less-developed areas of the world.
    4. Relations with the Communist World and the USSR in particular also exhibit an unresolved dichotomy of approach. On the one hand the initial emphasis of the Administration in its approach to the Communists was on quiet peaceful negotiation and the avoidance of cold-war terms of exchange. The persistent plea was for orderly discussion of outstanding issues, in accordance with the norms of international conduct. Verbally at least there has been no repeat no slackening in the expression of USA desire for such developments. Latterly, however, the attention of Administration spokesmen, including the President himself, has been increasingly directed to the fact that behind a façade of international legality the Communist World is continuing and increasing its subversive and violent means of encroachment on the Free World. The problem is most clearly posed, for the Administration, in the situations in Laos and Vietnam, and perhaps also in Iran. The current negotiations in Geneva on Laos are accordingly being approached by the Administration with considerable suspicion and scepticism, but there has been no repeat no alternative yet expounded. Nevertheless there is increasing discussion of the need to fashion new methods to cope with Communist infiltration and subversion.
    5. In the realm of defence and disarmament also, two principles seem to have been at work, although their reconciliation is fortunately fairly well advanced. Internally the Administration has increased its efforts in the direction of a better balance between conventional and nuclear military strength. In NATO the Allies have been urged to meet at least agreed quantitative levels of conventional forces, and to devote increased resources to achieving high qualitative standards, in order to enforce a pause on aggressors and to raise the threshold of nuclear engagement. There is also continuing concern to prevent the spread of nuclear weapons under the autonomous control of nth countries, e.g. France, Germany, China. On the other hand, internally the Administration has increased the pace of the missile programme and has re-question this year $1,800,000,000 more to the development and defense of the nuclear deterrent.
      In relation to disarmament there has been agreement to reopen negotiations on general disarmament at the end of July and to discuss bilaterally with USSR in June and July certain procedural questions; there has also been the remarkably restrained USA response to the evidence of Soviet intransigence in the Geneva test ban talks notwithstanding its own willingness to make important concessions. At the same time there are growing indications that the Administration is becoming disillusioned with the processes of negotiation as exploited by the Soviet representatives. Where these seemingly divergent channels may lead ultimately is unclear, but for the moment, as was made specific for instance in the Laotian context, the Administration seems prepared to follow parallel courses of military preparedness and negotiated settlements. At least there has been no repeat no abandonment of political methods in favour of a pure “positions of strength” policy.
  12. In other fields the Administration has had less difficult problems to face and, in preliminary fashion at least, has continued to make useful progress. This has been particularly the case in relations with the less-developed countries, and the continuity reflected by thee appointment of Mr. Dillon has been important in this field and elsewhere. A reaffirmation and intensification of USA concern to assist these areas has been evident in the approach to Indian development programmes, the “Alliance for Progress” with Latin America (which has already achieved the material support of Congress to the extent of $500,000,000), and the recent encouragement by USA of action towards opening up commodity markets in the West likely to assist the primary producers in the less-developed area.
  13. Although no repeat no significant achievements have yet emerged, the new Administration has made clear its flexibility in the approach to a number of problems on which USA policy in the past has tended to be static. There has been a tentative reassessment of USA-China policy, especially in relation to UN, although short, of course, of any foreseeable move towards recognition. In relation to the Korean problem, the new Administration has conceded the validity of a somewhat less doctrinaire approach to the responsibilities of the UN in connection with the problem of reunification. There have also been indications of increased emphasis, even by the President himself, on the need for the Governments of Asian Allies to take thought for the need of popular support, if USA material assistance is to achieve its desired ends. To avoid acting under the pressure of crisis conditions, reconsideration of Berlin contingency planning and of possible negotiating positions on Germany and Berlin is being undertaken.
  14. It must be remembered that many of the positions and attitudes described above are opening positions which may well be modified. The new Administration has had very little respite from urgent and compelling problems. The coordination of policy, especially as between continuing regard for old friends and the desire to cultivate new ones, and even the regulation of the vast governmental machinery to avoid a debacle such as that over the Cuban invasion, has not repeat not unnaturally proved extremely difficult. The flexible pragmatic approach of the President and his principal advisers, however, seems on the whole likely to produce answers to match the magnitude of the problems. Finally, I believe that the President, as his Ottawa visit signifies, will, in seeking these answers, continue to welcome the expression of direct and frank Canadian views on the many problems confronting the two countries.

[A.D.P.] HEENEY

322. DEA/1415-N-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 1558 Washington, May 15, 1961
SECRET. OPIMMEDIATE.
Reference: Our Tel 1552 May 13.
Repeat for Information: NATO Paris, Paris, London, Bonn, Brussels, Geneva, Hague, Tariff Del from Ottawa, T&C Ottawa, Finance Ottawa, Bank of Canada Ottawa, Ext Aid Ottawa, PCO Ottawa from Ottawa

The Kennedy Administration’s First 100 Days – Foreign Economic Policy

The Kennedy Administration has placed great emphasis on questions of foreign economic policy. This is in part due to the balance of payments problem inherited from the previous Administration and in part to a greater awareness of the facts of international economic interdependence and a determination to strengthen international cooperation in this field.

  1. This general attitude is exemplified by the new and vigorous approach to the problem of economic development. The objectives have, of course, not repeat not been merely economic since the social and political problems created by the growing inequality of wealth between industrialized and less developed countries are very much in the minds of key figures of the Kennedy Administration. In consequence, the new emphasis on foreign aid is not repeat not limited to financial assistance but includes a fresh approach to commodity export problems of the developing nations and their export earnings and it looks to parallel action by these nations by way of self-help and domestic social and economic reforms.
  2. Another factor is the great importance which the Administration attaches to the concept of economic growth; this has spurred new initiative in the field of economic cooperation among Western countries and a keen interest in fostering growth not repeat not only through trade but also through greater cooperation in all fields of economic activity.
  3. Despite the problems posed by the current GATT tariff negotiations much less attention has so far been given to international trade policy. This is in large measure due to priorities imposed by legislative requirements; the new departure in the field of economic aid must first be established through the passage of this year’s foreign aid legislation while trade legislation is not repeat not due for renewal until next year. Such evidence as there is suggests, however, that the new Administration will continue to press for a non restrictive and outward looking USA foreign trade policy; indeed the whole area of USA trade policy is being reviewed and new and comprehensive proposals may be anticipated.
  4. Following is a brief review of the major developments during the last three months:
    1. Balance of Payments. USA balance of payments situation has improved substantially due to a continued increase in USA exports, a reduction in short term capital outflow and corrective measures undertaken by USA Government and other countries. The deficit of $4 billion at an annual rate during the last quarter of 1960 has been reduced to $300 million or slightly over $1 billion at a seasonally adjusted annual rate during the first quarter of 1961. The present Administration has maintained most of the balance of payments measures adopted by the Eisenhower Administration (including the tying of USA foreign aid and the order forbidding the holding of gold abroad by USA citizens). In addition, the following measures have been taken by the new Administration:
      1. continued export drive and encouragement of foreign travel to USA;
      2. proposed legislation to remove special tax incentives for USA investment in foreign industrialized countries;
      3. continued pressure to remove remaining import restriction abroad;
      4. reduction of customs exemptions for returning USA travellers;
      5. of particular importance, a major USA drive for more equitable sharing among Western countries of foreign aid and common defence; and
      6. proposals for close continuing consultations among Western countries on domestic monetary policy.
    2. International Economic Cooperation. The Kennedy Administration has seized upon the creation of the OECD and taken various initiatives designed to develop this body into a key instrument of economic policy and coordination. It has taken a number of initiatives in DAG and the OEEC Economic Policy Committee to ensure that the new organization develops in an effective and vigorous manner.
    3. Foreign Aid
      1. On March 22 President Kennedy announced proposals to recast USA aid policy through greater centralization (including Food for Peace programme) and emphasis on multi-year commitments and on increased economic aid. Increased emphasis was also placed on self help, long range planning and domestic reforms in recipient countries. Detailed legislative proposals are expected shortly.
      2. Latin America – Alliance for Progress: A ten year programme for social and economic development for Latin America was announced by President Kennedy on March 15. The first step in the programme will be the $500 million committed at Bogotá in 1960 and soon to be appropriated by Congress. Assistance under this programme will be made conditional on vigorous self help measures and internal reforms.
      3. India/Pakistan: At the recent India consortium meeting, USA indicated a willingness to commit $1 billion toward foreign exchange requirements of the first two years of the Indian third five-year plan. This commitment is conditional on congressional approval and on aggregate contributions of roughly the same magnitude on the part of other consortium members. Present indications are that USA is also prepared to announce a correspondingly increased contribution to the development of Pakistan.
      4. As indicated above the new Administration has further developed the multilateral approach through DAG as a means to increase the total level of contributions by member countries and in seeking to develop the concept of burden-sharing in connection with foreign aid.
    4. Foreign Trade Policy. Although, as indicated above, the Kennedy Administration has not repeat not yet taken extensive action on questions of international trade, two noteworthy developments have occurred.
      1. In the face of strong pressures for protectionist measures on textiles, the Administration has instead decided to seek a broad international solution for this problem.
      2. EEC. USA attitude to EEC remains basically unchanged although USA authorities have been led by recent developments to define their position on the possible accession of UK to the Common Market. Provided UK accepted the full obligations of the Rome Treaty, USA would favour UK accession; USA remains, however, opposed to any commercial accommodation between the Six and Seven which might water down the political content of EEC and increase the area of discrimination against USA.
  5. We assume this message, and our telegram 1552 May 13 and 1543 May 12† will be brought to attention of Prime Minister.

[A.D.P.] HEENEY

323. DEA/1415-N-40

Secretary of State for External Affairs to Permanent Representative to North Atlantic Council

TELEGRAM PM-138 Ottawa, May 18, 1961
SECRET. CANADIAN EYES ONLY. OPIMMEDIATE.

Prime Minister’s Talks with President Kennedy

For Léger. Following for your personal information is a rough preliminary summary of main points known to us of Prime Minister’s conversations May 16 and 17 with President.

  1. President said that he would be meeting Khrushchev in Vienna after his visit to Paris. Subjects uppermost in his mind for discussion with Khrushchev were: nuclear testing, Berlin and Cuba. Latin America
  2. This seemed to have priority among subjects raised by President. He pressed Prime Minister to give serious consideration to joining OAS and to sending an observer to Inter American ECOSOC Meeting in July. Prime Minister gave no repeat no commitment.
  3. President said that USA Government did not repeat not at present intend to volunteer further economic measures against Cuba although it was prepared to act promptly in response to provocation. President also made it clear that except in certain extreme circumstances USA did not repeat not contemplate military intervention in Cuba.
    Southeast Asia
  4. President expressed hope that International Commission in Vietnam could be made more effective as a means of controlling guerrilla infiltration into the South. He invited Canadian comments as to how procedures of Commission could be improved and said that after receiving our comments he would propose to communicate USA views to Mr. Nehru with a view to enlisting Indian cooperation. Prime Minister agreed to provide Canadian comments or suggestions.
  5. Re Chinese representation in UN. President had nothing new to offer. Prime Minister emphasized importance of avoiding a division of opinion among NATO nations at next Assembly.
    Berlin
  6. The President said conclusion of a peace treaty with East Berlin by USSR would not repeat not be cause for alarm and he would not repeat not be concerned if East Germans assumed responsibility for control of access. He would make clear to Khrushchev that the West could not repeat not afford to give away its rights.
    UK and Common Market
  7. President said main attraction for USA in UK association with Common Market was political. USA would want to avoid a limited form of relationship involving merely a tariff agreement.
    Foreign Aid
  8. President reviewed global requirements for aid with emphasis on India, Pakistan and Latin America. He expressed hope that Canada would help. Prime Minister said that he could not repeat not justify any increase at present time in Canadian aid commitments.
    Nuclear Testing and Disarmament
  9. President closely linked these subjects and made it clear that USA regarded Nuclear Testing Conference as an important criterion of Soviet intentions. He told Prime Minister privately that unless Khrushchev agreed to renew serious negotiations USA Delegation would be withdrawn from Geneva. He could not repeat not see how there could be any progress on disarmament unless a forward move was possible on a nuclear test ban. Prime Minister expressed agreement and indicated his concern that emphasis on unilateral disarmament in various Western countries was contributing to a weakening of Western unity and strength vis-à-vis USSR.
    Oil Bunkering
  10. Prime Minister expressed appreciation of USA attitude.
  11. With reference to Council Meeting mentioned in your telegram 1197 May 17† we suggest that you should base your comments on joint communiqué, press briefing and President’s speech,Footnote 8 which together reflect accurately main emphasis of conversations. In addition Prime Minister will be reporting tomorrow morning to House of Commons and may indicate at that time in general terms the position which he took with President Kennedy on some of main issues. Text will be forwarded promptly.Footnote 9

Part 5

Section A - Defence and Security Issues

Nuclear Weapons

324. DEA/50210-F-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], January 6, 1961

Meeting of the Permanent Joint Board on Defence

The next meeting of the Permanent Joint Board on Defence takes place on January 24 and one of the continuing items on the agenda is “The Storage of Defensive Nuclear Weapons at Goose Bay and Harmon Air Force Base.”

  1. You will recall that on December 6 Cabinet decided
    that discussions (or “negotiations”) with the United States Government concerning arrangements for the essential acquisition of nuclear weapons or warheads for use by the Canadian forces, in the manner already decided, may proceed as soon as they can usefully be undertaken but the acceptance of joint control is to be a basic principle; and that the agreement with the United States concerning the storage of defensive nuclear weapons at Goose Bay and Harmon Air Force Base for the United States air defence forces should not be concluded until after discussions with the United States on other matters had been concluded.
  2. The question now facing us is what Mr. Wilgress should say at the forthcoming PJBD Meeting, bearing in mind that the United States Section on its return to Washington will be reporting to the new Administration. I am of the opinion that if Mr. Wilgress were to make a forthright statement, perhaps along the following lines, it would be more useful than if he were simply to say that he was in no position to report on this matter:
    “The Canadian Government will not be able to come to a final decision on the Goose-Harmon agreement until its position with respect to the establishment of nuclear weapons stockpiles for Canadian forces has been resolved and until the situation regarding certain defence procurement negotiations, now being carried on, is clearer. In this connection, I may say that it is the intention of the Canadian Government to initiate discussions with the United States Government concerning arrangements for the establishment of stockpiles of nuclear warheads for the Canadian forces as soon as such discussions can be usefully undertaken this spring.”
  3. You might wish to discuss this matter with Mr. Wilgress prior to his departure for the Board meeting.Footnote 10

N.A. R[OBERTSON]

325. J.G.D./MG01/XII/F/100

Memorandum from Secretary to Cabinet to Prime Minister

PERSONAL [Ottawa], January 8, 1961

Nuclear Weapons; Policy Statement

I have been thinking of the substance and tactics on this subject before getting down to wording and would like your direction on several points.

On substance, I believe you have now reached the conclusion that we should make the necessary arrangements with the United States to have nuclear weapons available for the Canadian forces, under joint control, and in accordance with the basic policies outlined in your statement of February 20th, 1959.Footnote 13 I hope this is the case, for I feel these defensive weapons are needed now in Canada for anti-bomber and anti-submarine defence. I think the real need for our forces in Europe having them is less urgent, but we have made clear-cut commitments to NATO on the matter and there would be serious trouble here and in Europe in cancelling or frustrating the huge F104 programme to re-equip our air division there. Moreover, I think there is another type of danger in serious delay; should you decide after an election to have these weapons available for the defence of Canada, many people would say or think that you had knowingly risked the security of Canada and the Alliance for election purposes.

Therefore I assume that what you want is a statement announcing that we are negotiating now with the United States the arrangements by which nuclear warheads can be kept available in Canada under joint control for the use of Canadian and U.S. forces if and when they are required in defensive anti-aircraft and anti-submarine weapons. The statement would recognize the arguments for not having such weapons, disarmament and the desire not to enlarge the nuclear club, and would justify our delays on those grounds, but say why we feel the defence arguments now outweigh these considerations.

On tactics, I would suggest you consider asking the House of Commons to approve by suitable resolution the Government taking these necessary steps to be ready to protect the country and the Alliance. There has been so much said and written outside of Parliament by well meaning but ill-informed people on this subject, that I feel the air should be cleared and the Government given a chance to explain the real situation so far as security permits (which is pretty far) by a proper debate in the House early in the session. Moreover, it will I think strengthen your position on balance to have such a debate and make it necessary for the Liberals to declare themselves in a responsible way in advance of the campaign. The CCF (NDP) will no doubt oppose, but will have more difficulty in doing so in debate than on the hustings I think most of those who will oppose you on this issue, after a good debate, will likely be voting NDP anyway, or for Pearson as winner of the Nobel peace prize.

The chief difficulty is, of course, Mr. Green and this causes me serious concern for I have much respect and affection for him, even when I cannot agree with him. I should be glad to help in any way I can in preparing memoranda for you to give him or in talking to those of his officials, chiefly Norman Robertson, who encourage him in this last ditch opposition to our having these warheads available.

Perhaps I should add that I do not think we need to be in this nuclear business indefinitely. Our role in Europe should be, within a few years, as part of the non-nuclear force there on which the United States now puts such emphasis, if indeed we need to remain in Europe at all for more than five years or so. In North America, the importance of the ICBM and Polaris-type missiles will grow so rapidly in the next five years that defensive nuclear weapons of the nature we are planning to have within Canada will become much less important than now, and we could leave them to the United States and perhaps turn our efforts to special non-nuclear forces to use in some sort of international set up. But it is clearly far too early for that now and we should have ready as soon as possible the defensive weapons that would be important during the next five years or so.

R.B. B[RYCE]

326. DEA/50210-F-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], January 9, 1961

Nuclear Weapons; Policy Statement

I understand that Mr. Harkness has sent you a letter to which was attached a draft agreement on general principles governing the stockpiling of nuclear weapons in Canada and Europe for possible Canadian use.Footnote 12 You may find the following comments useful in your consideration of this matter.

  1. This draft is but a slightly revised version of the one prepared some time ago by officials of the Department of National Defence and this Department. It would, of course, be desirable for officials to go over it again as certain changes may be desirable before it is considered by Ministers. For example, the language of paragraph 3 might be strengthened by adding the words “and inter-governmental consultation” at the end of the paragraph to give emphasis to the point and to state more clearly the need for inter-governmental consultation as a means for exercising control over the possible use of nuclear weapons.
  2. The proposed agreement would be an agreement on general principles only, but it will take some time and prove difficult to negotiate, even though some of the principles already agreed to in connection with the proposed storage of defensive air-to-air weapons at Goose and Harmon have been worked into it. Even if it were completed and signed, as you will appreciate, it would not commit Canada to the acquisition of nuclear weapons since, before this could come about, it would be necessary to work out supplementary agreements covering each type of weapon. These, too, would take a good deal of time to negotiate.
  3. The principle of joint control, which the Cabinet has agreed should be basic to any agreement on the subject, has been incorporated in the draft and applied in various ways. Joint control over use, over release from storage and for the physical security of the sites are all provided for. In Canada, joint responsibility for physical security would be carried out by United States personnel being responsible for safeguarding and maintaining the warheads and Canadian forces being responsible for the external security of the sites (paragraph 2). Joint responsibility for release from storage would be stated as a principle (paragraph 3), with the details to be spelled out in supplementary agreements. The sole responsibility of the Canadian Government for the use of the weapons once released from storage would be stipulated (paragraph 4). In Europe, in the event Canada is to be the sole user of a storage facility, security of the site, subject to agreement with the host government, would be provided as if the site were in Canada, i.e., Canada would provide the external security for the site (paragraph 2). If Canada is to be a joint user, the external security of the site or sites would be as agreed between the governments concerned (paragraph 15). Controls over the release from storage would vary from weapon to weapon but based always on the principle of joint responsibility (paragraph 3). Authorization for the use of the weapons by Canadian forces, once released, would be the responsibility of Canada (paragraph 4).
  4. The problem of controls is, of course, extremely complex. We have made a first attempt to examine the implications in a paper which is attached. If you agree, it could be used as a basis for further consultation between this Department and the Department of National Defence.

N.A. R[OBERTSON]

[ENCLOSURE]

Draft Memorandum

SECRET [Ottawa], January 9, 1961

Nuclear Weapons Policy - Controls

I. POLICY CONSIDERATIONS

When Cabinet considered the above subject on December 6 last, one of the decisions taken was that in any discussions or negotiations with the United States concerning the stockpiling of nuclear weapons or warheads for Canadian forces, the “acceptance of joint controls (is) to be a basic principle.” This paper examines the meaning and implications of this principle.

  1. The problem of controls is, of course, fundamental to any consideration of the terms under which Canada might acquire nuclear weapons and the United States might stockpile such weapons in Canada for its forces. Essentially, the technical problem is to reconcile the requirements of the United States Atomic Energy Act with the need for the responsible military commander to respond to an emergency situation. There is also the all-important political problem, to reconcile the responsibility of the Canadian and United States Governments to exercise control through consultation in situations likely to give rise to the use of nuclear weapons. As stated by the Prime Minister in the House on July 14, 1960, the United States Act requires that ownership of the U.S. warheads must remain with the United States and that the warheads cannot be used by non-American forces unless released for the purpose by the President. On the other hand, if and when nuclear weapons are acquired by Canadian forces, they will be used only in the manner approved by the Canadian Government, and arrangements for safeguarding the stockpiles will be subject to Canadian approval and consent. These two elements taken together create a situation requiring certain responsibilities to be shared by both Governments. The controls so exercised jointly would vary depending upon the weapons and their location. In the same way, these controls would not necessarily be exercised simultaneously in point of time.
  2. The United States is, of course, bound by the restrictions imposed by its legislation when making arrangements with other governments. In no case can it abdicate responsibility for custody of warheads, i.e., control of access to the weapons, or their ownership, and cannot grant more favourable treatment to one ally than to another. Finally, it does not wish to see any expansion of the nuclear club. Canada shares this latter wish and has publicly declared so on many occasions. Like the United States, Canada regards the decision on the use of nuclear weapons of any sort as a matter of high policy and therefore appropriate to the maximum degree of Government control, consistent with the requirements of national security. Canada’s policy to seek extensive joint controls is not only based on a desire to give expression to this view but is also a political requirement in keeping with its position as a sovereign nation.
  3. There are three areas in which the principle of joint control can be established:
    1. Controls over the physical security of the sites;
    2. Controls over the release of the warheads from storage;
    3. Control over the use of the weapons.
  4. Physical Security

    The degree of control which can effectively be shared varies greatly depending upon the location of the warheads. For example, in connection with the storage of nuclear air-to-air missiles at Goose Bay and Ernest Harmon A.F.B., it will be recalled that the Cabinet agreed to the concept of a Canadian representative rather than joint responsibility for physical security. By this means, the importance the Canadian Government would attach to strict adherence to the terms of the proposed agreement would be demonstrated and the same objective achieved. To provide for Canadian troops physically sharing guardianship of the storage sites on these bases with United States forces in a United States enclave not accessible to the general public would be a waste of manpower, would raise difficult questions of military jurisdiction, and might give rise to differences of interpretation of the rights and duties of each Government under the governing lease.

    1. With respect to storage in Canada outside leased areas, however, the concept is both feasible and desirable. It could take the form of a division of the responsibility with United States custodial personnel being responsible for “internal” security and Canadian forces being responsible for “external” security. The United States position would be safeguarded and any contact the public might have would be with Canadian forces. Such a system is envisaged for stockpiling of warheads for the two BOMARC Squadrons, anti-submarine weapons for the RCAF Maritime Command, and possibly eventually for the air-to-air missiles for the RCAF Air Defence Command. It would also be appropriate for any storage outside any United States leased territory of anti-submarine weapons for the R.C.N. Inside U.S. leased territory such as Argentia, the concept of a Canadian representative would seem more appropriate for the same reason that this concept was found most suitable in the case of Goose and Harmon.
    2. [In this paper no attempt has been made to examine the problem of controls for MRBMs. References to control in the NATO context are solely to those for tactical weapons proposed for Canadian use, i.e., warheads for the Honest John and air-to-surface missiles for the CF-104s.] In Europe, the “inner” and “external” security concept could be applied without difficulty to stockpiles of warheads earmarked solely for Canadian forces. A variation of this concept might be required for joint user sites, with Canadian forces on the “outer” ring sharing guardianship with troops of the other country or countries concerned. To date, Germany, where the stockpiles for the use of Canadian forces will be located, has not indicated any desire to share responsibility for this or indeed any other phase of the controls over stockpiles on its soil, but should it do so then a procedure agreeable to all parties would have to be worked out. Because of President de Gaulle’s stand with regard to the storage of warheads in France, the United States has had no opportunity to explore what arrangements might be arrived at in that country. Unless the United States comes to some understanding or modus operandi with the French Government, it seems unlikely that there will be any possibility of making stockpile arrangements to supply that portion of the Air Division based in France. Thus the degree of control Canada might be able to exercise over weapons stored in France for the Air Division cannot be estimated at this time.
    3. Release from Storage
      The main purpose in seeking joint control over the release of warheads from storage would be to ensure that adequate Canadian political control is exercised when circumstances arise which would make preparations necessary for the employment of nuclear weapons by United States forces or Canadian armed forces in or over Canadian territory or in Europe. A Canadian control is required at this stage of the process whether removal is conducted for logistic or for operational reasons. How this could be applied in practice would vary according to location and from weapon to weapon. In the case of BOMARCs, for example, we would be faced with somewhat the same problem as the United Kingdom in connection with establishment on RAF bases of Thor missiles, namely that in order to be ready for use with minimum delay the warhead must be in position, or “stored,” on the carrier. To overcome this problem, the “double key” formula has been developed. Something similar might be required for the BOMARCs.
    4. A different procedure would be required for anti-submarine weapons allocated to the RCAF Maritime Command and the R.C.N. whether stored in Canada or at Argentia. Perhaps all that would be necessary would be a simple provision in the governing agreements that removal, whether for logistic or operational reasons, requires the consent of the Canadian Government (the requirement of the consent of the United States Government to removal from storage would be assumed to have been given).
    5. In Europe, for the reasons explained in paragraph 14 below, the extent to which Canada could exercise control over release from storage could only be specified in terms of the Canadian Government authority required by the Canadian commander before he is authorized to take delivery. As in the case of physical control, it could be provided for in general terms as a statement of fact without stating in precise terms how it might be carried out. Much would depend upon the exact location of the site and the type of weapon.
    6. Joint Control Over Use
      It might appear from the foregoing that separate consultations would have to be arranged to cover each stage of the process. This might be feasible in certain circumstances as, for example, in a period of mounting tension, but provision would also have to be made to cover an emergency situation in order to ensure that the military commander concerned is not so restricted as to be unable to react quickly in the event of a surprise attack. To this end, it could always be understood that Canadian approval for one stage would also constitute approval for any earlier stage. Thus approval for the use of the weapons would constitute authority for their removal from the storage site or from the base as the case may be. In all circumstances, however, it will be necessary to provide for a rapid and secure means of communication in order to ensure that governmental approval can be obtained, perhaps at very short notice.
    7. Joint control over use is, therefore, the most important and meaningful of all the different aspects of joint controls. As applied to the air defence of North America, the position is reasonably clear. Canada exercises with the United States joint responsibility for the operations of NORAD including the weapons placed at NORAD’s disposal. In the event that defensive nuclear weapons are made available to NORAD forces in Canada, they could only be used in accordance with agreed procedures governing NORAD’s operations which, in turn, are approved by both governments. Thus, in Canada, such weapons could only be used in Canadian territory or air space under conditions agreed to by Canada. The United States is able to exercise joint control over use by withholding Presidential authority for the release of these weapons to Canada and presumably would only permit their release if satisfied that the particular situation requires their use. Canada can only exercise its share of responsibility once the weapons have been released but, even so, the weapons could not be used even though released by United States if the Canadian Government does not see fit to permit their use. Thus, irrespective of the action the United States may take, the control of the Canadian Government amounts virtually to a power of veto.
    8. Insofar as anti-submarine weapons are concerned, the situation is less clear. It will be recalled that, at the Montebello meeting of the Canada-United States Committee on Joint Defence, it was agreed that joint control over storage and control over release from storage at Argentia presented no particular problem as the same general principles embodied in the proposed Goose-Harmon agreement could be applied.Footnote 13 A special problem over the use of such weapons would arise, however, with respect to the extent to which Canadian control could or should be applied once a naval vessel had left Canadian territorial waters. This is purely a matter of government policy, and quite similar to that faced by the United Kingdom in connection with the degree of control it will have over Polaris-equipped submarines based on the Clyde once such a submarine has left United Kingdom territorial waters. According to Mr. Macmillan, there is “general agreement” that there will be “the fullest possible previous consultation with the United States and our Allies” although he recognized that such consultation might not be possible in the event of an emergency. Both Mr. Macmillan and Mr. Watkinson, the Minister of Defence, said that in all events “we shall continue to rely on the close co-operation and understanding that we have of the United States on all defence matters.”
    9. In the case of Canadian forces committed to NATO, the application of the concept of joint control has additional implications. There is a general understanding among governments that, where time permits, the Council will be consulted before nuclear weapons are employed by NATO forces. It is also understood that, in the event of a sudden large-scale attack, SACEUR is authorized to use all the means at his disposal, including nuclear weapons, necessary to repel the attack. In effect, members will be able to exercise a measure of control through the Council where there is time.
    10. The absence of any clear cut definition of the degree of control to be exercised by the Council, however, does not preclude Canada and other countries with forces to be equipped with nuclear weapons from ensuring that they are able to share responsibility with the United States (and, if necessary, with SACEUR) regarding the use of the weapons. The practice so far has been to conclude bilateral stockpile agreements between the United States and the user countries concerned. No problem has, as yet, arisen with “host” governments as Germany, up to the present the only host country, has not yet sought to participate in these agreements. It may, of course, decide to do so in the future in which event a new element will be injected into the picture. However, in view of the fact that Canadian forces will be in physical control of the means of delivery, it should be possible to ensure, through the terms of the stockpile agreement, that joint control over physical security, over release, and over use are applied.
      II. Application of Policy Considerations
    11. The three phases of joint control outlined above have been covered in various ways in the “MB-1 Overflight” agreement, the proposed agreement on storage at Goose Bay and Ernest Harmon A.F.B., and in the working draft which has been prepared governing stockpiling of warheads for Canadian forces in Canada and in Europe.
      (a) MB-1 Overflight Agreement
    12. This agreement, which is renewed annually, permits USAF interceptors under CINCNORAD’s operational control to overfly Canada with nuclear air-to-air weapons under certain conditions, as described below. At the moment, this agreement applies only to interceptors based on the United States but it would automatically apply to such interceptors based at Goose and Harmon when the agreement for their storage there is concluded. Since the weapons are stored in the United States, the questions of joint control over physical storage and for release from storage do not arise.
    13. The Canadian Government, however, does have joint control over the use of the weapons in Canada. Interceptors armed with these weapons may only enter Canadian air space whenever a condition of Air Defence Readiness or Air Defence Emergency is declared by CINCNORAD. These are NORAD’s two highest states of readiness and would only be declared in a state of grave emergency when an attack on North America is deemed either to be imminent or in actual progress. As this agreement is renewed annually, the Canadian Government may alter its terms if it decides to do so when the agreement comes up for renewal.
    14. In addition to this control, under the terms of an Exchange of Letters of September/October, 1959, except in a grave emergency, there must be consultation between the two Governments in both the diplomatic and military channels before CINCNORAD may increase his state of readiness (at the time this agreement was being negotiated, it was clearly recognized that it would be unrealistic to make consultation mandatory in a situation of grave emergency should a surprise attack be launched on North America without any prior build-up of international tension). Moreover, the weapons in question may only be used in accordance with NORAD’s Rules of Engagement which have to be approved by the Chiefs of Staff of both countries.
    15. The arrangements already agreed to with the United States embodied in this agreement provide the necessary safeguards to ensure Canadian control over the use of the weapons in question in Canadian air space consistent with the need for CINCNORAD to react quickly in an emergency. Should the Canadian Government feel it necessary to go further in order to ensure control for their use in an emergency situation, the only method by which this could be done would be to devise some system whereby an appropriate Minister, and possibly the Prime Minister as well, could be reached at a moment’s notice at any time of the day or night to give the necessary authorization.
      The Proposed Agreement for Storage at Goose and Harmon
    16. The weapons to be stored at these two locations would be for United States’ use and a number of controls have been written into the draft as it now stands. Joint responsibility for arrangements for the storage of the weapons is provided for by the United States assuming responsibility for the security of the storage sites in accordance with the terms of the governing leases and Canada providing a “representative” at each location in order to ensure that the United States carries out its obligations under the agreement. Procedures for the handling of the weapons would be subject to Canadian approval. The weapons would be transported in accordance with Canadian law and agreed procedures. Joint control over use would be covered by the automatic application of the provisions of the MB-1 Overflight Agreement and the NORAD States of Readiness Agreement. Specific Canadian approval is required for the removal of the weapons from the area of the base.
      (c) The Proposed Stockpiling Agreement
    17. The draft on this subject which has been prepared by officials but not yet formally considered by Ministers covers both stockpiles in Canada and in Europe for Canadian forces. It envisages a set of general principles applicable to both areas and other principles applicable to one area only. This proposed agreement would not, in itself, permit any stockpiling. Once concluded, it would serve only as a context within which there can be negotiated a series of inter-governmental agreements setting out the detailed arrangements for the provision of specific weapons, the controls to be applied, and the logistic considerations surrounding their storage.
    18. With regard to stockpiling of warheads for use by Canadian forces in Canada, the proposed agreement provides for joint responsibility for physical security, with United States personnel being responsible for safeguarding and maintaining the warheads and Canada responsible for the external security of the sites. It would establish the principle of joint responsibility for the procedures under which the warheads would be released from the storage sites but would not attempt to spell them out. The sole responsibility of the Canadian Government for the use of the weapons once they have been released from storage would be stipulated. As in the case of the proposed Goose-Harmon Agreement, the procedures for handling the warheads would be subject to Canadian approval and the transport of the warheads would be subject to Canadian laws and regulations.
    19. With regard to stockpiles in Europe for Canadian forces, the draft envisages controls to be exercised as follows. In the event Canada is to be the sole user of a storage facility, security of the site, subject to agreement with the host government, would be provided as if the site were in Canada, i.e., Canada would provide the external security for the site. If Canada is to be a joint user, the external security of the site or sites would be as agreed between the governments concerned. As would be the case of stockpiles located in Canada, controls over the release from storage sites would vary from weapon to weapon but based always on the principle of joint responsibility. Similarly, authorization for the use of the weapons by Canadian forces, once released from storage, would be the responsibility of Canada.

327. CEW/Vol. 3093

Commission permanente canado-américaine de défense Memorandum from Secretary, Canadian Section, Permanent Joint Board on Defence, to Canadian Section, Permanent Joint Board on Defence

SECRET [Ottawa], January 13, 1961

Nuclear Weapons Policy

The Chairman of the Canadian Section will make the following statement on this item:
“The Canadian Government will not be able to come to a final decision on the Goose-Harmon agreement until the position with respect to the acquisition of nuclear warheads for the use of Canadian forces has been resolved. In the meantime, preparations are continuing to enable the Canadian forces to have the vehicles, missiles, bases, training and other requirements to enable them to use nuclear weapons if and when the adoption of these weapons is considered necessary. I may say that it is the intention of the Canadian Government to initiate discussions concerning arrangements for the acquisition of nuclear warheads for Canadian forces as soon as such discussions can usefully be undertaken.”

328. DEA/50210-F-40

Memorandum from Advisor to Government of Canada on Disarmament to Head, Defence Liaison (1) Division

CONFIDENTIAL [Ottawa], January 13, 1961

Nuclear Weapons Policy

Following our conversation, I am setting down the following notes on the points in the draft paper on the above-mentioned subject, which you allowed me to see, which struck me as raising some difficulties.

  1. The first point relates to the covering memo, page 2, line 29. It seems to me that there is a contradiction in the statement that “authorization for the use of the weapons by Canadian forces, once released, would be the responsibility of Canada.” SACEUR is to have operational command of the Canadian forces. While Canada would undoubtedly be able to exercise judgement as to whether the weapons were to be released or not, provided events did not move too rapidly, it would seem extremely difficult to maintain Canadian commanders are to obtain Mr. Diefenbaker’s authority, and SACEUR is to obtain the President’s authority before nuclear weapons could be used, in view of the very high speed at which a serious situation might be expected to develop, and in view of the confused situation likely to obtain because of uncertainty of information, it would seem that, unless we are to risk the Canadian forces being overwhelmed before they could use their weapons, they would have to use them in accordance with SACEUR’s orders once the decision had been taken to release them.
  2. In para. 7 of the main paper, the point is made that the warheads for the use of the airforce F-104G’s could not be stored in France while President de Gaulle’s position remains as at present. This might mean that, in order to use these weapons on this aircraft, our bases will have to be moved, which would doubtless raise grave problems.
  3. Paras. 14 and 15: The “understanding” that where time permits the Council will be consulted before nuclear weapons are employed would seem to have little value, as probably time would hardly ever permit and as, in the case of a sudden large scale attack, SACEUR is authorized to order the use of nuclear weapons. The final sentence in para. 15 does not appear to be consistent with statements in para. 14.
  4. Para. 21: The object of maintaining joint control over these stocks for the use of US aircraft is not very clear. Their mere presence on Canadian soil, whether they were partially under Canadian control or not, would probably be enough to enable Russia in a war situation to claim justification for any nuclear attack on the facilities – whether in fact Canada authorized the US armed forces to use these stocks or not.

E.L.M. BURNS

329. DEA/50210-F-40

Secretary of State for External Affairs to Minister of National Defence

SECRET Ottawa, January 13, 1961

My dear Colleague,
I am sorry that I have not been able to reply to your letter of December 30 before this date.
To your letter you attached a draft agreement on general principles governing the provision of stockpiles of nuclear weapons for Canadian forces.
I am asking the officials of my Department, who are concerned with this question, to examine this draft and let me have their comments. When these have been received, I shall be in a position to reply more fully to your communication.

Yours sincerely,
H.C. GREEN

330. J.G.D./MG01/XII/B/179

Memorandum from Prime Minister to Secretary of State for External Affairs and Minister of National Defence

[Ottawa], February 13, 1961

There is nothing inconsistent with maintaining Canada’s Defence while at the same time pressing forward for disarmament.

J.G. D[IEFENBAKER]

331. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], February 14, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

Disarmament – Canadian Policy 1961; Nuclear Weapons; Meeting with President of U.S.

(Previous reference June 23, 1960)

  1. The Secretary of State for External Affairs said that on June 23rd, 1960, the Cabinet had approved a Canadian view on Soviet proposals then current, as guidance for the Canadian Representative to the Conference of the Ten Nation Committee on Disarmament. Subsequently, the United States, with the support of other Western members of the Committee, had submitted new proposals, and the U.S.S.R. had put forward revised proposals. It was therefore desirable to review Canadian disarmament policy for the guidance of the Canadian representatives in forthcoming discussions.
    An explanatory memorandum was circulated, (Memorandum, Secretary of State for External Affairs, concurred in by the Minister of National Defence, Feb. 13 – Cab. Doc. 67-61).†
  2. The Prime Minister said that, while in Washington on February 20th, he would try to discover how far President Kennedy would go in the direction of joint control over the use of nuclear arms if located in Canada. To prevent public misunderstandings or inconsistencies in public statements, future announcements of the government’s policy on nuclear weapons should be made by the Prime Minister only. The policy at this time should be that announced by him two years previously, on February 20th, 1959Footnote 14 and any changes in policy would be determined by the Cabinet.
    As President Kennedy had decided to have the U.S. Secretary of State and the U.S. Ambassador to Canada in attendance at the meeting on February 20th, he was asking Mr. Green instead of Mr. Walker to accompany him. Changes had also been made in the programme for the Commonwealth Prime Ministers’ Conference, and this might affect the composition of the Canadian group that would proceed to London.
  3. During the discussion the following points were raised:
    1. New paragraphs had been inserted in the memorandum dealing with the inclusion, in the first stage of disarmament, of measures for restricting the spread of nuclear weapons to other countries. These paragraphs would not prevent the government of Canada from obtaining nuclear weapons from the United States at this time.
    2. A recent public opinion poll indicated that 46 per cent of Canadians favoured acceptance of nuclear weapons by Canada, 20 per cent were opposed and the remainder were undecided.
    3. The obstacle to the recognition of Red China by Canada was not the possibility of objections from the U.S., but the fact that Red China would not accept recognition unless their right to Formosa was also recognized, and the fact that such recognition would discourage the anti-communist states of Southeast Asia. Formosa was an inherent part of the North American defence system. Other nations bordering on the Pacific, such as Australia, New Zealand and Japan, had withheld recognition from Red China. The recent statement by Lord Home on recognition had probably not been authorized by the U.K. government. The question would not arise again at the United Nations until the autumn of 1961.
    4. The Cabinet approved the memorandum of the Secretary of State for External Affairs, dated February 13th, 1961, concurred in by the Minister of National Defence, (Cab. Doc. 67-61), as a statement of the Canadian position on disarmament, for the guidance of Canadian representatives at future disarmament negotiations, and took note of the Prime Minister’s view that the policy regarding nuclear weapons stated to Parliament on February 20th, 1959, should be regarded as continuing to be government policy except insofar as the Cabinet decides otherwise.
      . . .

332. CEW/Vol. 3093

Memorandum from Secretary to Cabinet to Prime Minister

SECRET [Ottawa], February 15, 1961

Nuclear Weapons – Position for Discussion With President Kennedy

After re-studying your main statements on the subject and reviewing the discussions and papers about it, I would make the following comments and suggestions for you:

  1. I do not believe that much is to be gained, either internationally or domestically, by keeping the Canadian position undefined or fluid. In fact the Canadian position is reasonably well-determined now and needs only some re-affirmation on your part and some defence by your Ministers to clear up the confusion in the press and public mind, which I feel is doing harm to the Government. Therefore I suggest that you tell Kennedy the main points of Canadian policy, and later make a statement to the House, setting forth the Government’s position as clearly as possible.
  2. On matters of principle, there is very little difference between the Government’s position on this subject and what the United States is willing to do (except in respect of SAC weapons at Goose Bay). Your basic statement of February 20th, 1959 was accepted by the U.S. members of the Joint Defence Committee in advance. The addition to it of “joint control,” which was not referred to as such, does not pose serious problems, as long as the United States retains the authority to release the warheads for our use, in accordance with their law and with the principle you endorsed in February 1959.
  3. There are some practical problems of procedures and presentation. We have solved most of these in respect of the warheads to be at Goose Bay and Harmon Field for the U.S. air defence squadrons there, in the agreement that has been worked out but not yet signed. There are some other problems of detail in connection with defensive nuclear naval weapons at Argentia, relating to their being put on U.S. naval ships leaving that base for duty at sea, but these should be soluble. The problems of detail relating to the BOMARCS seem to be soluble by a “two-key” arrangement such as the United Kingdom has with the United States. The weapons for our NATO forces do not present serious problems vis-à-vis the United States, though there are complications about relations with NATO and the host country, and in arrangements for obtaining prompt approval by the Canadian Government in an emergency.
  4. These matters of detail about procedures and the wording of announcements are not suitable for discussion between the President and yourself at this time, even if we were ready, and I doubt if they will ever require such high level discussions. They can be settled, I think, by the regular diplomatic machinery and the Canada-U.S. Committee of Ministers.
  5. Consequently I think there is little that you have to ask Kennedy for at this stage in this field, and your real objective should be to use the opportunity to make clear what our policy is. Put briefly, it is, I suggest, the following:
    1. In general it is that set out in your February 1959 statement, plus joint control.
    2. We wish to proceed now with the negotiation via diplomatic channels of agreements under which we can get U.S. nuclear warheads and weapons for the Canadian forces when and if we need them in accordance with the principles already stated.
    3. We are prepared to enter into the agreement concerning the U.S. air defence squadrons at Goose and Harmon as soon as we can enter into an agreement re the Canadian forces requirements.Footnote 15
    4. We would proceed now to work out a separate agreement for naval weapons at Argentia, which will have to take account of the special problems of naval use aboard ships.
    5. We prefer to leave in abeyance for the present any arrangement to place SAC attack weapons at Goose Bay, as this will cause us serious political problems in Canada which may be less when the arrangements over defensive weapons have been worked out and announced.Footnote 16
    6. We do not wish to have the nuclear warheads for the Canadian forces placed in Canada until our forces are equipped and trained to use them, and therefore we will continue to say we are making arrangements to get them only if and when they are needed.Footnote 17
    7. At present we would not plan to hold nuclear warheads in Canada for use on any F-101 interceptors that we might obtain from the United States, but plan to obtain them quickly from nearby U.S. bases in an emergency.Footnote 18
    8. We do not foresee any special difficulties about arrangements for nuclear weapons for the Canadian forces in NATO but we would stipulate that they can be used only with the approval at the time of the Canadian Government and we will make arrangements so that approval can be given promptly.Footnote 19
    9. We would hope and expect that the close consultation in regard to intelligence and policy that has prevailed in the past between our two countries will continue in the future so that the Canadian Government will be able to act promptly in an emergency.Footnote 20

R.B. B[RYCE]

333. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], February 21, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

Report on Discussions with President Kennedy; Canadian Position on Storage of Nuclear Weapons

(Previous reference February 17)

  1. The Prime Minister said that he had outlined to President Kennedy the views of the government of Canada on the storage of nuclear weapons in this country. He had stated that negotiations should continue regarding such storage at Harmon Field and Goose Bay, but that Canada would insist upon joint custody and control, and joint authority over use. The President had seemed to raise no objection. Regarding the submarine base at Argentia, Mr. Diefenbaker said he had stated that Canada would require joint custody, but that use should be determined by N.A.T.O. He had further stated that, so long as serious disarmament negotiations continued, Canada did not propose to determine whether or not to accept nuclear weapons for the Bomarc bases or for the Canadian interceptors; but that, if such weapons were accepted by Canada, this country would require joint custody and joint control, and use would be determined in the same manner as on U.S. bases. Negotiations for the necessary agreements should now continue on the basis of a “package deal,” no one agreement being signed before the others had been worked out. There would be no hold up if war should occur. The President had asked whether the same sort of “two key” arrangement as the United Kingdom had would be satisfactory and Mr. Diefenbaker had said it would.
  2. The Secretary of State for External Affairs said that President Kennedy had indicated that the new U.S. government hoped to determine its basic policy on disarmament before participating in international discussions on the subject.
  3. The Cabinet noted with approval the statement of the Prime Minister on his discussion with President Kennedy in Washington on the previous day on the storage of nuclear weapons in Canada.
    . . .

334. H.C.G./Vol. 10

Minister of National Defence to Secretary of State for External Affairs

SECRET Ottawa, March 1, 1961

My dear Colleague:
I refer to my letter of December 30, 1960 and your reply of January 13, 1961 on the subject of the provision of stockpiles of nuclear weapons for the Canadian forces.
Considerable time has now elapsed since your reply and I am wondering whether you are now prepared to discuss this problem. As the various programmes to provide carriers are continuing and their operational dates approach, I am anxious that we come to a decision on this matter of providing the warheads at the appropriate time in the weapon programme.
I would appreciate hearing from you in this matter.

Yours sincerely,
D.S. HARKNESS

335. H.C.G./Vol. 10

Secretary to Cabinet to Secretary of State for External Affairs

SECRET Ottawa, March 2, 1961

Dear Mr. Green:
When the Prime Minister returned from Washington last week he outlined in Cabinet the following day, Tuesday, February 21st, the substance of his talks with President Kennedy. Part of these dealt with the Canadian position on storage of nuclear weapons, and I thought you should have a note on what I propose to record on this matter.
Mr. Diefenbaker said he had stated that negotiations should continue regarding such storage Harmon Field and Goose Bay, but that Canada would insist upon joint custody and control, and joint authority over use. The President had seemed to raise no objection. Regarding the submarine base at Argentia, Mr. Diefenbaker said he had stated that Canada would require joint custody, but that use should be determined by N.A.T.O. He had further stated that, so long as serious disarmament negotiations continued, Canada did not propose to determine whether or not to accept nuclear weapons for the Bomarc bases or for the Canadian interceptors; but that, if such weapons were accepted by Canada, this country would require joint custody and joint control, and use would be determined in the same manner as on U.S. bases. Negotiations for the necessary agreements should now continue on the basis of a “package deal,” no one agreement being signed before the others had been worked out. There would be no hold up if war should occur. The President had asked whether the same sort of “two key” arrangement as the United Kingdom had would be satisfactory and Mr. Diefenbaker had said it would.
You will remember that you pointed out that President Kennedy had indicated that the new U.S. government hoped to determine its basic policy on disarmament before participating in international discussions on the subject.
The Cabinet noted with approval the statement of the Prime Minister on his discussions with President Kennedy in Washington on the previous day on the storage of nuclear weapons in Canada. It is my understanding that negotiations on the basis outlined above were to proceed forthwith.
I have written a similar letter to Mr. Harkness.

Yours sincerely,
R.B. BRYCE

336. DEA/50210-F-40

Memorandum from Head, Defence Liaison (1) Division, to Under-Secretary of State for External Affairs

SECRET [Ottawa], March 10, 1961

Nuclear Weapons Negotiations with the U.S.A.

Last December Cabinet decided that negotiations might proceed with the U.S. Government on the acquisition of nuclear warheads for Canadian forces as soon as they could usefully be undertaken, and that the agreement on storage of air-to-air weapons at Goose Bay and Harmon should not be concluded until after discussions with the United States on other matters had been concluded.

  1. In a brief conversation with me last week the Minister said that the Prime Minister now wished the various nuclear negotiations to be undertaken on the basis of a “package deal.” The agreements would be negotiated but would not be put into effect until such time as the Government decided that such action was required. I assume that the elements of the “package” would be:
    1. a general agreement or agreements regarding the establishment of stockpiles of nuclear warheads for Canadian forces in Canada and in Europe;
    2. the Goose-Harmon agreement;
    3. an agreement for the storage of naval nuclear weapons at Argentia.
      I also assume that the United States request for permission to store SAC weapons at Goose Bay for “reflex strike” missions would be excluded from the package.
  2. In my opinion the “package” should consist of a collection of separate agreements rather than melded into an omnibus agreement, because of the basic differences in the arrangements which would govern each situation.
  3. It would be possible to carry out the three negotiations simultaneously but in my view it would be simpler to deal first with the stockpile agreement or agreements for Canadian forces, then revert to the Goose-Harmon agreement, and finally tackle the Argentia agreement. Such a procedure might take longer but perhaps this is not undesirable. Maybe it would be desirable, when the negotiations were completed, to have the “Package” reviewed by the Ministerial Committee on Joint Defence.
  4. The following are points which should be considered in connection with the individual agreements:
    Stockpiling of Nuclear Warheads for Use by Canadian Forces in Canada and Europe
  5. At present the draft of this agreement is set up as an omnibus document covering requirements both in Canada and in Europe. There might be some advantage in splitting it so that if the Government wished to follow a different timetable at home and abroad it could do so.
  6. The procedure which it is suggested should be followed in connection with negotiation of this agreement is as follows:
    1. discussion of draft text between SSEA and MND;
    2. submission of the agreed draft to Cabinet for approval as a basis for opening negotiations with the United States;
    3. Transmittal of the draft through the Canadian Embassy in Washington to the United States authorities for consideration, following which the regular process of negotiation would take place.
      Storage for Air-to-Air Weapons at Goose Bay
  7. Last July at Montebello the United States accepted the Canadian draft of a proposed agreement provided two points could be met:
    1. that provision be made to ensure that the weapons could be returned to the United States at any time at the request of the United States Government;
    2. that more formal status be given to the informal explanatory notes provided to the State Department by the Canadian Embassy regarding those paragraphs of the draft agreement dealing with joint responsibility for storage, release from storage, use of the weapons and their movement within Canada.
  8. These points were set out in a draft memorandum to Cabinet after the Montebello meetingFootnote 21 but so far as we are aware the memorandum was never submitted to Cabinet by SSEA. We were given to understand recently that the Minister had discussed the matter with the Prime Minister, who objected to point (2) above. If this is the position of the Government and if it is desired to re-open negotiations on this matter, presumably the next step would be to convey the position of the Government to the State Department so that it can decide whether or not it is prepared to conclude an agreement on terms acceptable to Canada. As a matter of timing and bearing in mind the fact that the State Department knows we have no intention of concluding the agreement for the present in any case, it would seem better to defer renewal of these negotiations for the time being.
    Storage of Naval Nuclear Weapons at Argentia
  9. There have been no formal negotiations on this matter, but it was discussed at Camp David and at Montebello. It should be possible to deal with this project by means of an agreement similar to that for Goose and Harmon, but there is the additional problem of what control, if any, Canada would wish to exercise on weapons transferred from the storage site at Argentia to U.S. ships which then leave Canadian territorial waters. In essence this is the same problem faced by the United Kingdom in connection with Polaris submarines based on the Clyde. Perhaps it might be possible to evolve a formula whereby operational responsibility would pass to SACLANT when ships left Canadian territorial waters.

[W.H. BARTON]

337. DEA/50210-F-40

Memorandum from Head, Defence Liaison (1) Division, to Under-Secretary of State for External Affairs

SECRET [Ottawa], March 15, 1961

Nuclear Weapons

You will recall that under cover of your memorandum to the Minister of February 6† you forwarded to him some comments we had prepared on the draft agreement on general principles governing the stockpiling of nuclear weapons for Canadian forces in Canada and in Europe.†

  1. During your absence in Washington the Minister called in Mr. Ignatieff and Mr. Tovell to discuss the matter. Mr. Green was of the opinion that the draft agreement as it stood was not sufficiently detailed, particularly on the various aspects of joint control and wished these to be amplified. He was also of the view that since the Prime Minister envisaged a “package deal” we should aim at an omnibus agreement rather than proceed along the lines we have been following, namely an agreement on general principles followed by separate intergovernmental agreements for each type of warhead and/or weapons system.
  2. The upshot of the discussion was that before the Minister accepts Mr. Harkness’ invitation to discuss the agreement on general principles together, this division should, without consultation with National Defence:
    1. revise the present draft of the general agreement, particularly those paragraphs dealing with joint responsibility for storage, joint control over release from storage and joint control over use in order to make them as detailed as possible with regard to each type of warhead;
    2. work up a draft of the separate agreement to cover warheads for the BOMARC;
    3. work up a draft agreement on storage at Argentia.

    We are currently engaged in these three tasks on a priority basis.
  3. During the course of the meeting the Minister suggested that the Goose-Harmon draft should also be incorporated in the omnibus agreement. Mr. Ignatieff, however, expressed the view that storage at Goose and Harmon like storage at Argentia are readily separable from any omnibus agreement or agreements dealing with stockpiling for Canadian forces. The Minister agreed that this matter should be left in abeyance until at least such time as he has had a chance to see the further drafts which we are preparing for him.

W.H. BARTON

338. DEA/50210-F-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], March 23, 1961

Nuclear Negotiations with the U.S.A.

Pursuant to your discussion with Messrs. Ignatieff and Tovell last week we have prepared and attach under Tab. A for your consideration a draft of an “all-embracing” form of agreement to cover the establishment of stockpiles of nuclear weapons for Canadian forces in Canada and Europe.† It consists of the following:

  1. a covering diplomatic note;
  2. an annex setting out the general conditions which would apply (this is based on the draft “general agreement” proposed by the Department of National Defence but incorporates some drafting changes);
  3. a series of schedules to accompany the annex setting out the detailed control arrangements to govern the storage, release from storage, and employment of weapons by Canadian forces in Canada and Europe. Schedules have been prepared for the BOMARC, naval weapons for the RCAF and RCN, Honest John, and weapons for the Air Division in Europe. It should be emphasized that these draft schedules are intended to be illustrative only, as they represent only External Affairs ideas on what should be in them, and have not been discussed with National Defence, which no doubt would argue that insufficient technical information is available at this time to discuss this aspect of the negotiations.
  1. Also attached under Tab. B, in accordance with your request, is a draft agreement regarding the storage of naval nuclear weapons at Argentia to meet U.S. requirements.† It is modelled on the draft agreement regarding storage of air-to-air nuclear weapons at Goose and Harmon, but with some important differences, as follows:
    1. paragraph 6 of the draft agreement provides that the weapons would only be used in situations of grave emergency in accordance with the plans and procedures governing the operations of ACLANT (this means that NATO alert procedures, and the obligation to consult the NATO Council if time permitted, would apply), but limits specific Canadian approval of use to Canadian territory;
    2. paragraph 7 requires specific Canadian approval of the release of the weapons from storage, but also, in conjunction with paragraph 8, imposes the consequent obligation on Canada to provide the means of communication necessary to ensure that such approval can be obtained very rapidly.
  2. There are two main points on which we anticipate difficulties with the U.S.A. in the negotiations on the various nuclear agreements:
    (a) Description of Arrangements for Storage
    We do not anticipate that the U.S.A. will quarrel with the substance of the arrangements we have suggested on storage, but we anticipate that they will once again seek to describe their part of the arrangements in terms of U.S. “custody” of the warheads. We have been successful in gaining acceptance of our view by U.S. officials in connection with the negotiations to date of the proposed agreement on Goose and Harmon, but in that case the warheads are intended for use by U.S. forces. They may be less willing to accept our formula in its application to warheads intended for use by Canadian forces, especially for those in Europe;
  3. Arrangements for Release of Warheads for Use in Event of Emergency
    The U.S.A. is not expected to challenge the Canadian right to have an equal voice in the decision to release the warheads for use when there is sufficient time to carry out the necessary consultations, but they will also press us to agree that in event of emergency, when decisions would be required in a matter of minutes, the authority should be delegated to the appropriate commander, i.e. CINCNORAD, SACEUR or SACLANT. It would seem to us that we have two choices in this connection, – either we agree to delegate such authority, or alternatively we establish a rapid communications system similar to that used by the United States to ensure that key ministers and officials can be contacted at once, at any time of the day or night, wherever they may be. Such a system is expensive and onerous for those involved, but it can be set up. The various schedules to the stockpile agreement, and also the Argentia agreement, have been drafted on the assumption that you would prefer to have such a system rather than agree to any delegation of authority, but the implications of this course of action should be fully appreciated. It would mean accessibility of the responsible Ministers at all times.
  4. Although we have drafted the stockpile agreement in an “all-embracing” form so that the totality of what is involved can more easily be appreciated, it is suggested that further consideration should be given to the form in which we take it up with the United States. One question, for example, is whether it would be more advantageous to the Canadian Government to have two agreements – one dealing solely with requirements of our forces in Canada and the other with requirements in Europe, either one of which could be implemented or terminated without reference to the other. A second point relates to the schedules setting out the detailed arrangements applying to different weapons systems. We believe that we should not be the first to “show our hand” on what we think should be in the schedules, but rather that we should try to get the U.S.A. to produce drafts for us to comment on. This will give us information which we do not now have on the technical considerations involved, and make it possible for us to propose revisions incorporating the features which we consider to be essential in a form corresponding to technical requirements.
  5. If it is decided to open negotiations along the lines set out above it is suggested that action might be taken concurrently to initiate technical studies on the establishment of a rapid communications system.
  6. There is a further point of some importance which will require classification. Basing ourselves on the views you expressed in your discussion with Mr. Ignatieff on March 11, we have prepared in the attached draft a “package” made up entirely of Canadian requirements, both in Canada and Europe. It can, however, be expected that if we introduce the notion of a “package” in future discussions with the U.S.A., they will in turn wish to have the package broadened to include all U.S.A. requirements in Canada. The U.S.A. portion of the package would almost certainly include agreements on the storage of air-to-air defensive nuclear weapons at Goose and Harmon, and the storage of naval weapons at Argentia – requirements which they have repeatedly attempted to negotiate separately with the Canadian authorities. In addition to these agreements, we must expect the U.S.A. to ask to have included in the package an agreement for the storage of SAC weapons at Goose Bay for what they call “reflex strikes” i.e. for picking up a second load of bombs after the first SAC strike has been delivered. It is therefore important that on the Canadian side there be a clear idea of how far we are prepared to carry the “package” concept and to what extent we are ready to entertain an American content in the package.

N.A. R[OBERTSON]

339. DEA/50210-F-40

Secretary of State for External Affairs to Minister of National Defence

SECRET [Ottawa], March 30, 1961

My dear Colleague,
Further to my letter of February 15, I have had an opportunity to study the proposed agreement with the United States Government governing the provision of stockpiles of nuclear warheads for Canadian forces, a draft of which you forwarded under cover of your letter of December 30.
The feature of this draft which in my opinion calls for particular consideration is contained in paragraph 3 of the Annex, which reads:
“The procedures under which the nuclear warheads will be released from the storage sites to meet logistic or operational requirements will vary depending on the types of weapons and the operational theatres in which they are to be employed. These procedures will be the subject of separate inter-governmental agreements and will be based on the principles of joint responsibility.” Since the conclusion of this agreement might be regarded as constituting an undertaking in principle on the part of Canada to acquire nuclear weapons, I think it is essential that we know in advance all the implications and obligations involved. This, in my view, will not be possible if we leave the important question of control over the release of weapons to be dealt with subsequently by means of supplementary agreements. It is my understanding that this is what the Prime Minister had in mind when he indicated to President Kennedy that he would wish to proceed on the basis of a package.

Following this approach, I think that the first step should be to prepare a revision of the draft agreement in such a way that it would deal with this problem as a whole by providing that the detailed procedures governing storage, release from storage, and authorization of use of the various weapons systems should be set out in a series of schedules, one for each type of warhead to be made available, which would form an integral part of a comprehensive agreement. I realize that we may not at this time have all the information necessary to prepare such schedules, but I think it would be useful if the officials of our two Departments could now meet to work out the preliminary outline of a comprehensive agreement so that we can be clear in our own minds as to which features would be essential from the Canadian point of view. In this connection, my officials have already done a certain amount of preliminary drafting.
Perhaps the Chairman, Chiefs of Staff would be good enough to get in touch with the Under-Secretary of State for External Affairs with a view to arranging a meeting.

Yours sincerely,
H.C. GREEN

340. DEA/50210-F-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], April 7, 1961

Nuclear Negotiations with the U.S.A.

You will recall that you wrote to the Minister of National Defence under date of March 30 suggesting that officials of the two Departments meet to work out the preliminary outline of a comprehensive agreement which would deal with all the facets of storage, release from storage and use of the various types of nuclear warheads which might be made available to the Canadian forces. Your letter also suggested that the Chairman, Chiefs of Staff might get in touch with the Under-Secretary with a view to arranging a meeting.
You would wish to know that this morning Mr. Ignatieff, Mr. Barton and Mr. Tovell met with Air Marshal Miller and other senior officers of the Department of National Defence to discuss in a general way the approach which you suggested in your letter to Mr. Harkness. Air Marshal Miller readily agreed that it was essential that Ministers should be fully aware of all the implications of any proposed agreement. In order to determine how best this could be done with the limited information available on the weapons concerned, officials of the two Departments will meet again next week with a view to preparing some material which could form a basis for consideration by you and Mr. Harkness.

M. C[ADIEUX]
for Under-Secretary of State
for External Affairs

341. DEA/50210-F-40

Memorandum from Special Assistant, Office of Secretary of State for External Affairs, to Head, Defence Liaison (1) Division

Ottawa, April 8, 1961

Mr. Barton,
Although the Minister did not re-read the material,† I have had a further word with him about it. He stated that he had in fact studied the drafts very carefully, was completely satisfied with them as a starting point for negotiation with DND and was prepared to back you up as necessary as the talks progressed.

R. C[AMPBELL]

342. H.C.G./Vol. 10

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], April 25, 1961

You will recall that you wrote to the Minister of National Defence on March 30 suggesting that officials of the two departments meet to work out the preliminary outline of a comprehensive agreement, which would deal not only with the general arrangements governing the supply of nuclear weapons but would also include a series of schedules setting out the detailed control arrangements for each weapons system.

  1. We have now held two meetings with Air Marshal Miller and officers of his staff. At the first meeting, on April 7, we explained in detail the approach suggested in your letter to Mr. Harkness. At the second meeting, on April 24, Air Marshal Miller commented on the proposals we had put forward earlier and made some counter-suggestions as to the procedure which might be followed.
  2. Air Marshall Miller said that the basis of his position was that while Ministers should be made fully aware of all the implications of whatever arrangements are proposed for the supply of nuclear weapons and while the Government should approve and maintain control over any operations by Canadian forces involving nuclear weapons, he did not believe that it was either appropriate or desirable to spell out in diplomatic agreements with the United States the details of control procedures which were purely a Canadian concern.
  3. It was on these grounds that he criticized the draft schedules which we had prepared. He said that once the United States authorized release of the weapons the question of what our forces did with them thereafter was purely one for decision by the Canadian Government. He felt that our draft schedules included procedures which were of concern only to Canada.
  4. Air Marshal Miller then said that he had checked with the United States military authorities on the forms of agreements which the United States requires. These are:
    1. a government-to-government agreement setting out the general principles which would govern the provision of the warheads (a “general agreement”);
    2. a series of supplementary technical agreements setting out the detailed arrangements for storage, maintenance, custody and control of individual weapons systems, to be concluded between the designated Canadian authority and the United States field commander concerned, i.e., SACEUR (in his capacity as Commander of United States forces in Europe), SACLANT (acting as commander of the United States Atlantic Fleet), and CINCNORAD (in his capacity as head of United States air defence forces). A copy of a typical technical agreement has been obtained from the United States authorities by the Chairman, Chiefs of Staff and is attached.†
  5. Air Marshal Miller pointed out that since the substance of the technical agreements is dependent on the general agreement, and since we have no assurance at the present moment that our draft of the general agreement is acceptable to the United States, it would be difficult to negotiate the technical agreements with the Commanders concerned until some understanding has been reached with the United States on the form and substance of the general agreement. Nevertheless he felt that it would be possible for us to conform to the pattern of agreements established by the United States and at the same time follow a procedure which would ensure that the Canadian Government would not have to commit itself to part of the “package” without having considered and approved the whole.
  6. The procedure which Air Marshal Miller suggests should be followed is as follows:
    1. The “general agreement” would be negotiated with the United States authorities on the clear understanding that any language agreed upon is dependent upon the satisfactory subsequent negotiation of the various supplementary technical agreements. The general agreement would not be signed at this stage, but merely worked out to the point which would make it possible to proceed to the negotiation of the technical agreements.
    2. Although the United States Government delegates to commanders such as SACEUR, SACLANT and CINCNORAD (acting in their U.S.A. capacity) the responsibility for negotiating technical agreements, Air Marshal Miller recognizes that so far as the Canadian Government is concerned it would no doubt wish to maintain direct supervision over its negotiating representatives, and that any agreement would have to be approved specifically by the Government.
    3. When the drafts of the general agreement with the United States Government and the supplementary technical agreements with United States field commanders have all been worked out the Canadian Government can look at them as a “package” and decide at the time whether it wishes to sign them, or to wait until in its judgment the circumstances make such a decision necessary.
  7. Finally, Air Marshal Miller proposed that we jointly prepare a draft memorandum for Cabinet seeking authority to proceed with negotiations in accordance with the procedure outlined above. The memorandum would be accompanied by an explanation of the way in which the Department of National Defence envisages the control of nuclear weapons by the Canadian Government would be exercised. In addition, the draft general agreement and sample technical agreement would be appended.
  8. We made it clear that while we were prepared to put to you the reasons why National Defence favoured supplementary agreements rather than schedules forming an integral part of the main agreement, we could give no assurance that such an approach would be acceptable. We also specified that if supplementary agreements were to be negotiated they would have to be on a Government-to-Government basis. If the U.S. Government wished to designate a military commander as its negotiating agent that was its business, but so far as we were concerned, the Canadian negotiating authority would be that which customarily deals with policy matters of this importance.
  9. With respect to Air Marshal Miller’s proposal as described in paragraph 8 above we agreed to assist in preparing the necessary documentation as a means of facilitating further consideration of the matter by you and Mr. Harkness. However, we emphasized that this did not mean that the proposal was acceptable to you or that you would be prepared to go further with it.
  10. This memorandum is intended only as an interim report pending preparation of the draft submission to Cabinet referred to above. When it is completed and you have had an opportunity to study it you may wish to give us further instructions.

G.I[GNATIEFF]
for Under-Secretary of State
for External Affairs

343. H.C.G./Vol. 10

Minister of National Defence to Secretary of State for External Affairs

TOP SECRET Ottawa, [May 2, 1961]

My dear Colleague:
I refer to your letter of 30th March regarding the proposed agreement with the United States government governing the provision of stockpiles of nuclear warheads for Canadian forces. Since that time, as you know, several discussions have taken place between the Chairman, Chiefs of Staff and Mr. Ignatieff of your Department.

As a result of your proposals and the later discussions, I have had prepared an Aide Mémoire on the subject outlining the position as we see it and indicating my own views on procedures that should be followed. A draft memorandum to Cabinet† has also been prepared and copies of both of these papers are attached. It is hoped that these papers will be useful as a basis for our forthcoming discussion.

Yours sincerely,
D.S. HARKNESS

[ENCLOSURE]

Draft Aide-Mémoire

TOP SECRET

Proposed Agreement with the United States Governing the Provision of Stockpiles of Nuclear Warheads for Canadian Forces

On December 6, 1960, the Cabinet agreed “that discussions (or negotiations) with the U.S. Government concerning arrangements for the essential acquisition of nuclear weapons or warheads for use by the Canadian Forces, in the manners already decided, may proceed as soon as they can be usefully undertaken but the acceptance of joint controls to be a basic principle.”

  1. On December 30, the Minister of National Defence wrote to the Secretary of State for External Affairs recommending that, in keeping with the above Cabinet decision, action be taken in the latter part of January 1961 to initiate negotiations along the lines of the attached draft agreement (Appendix “A”)† which incorporates the features, including joint control, agreed upon in December 1959 by the Panel on the Economic Aspects of Defence Questions.
  2. On March 30, 1961, the Secretary of State for External Affairs replied to the Minister of National Defence proposing that any overall agreement with the U.S. should include the detailed procedures governing storage, release from storage and authorization of use of the various weapons systems. This was desired to ensure that the full implications and obligations of the general agreement would be known in advance of it being signed. To give effect to this proposal a new draft agreement was prepared containing schedules (detailed procedures) for each type of nuclear warhead or weapon system contemplated.
  3. The steps required to provide the Canadian Armed Forces with the capability of employing nuclear weapons, as indicated by the U.S. Joint Chiefs of Staff (copy of memorandum of 1 May 59 from the Chairman, Joint Chiefs of Staff is attached as Appendix “B”),† were as follows:
    1. Step one was described as a government-to-government exchange of notes covering general principles relative to provision of US atomic weapons to Canada. This exchange would cover such things as the broad requirements for US custody and control, Canadian responsibilities for provision of storage facilities, security and broad system safety requirements. Insofar as the exchange of notes may apply to forces committed to NATO, it should be consistent with the NATO Atomic Stockpile Concept. In addition, these general principles should be sufficiently broad to apply to any atomic weapons system contemplated for use by Canadian forces.
    2. Step two was the conclusion of detailed technical agreements pertaining to custody and control accomplished on a bilateral basis with the US Commanders concerned, i.e., CINCLANT, USCINCEUR, and CINCONAD. In the US view, these detailed technical arrangements would normally be developed between the Canadian Field Commander concerned and the US Commander concerned, e.g. AOC 1 Air Div and USCINCEUR.
  4. If agreement with a third country is required, it is understood that this would be provided by an annex to the intergovernmental agreement covering general principles i.e., step one above.
  5. It was anticipated that step one, the main agreement, would set forth the principles which would guide preparation of the Supplementary Technical Arrangements for particular weapons and weapons systems. To incorporate in the main agreement details regarding specific weapons systems would be undesirable on at least two counts:
    1. The whole agreement would need to be amended each time there was any change in weapons to be employed or in the manner of their deployment and employment, and
    2. Detailed discussions would be required at the outset with third parties who, individually, would have a legitimate interest in only one aspect of the whole agreement. Furthermore, these detailed discussions would be taking place before there was any agreement in principle between the two main parties to the agreement.
  6. Attached as Appendix “C”† is an example of the possible content of the supplementary technical arrangements which will need to be negotiated with specified US Theatre Commanders. Though the US has indicated that the US Theatre Commanders concerned will be responsible for making such detailed arrangements, the Canadian Government can, of course, make such agreements at any Canadian level of authority desired. This might for instance, result in agreements between the Canadian Government on the one hand and specified US Commanders (e.g. US CINCEUR) on the other.
  7. It is appreciated that the Government will wish to understand thoroughly all of the implications in any undertaking on the part of Canada to acquire nuclear weapons, particularly those relating to control. Attached as Appendix “D”† is a description of the procedures which it is understood would be involved in releasing nuclear weapons from custody and exercising control over them. It will be noted that these procedures are fundamentally the same for each weapon and weapon system but there will of course be some differences in detail in respect to the precise points at which control will be exercised.
  8. In summary, the present position is as follows:
    1. Negotiations with US officials regarding the acquisition and storage of defensive nuclear weapons and warheads for the use of Canadian Forces were first approved by Cabinet in October, 1958, and began in November, 1958. Conduct of these negotiations was again approved by Cabinet in December, 1960.
    2. In December, 1959, the Panel on Economic Aspects of Defence Questions forwarded a draft agreement for Ministers’ consideration. In later consultation with officials of the Department of External Affairs, this draft was slightly revised and put in the form forwarded by the Minister of National Defence to the Secretary of State for External Affairs on December 30, 1960. This draft agreement prescribes the general principles and conditions which would govern the provision of stockpiles of nuclear weapons for the Canadian Forces but does not cover all of the detailed arrangements. It could be made clear to the US authorities, however, that Canadian acceptance of the terms of such a general agreement would be contingent upon the completion of negotiation of satisfactory supplementary arrangements or agreements.
    3. Since the contents of any supplementary agreements covering particular weapons would be dependent on the terms of the general agreement, drafts of the supplementary agreements should not be prepared until some understanding is reached with the US on the acceptable content of the main agreement. As indicated above, formal conclusion of the main agreement can be deferred, if desired, until the supplementary arrangements have been worked out.
    4. Timing is already critical if nuclear warheads are to be available, if required, in the same time period in which their carriers will be deployed with the Canadian Forces. Further discussion with the U.S., as approved by Cabinet on December 6, 1960, is, therefore urgently needed.
      Conclusions
    5. Negotiations should now be initiated with the US authorities on the following basis:
      1. The first step should be to reach an understanding with the US authorities on the text of a general agreement along the lines indicated in the draft attached as Appendix “A” to this Aide Mémoire. This understanding would be preliminary only and conditional upon satisfactory completion of the later phases of the negotiations.
      2. When an understanding has been reached on the text of a general agreement, preliminary negotiations would begin on the texts of supplementary technical agreements to cover the various weapons systems, (i.e., Bomarc, Honest John, air-to-ground weapons for No. 1 Air Division RCAF, and maritime nuclear weapons for RCN and RCAF) required by the Canadian Forces. These negotiations would be conducted by appropriate Canadian representatives with the US Theatre Commanders concerned, i.e., CINCONAD, US CINCEUR and CINCLANT.
      3. The final phase of negotiations would consist of ministerial consideration of the overall arrangements (i.e., the draft general agreement and the supplementaries) as an entity.

344. DEA/50210-F-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], May 2, 1961

Acquisition of Nuclear Weapons for Canadian Forces

We have studied the documents which Mr. Harkness has sent to you under cover of his letter of May 2. The following notes on the main points of difference between the Department of National Defence’s position and that of External Affairs are supplementary to the comments in my memorandum to you of April 25.

  1. Form of the Agreement
    External Affairs

    There should be an all-embracing agreement consisting of a general statement of terms or conditions to which would be annexed a series of schedules setting out the detailed procedures governing storage, release from storage and authorization of use of the various weapon systems to be acquired from the United States. This would ensure that all elements of the agreement are considered in relation to each other and concluded at the same time, on an inter-governmental basis.
    Department of National Defence
    We should first negotiate with the United States Government on a preliminary basis the text of a General agreement and carry these negotiations to the point at which sufficient agreement is reached to make it possible to proceed with some assurance with the negotiation of supplementary technical agreements with the appropriate U.S. military commanders.
    Comment
  2. The aide mémoire accompanying Mr. Harkness’ letter advances two reasons against the procedure suggested by External Affairs (see paragraph 8):
    1. The whole agreement would need to be amended each time there was any change in weapons to be employed or in the manner of their deployment and employment; and
    2. Detailed discussions would be required at the outset with third parties who, individually, would have a legitimate interest in only one aspect of the whole agreement. Furthermore, these detailed discussions would be taking place before there was any agreement in principle between the two main parties to the agreement.
  3. We do not think there is any substance to either of these objections. Changes of the type referred to in (a) above would not necessitate amendment of the whole agreement but only of the particular schedule involved. In any case deployment and employment of nuclear weapons are matters of policy and changes should require inter-governmental consideration rather than being dealt with merely as administrative measures. There is no reason why either of the criticisms advanced in (b) above need apply, but even if they did we don’t see that they are of sufficient importance to weigh very heavily.
    Basis of Negotiation
  4. We suggest that in order that there should also be an understanding between the two Departments before any negotiations are undertaken there should be agreement on the following points which should govern our approach to the Americans:
    1. The U.S. authorities should be informed at the commencement of the negotiations that the decision of the Canadian Government to enter into discussions should not be interpreted to mean that it has decided to acquire nuclear warheads but rather that it wishes to put itself in a position to be able to do so rapidly if at any time in the future such action should be deemed necessary.
    2. Only after the master agreement and its schedules (or supplementary agreements) have been negotiated will the Government consider the question of acquiring nuclear warheads, taking into consideration not only progress on the control problem but also on disarmament.
    3. The U.S. authorities should also be informed that the Canadian Government considers that the subject matter which it is understood is customarily covered by supplementary service-to-service agreements negotiated between the U.S. commander concerned and the military representative of the receiving country is of such importance that the Canadian Government wishes it to be dealt with and concluded at an intergovernmental level.
      Comment
  5. The Department of National Defence has not agreed specifically with the points set out in (a), (b) and (c) above but does agree (in paragraph 8b of its aide mémoire) that it could be made clear to the U.S. authorities that Canadian acceptance of the terms of a general agreement would be contingent upon the completion of negotiation of satisfactory supplementary arrangements or agreements.
  6. We are inclined to think that if the Canadian position is based on paragraph 4 above, the question of whether the detailed arrangements are incorporated as schedules to the general agreement or take the form of separate supplementary intergovernmental agreements would be a matter of form rather than of substance.
    Master or General Agreement
  7. Attached to Mr. Harkness’ letter as Appendix “A” is a draft of the general agreement. This is the same draft as that which he forwarded to you under cover of his letter of December 30.Footnote 22 This draft, you will recall, was revised in this Department and a new version was forwarded to Mr. Harkness under cover of your letter to him of March 30. A copy of this version was attached to our memorandum to you of March 23 (the original of which is enclosed) and will be found at tab “A”. The most important changes, apart from the difference of approach reflected in the covering note, will be found in paragraphs 2, 4, 5, 6 and 7 of the proposed annex of the draft dated March 23. Mr. Harkness has not commented on these suggested changes, nor did Air Marshal Miller in our discussions with him.
    Draft Memorandum to Cabinet
  8. Also included in the documentation which Mr. Harkness has forwarded is a draft memorandum to the Cabinet seeking authority to proceed with the negotiations with the United States on the basis of the procedure favoured by the Department of National Defence. You will note that this memorandum would be submitted by you as well as Mr. Harkness. Apart from the fact that this procedure proposed in the memorandum would not appear to reflect your views, it seems to us that it is open to one objection in particular: it is concerned with procedure only and does not attempt, as it should, to deal with any of the substantive aspects of the question, especially the basis upon which the negotiations should take place as set out in paragraph 4 above, and the question of controls, to which the Government attaches importance. No doubt the Department of National Defence intends that this last point would be taken care of by the paper attached as Appendix “D” and entitled “Procedures Involved in the Exercise of Control, Responsibilities for Nuclear Weapons Allocated to Canadian Forces.” However, we doubt that it meets the requirement you specified, namely that Ministers should know in advance the implications and obligations involved for Canada. The following are examples:
    1. The paper states that the Canadian commanders concerned, in communication with the Canadian Government on an established channel, will require its approval to employ nuclear weapons. However, no attempt is made to spell out how this would work in practice. We think that Ministers would wish to have pretty specific information on this point, particularly with respect to the Air Division in Europe because of the strike-reconnaissance role of the CF104. The Department of National Defence will no doubt argue that it would be premature to outline detailed procedures at this time because not enough information is currently available, but even so we think it should be possible to give a more complete explanation of how the system might be expected to work in practice.
    2. On page 2 of the paper there is a reference to the need for instantaneous communications channels between the President or Commander-in-Chief concerned, the Canadian Government and the Canadian military authority most directly concerned with the employment of the weapon system. This is a most important point, with serious implications for those members of the Government who would have to be immediately available at any time of the day or night. Moreover the cost of such a system will be high. Perhaps now is the time to indicate more fully to Cabinet what is involved in the establishment of such a system.
      Sample Supplementary Technical Arrangement
  9. Attached as Appendix “C” to the aide mémoire from the Department of National Defence is a sample of the type of supplementary technical agreement negotiated between U.S. theatre commanders and the military representatives of other NATO governments. In paragraph 7 of the aide mémoire the Department of National Defence indicates that this sample agreement is an example of the supplementary arrangements which will need to be negotiated with specified U.S. theatre commanders. It goes on to suggest that although the U.S. has indicated that the U.S. theatre commanders concerned will be responsible for making such detailed arrangements, the Canadian Government can make such arrangements at any level of authority desired, so that the end result might be agreements between the Canadian Government on the one hand and specified U.S. commanders on the other. Our position, of course, as set out in paragraph 4 above, is that we should make it clear at the outset that all negotiations must be on a government-to-government basis.
    Heads of Government Discussion
    Finally, you may wish to discuss with Mr. Harkness the question of what the Prime Minister might wish to say to President Kennedy when the latter visits Ottawa. The line which has been followed with your approval at the last two meetings of the PJBD is that consultations are in progress between the Canadian departments concerned with a view to initiating discussions with the United States authorities as soon as they can usefully be undertaken.

G. IGNATIEFF
for Under-Secretary of State
for External Affairs

345. DEA/50210-F-40

Minister of National Defence to Secretary of State for External Affairs

SECRET [Ottawa], May 4, 1961

My dear Colleague:
As a result of our discussion yesterday my understanding is that the following procedure is agreed:

  1. You will have prepared a memorandum to Cabinet summarizing the present status of the proposed agreement with the United States governing the Provision of Stockpiles of Nuclear Warheads for Canadian Forces. This memorandum to Cabinet will indicate the basis on which negotiations with the United States should be resumed.
  2. The draft of the proposed agreement with the United States forwarded with your letter of March 30th, but less the attached schedules, will be proposed as the basis of the Canadian position in further negotiations and will be appended to the memorandum to Cabinet.
  3. Also accompanying the memorandum to Cabinet will be examples of the kinds of supplementary agreements which will be required in respect of particular weapon systems in the theatres concerned illustrating the present Canadian understanding as to the kinds, etc. These, however, will be examples only for the purpose of informing Cabinet of the sort of content we believe will need to be included in supplementary detailed agreements. It will be understood that our own knowledge in this respect is limited and that the actual content can only be developed in further negotiations.
  4. Officials of our two departments will cooperate in the preparation of the illustrative examples referred to above.

It is also my understanding that it is intended that the memorandum to Cabinet will be accompanied by a draft of the proposed agreement relating to the storage of defensive nuclear weapons at Goose Bay and Harmon Air Force Base for use of U.S. Air Defence Squadrons.

Yours sincerely,
D.S. HARKNESS

346. DEA/50210-F-40

Memorandum from Secretary of State for External Affairs to Prime Minister

SECRET [Ottawa], May 5, 1961

Acquisition of Nuclear Weapons for Canadian Forces

On May 3 I met with the Minister of National Defence and officials of the two Departments regarding the question of an agreement with the United States on the acquisition of nuclear weapons. It has been the understanding of the Department of External Affairs that we should negotiate with the United States Government on a package deal basis, involving an agreement with schedules or annexes dealing with different features, such as the warheads for the Bomarc, weapons for the Air Division and the warheads for Honest John, the latter two being for our NATO forces in Europe. A document was prepared by the Department of External Affairs with this in mind.

The Department of National Defence, on the other hand, thought there should be an understanding with the United States on a general agreement, leaving the agreements on particular weapons to be negotiated subsequently between the Canadian authorities and the appropriate United States Commander in accordance with the letter of May 1, 1959, from General Twining to the Chairman of the Canadian Chiefs of Staff, which is attached,† and also based on the standard United States NATO agreement, likewise attached.†

Eventually the two Departments agreed to draw up a basic agreement with annexes, realizing, however, that there might have to be considerable variation in the course of the negotiations with the Americans because Canada does not have all the detailed information necessary.
The officials of the two Departments are now busy working out the first draft and I hope to have a look at it on my return on May 16.Footnote 23

H.C. G[REEN]

347. DEA/50210-F-40

Secretary of State for External Affairs to Minister of National Defence

SECRET Ottawa, May 5, 1961

My dear Colleague:
Just before leaving for Oslo, I received your letter of today’s date regarding our meeting of May 3 when we discussed the procedures for further consideration by our two Departments of drafts of proposed agreements dealing with the provision of stockpiles of nuclear warheads for Canadian forces.
My recollection of what was agreed does not entirely accord with yours. As the next step I thought we agreed that we should bring the Prime Minister up-to-date on the preparatory work which has been done on this matter by our two Departments. With that in view, we would submit to him the agreed draft of the general agreement with schedules attached to it and not, as you suggest, “less the attached schedules.”
It was also my understanding that the officials of the two Departments would cooperate in the preparation of the draft schedules based on the original drafts prepared in this Department together with the information obtained from the standard United States draft for NATO arrangements in Europe. These drafts would contain the points which, from the Canadian point of view, should be included, and these would constitute an integral part of the Canadian negotiating position to be submitted to Cabinet in due course. It would be made plain that these schedules might have to undergo considerable change in the course of negotiations because of our present lack of full technical information.
Finally, it was my understanding that we would not, at this stage, attempt to include in this first draft of a package proposal, any draft agreement relating to the storage of defensive nuclear weapons at Goose Bay and Harmon.
Before leaving, I asked my officials to contact yours with a view to proceeding as outlined above and I hope to have a look at the results on my return on May 16.
I am sending an interim memorandum to the Prime Minister and enclose a copy thereof.

Yours sincerely,
H.C. GREEN

348. DEA/1415-N-40

Memorandum from Secretary to Cabinet to Prime Minister

SECRET [Ottawa], May 15, 1961

I attach hereto brief notes on a number of the subjects on which you said such points should be prepared for your discussions with President Kennedy.† These are in highly summarized form and you may feel that they are too brief.

I have not covered the two subjects on which you said you would talk purely yourself to the President – i.e. Canada’s position on foreign aid and Canadian policy on nuclear weapons. On these, as on the other points, it will be necessary for us to have an agreed line to be taken in answer to press questions and I would like to discuss this with you later. I shall make ready some points for the press in addition to these points for discussion.

As I indicated this morning, I think there would be virtue in Mr. Norman Robertson, Mr. Robinson and I talking these matters over with you later today. You may prefer to do it tomorrow. I should let you know that I will be unavoidably absent from about 9.45 until perhaps 11.30 tomorrow morning for a medical appointment.

R.B. B[RYCE]

349. H.C.G./Vol. 10

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], May 31, 1961

Suggested Points for Discussion with President Kennedy

You will recall that at your Meeting with the Minister of National Defence on May 3rd it was agreed that the two Departments would draw up Schedules for each type of warhead.

  1. The Department of National Defence prepared a first draft of each of these schedules. These drafts were extensively revised by officials of this Department in order to try to make them consonant with your views and more consistent with the general principals contained in the Annex to the main Exchange of Notes.
  2. We have now been informed that these redrafts, copies of which are attached,† are acceptable to the Department of National Defence. Accordingly, I should be grateful for your instructions as to what further action you wish taken in this matter.Footnote 24

G. I[GNATIEFF]
for Under-Secretary of State
for External Affairs

350. DEA/50210-F-40

Under-Secretary of State for External Affairs to Chairman, Chiefs of Staff

SECRET [Ottawa], July 31, 1961

Dear Air Marshal Miller,

Negotiations with the U.S. Concerning the Provisions of Stockpiles of Nuclear Weapons for Canadian Forces

As you know, this Department prepared on the basis of material supplied by your officers, draft schedules to the proposed General Agreement with the United States on the above subject. These were submitted informally to your officers for their comments last May and they are now in the process of being reviewed by my Minister.
Prior to leaving for the west coast on holiday, Mr. Green asked me to obtain your comments on the following documents, of which 3 copies of each are attached, which he has approved:

  1. a draft Memorandum to the Cabinet
  2. a draft General Agreement
  3. a draft Schedule “A”.
    Time did not permit him to review Schedules “B”, “C” and “D” and I cannot therefore send them to you at this stage. I will do so, however, as soon as possible after they have been approved by him. The various changes which Mr. Green would like made to the enclosed drafts are too numerous to list here. However, Mr. Tovell of this Department would be prepared to go over these with you and your officers any time at your convenience.

Yours sincerely,
N.A. ROBERTSON

351. DEA/50210-F-40

Chairman, Chiefs of Staff, to Under-Secretary of State for External Affairs

SECRET Ottawa, August 8, 1961

Dear Mr. Robertson:

Negotiations with the U.S. Concerning the Provision of Stockpiles of Nuclear Weapons for Canadian Forces

This will acknowledge receipt of your letter of July 31st forwarding documents in relation to the above.
We have very little comment on the changes to the draft Agreement and Schedule “A” and would be prepared to have them go forward to Cabinet in their present form, bearing in mind that the content will undoubtedly change further as a result of discussions with the United States. There is, however, one important omission in these two documents, resulting from deletions from the drafts previously agreed. In the General Agreement itself in paragraph 3(a), the United States is no longer responsible for “the safeguarding and maintenance of the warheads.” Instead the phrase “inner security of the storage sites” is used. In Schedule “A” similar deletions have been made. The word “safeguarding” has been removed from paragraph 3 which defines U.S. responsibilities. In paragraph 6 former sub-paragraph (a) has been deleted which read “to perform custodial responsibilities in respect to nuclear warheads stored at each site.” Again in the section formerly headed “Security” paragraphs 24 and 25 of the draft of June 1, 1961, have been deleted. Paragraph 24 had dealt with the security responsibilities of the Commander of the United States Detachment in connection with the storage, maintenance and handling of the nuclear warheads.

The net result of the changes to which I have drawn attention above is that the United States responsibilities for the custody of nuclear warheads are no longer clearly defined. Since U.S. legislation compels the U.S. to have custody of all nuclear weapons, I do not believe that the agreement and schedule in their present form would be acceptable to the United States. I presume, in any case, that the Canadian Government does not wish to have this responsibility.

In regard to the draft memorandum to the Cabinet, I have a somewhat similar comment. In the first sub-paragraph (b) on page 2, it is stated that “authorization of the release of the weapons from storage would require the approval of both the U.S. and Canadian Governments.” I do not believe that this statement in the context of the following sub-paragraph, clearly defines the separate U.S. responsibilities for custody and for the release of nuclear weapons from custody for Canadian use.

I hope the foregoing comments are helpful. As indicated above, I do not think it is essential to make any further changes in the Agreement and Schedule prior to submission to Cabinet.

Yours sincerely,
F.R. MILLER
Air Marshal

352. DEA/50210-F-40

Memorandum from Defence Liaison (1) Division to Under-Secretary of State for External Affairs

SECRET [Ottawa], August 10, 1961

Negotiations with the United States Concerning the Provision of Stockpiles of Nuclear Weapons for Canadian Forces

With reference to our conversation yesterday concerning the Cabinet meeting on Wednesday on the above subject, attached for your consideration is a memorandum for the Minister which, if agreeable to you, Ross Campbell might take out west with him when he leaves on Monday to meet the Minister. I could explain to Mr. Campbell that if at all possible he could telephone me the Minister’s decisions on the various points raised. This would give us additional time to get the necessary documents ready, although the physical reproduction of the Memorandum, the General Agreement and the four schedules will take at least one day, possibly two.

  1. In the meantime, we will reproduce the necessary quantities of the Memorandum to the Cabinet (and assume that the Minister will sign it alone), the General Agreement and schedule A, but not turn them over to the Privy Council for circulation.
  2. A possible alternative which occurs to me is that you might wish to clear the various points of the Memorandum with the Minister, should you be talking to him on the telephone between now and Monday. This would give us even more time to reproduce the various documents in sufficient quantities.

F.M. TOVELL

353. DEA/50210-F-40

Memorandum from Secretary to Cabinet to Prime Minister

SECRET [Ottawa], August 12, 1961

Mr. Harkness would like to see you late on Monday morning or early Monday afternoon concerning several matters of importance.
First, he would like to report to you on the question of negotiations with the United States about the terms on which nuclear weapons might be stationed in Canada. He does not fully agree with the proposals which Mr. Green will bring to Cabinet on Wednesday morning and I thought you should know the points on which he will differ. (If you wish to secure the latest information on what is being prepared for Mr. Green to submit, Dewar in our office can furnish it to you on Monday. It is not in sufficiently final form for me to give it to you this weekend.)

The second matter on which Mr. Harkness would wish to speak to you is possible additional defence measures that Canada might take at this time in parallel with other members of NATO. Mr. Harkness is going over this with the Chiefs of Staff early on Monday morning and would like to report to you immediately thereafter.

Perhaps it might be most convenient for both of you if you saw Mr. Harkness after lunch, so that he has time to put his proposals in shape after meeting with the Chiefs, and you may have more opportunity to find out what it is that External Affairs will be proposing in regard to the terms of the nuclear weapons agreement.

R.B. B[RYCE]

354. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], August 22, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge).
  • Mr. D.B. Dewar, Privy Council Office.
    . . .

Nuclear Weapons; Negotiations with the United States

(Previous reference August 17)

  1. The Secretary of State for External Affairs submitted a memorandum and draft of a proposed agreement with the U.S. governing the provision of stockpiles of nuclear warheads for the Canadian forces. The purpose of the memorandum was to describe as fully as possible, within the limitations of the information available, the nature of the arrangements which should govern the establishment of stockpiles of nuclear warheads for Canadian forces in Canada and in Europe. The memorandum also suggested the procedure for ensuring that such weapons were used by Canadian forces only with the specific authority of the Canadian government. In addition the memorandum described the basis on which it was proposed the Canadian representatives would initiate and proceed with negotiations with the U.S.
  2. The application of the principle of joint control as envisaged in the proposed Canadian negotiating position would involve the storage of the weapons in inner compounds in the immediate possession of U.S. personnel, who would be responsible for their maintenance, and the existence of an outer security area around the compounds which would be guarded by Canadian personnel. Movement of the weapons in Canada to or from the storage sites, either for logistic or operational reasons, would require the approval of the Canadian government. Authorization of the release of the weapons from storage would require the approval of both the U.S. and Canadian governments. Authorization of the use of the weapons by Canadian forces subsequent to their release from storage would be the responsibility of the Canadian Government.
  3. It was understood that, before stockpiles were established, the U.S. normally negotiated with its N.A.T.O. allies a general government-to-government agreement setting out the general principles which would govern the provision of the warheads, and a series of supplementary technical agreements, negotiated and concluded on a command-to-command basis. The supplementary agreements covered the detailed arrangements for storage, maintenance, custody and control of individual weapons systems. A draft General Agreement, consisting of a brief diplomatic note and an Annex which set out the general terms and conditions under which nuclear weapons might be made available to and accepted by Canada, had been prepared. It had not been seen by nor discussed with U.S. officials, who might have substantial changes to propose. Conclusion of the general agreement would not of itself lead to implementation of its provisions, for which a further exchange of Notes would be required.
  4. Detailed arrangements for the various weapons systems would be spelled out in separate documents that would take the form of either Schedules to the General Agreement or supplementary agreements. It was proposed to make it clear to the U.S. authorities that Canadian acceptance of a general agreement would be conditional upon the completion of satisfactory supplementary agreements. The U.S. regarded the supplementary agreements simply as implementing instruments, and therefore suitable for negotiation between the theatre commander concerned (e.g., SACEUR, SACLANT or CINCNORAD in his capacity as senior U.S. military representatives in the theatre) and the military representative of the other negotiating power. It was proposed to make it clear that Canada would wish any supplementary agreements to be concluded on a government-to-government and not on a government-to-theatre commander or service-to-service basis.
  5. A draft schedule carrying the detailed arrangements for the storage of warheads for the BOMARCS had been prepared. Essentially similar schedules covering nuclear warheads for anti-submarine units of the R.C.A.F. Maritime Command and the R.C.N. assigned to SACLANT, for the First Air Division in Europe and for the Canadian Brigade in Europe were also being prepared. These draft schedules would no doubt have to be reviewed and revised in the light of negotiations on the general agreement.
  6. When it was decided that negotiations should be initiated with the U.S., it was proposed that the first step should be to reach an understanding with the U.S. on the text of a general agreement. This understanding would be preliminary only, and conditional upon satisfactory completion of the later phases of the negotiations. Preliminary negotiations would then begin (on a government-to-government basis) on the texts of supplementary technical agreements to cover the various weapons systems (Bomarc, Honest John, etc.) required by the Canadian forces. The progress of each step of the negotiations would be the subject of consideration by Ministers. The final phase of the negotiations would consist of consideration by the Cabinet of the overall arrangements as an entity, at which time the government would be in a position to determine what action it wished to take.
  7. It was proposed that the U.S. authorities should be told at the start of negotiations that the decision of the Canadian government to enter negotiations should not be interpreted to mean that Canada had decided to acquire nuclear warheads but rather that it wished to place itself in a position to do so rapidly if at any time in the future such action should be deemed necessary.
    An explanatory memorandum had been circulated, (Minister’s memorandum Aug. 15 – Cab. Doc. 297-61).†
  8. During the discussion of the draft note and of the draft general agreement in the Annex, the following main points were made,
    1. The U.S. would be free to decide for itself who should negotiate and sign the agreements with Canada on their behalf, but it could be made clear that Canada insisted on having government-to-government agreements, and that whoever signed the agreement for the U.S. would be doing so officially on behalf of the U.S. government.
    2. The general agreement, once it was negotiated, would be held to be conditional until the various supplementary agreements had also been negotiated satisfactorily.
    3. It was a requirement of U.S. law that ownership of the warheads should remain with the U.S.
    4. Although the draft agreement had been drawn up without full knowledge of U.S. requirements and practices, it represented a statement of Canadian wishes and requirements. The Canadian negotiating position should therefore not be weakened by the inclusion in the text of the draft of such words as “except as otherwise agreed” in the paragraph on security of the storage sites (para 3 on page 2 of the Annex).
    5. To meet the purposes of the agreement it would be necessary to have a rapid communications system similar to that now provided to the U.S. President. A system would be needed by which the Prime Minister could be in communication immediately at all times with the weapons sites in order to authorize use of the weapons by Canadian forces. Similarly, the U.S. President would need to have rapid communications with the same sites to enable him to authorize release of the weapons from storage for use.
    6. Canada would pay the costs of construction of housing, messes and offices necessary to accommodate U.S. personnel and would operate and maintain those facilities. Some said the text of the draft agreement in para. 13 of the Annex was open to the interpretation that Canada would also pay the costs of food and of rent for U.S. personnel. Others said that such was not the practice in other arrangements with the U.S. forces, and that this situation would be satisfactorily settled in detail in the supplementary agreements. It was noted that, in para. 14, reference was made to the fact that details of the support for U.S. personnel was a matter to be mutually agreed between the appropriate agencies of the two Governments.
  9. The Cabinet noted the submission of the Secretary of State for External Affairs on negotiations with the United States concerning the provision of stockpiles of nuclear weapons for Canadian forces and the points raised in the discussion, and agreed to give further consideration to the matter at an early meeting.
    . . .

355. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], August 23, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Assistant Secretary to the Cabinet (Dr. Hodgson),
  • Mr. D.B. Dewar, Privy Council Office,
  • Mr. D.F. Wall, Privy Council Office.
    . . .

Nuclear Weapons Negotiations with the United States

(Previous reference August 22)

  1. The Cabinet resumed consideration of the Draft Note and Annex constituting a draft general agreement with the United States governing the provision of stockpiles of nuclear warheads for the Canadian forces.
  2. During the discussion of the draft general agreement in the Annex the following main points were made,
    1. Although the detailed schedules would make it clear that the U.S. would pay for rations for U.S. personnel required to implement the agreement, it would be helpful to state in para 14 of the Annex that each government should bear the cost of the pay, allowances and messing of its own personnel.
    2. U.S. personnel who lived in married quarters would pay their own rent; U.S. single personnel would live in barracks for which payment would be made to Canada by the U.S. government.
    3. N.A.T.O. was already constructing as part of the infrastructure programme a number of storage sites for nuclear weapons in Europe that would be used by the forces of more than one member government. Arrangements for the support and external security of these sites would be as agreed between the governments and the Allied Command concerned as might be appropriate.
  3. During the discussion of the Draft Schedule governing the stockpiling in Canada of nuclear warheads for BOMARCS, the following main points were made,
    1. The warheads would be stored on the missiles, and the missile launching sites would therefore be considered to be storage sites for the purposes of the agreement. No provision had been made for storing at each site more than the 28 missiles and warheads that would be supplied originally. Each missile could be fired independently of others in the squadron and, if it was equipped with a nuclear warhead, could destroy a group of aircraft flying near each other.
    2. The text of para 7 of the Draft Schedule should be revised to make it clear that the U.S. detachment commander was to ensure compliance by his men with all R.C.A.F. directives applicable to U.S. forces on the site and not only with the R.C.A.F. directives pertaining to nuclear safety.
    3. It should be made clear that it was during the movement of nuclear warheads within Canada that Canada was responsible for their security. Other arrangements applied at the storage sites, where Canada and the U.S. had a joint responsibility for security of the warheads.
    4. In para 10(a) of the draft Schedule it was provided that, if Canada and the U.S. had agreed to permit CINCNORAD to increase the state of readiness of his Command to Maximum Readiness (Air Defence Readiness), the two governments might at the same time agree to pre-determined rules of engagement whereby CINCNORAD would be authorized to use nuclear weapons if and when certain conditions prevailed. Some said such prior authorization was meant to cover the situation in which the enemy was already attacking North America and communications had been severed. Others said that the judgment of when to use nuclear weapons should not be left to the military authorities, but noted that the two governments would decide at the time they authorized the increased state of readiness whether such prior authority would be granted.
    5. It was necessary to provide that authorized representatives of the Canadian and U.S. release officers might hold the keys to the double lock switches at the launching sites, because the two national release officers could not always be present.
    6. It should be required that, if advance authorization to use nuclear weapons had not been given and CINCNORAD considered it necessary that he have the authority to use them, he should rather than might seek such approval from the two governments. Since it was important that there be only one person in each government at one time who could authorize the use of the weapons, it should be required that approval be sought from “the respective Heads of Government” rather than from the political authorities of both governments.
    7. The present wording of para 10(f) of the draft Schedule did not deal adequately with the problem that by error or misunderstanding CINCNORAD might issue an order to employ the warheads before the Prime Minister’s authorization to do so had been received at the site. It would be better to stipulate that CINCNORAD would not issue operational orders before the Prime Minister’s authorization had been received by the release officer, and if the orders were issued they would not be effective and should not be complied with at the site until authorization of the Prime Minister was received.
    8. The Atomic Energy Control Board should be consulted on the adequacy and appropriateness of the sections of the draft Schedule dealing with radiological hazards and other safety matters.
  4. The Prime Minister said that, if negotiations were started with the U.S. the fact that they were taking place would almost certainly become known and would be interpreted as meaning that Canada had taken a decision in principle to obtain stockpiles of nuclear warheads for the Canadian forces. It was important that the remaining draft Schedules should be prepared for Cabinet consideration without delay and that the negotiations should begin. If these negotiations got into difficulty, he would be prepared to see the President about the matter. Mr. Kennedy had indicated that he was anxious to see progress made on these negotiations. Nevertheless, it was also important that a discussion be held on the principles involved, because of the interpretation that would be placed on the negotiations when their existence became publicly known. It had been fairly well determined that nuclear warheads would be obtained for the Canadian forces in Europe, but no decision had been taken on the stockpiling of the warheads in Canada. The question of permitting the storage of nuclear weapons at U.S.-leased bases in Canada would also have to be considered.
  5. During the further discussion, the following main points were made,
    1. Some said that the weapons for which the nuclear warheads would be stockpiled in Canada were purely defensive and of limited range, and that since they would be used only if enemy bombers were over Canadian territory, their use could not start a war. The two BOMARC bases in Canada were part of an interlocking chain which would contribute to the defence of the retaliatory bases in the U.S. and thereby add to the deterrent to war and to the ability of the West to resist Soviet pressures and threats around the world. In conjunction with two U.S. BOMARC bases in the Sault Ste. Marie area, the Canadian bases would provide some protection for the part of Canada east of the Lakehead. It had been said that the BOMARC defences were likely to bring the aircraft and their bombs down on Canada, but, according to the best information available, the nuclear warhead on the BOMARC missiles would not only destroy the enemy aircraft but also would destroy nuclear weapons they were carrying, without causing those weapons to explode even if they had been activated to go off. Destruction of enemy aircraft by conventional weapons would, however, probably result in the explosion of the activated nuclear weapons the aircraft were carrying. There would be very little fallout from the defensive nuclear weapons because they were exploded high in the air. If the BOMARC defences, which would be especially effective against aircraft flying together, resulted in the adoption by the enemy of an attack pattern whereby the bombers flew singly or in small groups, they would then be more vulnerable to interception by fighter aircraft. This was the reason that a mixture of BOMARCS and interceptors was necessary to air defence plans. Nuclear warheads would also be necessary for the interceptor aircraft if they were to be capable of destroying both the attacking aircraft and their nuclear bombs.
    2. Not all attacking aircraft would be destroyed, but an effective air defence would save many lives and much property. If war occurred, Canada would want to have the best weapons and equipment available to defend itself. If it did not occur, the fact of having acquired nuclear weapons would not matter.
    3. Some said that it would be a tragic policy for Canada to stockpile nuclear weapons at this time. All countries had an equal right to provide for their defence and the Canadian example might result in a dozen or more powers, some of them, like the United Arab Republic, in tense and dangerous parts of the world, following the example. In some countries, weapons of limited range might be used for offensive purposes. Such a spread of nuclear weapons would increase the dangers of war. It would be especially bad for Canada to announce a decision to obtain these weapons during the present period of high international tension, when there was already danger of war. The worst of the Berlin crisis was perhaps over, and even Chancellor Adenauer was urging the U.S. to enter negotiations. Canada should not do anything to worsen the situation. A nuclear war would be quite unlike any wars previously known; it would destroy civilization. There were already enough nuclear weapons in the possession of the U.S. and the Soviet Union to destroy the world and there was no need for more in Canada. The warheads would not in any case be available to Canadian defence forces for the difficult period of the next few weeks.
    4. The U.S. was now placing stress on strengthening conventional arms. Canada could continue its present defence policy, proceed with the negotiation of an agreement on the terms under which nuclear weapons might be obtained from the U.S., but obtain them only if and when they were needed. The U.S. was not now pressing its N.A.T.O. allies to accept nuclear weapons, and there was no move underway in N.A.T.O. at the present time to work out a system of joint control. The present arrangement, under which the control over the nuclear weapons was concentrated in the hands of the U.S. and the U.K. was preferred by most member countries of the Alliance. It was true that nuclear weapons were stored in Turkey, Greece and Italy, but in those countries the U.S. maintained complete control over them. Canada should not accept the weapons under these conditions, but if they were obtained under joint control Canada would be breaking new ground. The U.S. did not want Germany to obtain nuclear weapons because it was realized that the Soviet Union, which had legitimate reason to fear Germany, might then strike the first blow. If Canada obtained nuclear weapons the question of German acquisition would be brought to the forefront.
    5. If Canada stockpiled nuclear weapons its influence in world affairs and ability to provide leadership to other countries would be ended.
    6. Some said also that it would be misleading to indicate to the people that Canada would be defended by two BOMARC bases and 66 interceptor aircraft, even if they were armed with nuclear weapons. The purpose of these weapons was to defend the Strategic Air Command bases, and not Canada. An attack might be made with missiles, against which these weapons were ineffective, and even if the attack was made with bombers, enough of them would get through the defences to do great damage. It was doubtful if these weapons would provide any defence against nuclear equipped submarines or against stand-off bombers that could launch missiles from several hundred miles away from the target.
    7. Others said that Canada would not be breaking new ground by agreeing to stockpile nuclear warheads on Canadian territory. There were N.A.T.O. agreements running back to 1954 that member countries should make arrangements with the U.S. to obtain weapons requiring nuclear warheads. A number of countries had gone ahead to secure the carriers, as Canada had in respect of the CF-104, the BOMARCS and the Honest John. Some said also that the ICBM was unlikely to be the sole threat for ten years and that the stand-off bomber did not now carry missiles of sufficient range to make them invulnerable to interception by BOMARCS or fighter aircraft.
    8. The BOMARC site at North Bay could be ready to receive the missiles in about six weeks, and the warheads for them could be obtained at that time if the negotiations with the U.S. had been completed. There were no conventional warheads for the BOMARC B in production. The CF-101 aircraft could carry either conventional or nuclear armament; MBI nuclear air-to-air missiles, which would fit that aircraft, were available in the U.S. If nuclear weapons were obtained for the CF-101 aircraft, there would need to be special storage sites at each interceptor base in Canada.
    9. Only two CF-101 aircraft were now in Canada. Twelve R.C.A.F. crews and some technical personnel were being trained in the U.S. These men would return to Canada to train others. Some squadrons would be in operation by the end of the year, and all five by January or February, 1962.
    10. A Gallup Poll of some months ago had shown that, of the 70 per cent of persons polled who expressed an opinion, two favoured obtaining nuclear weapons for the Canadian forces for each one who was opposed. A survey done for the CBC about the same time had produced a similar result. Some suggested that another survey conducted now would show even more persons in favour of obtaining nuclear weapons.
    11. The Liberal Party was opposed to the stockpiling of nuclear weapons in Canada although some said their position was ambiguous because Mr. Pearson had indicated the party might take a different view if N.A.T.O. as a whole agreed to its members obtaining these weapons. The New Democratic Party was opposed to continued membership in N.A.T.O. if the Alliance remained committed to using nuclear weapons. Some said that, if having nuclear weapons was the price that must be paid for national security, the responsibility of the government was clear.
  6. The Cabinet noted the discussion on the matter of proposed negotiations with the United States concerning the provision of stockpiles of nuclear weapons for Canadian forces, and agreed to give further consideration to the subject at an early meeting.
    . . .

356. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], August 25, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge).
  • Mr. D.B. Dewar, Privy Council Office.
    . . .

Nuclear Weapons Negotiations with the United States

(Previous reference August 23)

  1. The Cabinet resumed consideration of the proposed negotiations with the U.S. concerning the provision of stockpiles of nuclear weapons for Canadian forces.
  2. During the further discussion, the following points were made:
    1. Some said that, if the international situation continued to grow worse Canada would have to obtain nuclear weapons for defence. The latest Soviet notes contained a threat to the air corridors to West Berlin and had made the crisis over Berlin more threatening. The President of the United States, in awakening his people to the dangers of the situation, had aroused them to such an extent that his ability to negotiate over Berlin was very seriously restricted. If it were decided that, in these circumstances, Canada should have nuclear weapons, it was essential that they be accepted only on the basis of joint control amounting to a power of veto by Canada over their use.
    2. Others said this would be a bad time for Canada to decide to obtain nuclear weapons because of the danger that this action would worsen the already tense international situation. If they were found to be necessary at a later time, the weapons could be obtained quickly then. Canada had a position of moral leadership in the world that would be adversely affected by a decision to accept nuclear weapons, and this position should not be given up unless and until it was absolutely necessary to do so.
    3. Some said, on the other hand, that the position of Canada in the world was not so great that a decision to obtain nuclear weapons would affect the decision of the Soviet Union or the United States on whether they should permit the spread of these weapons to other countries such as the UAR. It was in the interest of the Soviet Union to restrict the spread of nuclear weapons at this time, and the fact that Canada had obtained them would not result in a reversal of the Soviet position. Conversely, if the Soviets decided at some point to give nuclear weapons to smaller countries, the fact that Canada had not obtained them would not deter the Soviets from making them available to others.
    4. Some said it would be misleading to suggest that arming the Bomarcs and interceptor aircraft in Canada with nuclear weapons would provide an effective defence for the country. Others said that the real deterrent to attack was the retaliatory forces of the United States, and that Canada was obliged to contribute to the defence of those forces because of its location and involvement in NORAD and in the other collective defence arrangements of the Western Alliance. The defence of Canada and the United States was inseparable, and it was not acceptable that the United States forces under CINCNORAD were armed with nuclear weapons and the Canadian forces were not. Moreover, the morale of the Canadian forces both in Canada and in Europe would be badly affected if they were not provided with nuclear weapons to defend themselves against an unscrupulous enemy with similar weapons. It was not known whether Soviet bombers were equipped with nuclear armament to defend themselves against attack; but as it could not be assumed that they were not, it was necessary to equip with nuclear weapons the interceptors that would be sent up against them.
    5. Some said that Canada was, in effect, committed to obtaining nuclear weapons when the decisions were made to procure the Bomarcs, the Honest John missiles and the CF104s. These weapons were known to require nuclear weapons to be fully effective in the roles assigned to them. Although it was technically possible for the Bomarcs to be armed conventionally, they would not be effective against modern aircraft carrying nuclear bombs unless they had nuclear warheads. Moreover, it was known now that there were no conventional warheads being produced that could be fitted to the Bomarc B missiles Canada was obtaining. Although conventional warheads could be produced, the United States authorities considered that they would not be useful.
    6. Some thought it would be preferable to agree first to the storing of defensive nuclear weapons on U.S.-leased bases in Canada, and suggested that the Bomarc bases might also be leased to the U.S. and the U.S. permitted to store nuclear warheads at them. Others said this would be an abandonment of responsibility on the part of Canada and could not be considered as a solution unless the United States did not agree to the Canadian requirement of joint control.
    7. Some said that the U.S. retaliatory forces had been more vulnerable, at the time when the sites for Bomarcs had been selected, than they were now, because a partial airborne alert had been instituted. Others said only a small proportion of SAC bombers were in the air at any one time and that their bases still required all the defence it was possible to give them.
    8. It was suggested that, even if the deterrent forces of the U.S. were adequately protected and if they succeeded in preventing a nuclear war, there would still be danger of attacks on Western territory and interests by conventional forces. It should not be thought that by providing a nuclear defence we were solving the whole problem. Others said that, because of the Soviet Bloc’s superiority in conventional forces, NATO had adopted a nuclear strategy some years ago and that this was still the strategy of the Alliance. The U.S., in stressing the need to strengthen conventional forces, was not intending to abandon the nuclear strategy, although it was hoped that in a few years the West would be less dependent on that strategy. If there was a moral question in the commitment of NATO to initiate the use of nuclear weapons in defence if necessary, then that question had been faced and answered some years ago when the nuclear strategy was adopted.
    9. Some said that a decision to accept nuclear weapons should not be taken now because the Canadian people were not yet prepared for it. Despite the results of the Gallup poll, a large number of people and perhaps a majority were opposed to having nuclear weapons in Canada, either because they thought it might lead to the spread of nuclear weapons and increase the danger of war or because they thought it would be more in the interest of the U.S. than of Canada. Accepting the weapons now would create a major political issue. Some others said that if these weapons were necessary for defence then the responsibility of the Government was clear, but that the public mind must be prepared for the announcement of the decision. It was also suggested that, if war should occur, the attitude of those citizens who opposed the acceptance of nuclear weapons would change immediately.
    10. It was likely that, if negotiations were started with the U.S. on the terms under which Canada might accept nuclear weapons, they would not take long and would result in U.S. acceptance of the Canadian requirement for joint control. The President had said that he would go as far as possible to meet the Canadian position in the matter, and there had been reliable reports in the last few days that members of the U.S. Senate Foreign Relations Committee would agree to joint control with Canada over nuclear weapons stockpiled in this country for Canadian use. It would not have been possible two years ago to obtain U.S. agreement to this principle.
    11. A change in U.S. law might not be required to give effect to an agreement to share with Canada joint control over nuclear weapons stockpiled in Canada. The President had indicated that his executive powers were sufficient to interpret the present law in such a way as to permit him to make the necessary agreement with Canada.
    12. Some said that negotiations with the U.S. on the terms under which nuclear weapons might be accepted by Canada should not be initiated unless there was a clear decision that the weapons would be accepted if the negotiations resulted in U.S. agreement to the conditions of joint control required by Canada. The Prime Minister had said in the House of Commons in 1959 that the Canadian forces would need nuclear weapons if they were to be fully effective, but that Canada must have control over the use of these weapons by Canadian forces. If the Canadian position on control was accepted, Canada would have to proceed with accepting the weapons. It would not be possible then to say to the U.S. that the Canadian government had changed its mind and was not going to go ahead and accept the weapons. Moreover, once it became known that negotiations were underway, the public would interpret this to mean that the government had decided to obtain nuclear weapons. It would be damaging to say that, although the negotiations on terms were proceeding, no decision had been made on the main question of whether the weapons should be accepted.
    13. Others said that the negotiations with the U.S. on terms under which Canada might accept nuclear weapons should go forward, but it should be clearly understood that, in authorizing the negotiations, the Cabinet was not taking the decision that the weapons would be accepted if the negotiations were successful. It would weaken the Canadian negotiating position with the U.S. if it became known before or during the negotiations that the decision to accept the weapons had already been taken. Moreover, it would be dangerous to make the decision now, and run the risk of the information becoming public knowledge while the international situation was so tense. The provision of nuclear weapons to Canada would be bound to become linked with the question of the provision of nuclear weapons to Germany, and if Germany obtained them the danger of nuclear war would be vastly increased. Another reason why this was a bad time to make a decision was that the U.S. had prepared a new statement of principles on disarmament on which discussions with the Soviet Union would begin on September 5th, and the President had approved a new disarmament plan which had been agreed to by most of the Western negotiating powers and which would probably be ready for presentation to the U.N. General Assembly in September. Canada should not take any action that would tend to undermine the prospects of progress in this field.
    14. It was also suggested that, if it became known that negotiations on conditions were underway but that a decision to accept nuclear weapons had already been taken, the public would conclude that the Government had changed its previous position that the principle of joint control must be agreed to before Canada would accept nuclear weapons. The best course therefore would be to go forward with the negotiations, and, if their existence became known, to explain that possible conditions were being negotiated with the U.S., but that if the principle of joint control was not agreed to, Canada would not accept the nuclear weapons.
  3. The Cabinet noted the discussion on the matter of negotiations with the United States concerning the provision of stockpiles of nuclear weapons for Canadian forces, and agreed to give further consideration to the matter at a subsequent meeting.
    . . .

357. DEA/50210-F-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET Ottawa, September 12, 1961

Negotiations with the United States Concerning the Provision of Stockpiles of Nuclear Weapons to Canadian Forces

I understand that the question of negotiations with the United States on this matter was on the agenda of the Cabinet last week and has been carried over to this week. I also understand that Mr. Merchant was in to see Mr. Bryce last Wednesday to enquire when the United States might expect negotiations to begin pursuant to the messages exchanges between the Prime Minister and the President.

Pending the Prime Minister’s decision as to whether or not schedules B, C and D should be considered by Cabinet,Footnote 25 you may wish to examine the attached draft of an Aide Mémoire to cover all the documents to be given the Americans to launch the negotiations. This Aide Mémoire could be given at the appropriate time to the United States Government either through the U.S. Ambassador or Chargé d’Affaires in Ottawa or through the Canadian Ambassador in Washington.

As you will see, the text of the Aide Mémoire has been drawn so as to express clearly that the commencement of negotiations is to be without prejudice to the decision to be taken later as to whether or not Canada will acquire nuclear weapons. The text also, in its last paragraph, explains that the “package” is intended to provide a basis for initiating general discussions by setting out Canadian views as to what would constitute an acceptable point of departure for the negotiation of the agreement. It includes also the understanding that further consideration will have to be given to detailed matters.

N.A. R[OBERTSON]

[ENCLOSURE]

Draft Aide-Mémoire

SECRET

Negotiations with the United States Concerning the Provision of Stockpiles of Nuclear Weapons for Canadian Forces

The Canadian Government has been giving consideration to the form and substance of a possible intergovernmental agreement regarding the provision of stockpiles of nuclear weapons for Canadian forces. There is attached for the consideration of the U.S. Government a draft of such an agreement in the form of an Exchange of Notes and consisting of the following documents:

  1. a draft diplomatic Note;
  2. a draft Annex to this Note which sets out the general principles which might govern the provision of the stockpiles;
  3. a series of draft Schedules applying the general principles of (b) to the detailed arrangements for storage, maintenance, custody and control of the warheads, there being one schedule for each weapon system or type of weapon system.

To complete the exchange of Notes a formal reply would be required.
As the Canadian Government wishes the detailed arrangements to give expression to the general principles contained in the Annex to constitute an integral part of the exchange of Notes, agreement on the terms of the Annex would be conditional upon the negotiations of mutually agreeable Schedules.
The Canadian Government has decided to enter into negotiations with the U.S. Government on the basis of the attached drafts with the object of putting itself in a position to be able to acquire nuclear warheads on short notice if at any time in the future such action should be deemed necessary by the Canadian Government.
The attached drafts are designed to convey Canadian views as to what would constitute an acceptable point of departure for the negotiation of the agreement. It is appreciated that further consideration will have to be given to matters of detail and in order to avoid delays it is suggested that this further consideration might be given jointly by Canadian and U.S. negotiating teams. In this regard the Canadian Government would be prepared to commence detailed negotiations as soon as the U.S. authorities have had an opportunity to study the attached drafts.

358. DEA/50210-H-40

Secretary of State for External Affairs to Chargé d’Affaires, Embassy of United States

LETTER NO. 160 Ottawa, September 27, 1961

Sir [W.C. Armstrong]
I have the honour to refer to discussions in the Canada-United States Ministerial Committee on Joint DefenceFootnote 26 and to the recommendations of the Commander-in-Chief, North American Air Defence Command, concerning the extension and strengthening of the continental air defence system, including the establishment of long range surface-to-air missile sites in Canada.
The Canadian Government, in statements of September 2[3], 1958Footnote 27 and February 20, 1959,Footnote 28 indicated that BOMARC missile bases would be established in Canada, that the PINETREE radar system would be strengthened by the addition of a number of main radar stations and gap filler radars; and that semi-automatic ground environment (SAGE) electronic control and computing equipment would be installed in Canada.

In the discussions between representatives of our two Governments, the importance of satisfactory cost-sharing arrangements for these new programmes was recognized. Understandings concerning the distribution of financial responsibility between the two Governments were reached. Discussions of cost-sharing arrangements were conducted against the background of past understandings between our two Governments, particularly, the “Statement of Principles for Economic Cooperation” of October 1950, and the continuing discussions between our two Governments designed to give effect to their joint determination to assure the most economical and effective use of the defence production capabilities of both countries. Primary consideration was given to the fact that these new and costly undertakings are designed to enhance the joint security of Canada and the United States.
It was recognized as well that further consideration would have to be given to the operational procedures and costs involved in the use of certain of the new facilities when established, in the light of the joint responsibility exercised by the two Governments for the operations of the North Americans Air Defence Command. Arrangements in this respect will be dealt with in a separate agreement between the appropriate agencies of our two Governments.
My Government now proposes that the conditions set out in the attached Annex, which accord with the understandings reached between representatives of our two Governments, should govern the financing, installation and operation of the facilities in Canada now required to strengthen and extend the continental air defence system. If these conditions are acceptable to your Government, I propose that this Note and Annex, and your reply, should constitute an agreement between our two Governments, effective from the date of your reply.
Accept, Sir, the renewed assurances of my highest consideration.

H.C. GREEN

[ENCLOSURE]

Annex

Statement of Conditions Governing the Financing, Installation and Operation of Facilities in Canada Required to Strengthen and Extend the Continental Air Defence System

(Hereafter, unless the context otherwise requires, “Canada” means the Government of Canada, “United States” means the Government of the United States of America, and “facilities” means the facilities defined in paragraph 1 of this Annex).

  1. Facilities
    The arrangements set out below will apply to the construction and installation of (a) seven new heavy radar sites; (b) forty-five gap filler radar sites; (c) one SAGE Combat Centre/Direction Centre; (d) certain modifications to existing radars in Canada made necessary by SAGE; (e) two BOMARC missile squadrons.
  2. Consultation
    Appropriate Canadian and United States authorities shall consult in connection with the implementation of these facilities and related arrangements. Appropriate representatives of the two Governments shall participate in the development of the facilities from design to installation and decisions affecting the programmes shall be mutually agreed, including the assignment of responsibilities for undertaking the various aspects of the programme.
  3. Surveys
    Canadian and United States agencies will cooperate in making engineering and other technical surveys to determine suitable sites for the facilities, and may make plans for the facilities to be constructed and the equipment to be installed at the sites. In the conduct of the surveys, special care will be taken to avoid any infringement of rights over lands which are not owned by Canada; any arrangements involving private properties will be made only through the appropriate Canadian Government agency.
  4. Sites
    The location and extent of all sites required for the facilities shall be agreed upon by appropriate agencies of the two Governments. Canada, without charge to the United States, shall acquire and retain title to any lands required for the sites.
  5. Radio Interference
    Special consideration will be given to the substantial problem of selecting the sites and modifying or adjusting the electronic equipment of the facilities encompassed by this Agreement so as to avoid interference to other use of radio frequencies in Canada, it being understood that other users concerned in specific interference situations will be expected to offer all reasonable co-operation.
  6. Financing
    1. The cost of the initial construction and equipment required for these facilities will be shared in the ratio of Canada being responsible for approximately 1/3 of the cost and the United States being responsible for approximately 2/3 of the cost, and this will be achieved by:
      1. Canada assuming full financial responsibility for all initial construction as well as standard organizational and base equipment (that equipment and materiel used in the performance of base housekeeping functions and the day-to-day operation of a base);
      2. United States assuming full financial responsibility for all initial technical equipment required, including its transportation, installation, testing, and the provision of initial spare parts. Technical equipment means all equipment and material peculiar in nature to the special operational mission of the facilities, such as radar and BOMARC missiles.
    2. The sharing of costs not specifically provided for in this agreement, including the costs of maintenance and operation of the facilities, will be a matter for agreement between the two Governments or their appropriate officers.
    3. This agreement relates to the particular projects enumerated in paragraph 1 above and is not to be considered as establishing a precedent for future joint defence projects.
    4. Any action taken under this agreement shall be subject to the availability of appropriated funds.
  7. Construction
    Canada will assume responsibility for the construction of the facilities, and the provision of the standard organizational and base (housekeeping) equipment.
  8. Technical Equipment
    Every effort will be made to ensure that Canadian industry is given a fair and reasonable opportunity to share in the production of the required technical equipment, within the objectives of the programme for the sharing of defence production tasks as agreed to by the two Governments.
  9. Manning
    All the new facilities will be manned by Canadian personnel. Canadian military personnel costs will be borne by Canada.
  10. Period of Operation
    The facilities will be operated for a period of ten years or such shorter period as may be agreed upon by the two Governments in the light of their mutual defence interests. After the ten year period, in the event that either Government concludes that the facilities are no longer required and the other Government does not agree, the question of continuing need will be referred to the Permanent Joint Board on Defence. In considering the question of need, the Permanent Joint Board on Defence will take into account the relationship of the facilities to any other similar installation established in the mutual defence interest of the two countries. Following consideration by the Permanent Joint Board on Defence, as provided above, either Government may decide that the facilities in question may be disposed of, in which case the arrangements shown in paragraph 11 below regarding ownership and disposition of the installations shall apply.
  11. Ownership and Disposal of Removable Property
    1. Ownership of all removable property brought into or purchased in Canada by the United States and placed on the sites, including readily demountable structures, shall remain in the United States. Subject to subparagraph 11(b), the United States shall have the unrestricted right of removing or disposing of such property, PROVIDED that the removal or disposition shall not impair the operation of any installation whose discontinuance had not been determined in accordance with the provisions of paragraph 10 above, and PROVIDED further that removal or disposition takes place within a reasonable time after the date on which the operation of the installation has been discontinued.
    2. The disposal in Canada of United States property imported into or purchased in Canada by the United States for these facilities and declared surplus to defence needs shall be the subject of consultation between the appropriate authorities of the two Governments. In the event that the SAGE equipment is declared surplus to defence needs, Canada shall have the option to acquire any or all of it at such time and subject to such conditions as shall be mutually agreed upon.
  12. Immigration and Customs Regulations
    1. Except as otherwise agreed, the direct entry of United States personnel from outside Canada shall be in accordance with Canadian customs and immigration procedures which will be administered by local Canadian officials designated by Canada.
    2. Canada will take the necessary steps to facilitate the admission into the territory of Canada of such United States citizens as may be employed on the construction or operation of the facilities, it being understood that the United States will undertake to repatriate without expense to Canada any such persons if the contractors fail to do so.
  13. Taxes
    Canada shall grant remission of customs duties and excise taxes on goods imported and of federal sales and excise taxes on goods purchased in Canada, which are or are to become the property of the United States and are to be used in the establishment, maintenance or operation of the facilities. Canada shall also grant refunds by way of drawback of the customs duty paid on goods imported by Canadian manufacturers and used in the manufacture or production of goods purchased by or on behalf of the United States and to become the property of the United States in connection with the establishment, maintenance or operation of the facilities.
  14. Status of Forces
    The “Agreement between the Parties to the North Atlantic Treaty Regarding the Status of their Forces,” signed in London on June 19, 1951, shall apply.
  15. Supplementary Arrangements and Administrative Agreements
    Supplementary arrangements and administrative agreements between appropriate agencies of the two Governments may be made from time to time for the purpose of carrying out the intent of this agreement.

359. DEA/50210-F-40

Memorandum by Special Assistant to Secretary of State for External Affairs

SECRET [Ottawa], October 6, 1961

Nuclear Weapons Policy

This afternoon I informed the Prime Minister that there was a great deal of interest on the part of the press and also of officials in the significance of his statements earlier today regarding nuclear weapons policy.Footnote 29 I said that I was not certain in my mind what he had intended to convey by the emphasis he had placed on supporting the principle enunciated by President Kennedy that there should be no extension of the Nuclear Club.Footnote 30 Was this in the Prime Minister’s mind a change in Canadian policy or did he intend it to be an indirect reiteration of the policy which had been in effect since early 1959?

The Prime Minister said that in his view President Kennedy’s recent statement (re the prohibition on transfer of control of nuclear weapons in the new disarmament plan) represented a “pronounced change” as compared with the position the President had taken in Mr. Diefenbaker’s talks with him earlier this year. Mr. Diefenbaker said that the public position now taken by the President had killed nuclear weapons in Canada. At another point, he said that more and more it was becoming clear that we would not be having nuclear weapons in Canada unless there was war.

I said that it was my understanding that the United States disarmament plan had been so drafted as to permit the conclusion of an agreement which would provide for the acquisition of nuclear warheads on the basis that ownership would remain with the United States but that control of use would be joint between the United States and Canada. It could be argued that since the United States would not be relinquishing control of the weapons to Canada entirely, an agreement such as this would not constitute an extension of the Nuclear Club. The Prime Minister said that he was aware of this argument but he considered it a play on words.

I asked whether what he had said applied also to nuclear weapons for our forces in NATO. Did he mean that if our air division and brigade were to receive atomic weapons under national control, this also would constitute an extension of the Nuclear Club? The Prime Minister answered affirmatively. He indicated that the same difficulty would not arise if there were a satisfactory form of NATO control governing the use of nuclear weapons by our forces in NATO. He agreed, however, that no such arrangement existed.

The conversation was then broken off but, as I left, the Prime Minister volunteered that this information might be passed on. He did not specify to whom but I took it to mean Ministers and officials concerned with the problem. No reference was made to the question of storage of United States atomic weapons in Canada.

H.B. R[OBINSON]

360. DEA/50210-F-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET Ottawa, October 16, 1961

Nuclear Weapons

When Mr. Bryce was briefing Mr. Ignatieff on Exercise Skyshield II, on which I am reporting separately,Footnote 31 he mentioned that Mr. Harkness had asked to have the question of nuclear weapons put on the agenda of the next Cabinet meeting on Wednesday. It was Mr. Bryce’s understanding that Mr. Harkness would be speaking to the Prime Minister about this.

  1. Since Mr. Bryce asked whether there was anything in the international situation that might have a bearing on the timing of the opening of negotiations with the United States Government, which is desired by Mr. Harkness, Mr. Ignatieff pointed out that the Canadian Government had just taken an initiative at the United Nations General Assembly to propose a draft resolution dealing with the recent resumption of nuclear testing and the resulting increase in radio-active fall-out. Although the United States and United Kingdom Delegations with whom this draft resolution has been discussed, would give it support, it mainly had to rely on the uncommitted countries, who constitute a majority of the members of the UNGA, for its success. This support might be prejudiced if word leaked out – which it might well do – that we were about to open negotiations with the United States on nuclear weapons. There was the broader question also of the German desire to acquire control of nuclear weapons, which could have a substantial bearing on the outcome of current negotiations with the USSR over Berlin and related problems of European security.

N.A. ROBERTSON

361. PCO

Memorandum from Minister of National Defence to Cabinet

SECRET [Ottawa], October 18, 1961

General Agreement on Atomic Weapons

  1. On 6 December 1960 the Cabinet decided that:
    “discussions (or “negotiations) with the U.S. Government concerning arrangements for the essential acquisition of nuclear weapons or warheads for use by the Canadian forces, in the manner already decided, may proceed as soon as they can usefully be undertaken but the acceptance of joint controls to be a basic principle.”
  2. Since that time it has not been possible to undertake discussions with the U.S. Government on this matter. In the meantime, in accordance with government policy, preparations have gone ahead to acquire the weapons which require atomic warheads. BOMARC have started to be delivered to North Bay, the first one arriving 19 October. The HONEST JOHN battery has arrived in Canada and training will be completed by 15 November. It is proposed to have practice firing of a missile with a dummy warhead at Petawawa on 27 October, at which I will be present. The CF104 aircraft programme has proceeded on schedule and the first two aircraft are being test-flown now. In addition we have been making arrangements through the NATO infrastructure organization for the provision of the special storage sites necessary to house the warheads in Europe. As we are sharing this storage with other nations and as it is being financed out of infrastructure funds, we have to make a number of decisions on the details associated with this programme.
  3. An essential prerequisite to obtaining nuclear warheads for the weapons listed above is the negotiation of a general agreement with the U.S. Government. Cabinet has seen proposed drafts of this agreement and it is anticipated that considerable time may be required for this negotiation. It is stressed that the general agreement does not provide warheads. It is a necessary step to permit the negotiation of subsequent agreements whereby the various weapons can be made available to Canadian forces.
  4. It should be pointed out that President Kennedy’s statement, in which he said that the U.S. Government was opposed to nations who did not now possess atomic weapons gaining control of these weapons, was a very carefully worded statement. The word “control” was used to protect the agreements that the U.S. Government had already entered into with other NATO members whereby the custody was retained by the United States and joint control was provided for. It clearly left the door open for agreements with other NATO partners such as Canada under the same conditions.
  5. It is recommended that we open negotiations immediately with the U.S. Government on this general agreement and it is suggested that to ensure that these negotiations get off on the right foot, the Secretary of State for External Affairs and I go to Washington for discussions with the appropriate U.S. governmental representatives to ensure that the Canadian position is made clear to them and that the start of the negotiations is made under the proper understanding by both parties.

DOUGLAS HARKNESS

362. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], November 21, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Mr. Watters).
    . . .

Nuclear Weapons: Negotiations with the United States

(Previous reference September 27)

  1. The Minister of National Defence recalled that in December, 1960, the Cabinet had decided that discussions or negotiations with the U.S. government concerning arrangements for the eventual acquisition of nuclear weapons or warheads for use by the Canadian forces should proceed as soon as possible, but the acceptance of joint controls was to be a basic principle.
    Since that time it had not been possible to undertake discussions with the U.S. In the meantime, two Bomarc missiles had arrived at North Bay and one would soon arrive at Lac Macaza in Quebec. In reply to a question as to whether a non-nuclear warheads could be produced for these missiles, he said none had been produced but they could be made in six months if ordered.
  2. The Cabinet decided to continue discussion of the matter with the Secretaries absent.
    . . .

Section B - Exercise Sky Shield II

363. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], June 12, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

Annual Air Defence Exercise – Sky Shield II

  1. The Prime Minister said that consideration should be given to the recommendation of the Chiefs of Staff, concurred in by the Minister of National Defence, that approval be granted for the conduct by CINCNORAD of exercise Sky Shield II during the third quarter of calendar year 1961.
    An explanatory memorandum had been circulated, (Memorandum, Minister of National Defence, May 8 – Cab. Doc. 200-61).†
  2. During the brief discussion some suggested that the governments should reserve the right to ask for postponement of the exercise and the advance press releases should be made subject to the approval of the Prime Minister. Others said that the announcement of the exercise some 90 days in advance would serve to assure the general public that the exercise was not an emergency response to particular events that might occur at about the same time, for example a possible crisis affecting Berlin.
  3. The Cabinet,
    1. approved the recommendation of the Chiefs of Staff, concurred in by the Minister of National Defence,
      1. that approval be granted for the conduct by CINCNORAD of exercise “Sky Shield II,” as described in the Minister’s memorandum (Cab. Doc. 200/61 of May 8), during the third quarter of the calendar year 1961; and,
      2. that the Minister of National Defence be authorized, after consultation with the Minister of Transport, to give final approval of the actual date and timing and other details of the exercise;
    2. agreed that each government should have the same rights on the possible postponement of the exercise if necessary, as those which applied for the 1960 exercise “Sky Shield”; and,
    3. that any Canadian or agreed joint announcements concerning the exercise should be subject to the Prime Minister’s approval.

R.B. BRYCE
Secretary to the Cabinet

364. DEA/50309-D-40

Head, Defence Liaison (1) Division, to Minister, Embassy in United States

SECRET & PERSONAL Ottawa, June 30, 1961

Dear Saul [Rae]:
Thank you for your letter of June 26† regarding exercise Sky Shield II. I was about to write and let you know where things stand here.
For some reason the Minister seems to be adopting a hands-off position on the exercise this year. The Department of National Defence did not consult us in drafting its Submission to Cabinet seeking approval of the exercise and the Minister, who had a copy of the Submission for several weeks, did not refer it to us for comment until the night before it was to be discussed in Cabinet. I am enclosing a copy of the Record of Cabinet Decision† which, as you will notice, makes no reference to diplomatic channels and simply specifies that announcement concerning the exercise should be subject to the Prime Minister’s approval.

I am also enclosing the text of the draft press release† which National Defence expects to be submitting to the Prime Minister for his approval in the near future. As you will see it follows last year’s text pretty closely. National Defence has not sought our comments on the press release and I obtained this copy through undercover channels.

I suspect that if there is any trouble involving us it will arise over the announcement which the Federal Aviation agency will probably wish to issue to warn the air travellers of the interruption of civil airlines schedules. You will recall that this was the release that gave us all the difficulty last year.Footnote 32 I think that all we can do at this stage is hope that the FAA learned by last year’s experience.
Cheers for now.

Yours sincerely,
W.H. BARTON

365. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], August 23, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Assistant Secretary to the Cabinet (Dr. Hodgson),
  • Mr. D.B. Dewar, Privy Council Office,
  • Mr. D.F. Wall, Privy Council Office.
    . . .

Exercise Sky-shield II

(Previous reference July 31)

  1. The Prime Minister said that an article in the Washington Daily News of August 22nd, had disclosed details of Exercise Sky-Shield II which was to be held on October 14th. This was an example of the bad security of information in the U.S. Government. The article disclosed the number of aircraft sorties and men to be involved, that British bombers would participate, that radar would be jammed during the exercise, and that civilian air traffic over North America would be grounded for twelve hours.
  2. The Cabinet noted the comment of the Prime Minister on the publication in the U.S. of details concerning Exercise Sky-Shield II.
    . . .

366. DEA/50309-D-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET Ottawa, August 25, 1961

Exercise Sky Shield II

The Embassy in Washington have informed us that the State Department have sought our comments on a press release which the United States Federal Aviation Agency, the body which controls civil aviation in the United States, would like to make. The text of the draft release is contained in Washington’s telegram 2621 of August 22nd, a copy of which is attached.†
The fact that the exercise will be held on October 14th and that it will last for twelve hours was contained in a press release issued by NORAD Headquarters on August 8th. The text of this release was approved on the Canadian side by the Prime Minister in accordance with Cabinet’s decision of June 12th.
The proposed FAA release is intended to serve as a general reminder to the public in the United States that all civil aircraft will have to be grounded during the period of the exercise. As such it covers certain aspects of the exercise upon which it would not be appropriate for us to comment, for example that paragraph which details the number of aircraft and passengers which will be affected in the United States. On the other hand there are certain passages upon which we could legitimately comment. I have discussed these with the Chairman, Chiefs of Staff Committee who does not share my view that even though some of the changes I think we should seek to have made are already in the public domain we should do what we can to generally tone down the release.
Furthermore, I believe that we should indicate to the State Department that we support their view that the proposed press release should confine itself to the question of interruptions to air traffic and not give more publicity to the military aspects of the exercise than necessary.
With these thoughts in mind we have drafted for your consideration the attached telegram to Washington in which the specific amendments which we think should be made are detailed.Footnote 33

N.A. R[OBERTSON]

[Enclosure]

Secretary of State for External Affairs to Ambassador in United States

TELEGRAM DL-1062 Ottawa, August 28, 1961
SECRET. OPIMMEDIATE.
Reference: Your Tel 2621 August 22.†
Repeat for Information: CCOS.

Exercise Sky Shield II

Would you please express to the State Department our appreciation for being given an opportunity to comment on the proposed FAA release. We agree that the Washington Daily News article makes it difficult to urge radical revisions of the draft but nevertheless we fully support the State Department’s opinion that the FAA draft should concern itself with the question of the interruption to air traffic.

  1. In line with this view we would make the following comments:
    1. In the paragraph beginning “Exercise requirements call for …” the words “some 2,000” should be deleted. It seems to us that mention of a specific number of participating military aircraft is open to misconstruction, both in North America and abroad and tends to sensationalize the exercise (and therefore is inconsistent with paragraph 1(6) of the press guidance), and is not vital to the substance of the FAA release.
    2. The reference to the participation of RAF Bombers in the same paragraph is agreeable provided it is also agreeable to the U.K. authorities.
    3. In the same paragraph the phrase “SAC ‘aggressor’ bombers” is inaccurate if there is to be RAF participation. In any event we believe that some such phrase as “bombers simulating ‘attacking’ forces” would be more felicitous.
    4. In the paragraph beginning “Reminding the general public …” the words “thousands of” before “private pilots” should be deleted on the grounds that the use of these words tends to sensationalize the exercise.
    5. Delete in total the paragraph beginning “Doubling the Sky Shield Exercise …” for the reason stated in paragraph one.

[H.C.] GREEN

367. CEW/Vol. 3094

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 2691 Washington, August 29, 1961
SECRET. OPIMMEDIATE.
Reference: Your Tel DL-1062 August 28.
Repeat for Information: CCOS.

Exercise Sky Shield II

We have passed on today to Burgess (Canadian Desk) your suggestions on the proposed FAA release.

  1. Burgess thought that the suggestions (b), (c) and (d) would be acceptable to State Department but believed that the reference to 2000 aircraft (suggestion (a)) had relevance in that it explained and justified to the public why such drastic interruption of air service was necessary. Similarly, it was thought that the paragraph regarding the doubling of the Sky Shield Exercise from six to twelve hours was necessary as an explanation of why the FAA was interrupting traffic for twice the length of time it had been interrupted last year. Burgess hoped that on reconsideration we might be prepared to waive suggestions (a) and (e).
  2. With regard to (e) perhaps the paragraph would more nearly meet the point that the FAA draft should concern itself with the question of interruption to air traffic if it were couched along the following lines, “Doubling the period from six to twelve hours during which all commercial and general aviation flights are to be suspended is made necessary by the need to provide” etc. as in the present draft.
  3. State Department would be grateful for early reply.

368. CEW/Vol. 3094

Memorandum by Counsellor, Embassy in United States

SECRET [Ottawa], August 30, 1961

Exerercise Sky Shield

Tovell called me today regarding our telegram 2691 August 29. He explained that the most careful consideration had been given to the Canadian comments at a high level and that, indeed, the Prime Minister himself had approved the Canadian comments. We would appreciate the sensitivity of this matter in Canada. The Department was, therefore, reluctant to resubmit the counter-argument made by Burgess in respect of comments (a) and (e) unless they could be sure that this represented high level opinion in the State Department. Tovell asked me, in the light of the foregoing, to discuss the matter again with Burgess. I have done this and Burgess fully understands the situation. He has undertaken to have our comments reconsidered.

J.S. N[UTT]

369. CEW/Vol. 3094

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 2786 Washington, September 7, 1961
RESTRICTED. OPIMMEDIATE.
Reference: Your Tel DL-1062 August 28.
Repeat for Information: CCOS.

Exercise Sky-shield II

State Department has passed to us text of FAA release which it is proposed to make available for Monday morning, September 11, newspapers. You will notice that the suggestions contained in your reference telegram have been accepted. Text begins: (Communications please repeat text of attached)† Text Ends.

370. DEA/50309-D-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET Ottawa, October 16, 1961

Exercise Sky-shield II

Mr. Bryce, who attended Exercise Skyshield II in company with Mr. Elgin Armstrong, Deputy Minister of Defence, A/V/M de Niverville, Assistant Deputy Minister for Air, Department of Transport, and some RCAF officers, gave us a summary of his impressions on Monday.

  1. His observations were based entirely on following the exercise at Truax Air Force Base at Madison, Wisconsin. This is one of the sector commands of NORAD and covers the Great Lakes areas down to Tennessee.
  2. The Canadian officers were, so far as Mr. Bryce could see, given all the information they asked for. The exercise was mainly of the detection and interception functions of the NORAD Command. The main impression of the exercise was its extent. About 6,000 sorties were flown by fighters. In order to give the operators of the warning system and the fighters the most experience, the opposing bomber forces which included a contingent from the R.A.F.’s V-Bomber force, came in at rather more regular intervals and more dispersed than would probably be the case in an actual attack.
  3. On the other hand, some of the incoming bombers came in at low level and electronic counter-measures were used to obstruct detection.
  4. The efficiency of detection and interception was rated by Mr. Bryce as very high. This was based on good planning. Incidentally, as a precaution against possible Soviet attempts to use the exercise in order to invade or infiltrate the North American air space, the F-106’s were not used in the exercise but were kept available for real interception.
  5. The greatest shortcoming in the exercise was the demonstration of the weakness of the Command as a whole to radiological hazards and fallout. The Command has only a very small proportion apparently of its posts protected against radiation. The air strips can be rendered unusable or dangerous by fallout, and there is no provision for automatic washing of the air strips.
  6. In conversation with United States officers and Canadian officers, there was no complaint about the cooperation forthcoming from Canada. There was no mention of nuclear weapons. Air Marshal Slemon was in charge of the exercise part of the time. General Kuter was in charge the rest of the time.
  7. A fuller report will be forthcoming later from the NORAD Headquarters.

N.A. R[OBERTSON]

371. DEA/50309-D-40

Under-Secretary of State for External Affairs to Chairman, Chiefs of Staff Committee

SECRET Ottawa, November 15, 1961

Large Scale Air Defence Exercises

At the September meeting of the Permanent Joint Board on Defence there was an informal discussion, initiated by the U.S.A.F. member, regarding the possibility of working out an agreed procedure for obtaining approval for the planning and execution of large scale air defence exercise such as Exercise SKY SHIELD II. As this discussion was “off the record” there was no reference to it in the Board’s Journal. No particular conclusion was reached except that both sides would look into the matter and be prepared to discuss it at the next meeting which is to be held in January.

We have been giving some thought as to the line Mr. Wilgress might take when the matter comes up for discussion at the Board and at the moment we are inclined to the view that to formalize the procedure which has evolved would be neither desirable nor practicable. We would assume that both SKY SHIELD I and SKY SHIELD II proved to the satisfaction of both Air Forces that exercises of this nature are valuable both to the units participating in them and to the various elements of the NORAD Command structure and that from a service point of view, such an exercise could well be held annually. We would also assume that the generally favourable public reaction to these two exercises would make it easier to hold them regularly in the future. It seems likely therefore that such large scale air defence exercises will become a permanent feature of NORAD’s operations.

In spite of this, however, I think there is much to be said in favour of not formalizing matters at least at this stage. The political implications of exercises of this nature are likely to vary depending on the international situation at the time the exercise is proposed to be held. Also, the procedures for obtaining approval to commence detailed planning, of press releases and of final governmental approval, which have been developed as a result of our experience with the two exercises held to date seem quite clear and although the various channels of responsibility are quite well defined there is sufficient flexibility which it is perhaps desirable under all circumstances to retain. Moreover, I am inclined to doubt whether Ministers for their part would wish to be tied down to any formal procedure, no matter how generally stated, which could be taken to imply either that their approval could be anticipated as a matter of course or that they might be committed to grant approval.

Before reaching any final view on this matter, however, and before consulting my Minister, I should be grateful to have your comments and your suggestions as to what Mr. Wilgress might say at the next meeting of the Board.

N.A. ROBERTSON

372. DEA/50309-D-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], November 30, 1961

Exercise Sky-shield II

Officers of the Department have been briefed on the results of this exercise. The following points which emerged at this briefing may be of interest to you.

As you know NORAD’s two principal roles are to provide for the air defence of North America and to provide a “safe passage” to enable SAC aircraft to take off from bases in the United States on pre-assigned strike missions during an air attack on North America. With regard to the first Sky Shield II indicated that NORAD could put up a respectable defence but this was not fool-proof nor perfect. The exercise, however, did show that NORAD would be able to fulfil its second task quite adequately and that most, if not all, SAC aircraft not on an air-borne alert would be able to take off and carry out their missions in both the pre-attack and attack phases.

It was stressed that the enforced grounding of all non-exercise aircraft had entirely justified itself both for reasons of safety and because through the use of various devices it was possible to conduct the exercises on as realistic a basis as possible within the resources of SAC and NORAD. It was also stated that exercises on such a scale ought to be held at least once every year as it is only by such means that essential lessons can be learned. In this regard it was pointed out that detailed planning for next year’s exercise will commence in January, and if it is to go ahead the approval of each Government should be obtained by June 1 at the latest.

The particular lessons derived from Sky Shield II were as follows:

  1. There is a need for NORAD to examine thoroughly the question as to how to cope with low-level attacking bombers, a very large percentage of which were able to reach their targets virtually undetected;
  2. It will be necessary to give considerable thought to the problem of how to deal with hostile aircraft armed with air-to-surface missiles standing some 300 miles off the coast, i.e., outside the range of existing coastal radars of Nike anti-aircraft missiles;
  3. Of particular interest to Canada is the fact that the exercise proved to NORAD’s satisfaction at least that there was need to re-examine the question of establishing air fields in Northern Canada for the re-deployment of interceptors to enable them to engage attacking forces before they come within range of centres of population, and in this way be able to take greater advantage of the early warning which would be received from the DEW line. This idea has been considered before, but has never been actively pursued because the cost of the necessary facilities would be almost prohibitive.

N.A. R[OBERTSON]

373. DEA/50309-D-40

Chairman, Chiefs of Staff, to Under-Secretary of State for External Affairs

SECRET Ottawa, December 19, 1961

Large Scale Air Defence Exercises

  1. Reference is made to your letter of 15 November on the procedure for obtaining approval for the planning and execution of large scale air defence exercises.
  2. The agreement between the Government of Canada and the Government of the United States of 12 May 58Footnote 34 concerning the organization and operation of NORAD laid down the principles to be followed in setting out the terms of reference of CINCNORAD, and stated that the details of these terms of reference were a matter for agreement between the Chiefs of Staff Committee and the Joint Chiefs of Staff. Agreement between JCS and COSC on these detailed terms of reference had already been reached at the time this Government to Government agreement was ratified.
  3. In his terms of reference, CINCNORAD is charged with the operational effectiveness of the forces assigned to him in NORAD to carry out his assigned mission. These terms of reference state that, in carrying out his mission CINCNORAD will, inter alia, “plan for and conduct air defence exercises, including participation by augmentation forces.”
  4. CINCNORAD is responsible to the Joint Chiefs of Staff and to the Chiefs of Staff Committee. In accordance with his terms of reference, he uses this channel to obtain approval for large scale air defence exercises. JCS and COSC respectively follow their normal channels to their respective Ministers and they, in turn, to their respective governments to obtain the necessary authorities.
  5. The above procedure has worked well in the planning and conduct of past exercises, and I see no valid reason to alter these arrangements. I agree with you that it is better not to lay down formal procedures.

F.R. MILLER
Air Chief Marshal

Section C - Reciprocal Purchase of Aircraft

374. DEA/50210-G-1-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 2979 Washington, December 1, 1960
CONFIDENTIAL (NO DISTRIBUTION). OPIMMEDIATE.
Reference: My Tel 2424 Sep 27.†
Repeat for Information: Prime Minister Ottawa, Finance Minister Ottawa, DDP Minister Ottawa, DND Minister Ottawa from Ottawa.

Proposal Swap Deal – Cl44s/f101bs/pinetree

Yesterday I called on the Secretary of Defense to enquire where this matter stood. The Chairman of the Joint Staff accompanied me. You will recall that it had been decided not repeat not to press until after the Presidential election for a reply to the firm proposal I had submitted on September 22.Footnote 35 However, as there was still no repeat no word on my recent return from Canada, I felt, after my conversation in Ottawa with the PM, that I should raise the matter again with Gates referring to the latest exchanges between the Minister of Finance and the Secretary of the Treasury.

  1. Gates told me that no repeat no final position on the part of USA Government had yet been reached. The reply to our offer which the Department of Defense proposed had still to be cleared with the Department of State and, in view of the interest of the Prime Minister and the President, with Mr. Eisenhower himself. At the same time the Secretary indicated to me frankly that the conclusion reached by his Department was that our proposal could not repeat not now be accepted for budgetary, economic and technical reasons. As a counter suggestion, Defense proposed the provision of fighters to RCAF squadrons against Canadian manning of Pinetree but without any USA purchase of Canadian aircraft. In this connection Gates emphasized the deterioration of USA budgetary position since the Montebello meeting in July. He was now having to make provision under a strictly limited ceiling for a number of other defence requirements not repeat not earlier foreseen. As a consequence, it was not repeat not possible to find the cash for Canadian aircraft. In addition, the position of the USA aircraft industry had further deteriorated and finally the USAF continued not repeat not to want the CL44.
  2. My immediate response was to point out with emphasis the serious consequences in Canada of a USA rejection of the Canadian offer, particularly after the long delays encountered (on both sides) and the public expectations aroused. I reviewed once more the difficulties which the Canadian Government had had to overcome in arriving at the proposal submitted in September and referred again to the importance to our Joint Defence relationship which the Prime Minister and the Ministers chiefly concerned attached to USA purchase in this context of Canadian aircraft. I recalled Mr. Diefenbaker’s mention of the matter to Mr. Eisenhower on two occasions (in WashingtonFootnote 36 and New YorkFootnote 37) and the recent message communicated through Mr. Fleming and Mr. Anderson.Footnote 38 Speaking personally, I said that I thought there would be no repeat no chance in the foreseeable future of the government accepting a two-way deal of F101Bs on the one hand for manning Pinetree stations on the other. I added, in reference to the Secretary’s emphasis upon his current budgetary dilemma, that I did not repeat not know whether there was any room for manoeuvre in regard to the financial contributions of the two governments. Perhaps this could be further explored. But I was satisfied that only a three-cornered deal would be acceptable from the Canadian point of view.
  3. This was the substance of our exchange on the subject. As, however, it had still to be dealt with by the Department of State, I asked the Secretary to hold up further action upon [Group Corrupt] proposed answer until I had had an opportunity of seeing the Secretary of State and urging the larger political considerations. This Gates readily agreed to and I am to see Herter Monday afternoon next, December 5. Thereafter I will report again and let you know what further steps, if any, might, in my judgment, usefully be taken at the top level even at this late stage. I am bound to add, however, that the auspices are not repeat not good.
  4. Last evening I reported by phone to the Prime Minister (through the Secretary to the Cabinet) and this morning I have recounted these developments to A.E. Ritchie in the Department. Hendrick has also reported briefly by phone to the Chairman of the Chiefs of Staff for the Minister of National Defence.
  5. Please limit strictly the distribution of this message.

[A.D.P.] HEENEY

375. DEA/50210-G-1-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 3009 Washington, December 5, 1960
CONFIDENTIAL (NO DISTRIBUTION). OPIMMEDIATE.
Reference: My Tel 2979 Dec 1.
Repeat for Information: Prime Minister Ottawa, Finance Minister Ottawa, DDP Minister Ottawa, DND Minister Ottawa from Ottawa.

Proposed Swap Deal – Cl44s/f101bs/pinetree

This afternoon I called on the Secretary of State to urge upon him the importance of a favourable USA reply to our proposal of September 22. Livingston Merchant, Under-Secretary of State for Political Affairs, was with Herter.

  1. Although the Secretary was familiar with the history, I reviewed with him the principal features and recounted the conversation which I had had on November 30 with his colleague the Secretary of Defense. While we recognized, I said, that there were budgetary, economic and technical objections on USA side, these we believed were outweighed by larger considerations in the defence relations between our two countries. Again I emphasized the serious consequences in Canada of a collapse of the negotiations and left no repeat no doubt in Herter’s mind that, in my judgment, no repeat no deal which did not repeat not involve the purchase of Canadian aircraft would be acceptable to us. Finally I said that I hoped that, despite the position arrived at by the Department of Defense, he would advise the President that a favourable answer should be given us.
  2. In response Herter said that he would certainly weigh carefully the arguments that I had advanced, the importance of which he did not repeat not deny. The difficulties of the Department of Defense however were genuine ones, particularly against the background of the current USA difficulties with respect to their balance of payments (even though the Canadian position, admittedly, was different from that of other Allies). It would be some days before he himself had had an opportunity to explore it further and consult with the Secretary of Defense prior to advising the President.
  3. Although my reception was entirely cordial, Herter remained non-committal which is not repeat not, I think, surprising in the circumstances. I am satisfied that he will make a genuine re-examination of the various factors and that he will weigh carefully the larger considerations to which I gave emphasis. The outcome is impossible to forecast, however, and, if the Prime Minister is disposed to weigh in once more, he might perhaps consider a brief personal letter to the President reminding him of his earlier conversations and urging the importance in terms of our general defence relations of a favourable response to our offer. Such a letter could be sent by telegram and communicated through me, and should be timed, I think, to arrive by Thursday or at latest Friday of this week. Gates leaves for the NATO meetings on Saturday next, December 10, and Herter on Monday December 12.

[A.D.P.] HEENEY

376. DEA/50245-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 41 Washington, January 4, 1961

CONFIDENTIAL. OPIMMEDIATE.
Reference: My Tel 3009 Dec 5/60.
Repeat for Information: Prime Minister Ottawa, Finance Minister Ottawa, DDP Minister Ottawa, DND Minister Ottawa from Ottawa.

Proposed Swap Deal – Cl44s/f101bs/pinetree

This afternoon Livingston Merchant, Under-Secretary of State for Political Affairs, asked me to call on him at the State Department to inform me that, after consultation with the President, it had been decided reluctantly that the decision of USA Government upon our proposal of September 22 would have to be negative. Consequently the Secretary of Defense would be communicating with me in the sense he had indicated on November 30 as reported in paragraph 2 of my telegram 2979 December 1. You will recall that, on that occasion, Gates had told me that the Defense Department had reached the conclusion that our proposal could not repeat not be accepted for budgetary, economic and technical reasons and that they intended to propose the counter-suggestion of providing fighters to RCAF squadrons against Canadian manning of Pinetree but without any USA purchase of Canadian aircraft.

  1. I understand that the Secretary of Defense had intimated to the Minister of National Defence at the recent NATO Ministerial Meeting in Paris that the USA response would be that reported to me by Merchant today. Nothing further of consequence transpired in our conversation other than an expression of regret by Merchant that it had not repeat not proved possible to include purchase of Canadian aircraft in any deal which USA could accept. I now expect the formal reply to our offer to be communicated to me from the Defense Department for Mr. Harkness and I will, of course, forward it immediately it is received.

[A.D.P.] HEENEY

377. DEA/50245-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 132 Washington, January 12, 1961
SECRET. OPIMMEDIATE.
Reference: Our Tel 41 Jan 4.
Repeat for Information: Minister DND (OpImmediate) from Ottawa.

Proposed Swap Deal – Cl44s/f101bs/pinetree

This afternoon I received the letter quoted in paragraph 2 of this message from the Secretary of Defense to the Minister of National Defence. The covering note to me is dated January 11 and expresses Mr. Gates’ hope that their counter proposal will be acceptable to the Canadian Government.

  1. Text begins: Dear Mr. Harkness:
    The purpose of this letter is to confirm our conversation in Paris on December 16. As I indicated to you then, we have studied with great care and interest Mr. Pearkes’ proposal of September 22, 1960, which may be summarized as follows:
    1. Over a period ending April 1, 1963, Canada would take over (1) manning, operation and maintenance of the eleven Pinetree radar sites in Southern Canada; and (2) the operation and maintenance of five Pinetree radar sites manned by the RCAF but paid for by the USAF. This would be for the duration of the NORAD agreement (May 11, 1968) or for such other period as would be agreed.
    2. USA would make available to Canada 66 F101B aircraft, with supporting equipment, for the use of RCAF squadrons. Two-thirds of the cost of the spares and other related USA equipment would be borne by USA and one-third by Canada.
    3. USA would procure CL44 aircraft in the amount of $155 million.

    I believe that this proposal holds promise for improving the air defense of the North American continent. I regret, however, that we cannot repeat not agree to procure CL44 aircraft as to do so without receiving cash for the F101Bs would completely disrupt our transport procurement program and disregard congressional advice. Also, the situation of our own transport aircraft industry presents much more of a problem than was the case six months ago.

    We continue to believe that it is important in the interest of our mutual defense that we take such steps as we can to assist in your modernizing your air defense forces. Accordingly, we would undertake to transfer 66 F101B aircraft to Canada and to bear the full cost of ground support equipment and initial spares, and we would ask that you undertake to operate 11 Pinetree sites without any change in the status of the remaining 5.

    Thus, our counterproposal is that:

    1. Over a period ending April 1, 1963, Canada would take over the manning, operation and maintenance of the eleven Pinetree radar sites in Southern Canada for the duration of the NORAD agreement (May 11, 1968) or for such other period as would be agreed.
    2. USA would make available to Canada 66 F101B aircraft with ground support equipment and initial spares for the use of RCAF squadrons.
      Please let me know if you agree in principle. If so, we can have the RCAF and USAF work out the implementing arrangements. Sincerely yours, (signed) Thomas S. Gates. Text Ends.
  2. Very unfortunately the nature of USA response has been leaked to the press by the Pentagon. We here, however, have refused to confirm or deny the letter’s existence.
  3. The original is being sent to Mr. Harkness by bag.

[A.D.P.] HEENEY

378. DEA/50245-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], February 20, 1961

Proposed Aircraft Swap Deal

We have been studying the proposals outlined in Washington telegram 515 of February 18th (copy attached) which were advanced by the Deputy Secretary of Defence to Mr. Heeney and Mr. Golden as a counter-offer to the Canadian proposal for a CL-44 – F101 – Pinetree swap arrangement. The following preliminary observations on aspects of the U.S.A. offer of particular concern to this Department may be useful to you in discussions with your colleagues.

  1. It is our understanding that the objectives of the original Canadian proposal were:
    1. to support production of a unique Canadian design of aircraft;
    2. continuation of a high level of production and employment at CANADAIR;
    3. establishment of a significant production-sharing quid pro quo to justify the acquisition of a U.S. interceptor to replace the CF100 and the canadianization of the Pinetree radar line, and to encourage public support of the joint defence programme of the two Governments.
  2. While we agree with Mr. Heeney’s comment that the U.S.A. proposals represent a genuine effort by the Department of Defence to meet the Canadian situation constructively it is regrettable that the possibility of production sharing lies with an aircraft which is of U.S.A. design and intended for employment in Europe, potentially in a nuclear role, rather than one which incorporates unique Canadian design features or is primarily for use in the direct defence of North America. Moreover, unlike the CL-44, the 104 would not have a dual civil-military capability and its production would not, therefore, represent a contribution to improved air communications to meet non-military as well as military requirements.
  3. Of the three possibilities envisaged by the U.S.A. (sub-contracts in connection with the proposed new U.S. jet transport, sub-contracts for U.S. produced 104’s, and Canadian production of 104’s) the last one seems most nearly to meet Canadian requirements, although DDP will no doubt wish to make a technical comparison and confirm that from the production point of view this is actually the case.
  4. Another aspect of the U.S.A. proposal which will require careful consideration is that Canada consider making a contribution of up to one-third of the cost of the aircraft as Mutual Aid. (The telegram from Washington indicates that the total amount of the order would be about $150 million but we understand from DDP that this figure should be considered as illustrative of the order of magnitude only.) It would seem reasonable that if we were to make such a contribution it should be based on the value of the Canadian content of the aircraft rather than on the total cost, and that Canada should have a voice in the decision as to which governments are to receive the Mutual Aid (it is understood that the countries which are to receive the aircraft are Norway, Denmark, Greece and Turkey). In principle, from the External Affairs point of view we think there would be some advantage to a Canadian Mutual Aid contribution because our current programme has shrunk almost to the vanishing point and has been a subject of some criticism during the last two NATO Annual Reviews.
  5. Finally, although it was not stated as a condition of carrying out the proposal, the U.S.A. Deputy Secretary of Defence gave Mr. Heeney and Mr. Golden to understand that the U.S.A. would anticipate the advancement of negotiations with respect to the stockpiling of nuclear weapons for Canadian forces in Canada and Europe and for U.S. forces in Canada.

G. I[GNATIEFF]
for Under-Secretary of State
for External Affairs

[ENCLOSURE]

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 515 Washington, February 18, 1961
SECRET. OPIMMEDIATE.
Reference: Our Tel 454 Feb 15.†
Repeat for Information: Prime Minister Ottawa, Minister of Finance Ottawa, DND Ottawa, DDP Ottawa, CCOS Ottawa, Secretary to the Cabinet (Bryce) Ottawa (OpImmediate) from Ottawa.

Proposed Aircraft Swap Deal

The Deputy Minister of Department of Defence Production and I have just returned from seeing the Deputy Secretary of Defense (Gilpatrick) and the Assistant Secretary for International Affairs (Nitze). I had been asked by Gilpatrick to see him this morning to hear, in a preliminary way, the results of their further consideration of this whole matter, particular in relation to possible purchases by USA of Canadian aircraft. I took advantage of Golden’s presence in Washington to have him along as well as Teeter, Director of Department of Defence Production Office here and the Chairman of the Joint Staff (Hendrick).

  1. Gilpatrick began by confirming what we already knew, namely, that officials of Defense and the Department of the Air Force, had been re-examining very actively our proposal and possible alternatives which would include substantial USA defense purchases in Canada. They had reluctantly come to the conclusion that it would not repeat not be possible for the USAF to make any purchases of Canadian transport aircraft; their programme for interim airlift requirements was complete, that was until the projected all-jet cargo transport (SOR) was ready.
  2. Having reached this conclusion concerning the CL44, Gilpatrick continued, USA officials had gone into other possibilities for comparable outlays in Canadian defence industry which would assist Canada in maintaining a substantial military aircraft manufacturing establishment. Three possibilities had emerged: the first would involve Canadian participation, perhaps to the extent of some $100 million the new USA jet cargo/transport (SOR) programme through direction to the successful USA bidder to subcontract important elements to Canadian manufacturers; the second and third would involve Canadian participation in USA programme for F104G fighter/interceptors for NATO forces under Mutual Aid.
  3. With respect to the F104G programme, the Deputy Secretary went on, one course would be to have Lockheed (the Prime USA Contractor) subcontract to Canadair to the extent of say $100 million; a second course would be to divide the programme into two complete production lines, one at Lockheed and the other at Canadair. (The total USA programme is for about 480 aircraft at the rate of 100 a year, subject of course, to the availability of funds.) Under this scheme, Lockheed and Canadair would each be producing about four aircraft a month.
  4. It was evident that in their search for alternatives to CL44, purchase, USA Defense Department have been trying to find something that would mean comparable expenditure in Canada. In this connection, Gilpatrick estimated that about $155 million would be involved in a Canadair shared F104G programme of the sort last described above, although the arithmetic is still far from precise. Because of the amount involved and because it would call for the production of a complete aeroplane in Canada, Gilpatrick thought that this last suggestion would come most nearly to meeting Canadian requirements. We therefore went on to discuss it without further reference to the two first possibilities he had mentioned.
  5. Two important elements are involved in agreement in a joint programme of this character: first, Gilpatrick said that, if a separate production line were to be set up at Canadair, the USA would hope that Canada would wish to make some suitable contribution to the total expenditure as a Mutual Aid undertaking. (No repeat no amount was mentioned but it seemed that something less than a third of the total had been in his mind); second, although he was very careful not repeat not to suggest that this was in any way a condition of the proposal, the Defense Department hoped that such a substantial undertaking in our joint defence production programme would make an important positive contribution to our defence relations generally.
  6. In answer to a question by Golden, Gilpatrick said that, if agreement were reached along the lines of the suggestion last described, it would not repeat not, preclude Canadian industry from bidding on USA for programme as subcontractors, but in such circumstances the Department of Defense would not repeat not of course “direct” that subcontracts be placed in Canada.
  7. Gilpatrick said that these suggestions were at this stage only tentative. USA wished to have a preliminary reaction from us before anything formal were to [be] sent forward to us. Further, they related only to that portion of our proposal (of September 22 last) which had to do with the purchase of Canadian aircraft. That was to say, Pinetree maintenance and fighter acquisition by the RCAF would also be included presumably on the conditions we had proposed subject to detailed discussion.
  8. Finally, the Deputy Secretary said that the suggestions he had put forward to us informally today had emerged from a general review of defense relationships between USA and Canada. USA were anxious to make an important and constructive move in the defense production sharing programme. There were, as we knew, other important aspects of our joint defence where questions remained to be settled. For example, we had not repeat not, yet reached agreement on questions of nuclear armament for Canadian forces, storage of special weapons and joint control in respect of Bomarc installations in Canada (he also mentioned SAC overflight arrangements) and intimated that it was the hope of USA authorities that conclusion of these outstanding matters to our mutual satisfaction would be facilitated by the kind of arrangement we were discussing.
  9. At the conclusion of our talk, we agreed that, in view of the particular sensitivity of this whole matter, press enquiries on either side would be answered with a statement along the following lines: the Deputy Minister of Defense Production was in Washington for discussion with those now in charge in USA Department of Defense for continuation of the joint Canada-USA defence production sharing programme. To any questions regarding the so-called swap deal, the reply would simply be that this was still under consideration by USA authorities.
  10. In case the Prime Minister should raise with the President at their meeting on Monday February 20, any matter related to defense production, the Department of Defense will be briefing Mr. Kennedy, though in pretty general terms. I gathered that their aide-mémoire to the White House will make reference to our conversation this morning, although it is not repeat not, expected that the President and the Prime Minister will get into any of the detail. Our reaction to the suggestions put forward to us by Gilpatrick this morning will only be anticipated after the experts in Ottawa have had an opportunity of examining what is involved and discussing them in detail with the USAF.
  11. Golden and I are satisfied that the proposals put forward by Gilpatrick and Nitze this morning represent a genuine effort by the Department of Defense to meet our situation constructively. There is no repeat no doubt whatever that their examination of our original proposal including in particular, USAF purchase of Canadian transport aircraft has been gone into both sympathetically and exhaustively. When we were talking this morning, the Secretary of Defense came in and spoke to us. He said that he thought we would find their proposals interesting and he made it quite clear that he, himself, had taken a personal interest in seeing to it that something really constructive was proposed.
  12. Finally, I told Gilpatrick that we would communicate their suggestions at once to the Prime Minister and Ministers concerned in Ottawa and that our response would not repeat not, be long delayed. I gather that if our answer is favourable in principle, our respective officials will then get together on the detail and after that a formal reply will be made to my letter of February 3.

[A.D.P.] HEENEY

379. DEA/50210-G-1-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 567 Washington, February 23, 1961
CONFIDENTIAL. OPIMMEDIATE.
Reference: Our Tel 515 Feb 18.
Repeat for Information: Prime Minister Ottawa, Finance Minister Ottawa, DND Minister Ottawa, DDP Minister Ottawa, CCOS Ottawa, Secretary to Cabinet Ottawa (Bryce) from Ottawa.

Proposed Aircraft Swap Deal

This morning I learned that DDP and Air Force officers of ours had been in touch with the Pentagon to explore with them in a preliminary way details of the suggestion put to me by the Deputy Secretary of Defense February 18 and reported in my reference telegram. I also understand that officials in Ottawa have the matter under consideration with a view to making an early report and recommendation to the Cabinet.

  1. When the Prime Minister saw the President on Monday last, February 20, he emphasized the importance in Canada’s defence relations with USA of larger joint defence production in Canadian factories. In that connection, Mr. Diefenbaker expressed appreciation of the current effort being made by USA Department of Defense as evidenced by the proposal put forward by the Deputy Secretary for sharing the F104G programme.
  2. Because of the importance of the latest USA counter proposal, I am most anxious that it should be pursued as actively as possible. For this reason, if the Government are favourable to concluding an arrangement on the basis of USA suggestion for sharing the F104G programme as described in my reference telegram, I believe that I should be instructed at the earliest possible date to communicate to the Defense authorities here our agreement in principle. The actual negotiations covering the precise conditions, financial and otherwise, would then fall into a second stage permitting a full exploration of details before a final agreement is concluded.
  3. I believe that if the decision in Ottawa is favourable it is particularly important to indicate our broad agreement to the concept, subject to the detailed technical explorations required, as promptly as possible. If there are delays in doing this, there is a danger of further press leaks (I am told that there is a story on this subject in the current Financial Post) which the consequential dangers that congressional and public elements in this country will be moved to make representations to the Administration against such a programme involving substantial orders for Canadian industry.

[A.D.P.] HEENEY

380. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], February 25, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

Aircraft "Swap"

(Previous reference September 21, 1960)

  1. The Minister of Defence Production said that some time previously the U.S. government had informally advised that they were not interested in procuring the CL-44 transport aircraft from Canada. The U.S. Defence Department had, however, outlined various other proposals to the Canadian Ambassador. If it should be decided that Canada was interested in any of these proposals, a team of Canadian officials should be sent to Washington immediately to discuss the possibilities in greater detail with the U.S. authorities. The question was particularly urgent because newspaper reports on a possible aircraft “swap” had appeared recently, and the Lockheed Aircraft Company was trying to forestall the production of any F-104 aircraft in Canada.
    If an arrangement could be made for the production of these aircraft in Canada, the shrinkage in the Canadian aircraft manufacturing industry could be arrested. A greater amount of continuing employment might be provided in this country than would have resulted from the original proposal involving the CL-44 aircraft, and the employment would be diffused over a wider area. The Orenda Engine plant would then be able to continue in operation until 1964, and Canadair would make the airframes. The Canadian electronic industry would also benefit greatly.
  2. The Minister of National Defence said three tentative proposals had been made by the U.S. The first would involve an expansion of $100 million in the value of production-sharing contracts for various kinds of military equipment. A second would involve subcontracts to Canadian plants for parts and assembly of F-104 aircraft to a value of $100 million. A third proposal would involve the complete production in Canada of 96 of the F-104 aircraft, at a rate of 4 per month, with an option to produce a further 96 thereafter. These aircraft would be produced under the mutual aid programme for N.A.T.O. allies, Canada paying 30 per cent and the U.S. 70 per cent of the cost.
    If the swap deal was agreed to, Canada would receive 66 of the F-101B aircraft, and would assume responsibility for the manning and operation of 11 radar stations on the Pinetree line which were now manned and operated by the U.S. This aspect of the proposal was similar to the “swap” discussed last autumn, except that in the original proposal Canada would also have been expected to pay the cost of 5 additional Pinetree stations now manned by Canada but operated at U.S. expense, and to pay $16 million in cash to the U.S. Under the original proposal the U.S. would have bought CL-44 aircraft from Canada at a price of about $155 million, whereas under the new proposals the U.S. was, in effect, offering contracts to the value of $100 million to sustain the Canadian aircraft industry as part of the North American defence potential.
    An explanatory memorandum had been circulated, (Memorandum, Minister of National Defence, Feb. 24 – Cab. Doc. 81-61).†
  3. During the discussion the following points were raised:
    1. Some Ministers said that a policy decision on such a major proposal should not be made until more information became available. The suggested 30 per cent share in the cost of the F-104 aircraft would involve $24 million a year, to which would be added the cost of operating the Pinetree stations. Other Ministers said that the team of officials should not be sent to Washington unless the government of Canada was willing in principle to accept one of the three proposals.
    2. The Canadian scale of manning and operation of Pinetree stations would be appreciably higher than the U.S. standard. The personnel on a station would be increased from 175 to about 325, and, if normal Canadian policies applied, the Canadian troops would be entitled to be accompanied by their families. Construction of family accommodation and other amenities would therefore be involved. On the other hand during the discussions of the original “swap” proposals, the Cabinet had accepted the principle of manning the Pinetree stations.
    3. Some Ministers said the F-104’s would be delivered to Greece, Turkey, Denmark and Norway, while other Ministers said that Korea and Nationalist China, rather than Denmark and Norway, had been designated. As Korea and Nationalist China were not N.A.T.O. countries, it did not seem appropriate to supply the aircraft to them under the Mutual Aid Plan. In any case the economy of most countries of Europe had strengthened markedly during the past few years, and the stronger European countries should be able to provide any necessary mutual aid to the weaker ones. Canada should not at this time increase the scale of its contribution to mutual aid in Europe.
    4. The F-101B aircraft was the most effective interceptor for use against heavy bombers, and was eminently well suited to Canada’s defence needs. The day of the bomber was not fading as rapidly as had formerly been expected, partly because the Standoff bomber had a greatly increased striking power.
    5. There were also important political reasons for obtaining an interceptor aircraft at this time as tangible evidence of a positive defence policy. The Liberal party had espoused a policy of restricting the Canadian defensive role in North America to the identification of enemy aircraft, which members of the government had termed “bird watching” and this in effect would increase Canada’s dependence upon the U.S. The C.C.F. party was proposing that Canada should withdraw from N.A.T.O. and NORAD, and this too would increase Canada’s dependence upon others in defence matters. The situation had greatly changed since the cancellation of the Avro Arrow programme early in 1959, partly because the bomber had continued to be an important threat supplemented as it was by air launched missiles. Furthermore the F-101B would cost only about $1½ million as compared with about $12 million each for the Arrow.
    6. The F-101B was capable of being armed with either conventional or nuclear weapons, but the choice on this subject would be for decision later. The aircraft would in normal course be delivered with conventional air-to-air missiles, and not with nuclear missiles. No doors should be closed at this time, and any public statements on nuclear policy would be made by the Prime Minister.
    7. Some Ministers said that, instead of taking over the Pinetree stations, the government should purchase the F-101B aircraft from the U.S. Other Ministers said that serious political embarrassment would be created if Canada bought the aircraft or received them as a gift from the U.S.
  4. The Cabinet agreed,
    1. that an aircraft “swap” arrangement of the kind described in a memorandum of February 24th submitted by the Minister of National Defence (Cab. Doc. 81-61) and as further explained by him and the Minister of Defence Production, would be acceptable in principle; and,
    2. that a team of officials from the Departments of Defence Production, National Defence, Finance and External Affairs should proceed at once to Washington to explore the various possibilities with the U.S. authorities and to report to Ministers as soon as possible.

R.B. BRYCE
Secretary to the Cabinet

381. H.C.G./Vol. 11

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

SECRET [Ottawa], March 1, 1961

Proposed Aircraft Swap Deal

Attached is a copy of the report† prepared by the representatives of the Departments of National Defence, Defence Production, Finance and External Affairs, who participated in discussions with United States officials in Washington on February 28 pursuant to the decision by Cabinet on February 25 that further information be obtained on the proposals made to the Canadian Ambassador and the Deputy Minister of Defence Production by the U.S.A. Deputy Secretary of Defence on February 18. I understand that it is intended that this matter should be further considered by Cabinet prior to the departure of the Prime Minister for London.

  1. I am informed by the External Affairs representative at the discussions (Mr. Barton) that it was evident that the Departments of State and Defence, at the policy level, are anxious to come to an early arrangement which will be satisfactory to the Canadian Government. It was equally evident however that the U.S.A. authorities will have to overcome vigorous opposition from the U.S. aircraft industry and also from some officials in the Pentagon who would like to see the settlement of other Canada-USA defence arrangements made a condition precedent for conclusion of the swap deal. The situation is made more difficult by leaks to the press, no doubt by those opposed to the project, which seem impossible to prevent in Washington.
  2. In this connection I should inform you that our Embassy in Washington has reported that it has learned that a story by Knowlton Nash will be appearing in the Financial Post of March 2. It is understood that the story reports the visit of Canadian officials to Washington and assumes that the purpose was to continue negotiation of the swap deal, the negotiation of which is supposed to be reaching a critical stage. It is also understood that the story states that there are some in the Pentagon who would insist that any agreement should be conditional on the satisfactory conclusion of negotiations with respect to nuclear weapons and overflights but that this is being resisted by the State Department.
  3. The Canadian officials who went to Washington did not see Nash or any other representative of the press, and in the course of the discussions with the U.S. officials both sides emphasized the importance of maintaining security.

N.A. R[OBERTSON]

382. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], March 2, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair
  • The Secretary of State for External Affairs (Mr. Green)
  • The Minister of Finance (Mr. Fleming)
  • The Minister of Trade and Commerce (Mr. Hees)
  • The Minister of Transport (Mr. Balcer)
  • The Minister of Veterans Affairs (Mr. Churchill)
  • The Minister of Justice (Mr. Fulton)
  • The Minister of National Revenue (Mr. Nowlan)
  • The Minister of National Defence (Mr. Harkness)
  • The Minister of Citizenship and Immigration (Mrs. Fairclough)
  • The Minister of Fisheries (Mr. MacLean)
  • The Minister of Labour (Mr. Starr)
  • The Postmaster General (Mr. William Hamilton)
  • The Solicitor General (Mr. Browne)
  • The Minister of Mines and Technical Surveys (Mr. Comtois)
  • The Minister of National Health and Welfare (Mr. Monteith)
  • The Minister of Defence Production (Mr. O=Hurley)
  • The Associate Minister of National Defence (Mr. Sévigny)
  • The Minister of Forestry (Mr. Flemming)
  • The Secretary of State (Mr. Dorion)
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale)
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce)
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

Aircraft “swap” Arrangements

(Previous reference February 25)

  1. The Minister of National Defence said that officials had made a report on their discussions with the U.S. State and Defence Departments on alternative proposals for aircraft “swap” arrangements. All three proposals involved the manning and operation by Canada of 11 Pinetree radar sites plus assumption of the costs of five others. In all three cases the United States would make available to Canada 66 F-101B aircraft. The principal differences related to the production contracts to be carried out in Canada.
    The first proposal involved directed procurement in connection with the U.S.A.F. Jet Transport programme to the value of $100 million in sub-contracts. This proposal would have little value for Canada.
    The second proposal would be the procurement of components for the U.S.A.F. F-104G programme to the value of $100 million in sub-contracts. This would give rise to the difficulty of separating out the business which Canada would receive in any case as “normal” production sharing. Because the contracts would be principally for airframes, the resulting employment in Canada would not be widely diffused.
    The third proposal would be the directed procurement of complete aircraft for Mutual Aid valued at $155 million. During the negotiations the U.S. representatives had proposed that the U.S.A.F. order be increased to $150 million, so that with the Canadian Mutual Aid contribution the total order would be about $200 million and the manufacturing period would be approximately three years. About 135 complete aircraft would be produced, and they would be sent to N.A.T.O. countries only. This proposal would yield the greatest amount of employment in Canada. It had been estimated that the contract would give employment for 7,500 persons in aircraft production for three years, plus an equal number in subcontract work. The Canadian share of cost would be 25 per cent instead of 30 per cent.
    An explanatory memorandum had been circulated, (Report of Officials, March 1 – Cab. Doc. 99-61).†
  2. During the discussion the following points were raised:
    1. The third proposal might also enable Canada to obtain contracts during the next 8 to 10 years for spare parts for the several thousand F-104 aircraft in operation in various countries.
    2. An increase in Mutual Aid at this time appeared anomalous, but this element was necessary if the U.S. administration was to have any reasonable prospect of obtaining Congressional approval. The U.S. government was under heavy pressure to award this production contract in that country for reasons of employment. Canada’s $50 million contribution would procure employment in this country to the value of $200 million. It would also strengthen the argument of the government of Canada that other Mutual Aid contributions by this country should be tapered down.
    3. The U.S. authorities had indicated that they might not be able to transfer title to the F-101B aircraft to Canada because of the indirect method of payment. The U.S. officials hoped to overcome this difficulty but otherwise might have to resort to a “lease” formula. Some Ministers said that a leasing arrangement would give the appearance of increasing Canada’s dependence upon the U.S., and that R.C.A.F. personnel should not be expected to fly leased interceptors. Other Ministers said that Canada had permitted the U.S. to operate and pay the cost of the Pinetree stations, and that if nuclear weapons were used in Canada they would probably be leased to Canada until the day they were used in combat. Canada had never taken lend-lease, however, and if possible the title to the F-101B aircraft should be transferred to this country.
    4. Some Ministers said that, instead of paying $155 million over 8 years for the Pinetree stations plus $50 million as a Mutual Aid contribution, the government of Canada should invest $200 million directly in the Canadian aircraft industry. Other Ministers said that if this course were followed Canada would not receive the interceptor aircraft and the U.S. control of the radar stations in Canada would continue.
    5. The Cabinet agreed that the government should express forthwith to the U.S. government its desire to enter into an arrangement along the lines of proposal (c) of the alternatives discussed by Canadian officials in Washington, as set forth in Cabinet Document 99-61 of March 1st, modified as proposed to increase the size of the U.S.A.F. order for F-104 aircraft to $150 million, to be accompanied by a Canadian order of $50 million for mutual aid to N.A.T.O. countries, on the understanding that all possible efforts would be made to work out the arrangements in such a manner as to avoid Canada receiving the F-101B aircraft as lend-lease.
      . . .

383. DEA/50210-G-1-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 669 Washington, March 3, 1961

SECRET. OPIMMEDIATE.
Reference: Our Tel 665 Mar 3.†
Repeat for Information: London (for Prime Minister) (OpImmediate), Minister DND Ottawa, Minister Finance Ottawa, Minister DDP Ottawa, CCOS Ottawa, Secretary to Cabinet Ottawa (OpImmediate) from Ottawa.

Proposed Aircraft Swap Deal

Following is text of informal memorandum which I sent to Secretary of Defense today: Begins
On February 3 the Canadian Ambassador submitted to the Secretary of Defense proposals of the Canadian Government in the field of joint defence cooperation and the defence production sharing programme. In summary, the proposals contemplated provision by USA of modern interceptor aircraft for the RCAF, procurement from Canadian production of CL44 transport aircraft and the assumption by Canada of responsibility for the manning, operation and maintenance of certain radar sites of the Pinetree line.

On February 18, the Deputy Secretary of Defense informed the Ambassador, orally, that it would not repeat not be possible for USAF to make any purchases of Canadian transport aircraft. Three possible alternatives were made to that part of the Canadian proposal providing for procurement by USA of CF44 transport aircraft:

  1. Directed procurement in connection with USAF SOR182 jet transport programme to the value of approximately $100 million in subcontracts.
  2. Directed procurement in connection with USAF Mutual Aid F104G production programme in USA (Lockheed) to provide approximately an additional $100 million in subcontracts.
  3. Directed procurement of complete F104G aircraft for Mutual Aid valued at $155 million; this cost to be shared, in agreed ratio, by USA and Canada.

On February 28 Canadian officials met with USA officials to investigate these various possibilities. With regard to the alternative (c), the following suggestions were made:

  1. Subject to working out details, USA would contract for complete aircraft; that is, contracts would be spread widely through related Canadian industry.
  2. The total value of the order would be $200 million, being financed as a Mutual Aid programme for NATO with Canada contributing $50 million or 25 percent of the total cost.
  3. Deliveries would commence at about May 1963, at the suggested rate of four aircraft a month and would continue for approximately three years.

The Canadian Government desires to enter into an arrangement along the lines of alternative (c), including the suggestions (1), (2) and (3) above, on the understanding that the total order for 104G aircraft in Canada would be $200 million, that it would be a Mutual Aid programme for NATO and that the Canadian contribution would be $50 million; this arrangement to take the place of Item VI in the Annex to the Ambassador’s letter of February 3, 1961, to the Secretary of Defense.

The arrangement between the two governments would, of course, have to include satisfactory terms of transfer of the F101 aircraft to the RCAF; that is to say, the Canadian Government would wish to avoid receiving these aircraft under anything in the nature of grant aid. Ends.

[A.D.P.] HEENEY

384. CEW/Vol. 3175

Director, Department of Defence Production Office, Embassy in United States, to Ambassador in United States

SECRET [Washington], March 10, 1961

I have had further discussions this afternoon with the General Counsel of USAF concerning progress in staffing your amended proposal submitted to Secretary McNamara a week ago. The position paper is completed and Mr. Max Golden hopes to discuss it with Mr. Gilpatric late this afternoon or Monday. If acceptable in its broad terms to Mr. Gilpatric and Mr. McNamara, clearance will commence with the Department of State, Bureau of the Budget and key members of the Armed Services and Appropriations Committees of the Senate and the House.

I am hoping that if the USAF paper is acceptable to him, Mr. Gilpatric will see his way clear to at least talk to you on the telephone to report progress and to indicate the likely timing of a formal written reply to the Canadian proposal.

My contacts in USAF have suggested to me that their very detailed work on the project this week has pointed up two problem areas which have not heretofore been highlighted in any discussions with Canadians, and will have to be resolved in ensuing negotiations with us. They were not prepared to divulge these at the moment but I am hoping that we will be brought into the picture, on an informal basis, in advance of any written reply to you so that we are informed in advance on any complicating factors. Group Captain Van Camp and myself have had several discussions in the last couple of days with respect to the configuration of the F-101B aircraft which might be transferred to Canada. The last information the Group Captain has received from his Pentagon contacts today is to the effect that the 101’s perform their designated mission only when they utilize their nuclear capability. This includes the MB-1 missile with the two GAR-2A infrared homers.

The last word we have had is that any response from the Americans will not make this capability mandatory in respect of Canadian deployment within NORAD but they will point out in fairly strong language that the weapon system can only perform its required role if this missile is used. It may well be that this is one of the factors for further consideration which Max Golden’s office hinted at this afternoon.

J.A. TEETER

385. CEW/Vol. 3175

Memorandum from Counsellor, Embassy in United States, to Ambassador in United States

SECRET [Washington], March 14, 1961

Proposed Aircraft Swap Deal

As I mentioned to you this morning, Burgess (Canadian Desk) asked me to drop in on him to give him the benefit of my personal reaction to the Department of Defense’s draft reply to your recent letter. In the first place Burgess said that as far as he knew the letter would not come today since it had not been cleared by the State Department. In fact the State Department was somewhat concerned at the procedure being followed by the Department of Defense which was proposing to send for our consideration a draft memorandum of understanding without first having final clearance of all interested United States agencies and also without first having sounded out key Congressmen. Burgess’ view was that the United States should have its own ducks lined up before submitting a memorandum of understanding for our agreement. He believed that the desire of other offices to raise certain questions on the memorandum of understanding would militate against a letter being sent to you in the immediate future, at any rate today.

  1. The other question which concerned Burgess was the proposal to have the F101’s delivered with nuclear armaments, i.e. the MB-1 rocket. In this connection Burgess said that I should not misunderstand him. The State Department was not taking issue with the Department of Defense’s contention that these aircraft ought to be nuclear armed if they are to do the job intended of them in Canada. He was rather concerned with the presentational aspects of the problem and had redrafted a paragraph of the letter so that the unfolding of United States expectations would fall with less of a thud. The letter, as drafted, draws attention to the provision in the memorandum of understanding for the arming of the F101’s with nuclear weapons and suggests that to this end arrangements should be made regarding custody and control of the weapons. Your comments are requested. Burgess’ redraft would also call attention to the United States expectation that the aircraft would be nuclear armed but at the same time recognizes Canadian policy, vis-à-vis acquisition of nuclear weapons, and pointedly refers to the fact that the F101’s would not be operational for twelve months and suggests that in the meantime we might get together on arrangements for custody and control. I told Burgess that his wording would perhaps let us down more easily but in the final analysis it amounted to the same thing. The signing of the memorandum of understanding in the immediate future, as is anticipated, would require the Canadian Government to make a decision in favour of accepting the F101 with nuclear armaments, subject of course to working out arrangements on custody and control. We would also be under a moral obligation to work out such arrangements, having already agreed to accept the F101 and the other portions of the deal. I personally doubted, in the light of the Prime Minister’s recent statements,Footnote 39 that the Government would wish to make a decision of this kind at this time. I said that in any event it seemed to me that putting forward such a proposal was bound to hinder the rapid progress of the negotiations on the swap deal.
  2. I asked Burgess whether there was any possibility of the United States agreeing to the deal with the F101’s armed with conventional weapons rather than nuclear weapons. I understood from Teeter that the modifications to the aircraft would cost about $4 million. Burgess’ understanding was that General Kuter would not recommend acceptance of the deal on this basis since the aircraft would be more useful to NORAD deployed in the United States with nuclear weapons than they would be, deployed in Canada without nuclear weapons. The impression I gained in this regard is the same as Teeter’s, i.e. that it is a take-it-or-leave-it deal.
  3. I also pointed out to Burgess that, from the United States point of view, acceptance of the F101 by Canada, leaving out for the time the question of the kind of weapon it should be armed with, was a step forward, since the United States motivation in looking at the deal in the first place was to have nuclear capable interceptors stationed in Canada. Again from the United States point of view, this step forward could, I thought, be nullified by too hasty an insistence on a decision on nuclear armaments.Footnote 40

J.S. N[UTT]

386. CEW/Vol. 3175

Director of Department of Defence Production Office, Embassy in United States, to Ambassador in United States

[Washington], March 14, 1961

I was called to the Pentagon last evening by the General Counsel of USAF to review a letter with attachments which Mr. Gilpatric will likely sign to you today in connection with the proposed reciprocal procurement arrangement between our two Governments. Evidently Mr. Gilpatric and Mr. McNamara are anxious that you receive a written reply before they clear the proposal with the Department of State, the Bureau of the Budget and several of the Congressional Committees.

The agreement they will offer will not refer to the matter of title to the F10B aircraft but will merely cover this by the words – “will make available to Canada” for deployment within Norad. Details of the transfer will of course have to be negotiated. Both the suggested agreement and the Secretary’s letter however, will clearly indicate that these aircraft are equipped with a nuclear armament potential and the transfer would include 330 of the MB-1 air-to-air rocket with nuclear warheads, the storage and control of which will be subject to another agreement between Canada and the United States.

The U.S. offer will not refer to the alternative of modifying the F10B aircraft to employ conventional weapons only. In noting this obvious omission, I asked my informants whether in their opinion, any agreement with the United States Government must provide for Canada accepting the F10B aircraft and related equipment in its present configuration and mission capability. I was told that this undoubtedly is the U.S. point of view and they are sure that an agreement of this nature will be much more readily acceptable to Congress in this suggested form.

The remainder of the American response covering other details connected with the F10B transfer, the assumption of Canadian responsibility for the Pine Tree sites, and the sharing of costs for production in Canada of the F-104G aircraft is very specific in a number of respects all of which, I believe, will follow closely along the lines of previous discussions held between officials of the two Governments.

(I will be leaving for Ottawa at noon today to attend the meeting of the Senior Committee on Production Sharing and will be back in the office on Friday morning. The Assistant Director, Mr. F.T. Jackman, will also attend the meeting in Ottawa but will be back in the office Thursday morning. I have brought A/V/M Hendrick up to date on the recent developments.)

J.A. TEETER

387. CEW/Vol. 3175

Memorandum from Counsellor, Embassy in United States, to Ambassador in United States

SECRET [Washington], March 16, 1961

Swap Deal

I have been in touch with Burgess (Canadian Desk) again this morning. Ivan White is still on the sick list.

  1. Burgess said that it was important that “we should not react too strongly at the moment.” He believed that the State Department had succeeded in “stopping the postman.” The Pentagon had been told not to move in any direction until the State Department has had a chance to consider the question. Therefore the whole matter was very much “wide open” and very much “in the United States’ lap.” Burgess was afraid that if we were to jump in, particularly at the Pentagon, with a strong reaction to the informal and personal exchanges we have had in the past few days, it could be unfortunate.
  2. An important development is the following. It appears that the F101’s are presently designed to carry a conventional Falcon rocket on one side and a nuclear MB-1 on the other. However, the aircraft can be modified to carry another type of conventional Falcon rocket for $6500 ($4 million for the total number of aircraft involved). This modification does not destroy the aircraft’s potential for carrying a MB-1 rocket, as I had previously understood from Burgess. Apparently the aircraft, as Burgess put it, “could be flown elsewhere and fitted with MB-1’s in a matter of hours.” He said that NORAD would be satisfied with an arrangement along these lines, i.e. equipping the F101 with conventional capacity, as an “interim measure,” provided that there were some assurance that “at some future time” the aircraft would be equipped with the MB-1. Burgess thought that during the interim period the United States would not require that the MB-1’s be stored in Canada.
  3. I said to Burgess that this seemed to contain the seeds of a very different proposition than that contained in the draft he had discussed with me the other day and that if the United States proposal were based on what he had informed me would be acceptable to NORAD, there would then be room to talk.
  4. I passed on this information to Barton and stressed that I thought it important that no action be taken in Ottawa on the basis of the information we have come by so far. Barton said that it had been intended that Mr. Robertson would be speaking to Mr. Merchant. I said that subject to confirmation by you, I thought that it would be better if this were not done.Footnote 41 I said that I thought that you would still want to have a word with Ivan White and Barton said that he thought this important so that there should be no doubt in United States minds as to the likely reaction if the original proposal were still to come forward.
  5. Barton said that he had drafted what was intended to be a basic expression of the Department’s position on the most that could be agreed to at this time. This position had been approved by Ignatieff but so far had no more status than a view of officials. There might be a statement of intention to seek to negotiate outstanding “nuclear” questions with the United States authorities on the understanding that any resulting agreements would not be implemented until the Canadian Government so decides. Canada would agree to deploy F101 aircraft in Canada in accordance with NORAD plans. Canada would reserve the right to modify the aircraft at Canadian expense to carry conventional weapons as an alternative to MB-1 on the understanding that the capability to use the MB-1 would be retained so that this weapon would be employed without delay when a decision to do so was reached by the Canadian Government.Footnote 42
  6. Barton asked that the Department be informed of the outcome of your conversation with Ivan White.

J.S. N[UTT]

P.S. As agreed by the Ambassador, I spoke to Air Vice Marshal Hendrick, Group Captain Van Camp and Mr. Jackman, DDP, along the lines of paragraphs 2 and 3.

J.S. N[UTT]

388. J.G.D./MG01/XII/F/335

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 995 Washington, March 28, 1961
SECRET. OPIMMEDIATE.
Reference: My Tels 665† and 669 Mar 3.
Repeat for Information: Prime Minister, DND (Minister), Finance (Minister), DDP (Minister), CCOS, Secretary to the Cabinet (OpImmediate) from Ottawa.

Proposed Aircraft Swap Deal

Following is text of reply (March 28) to Ambassador’s letters February 3 and March 2 received by Embassy today by hand from Roswell Gilpatrick, Deputy Secretary of Defense. Text Begins: “My Dear Ambassador, I refer to your letters of February 3 and March 2 which contain certain proposals in respect to (i) the provision by USA of fighter interceptor aircraft for RCAF Squadrons assigned to NORAD (ii) procurement by USA from Canadian sources of F-104G aircraft for NATO, with Canada contributing to the cost of this procurement; and (iii) assumption by Canada of the costs of operation of certain Pinetree sites.
“These proposals, which are acceptable in principle, should be embodied in a formal government-to-government agreement which, I feel sure, can be readily negotiated in Ottawa where our people will be under the direction of Ambassador Merchant. In the course of such negotiations the details of the proposed arrangements, including certain key matters which we have discussed previously as well as the dates of Canadian assumption of responsibilities for the eleven Pinetree stations, can be worked out.
“As you are aware, clearance of the proposed arrangements must be obtained from appropriate committees in Congress and we will undertake immediately to seek such clearances. Sincerely Roswell Gilpatrick. Text Ends.

[SAUL] RAE

389. DEA/50210-40

Ambassador in United States to secrétaire d’État aux Affaires extérieures

TELEGRAM 1021 Washington, March 29, 1961
SECRET. OPIMMEDIATE.
Reference: Our Tel 995 Mar 28.
Repeat for Information: Prime Minister Ottawa, DND (Minister) Ottawa, Finance (Minister) Ottawa, DDP (Minister), CCOS Ottawa, Secretary to the Cabinet (OpImmediate) from Ottawa.

Proposed Aircraft Swap Deal

The Embassy’s reference telegram contains the text of the letter of March 28 from the Deputy Secretary of Defense. On my return from Ottawa this afternoon, there was a message to call Gilpatric and I have just spoken to him on the phone.

  1. Supplementing what was said in his letter, Gilpatric said, first of all, that he was sorry for the delay in making a reply. The Department of Defense had prepared a draft “memorandum of understanding” for consideration by the two governments but the Department of State thought that, on the whole, it would be better to have the definitive arrangements worked out in Ottawa. USA Ambassador there was personally familiar with the history of the matter and appropriate officials would be sent to Ottawa from Washington to assist him in negotiating an agreement.
  2. Gilpatric went on to say that it had been decided not repeat not to make reference in his letter to me to the weapons systems with which USA fighter-interceptors intended for RCAF squadrons would be equipped. This was a matter which, it was felt, would better be dealt with during the course of negotiating the agreement in Ottawa.
  3. Finally Gilpatric said that USA hoped now that we could proceed with despatch to work out a mutually satisfactory agreement on the basis of our exchange. He himself would be taking the matter up with the appropriate Congressional representatives next week and all the necessary material to enable Merchant to get started on the negotiation was being sent to him at once. He asked me to keep him in touch personally as the negotiation proceeded for, he said, the Department of Defense would want to be as helpful as possible in facilitating matters.
  4. The scene now shifts to Ottawa but I would be grateful if you would arrange to keep me informed fully and promptly as the talks with Merchant and his advisers proceed. If and when I have word of preliminary Congressional reactions, I will, of course, let you know.

[A.D.P.] HEENEY

390. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], May 23, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean), (for morning meeting only)
  • The Minister of Labour (Mr. Starr),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker), (for morning meeting only)
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale)
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson),
  • Mr. D.F. Wall, Privy Council Office.
    . . .

Swap Deal with the United States on Aircraft

(Previous reference March 30)

  1. The Prime Minister reported that, during the recent visit to Canada of the President of the United States, he and Mr. Kennedy had discussed, both privately and with officials, the proposed swap deal by which Canada would receive 66 F-101 fighter aircraft through contributing $50 million of a total cost of $200 million. The President had indicated that Canada would be required to accept nuclear warheads for the rocket armament of these aircraft. In private conversation the Prime Minister had pointed out to Mr. Kennedy the dangers to good Canadian-American relations inherent in the United States government forcing any policy on the Canadian government, and suggested that, were their roles reversed, the President would hold a similar view.
    On his return flight on May 18th, the President had further discussed the matter with the Canadian Ambassador to the United States. In a telephone conversation with Mr. Heeney on May 22nd, the Prime Minister had been informed that it was possible that the United States government would now accept the Canadian position, and that the rocket-launching equipment of the aircraft would be maintained intact. The Canadian government would not stipulate that nuclear warheads would be used until such time as it had been agreed in principle that Canadian forces would be provided with nuclear weapons.
  2. The Minister of National Defence said it was his understanding that the United States Ambassador to Canada would be discussing this matter with officials of the Department of External Affairs on this day.
  3. The Prime Minister, later in the meeting, said that the U.S. Ambassador had informed him that the U.S. government was prepared to accept the swap deal without insisting that Canada accept nuclear warheads for the rocket armament of the aircraft, and without insisting that Canada permit the storage of nuclear warheads in this country. The Under-Secretary of State for External Affairs had been instructed to proceed with the detailed arrangements for the implementation of the deal.
    He expressed gratification that the negotiations had been completed, and that the U.S. government had recognized Canada’s position on the question of nuclear weapons. The swap deal would raise Canada’s share in defence production almost to equality with the U.S. share, would keep the R.C.A.F. in the air and would provide employment for 7,000 persons at aircraft and component factories, plus secondary employment for thousands of others.
  4. The Minister of Labour said that the latest figures available showed that, as of April 15th, 1961, the total numbers of persons employed in Canada had risen by 170,000 and the number of unemployed had reduced by 83,000, as compared with the previous month. These figures would be made public on the following day.
  5. The Cabinet noted the statement of the Prime Minister that the United States government had informally indicated its acceptance of the aircraft swap arrangement, on the basis that Canada would decide for itself whether or not nuclear warheads would be used for the aircraft or stored in Canada.
    . . .

391. H.B.R./Vol. 8

Memorandum from Privy Council Office to Secretary to Cabinet

SECRET [Ottawa], May 25, 1961

Proposed Aircraft Swap Deal

The US Ambassador called on Mr. N.A. Robertson on Wednesday, May 24, and gave him a draft note to which was attached a memorandum of understanding and two annexes which constitute the US proposals for negotiation of the aircraft swap deal. These papers are attached to this memorandum.† A third annex to the memorandum of understanding is still in preparation. The US note and attachments contain no stipulations about armament to be used on the F101Bs.
Mr. Merchant said his Government was concerned about delays on this matter and proposed that negotiations should begin at once which would be ad referendum since Congressional consultations had not been completed. Mr. Robertson undertook to call a meeting of Canadian officials with a view to preparing for the commencement of negotiations in Ottawa on Friday, May 26.
A meeting was held Thursday morning, chaired by Mr. Robertson, at which Mr. Armstrong, Mr. Golden, Mr. J.A. MacDonald, representatives of National Revenue (Customs and Excise) and others were present. I attended on Bill Barton’s invitation. It was agreed that no new points of policy that had not been approved in principle by the Cabinet were raised by the US note, and therefore that Ministers need not be consulted before negotiations were started. US representatives were invited to come to Ottawa at once and the negotiations will begin here to-day (Friday) at 11 a.m. The Canadian team will be headed at the beginning by Mr. Ignatieff, with Mr. Armstrong, A/V/M Cornblat and A/C Lane of National Defence, Mr. Golden and Mr. Hunter of Defence Production, J.A. MacDonald of Finance and Barton of External Affairs. Others will be called in as required. It is expected the talks will go on into Saturday.
The meeting Thursday reviewed the US note and attachments. The following main points were made:

  1. The cover memorandum should stress that the deal is a contribution to NATO strength and a big forward step in interdependence through the Production-Sharing Programme. It is also a strengthening of continental air defence, but Canada should play this down in the agreement, if the US concurs, because justification of the deal on defence grounds raises consequent problems about armament for Canada.
  2. Use of the word “deployment” in Canada of the F101Bs is undesirable from our point of view. We are under instructions from Cabinet to avoid the concept of “lend-lease” in this deal, and should try to make it look like a quid pro quo swap. The US probably used the word “deployment” because of their legal difficulties in giving us title to the aircraft unless we buy them outright. We should try to have the word in the agreement changed to “acquisition” by Canada.
  3. We should begin by asking for transfer of title of the F101Bs to Canada, and at least we should formulate the agreement in such a way as to make the quid pro quo for both countries stand out. To this end, we should seek to amend I A. of the memorandum of understanding to refer to US agreement “to transfer to Canada 66 F101B aircraft in consideration of II below ….” (the Pinetree deal).
  4. In III B. of the memorandum of understanding, account should be taken of the Canadian contribution of $50 million by amending the first sentence to read: “The F104G aircraft will be procured to meet US Military Assistance Program requirements, and Canadian Mutual Aid within NATO.” Furthermore, it is recognized that the US may send some of the F104Gs they procure to Formosa or Korea, and we wish to ensure that the Canadian contribution to this production programme is not directed to those countries but only to NATO members. We should seek to have the last sentence of III B. deleted as being nothing more than a recognition that we cannot prevent the US from giving the aircraft they procure from Canada to non-NATO countries, and should try to arrange that the $50 million Canadian contribution is used in the early part of the production programme from which we know the aircraft are going to be delivered within NATO.

A redraft of the US note is to be prepared which will reflect the points noted above. This redraft is to be held ready for tabling at an appropriate time during the negotiations.
In addition, the following are to be listed as points on which we will seek clarification from the US negotiators:

  1. The reference to the US intention to “procure (F104Gs) from sources designated by Canada,” in III A. of the memorandum of understanding, is unusual. DDP thought Canada would arrange all the procurement, place the contracts and negotiate the prices in Canada. There are recognized to be some dangers in acting as procurement agent for the US, however; for example, if at some point the F104G lost favour and/or Congress did not appropriate funds to continue the programme, DDP might then be in contractual difficulties about cancellations. On balance, DDP favours acting as procurement authority, with the necessary safeguards.
  2. In I B. and in Annex B, the US refers to four squadron sets of Aerospace Ground Equipment as being provided to Canada. The RCAF is concerned at this because they want to use the F101Bs in five squadrons. Also, only four flight simulators are offered, but it is believed that only four of these are available.
  3. The wording of II C. concerning Canada’s responsibility for “maintaining improvements” at radar stations is vague and should be clarified. It is believed that the capital costs of improvements that might be agreed upon would be shared on the 2/3 - 1/3 basis, and that Canada would maintain them.
  4. I questioned whether our responsibilities on Pinetree should be stated to continue only until the termination of the NORAD agreement (1968), since the cost calculations that had been given to Cabinet were based on this period. Most people thought we must accept that the agreement would run until the end of the Pinetree agreement. These Pinetree stations appear to be covered by both the 1951 agreement referred to in the memorandum of understanding and the 1955 agreement dealing with extensions to Pinetree, which was a 10-year agreement. Since the 1951 agreement, I am told, has no termination date, we may be entering into an open-ended obligation for some of the stations.
  5. We should seek amendment of the last line of IV to state that we could ensure the US of freedom from federal taxes only. Since the F104Gs are for export, provincial sales taxes would presumably not apply anyway.
  6. The US will be asked why they included Annex A, which merely lists the numbers of the F101B aircraft, in a draft intergovernmental agreement. There might be difficulty if one or more of these aircraft were destroyed after the agreement was signed but before delivery to Canada.

D.B. D[EWAR]

392. PCO

Memorandum from Secretary of State for External Affairs, Minister of National Defence, and Minister of Defence Production, to Cabinet

CABINET DOCUMENT NO. 240-61 [Ottawa], June 8, 1961

SECRET

Proposed Aircraft “swap” Deal

Pursuant to the Cabinet’s decisions of February 25 and March 2 on the above subject, agreement in principle was reached on March 28 on behalf of the two Governments between the Canadian Ambassador in Washington and the Assistant Secretary of Defence on an arrangement whereby:

  1. The United States would provide 66 F-101B interceptor aircraft for RCAF squadrons assigned to NORAD.
  2. The United States would procure from Canadian sources F-104G interceptor aircraft for NATO to the value of $150 million, with Canada contributing a further $50 million.
  3. Canada would assume responsibility for the cost and manning of Pinetree radar installations now carried by the United States.
  1. The United States proposed that this arrangement should be embodied in a formal Government-to-Government agreement and a first draft of such an agreement was given to the Department of External Affairs by the United States Ambassador on May 24. On May 28 and 29 negotiations between officials of the two Governments were held in Ottawa as a result of which agreement was reached on a draft of an Exchange of Notes which each side would submit to its respective Governments for consideration.
  2. The Department of External Affairs has now been informed that the draft, the text of which is attached, is acceptable to the United States Government. The United States Government will, therefore, wish to be informed whether the Canadian Government would now be prepared to conclude the Agreement. The following explanatory notes will be of assistance to the Cabinet in reaching a decision in this matter.
    COVERING NOTE:
  3. It was recognized at the outset of the negotiations that the presentational aspects were highly important to both Governments. Hence, the concept of the arrangement is that it is being carried out pursuant to their objectives in NATO and that its purpose is to make the most effective use of their resources.
  4. The only difficulty which arose when drafting the covering note was to evolve language which would provide for the fact that, although the United States, like Canada, intends that the F-104G aircraft ordered for mutual aid should go to other NATO countries, the United States would wish to be free to direct its share to other United States aid recipients in the unlikely event that NATO requirements do not absorb the total order. From a Defence Production standpoint, there is a Canadian interest in agreeing to this U.S. requirement, as it is desirable to ensure that the full production run be completed.
    MEMORANDUM OF UNDERSTANDING:
    Title to the F-101B Aircraft:
  5. In accordance with the Cabinet’s decision of March 2, the Agreement provides in Article I (A)(1) that title to the aircraft will be vested in Canada.
    Armament of the F-101B:
  6. The question of the armament of the F-101B aircraft is referred to only in Article I (A)(3), wherein provision is made that the cost of the armament will be shared on a two-thirds – one-third basis and that title to the armament furnished will be vested in Canada.
    Radar Improvements:
  7. The Pinetree Agreement of 1951 provides that the United States, after consultation with the Canadian authorities, may make improvements to the radar stations. It was assumed by the Canadian representatives that the Canadian commitment to man and operate the radar stations would not extend to such improvements if they significantly affected the operating costs. In particular it had been assumed that the operation of the radars to be connected with the new SAGE installation (CADIN programme) would be subject to the cost-sharing formula previously negotiated since they will cost more to operate.
  8. The United States authorities, on the other hand, had assumed that since no limitations had been set on the original Canadian proposal to take responsibility for operation of the radar stations, none had been intended. This had been a factor in the U.S. decision to accept the Canadian proposal.
  9. It was eventually agreed that the Canadian representatives would recommend to Ministers that Canada should meet the operating costs arising out of all improvements already programmed, including the CADIN programme, but that language be included in the Agreement to enable the Canadian authorities to exercise control over operating commitments arising out of future improvement programmes.
  10. The sixteen Pinetree stations to be taken over are listed in paragraph B of Article II. It is to be noted in this respect that the list does not include five stations of the Labrador extension (Goose Bay, Saglek, Hopedale, Cartwright and St. Anthony) which will continue to be a U.S.A.F. responsibility.
    RECOMMENDATION:
  11. The undersigned recommend that the Cabinet approve the conclusion of an Exchange of Notes with the United States in accordance with the draft attached to this memorandum.

[H.C. GREEN]
[D. HARKNESS]
[R. O’HURLEY]

393. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], June 9, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair, (for morning meeting only)
  • The Secretary of State for External Affairs (Mr. Green) in the Chair, (for afternoon meeting only)
  • The Minister of Finance (Mr. Fleming), (for morning meeting only)
  • The Minister of Transport (Mr. Balcer), (for morning meeting only)
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton), (for morning meeting only)
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough), (for morning meeting only)
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr), (for morning meeting only)
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of Agriculture (Mr. Alvin Hamilton), (for morning meeting only)
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

Proposed Aircraft “swap” Deal

(Previous reference June 6)

  1. The Minister of Defence Production said that agreement in principle on the proposed aircraft “swap” deal had been reached on March 28th on behalf of the two governments between the Canadian Ambassador in Washington and the Assistant Secretary of Defence. Following further discussions, agreement had been reached on a draft of an Exchange of Notes which each side would submit to its government for consideration. The United States government had indicated its acceptance of the draft. The terms of the proposed agreement were unchanged, except that the U.S. was now prepared to agree that title to the F-101B aircraft would be vested in Canada.
    An explanatory memorandum was circulated (joint memorandum, Secretary of State for External Affairs and Ministers of National Defence and Defence Production, June 8 – Cab. Doc. 240-61).
  2. During the discussion the following points were raised:
    1. The statement to be made by the Prime Minister should be prepared with great care. Some said that in the Memorandum of Understanding the procurement in Canada of F-104G aircraft should be mentioned before the other elements in the agreement, to emphasize the additional employment that would be provided as a result. On the other hand, this change in the order of presentation might not be acceptable to the U.S. The statement by the Prime Minister could emphasize the attractive features of the swap deal to Canada, regardless of the order followed in the Memorandum of Understanding.
    2. The statement should refer to the necessity for defence against manned bombers. Although that threat was diminishing, manned bombers were still being manufactured in the U.S.S.R.
    3. Some said that disarmament was rapidly becoming a mere dream. The government should face the problem of the need for nuclear defence in Canada, particularly in view of the unequivocal position taken by the U.S. and U.K. governments on nuclear weapons. Other Ministers said that renewed discussions of disarmament were scheduled to begin soon, and that the government should give explicit and careful study to the whole question of nuclear weapons before deciding to acquire them. The future of civilization might depend on disarmament negotiations, and particularly on the restriction of the number of nations possessing nuclear weapons. On the other hand, the Bomarc stations and the question of nuclear weapons for Canada should not be mentioned in the statement, because attention would be diverted from the useful features of the swap deal if controversial matters were included.
    4. The statement should show clearly the consistency between the policy of the government at this time and the position taken by the government at the time of the cancellation of the Avro Arrow programme.
    5. A paragraph should be included in the statement to refute the argument of pessimists who claimed that all defence measures would be ineffective and that therefore they were merely a waste of money.
  3. The Cabinet,
    1. approved the conclusion of an Exchange of Notes with the United States on the aircraft “swap” deal as submitted in draft form with the Ministers’ explanatory memorandum (Cab. Doc. 240-61 of June 8), on the understanding that the Secretary of State for External Affairs would check on the suitability of these documents for tabling in the House of Commons; and,
    2. agreed that a special committee of Ministers would assist the Prime Minister to complete the preparation of a statement to be made by the Prime Minister in the House of Commons on the aircraft swap arrangement with the United States.
      . . .

394. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], June 12, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green)
  • The Minister of Finance (Mr. Fleming)
  • The Minister of Trade and Commerce (Mr. Hees)
  • The Minister of Transport (Mr. Balcer)
  • The Minister of Veterans Affairs (Mr. Churchill)
  • The Minister of Justice (Mr. Fulton)
  • The Minister of National Defence (Mr. Harkness)
  • The Minister of Citizenship and Immigration (Mrs. Fairclough)
  • The Minister of Labour (Mr. Starr)
  • The Postmaster General (Mr. William Hamilton)
  • The Solicitor General (Mr. Browne)
  • The Minister of Mines and Technical Surveys (Mr. Comtois)
  • The Minister of National Health and Welfare (Mr. Monteith)
  • The Minister of Agriculture (Mr. Alvin Hamilton)
  • The Minister of Defence Production (Mr. O=Hurley)
  • The Minister of Public Works (Mr. Walker)
  • The Associate Minister of National Defence (Mr. Sévigny)
  • The Minister of Forestry (Mr. Flemming)
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale).
  • The Secretary to the Cabinet (Mr. Bryce)
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

Aircraft “swap” Arrangement

(Previous reference June 6)

  1. The Prime Minister said that a committee of the Cabinet had reviewed the draft text of the statement he was to make in the House of Commons on the aircraft swap arrangement. He had inserted further revisions in the statement, and would make it on this day. As further revised, it would include a reference to the fact that there was a continuing need for defence against manned bombers. It would also mention that Canada would continue to seek disarmament but that, as the U.S.S.R. was not of a mind to proceed with disarmament, Canada needed the most effective defences. If a question should be asked on the armament of the F-101B aircraft, he would state that they would be armed with conventional weapons at this time but would be capable of carrying nuclear weapons.
  2. During the discussion the following points were raised:
    1. Some said that a meeting of U.S. and U.S.S.R. representatives on disarmament was to begin next week, and that therefore the assertion in the statement, about the U.S.S.R. attitude to disarmament should be made less categorical.
    2. The government had recently received new U.S. proposals on disarmament. These proposals were far-reaching, particularly in relation to nuclear weapons.
    3. The Premier of Saskatchewan had stated that the government of Canada had arrived at a basis for an agreement with the U.S. on the storage of nuclear arms in Canada. Some discussions on this subject had in fact occurred about a year ago, but Mr. Douglas’ statement was completely inaccurate.
    4. In two years’ time, when the radar stations were fully transferred to the responsibility of Canada, their annual cost would be about $21½ million.
  3. The Cabinet,
    1. agreed with the terms of a draft order in council authorizing the Prime Minister or the Secretary of State for External Affairs to conclude an agreement by means of an Exchange of Notes, on behalf of the Government of Canada, with the Ambassador of the United States of America to provide for,
      1. the assumption by Canada of the responsibility for certain continental radar defence stations hitherto the responsibility of the U.S.;
      2. the acquisition of F-101B aircraft from the U.S.; and,
      3. co-operation in a programme for the procurement in Canada of F-104G aircraft;
    2. agreed that when completed the Exchange of Notes would be tabled in the House of Commons; and,
    3. noted with approval the statement to be made on the arrangement in the House of Commons by the Prime Minister on this day.
    (An order in council in respect of (a) above was passed accordingly; P.C. 1961-843, June 12).Footnote 43
    . . .

Section D - Fort Churchill Rocket Range

395. DEA/11213-A-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

CONFIDENTIAL [Ottawa], October 10, 1961

Fort Churchill Rocket Range

On or about September 12 the Department learned informally from the Defence Research Board that the United States authorities wished to undertake as a matter of urgency a special series of firings from the Fort Churchill range.

  1. The purpose of these firings, it was explained to us, was essentially two-fold. In the first place, as a strictly scientific and military intelligence task, it was felt desirable to attempt to determine more accurately than is possible by other means such as radio shock waves, ground shock waves and sampling of the atmosphere by high flying aircraft, the nature and strength of the nuclear devices being exploded by the Soviet Union in its current series of tests. Secondly, to measure the increase in the amount of radioactive debris in the upper atmosphere caused by these tests.
  2. With regard to the first purpose, present methods do not give a completely accurate picture. Radio and ground shock detection techniques do of course provide firm indications that a detonation has occurred and can give a fairly accurate estimate of the strength and location of the detonation. These methods have to be supplemented however by some technique to obtain early samples of the radio-active cloud. Such samples can be obtained in two ways: the “filter paper” technique (which is accomplished by waiting for the radioactive debris to descend to the lower atmosphere and collected either at ground level or at varied altitudes by high flying aircraft, or by rockets launched to altitudes of between 50 and 100 miles. The use of rockets of course makes it possible to obtain the samples of debris which has risen to higher altitudes at a much earlier date and before too much decomposition has taken place.
  3. We understand that the United States Army has recently been using the rocket sampling technique at White Sands, Arizona. However, the fact that this location is within the auroral belt complicates matters as the ionized particles of the aurora tend to become mixed with those particles of the radio-active debris. Churchill, therefore, is a much better location lying, as it does, north of the auroral belt. Moreover, as the atmosphere at Churchill is thinner it is possible to launch the rockets and collect samples at must lower altitudes (approximately 50 miles) thus ensuring a higher rate of recovery of the samples obtained.
  4. The United States request was handled through the medium of the Operational Coordinating Group, set up by the Agreement of June 14, 1960 governing the operations of the Joint Upper Atmosphere Research Facility at Forth Churchill.Footnote 44 Within the Department of National Defence it was processed through the Chairman of the Defence Research Board and the Chief of the General Staff before Mr. Harkness’ approval was obtained.
  5. The above-mentioned Agreement calls for Canadian scientists to be kept fully informed of the planning and results of any tests conducted and we have been assured that the Defence Research Board through the Directorate of Scientific Intelligence will have full information made available to it. For its part the Defence Research Board will make available to the Department of Health and Welfare whatever information that Department requires relative to its own studies and responsibility in the field of radioactive fallout measurement and effects. All the other provisions of this Agreement will also apply.
  6. We understand that a maximum of eight firings has been considered sufficient. Two have already been conducted, one is scheduled to go off early this week and the remaining five will be fired as soon as the nose cones have been instrumented. All firings can be undertaken using existing facilities and instrumentation and within the manpower ceiling authorized by the Government of four hundred and fifty U.S. personnel.Footnote 45

N.A. R[OBERTSON]

Part 6

Section A - Economic Issues

Meeting of Joint Canada-united States Committee on Trade and Economic Affairs, Washington, March 13-14, 1961

396. D.M.F./Vol. 131

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 708 Washington, March 7, 1961
CONFIDENTIAL. OPIMMEDIATE.
Reference: Our Tel 566 Feb 23.†
Repeat for Information: T&C Ottawa, Finance Ottawa, Agriculture Ottawa, Bank of Commerce Ottawa, PCO Ottawa (OpImmediate) from Ottawa.

Joint Canada-usa Committee on Trade and Economic Affairs

The following suggestions may be helpful in your preparations for the meeting.

  1. This will be the first general review of the Canadian-USA economic matters with the new USA Cabinet and it will be taking place at a time when almost every major area of USA policy is being reappraised by the Administration. This meeting should enable us to obtain a clearer indication of the new Administration’s likely approach in a number of areas of interest to Canada. It could also provide an ideal occasion to acquaint the responsible USA Cabinet members and their principal advisers with the thinking behind current or proposed Canadian economic measures particularly as these may impinge upon or affect USA interests. Further and perhaps most important, the present fluid state of Administration deliberation and planning in many areas and their apparent receptivity to new ideas should afford unusual opportunities for us to influence USA policies in desirable directions or at the least to put forward in a sympathetic atmosphere Canadian views and suggestions on problems of mutual concern.
    General Approach
  2. It seems to us that we should put particular emphasis on the broad community of interests and objectives between Canada and USA in relation to international trade and economic policies. We might also make more of an impact regarding our bilateral problems if we could relate these to the broader issues of general policy which are bound to be uppermost in the minds of USA secretaries at this time. USA Balance of Payments
  3. We should take note of the generally constructive and non restrictive nature of the measures being developed by the Administration to meet their balance of payments problems. At the same time we should review the distinctive features of Canada’s balance of trade and payments position vis-à-vis USA and express our hope and expectation, as we did in general terms to the previous Administration, that USA should in its own corrective measures avoid any action which might add to the problems currently faced by Canada. In this connection, reference might be made to the importance of safeguarding the defence production sharing programme; military procurement in USA and overseas; the desirability of ICA procurement in Canada being considered on an item by item basis (as was suggested by Mr. Dillon to Mr. Fleming in Paris and possibly to explore some easing of the proposed reduction of tourist allowances with respect to Canada. In addition we should stress the similarities between Canadian and USA interests vis-à-vis the rest of the world and suggest that our approach towards more equitable burden-sharing should be directed to solving the problems of both countries.
    Trade Policy
    1. USA Trade Agreements Act
      Possibly no repeat no single issue is of greater importance to future Canadian-USA trade relations than that of the future of USA Trade Agreements Act. As you know, this legislation sets the basic framework and direction of USA commercial policy. The present act comes to an end in mid 1962 and the battle lines are now being drawn both in Congress and outside for the development of new legislation. It is not repeat not too early, therefore, for us to focus attention on this issue and to stress our interest in the Administration obtaining broad and unhampered authority in this field.
      In this connection you will be aware that some thought is being given within the Administration to a new approach to trade agreements legislation involving linear tariff reductions. We should bear in mind that in USA context (as distinct from that of other countries), this might provide the only way for the Administration to move ahead in the trade field.
    2. Free Trade in Basic Products
      At the last meeting of the Canada-USA Committee, Canadian Ministers suggested that the possibility of “free trade for basic materials and tropical products” would warrant consideration. USA officials subsequently expressed considerable interest in this idea and asked us to elaborate but the matter was not pursued (your telegram ET-394 March 15).† This is the kind of imaginative suggestion which would be likely to appeal to the new Administration, particularly as it might contribute to economic development policy. You might wish to reiterate and develop Canadian views on this matter.
    3. USA Agricultural Restrictions
      In addition to specific references to our bilateral problems, we think it would be desirable to suggest some more generalized move in this field. The maintenance of USA agricultural waiver in GATT, even though it has been used with restraint, has unfortunate implications for progress in the reduction of agricultural restrictions in Europe and elsewhere. The relinquishing by USA of its GATT waiver would make a significant contribution internationally and would at the same time facilitate the removal of USA restrictions against Canadian goods.
    4. East-West Trade
      USA Administration is reviewing the question of East-West trade both in terms of present USA legislation (e.g. The Battle Act)Footnote 46 and in terms of possible new initiatives jointly with other Western countries. Consideration of these matters within the Administration may have reached a stage, by the time of the meeting, to warrant some general discussion. You will recall that this question was discussed at the Montreal Commonwealth ConferenceFootnote 47 and you might wish to develop further some of the points made at that time. Our own experience in trade relations with communist countries would be relevant.
    5. Lead and Zinc
      There is a growing tendency for USA to regard the need for special protection for these products as self-evident and generally accepted. Indeed, all recent public discussion on lead and zinc in USA has centred solely on the question of how much protection should be granted and by what techniques. The possibility of adding lead to the list of barter items for agricultural surplus disposal (thus expanding agricultural barter arrangements) is also under consideration. USA is strongly pressing other countries to remove their remaining import restrictions yet seems unaware of the inconsistency in their own attitude on lead and zinc. It would be desirable to direct the attention of the Administration to the broad commercial policy implications of these restrictions and to urge the early return to normal competitive trade in these products.
      Food for Peace; Surplus Agricultural Products
  4. The Administration has given encouraging indications of wishing to maintain and strengthen consultations with Canada. This was reflected in my talk with McGovern. In addition USA authorities have offered to discuss with Canadian officials their plans for the future as embodied in the Food for Peace report being submitted to the President on March 15. It is expected that this will be done at the next Canada-USA wheat meeting and before publication of their report.
  5. The Administration is committed to an expansion of Food for Peace activities (which in their minds includes all agricultural surplus matters both bilateral and multilateral) and special emphasis in being placed on the economic aid objectives of these programmes. What this will involve in practice is not repeat not yet clear and there are strong conflicting pressures on the Administration.
  6. In view of the foregoing it is our judgment here that at the forthcoming meeting we should concentrate on the broader issues and make clear Canada’s positive approach to these problems. We should emphasize the key importance of commercial trade in wheat to the Canadian economy and the need to ensure that this trade is fully safeguarded. At the same time we might reiterate the views expressed by the Prime Minister at the UN on cooperative action in this field. With the basic USA legislation (PL480) coming up for renewal in Congress this year, it might be useful for us to refer to the change of emphasis which has taken place over a period of time in the implementation of USA policy, i.e. the diminution of barter activities and the gradual restoration of countries to cash markets as their financial difficulties were overcome. We might indicate in general terms the elements which have proved particularly troublesome in Canadian-USA relations and suggest areas where we would wish to see changes and improvements. In connection with the UN and FAO resolutions the new Administration may lean towards handing over to FAO some degree of jurisdiction with regard to relief and distress programmes. It is believed, however, that they will retain the bulk of their programmes on a purely bilateral basis.
    Extraterritorial Issues
  7. There have been continuing and very difficult problems arising from the extraterritorial effects of USA legislation and policy (e.g. anti-trust, foreign assets control). These have involved highly complex issues of law and procedure in which different USA government, departments and agencies are concerned. We have attempted to meet some of these problems as they arose through a variety of arrangements none of which has been particularly satisfactory. What is needed, we feel, is to impress on USA secretaries in the broadest terms the very serious matters of principle which are raised by cases of this kind (as well as recurring issues of fact) and their adverse effect on Canadian-USA relations.
  8. Our current experience with USA foreign assets control over the bunkering at Vancouver (with Canadian oil) of vessels loading Canadian wheat for Communist China under a Canadian contract is surely a laboratory case illustrating how foreign ownership and control of Canadian corporations may affect Canadian freedom of action. We hope, before the Ministers convene next week, that a satisfactory solution will have been found for this particular problem. Nevertheless the fact the problem has arisen and that it has caused and is causing a great deal of trouble for a great many people from the Prime Minister down would seem to justify the conclusion that something is wrong with our relations and our arrangements in this area. I would hope that, using this case as an illustration, Ministers might move on to the more general and more difficult problem or series of problems arising from relations of USA parent corporations to their Canadian subsidiaries.
    Conclusion
  9. Finally, although we have made a number of suggestions above involving a good deal of attention to bilateral problems, I should, I think, repeat our considered judgment here that in present circumstances our special Canada-USA issues are most likely to receive sympathetic and understanding attention by USA Cabinet members who will be participating in the meeting if they are discussed within the context of the wider issues of policy with which the members of the Administration are currently preoccupied.

[A.D.P.] HEENEY

397. D.M.F./Vol. 131

Memorandum by Department of External Affairs

CONFIDENTIAL [Ottawa], March 9, 1961

Canada-United States Joint Committee on Trade and Economic Affairs

Cuban Trade

The agenda of the Joint Committee meeting does not provide for the discussion of Cuban trade. This subject, however, may well be raised informally in view of the considerable interest in the United States over Canadian policy towards Cuba.

On October 19, 1960, the United States imposed a trade embargo on United States exports to Cuba with the exception of non-subsidized foodstuffs, medicine and medical supplies. The Department of State explained that this step had been taken reluctantly by the United States Government in order to carry out its responsibility to defend legitimate economic interests against “the discriminatory, aggressive and injurious economic policies of the Castro régime.” While Canada had been informed of United States intentions before the embargo became effective there was no prior consultation and the United States Government did not, either then or later, ask Canada or any country of the West to impose a similar embargo. Some concern was expressed however, since all exports from the United States to Canada are exempt from United States export controls, that United States embargo might be made ineffective by the trans-shipment of goods of United States origin from Canada to Cuba, if Canada did not control the re-export of these goods to Cuba.

The Canadian Prime Minister on December 12 and the Minister of Trade and Commerce on December 16, 1960, stated in the House of Commons that it is not Canada’s purpose to exploit the situation arising from the United States embargo on exports to Cuba and that we have no intention of encouraging what would, in effect, amount to the bootlegging of goods of United States origin to Cuba. In order to implement this policy no export permit is issued by the Canadian authorities for the re-export from Canada to Cuba of United States goods, which are prohibited export from the United States direct to Cuba under the United States export control regulations. So far only one attempt at evasion has come to the attention of the Canadian authorities and the shipment concerned was returned to Canada and seized by Canadian authorities.
With respect to the export of Canadian goods to Cuba the policy in effect is as follows:

  1. No shipment of arms, ammunition, military and related equipment or materials of a purely strategic nature will be licensed for export from Canada to Cuba or have been licensed for more than a year, i.e., since long before the United States embargo. This course is based on the Canadian Government’s general policy of refraining from exporting such goods or commodities to areas of tension anywhere in the world; and
  2. There are no limitations on the export to Cuba of Canadian goods of a non-strategic nature.
    This policy has been guided by the following considerations: The United States has been able to justify its actions by reference to specific measures of the Cuban authorities against United States citizens and interests. The same justification would not be available to Canada if we took any similar action. Cuba has been a traditional market for certain Canadian foodstuffs (notably fish and potatoes) and the United States itself is continuing to ship food and drugs to Cuba. Of all NATO countries the United States alone has taken any action to impose a trade embargo against Cuba. If Canada were to restrict exports of non-strategic Canadian goods to Cuba in conformity with the United States embargo, stricter controls would have to be imposed on trade with Cuba than with the countries of the Sino-Soviet bloc with whom peaceful trade is now permissible. As a country living by international trade Canada cannot lightly resort to the weapons of a trade war. We are not complacent about the situation in the Caribbean and the operation of Canadian military and strategic controls is clear evidence that we consider it to be a sensitive area. On the other hand we wish to maintain with Cuba the kind of relations which are usual with the recognized government of another country and it is our view that to maintain mutually beneficial economic relations with Cuba may help towards the restoration of traditional relationships between Cuba and the Western world.
    The following are the figures for Canadian and United States exports to Cuba for the last quarter of 1960, which are the latest available, compared with the last quarter of 1959.
United States - Canada
1959196019591960
September38.517.71.60.7
October41.417.00.81.6
November40.63.81.71.4
December40.55.21.42.4
Whole Year434.4211.415.113.0

(In millions of dollars)

There was a sharp drop in United States exports to Cuba after the imposition of the embargo while Canadian exports increased. However the value of Canadian exports to Cuba in 1960 was approximately 13 million dollars compared with 15.1 in 1959 and the goods concerned were largely in the range of permissible United States exports to Cuba. For the last quarter of 1960, Canadian exports to Cuba remained well below those of the United States.
Despite some Cuban efforts to increase trade with Canada there is no evidence that, with the present level of Cuban foreign exchange reserves, the increasing diversion of their trade to the Soviet bloc and the Canadian export controls described above, Canadian exports to Cuba will experience the dramatic increase suggested by some of the public statements of the Cuban authorities and in particular the suggestion made by the Cuban Minister of Economic Affairs that Cuban purchases in Canada could reach a level of $150 million a year. (The Trade Mission which came to Canada last December came at their own request and not in response to a Canadian invitation.) It is worth noting in this connection that Señor Guevara, former head of the Cuban National Bank, recently stated that this was an exaggerated figure.
Canadian imports from Cuba for the first ten months of 1960 (the latest figures available) were 6.8 million dollars compared with 9.8 million dollars in 1959. The corresponding figures for the United States are approximately 348 million dollars and 474 million dollars. These figures do not entirely reflect the drop in United States imports from Cuba after the cancellation of the Cuban sugar quota, but they remain substantial. A campaign is now underway in the United States to cut down further on these imports from Cuba, now consisting mainly of tobacco, since these United States purchases provide the Cubans with dollars. In a reply to a letter from Senator Smathers, who is leading this campaign, the United States Secretary of State recently indicated that the United States Government is studying additional economic measures designed to maximize the effects of its embargo on Cuban trade.
The Cuban Government has proposed the conclusion of a civil aviation agreement with Canada, but no negotiations to this end are contemplated. At the present there are no passenger services between Canada and Cuba; the Cuban airlines operate cargo flights on a charter basis.
It should be noted that the United States Government has not at any time made representations about the volume of Canadian trade with Cuba. The United States public reaction to continued Canadian trade with Cuba seems to have been largely caused by exaggerated statements made by the Cubans.

398. DEA/11280-1-40

Extract from Draft Minutes of Meeting of Joint Canada-United States Committee on Trade and Economic Affairs

CONFIDENTIAL Washington, March 13, 1961

The Committee convened at 2:00 p.m. on March 13, 1961 in room 1105 of the State Department’s conference suite. Mr. Rusk was in the chair.

  1. Mr. Rusk welcomed the Canadian Ministers and expressed his appreciation that they had come to Washington although the meetings should normally have been held in Ottawa this time. He was sorry that Mr. Green had been unable to attend and asked that his regrets be conveyed to the Ministers. Canadian members of the Committee could be assured that good relations with Canada were a bi-partisan policy in the United States and that the new Administration wished to continue and consolidate these good relations.
  2. Mr. Fleming thanked the Secretary of State for his welcome, saying that Canadian Ministers had been looking forward to the meeting of the Committee which had many achievements to its credit. The frankness and friendship of its meetings led to greater understanding of the economic problems of the two countries. Rumours of change in Canadian feelings towards the United States might have reached the Secretary but any such change was inconsequential.
    Item I: Economic Outlook for Canada and the United States
  3. Mr. Dillon opened the discussion by saying that he would concentrate on the United States Balance of Payments, leaving the domestic situation to Secretary Hodges. During 1960 the United States had been faced with new and unique problems. While the United States had experienced large deficits in its Balance of Payments for the last three years the balance of trade in 1960 had improved, with the export surplus reaching nearly $5 billion. There had nevertheless been a large outflow of short-term funds, estimated at between $2 and 2½ billion, mostly in the second half of the year. This flow had been largely due to interest rate differentials and had led to a loss of confidence and some speculation.
    . . .

Item Iii (B)(5): application of Foreign Assets Control Regulations

  1. Mr. Fleming, Minister of Finance, said that Canadians had some measures of understanding of the United States position with regard to foreign assets control and with their feeling that these regulations could only be effective if they applied not only to firms in the United States but to the subsidiaries abroad of United States firms over which control is exercised by United States citizens who are directors or officers of these subsidiaries. However, United States Secretaries should keep in mind that in Canada an entirely different view was taken of this problem. There was no area in our common economic relations where there was more danger of explosive public opinion than on this subject of foreign assets control regulations. He said that he could not exaggerate the depth of feelings which could be aroused in Canada about the impact of foreign assets control regulations on Canadian firms. Mr. Fleming recalled that in a visit to Ottawa in 1958 President Eisenhower and Secretary Dulles had discussed this subject with Canadian Ministers in the light of a possible order by China for cars manufactured in Canada by a company, the majority of whose shares were held in the United States.Footnote 48 At that time there had been a head-on clash of opinion between Canada and the United States, and while there had been an agreement on how to deal with these questions this had proved not to be satisfactory to Canada. The agreement on foreign assets control was announced in the following terms at that time:
    “The Canadian and United States Governments have given consideration to situations where the export policies and laws of the two countries may not be in complete harmony. It has been agreed that in these cases there will be full consultation between the two Governments with a view to finding through licensing procedures satisfactory solutions to concrete problems as they arise”
    Although, in the end, the order for cars did not materialize, Canadian feelings had been deeply stirred at this evidence of United States intervention in Canadian affairs. This problem was still in the minds of Canadians and he and other Ministers were still regularly questioned about the degree of United States control over marketing activities of subsidiaries in Canada.
  2. Turning to the present, Mr. Fleming said that the question of bunkering of ships in Vancouver carrying Canadian grain to China was a very important issue. He was thankful that this had not yet become a matter of public knowledge since there could be no question of the Canadian public reaction to this problem. If the difficulty in bunkering ships in Vancouver became public it would stir Canadian feelings in the deepest sense and would lend colour to the opinion widely held in Canada about the danger of allowing large segments of Canadian industry to be owned abroad. Mr. Fleming made clear that the question of bunkering went well beyond a private corporate decision. He drew attention to the fact that Canadians already found it difficult to accept that private corporations abroad make decisions concerning Canadian subsidiaries in the fields of equity ownership, exports, research, employment, etc. which in some cases were not in the Canadian national interest. However, the application of FAC regulations to Canadian subsidiaries added a new dimension to this problem since these were actions of the Government of the United States, the country from which most foreign investment in Canada had come. Mr. Fleming said that Canadians were not a volatile people and that public opinion does not respond too quickly in Canada. However, he emphasized that on this question of extra territorial regulation by the United States involving the marketing operations of Canadian firms, he could not imagine a more serious problem. Mr. Fleming said that he hoped that this frank statement of the Canadian position would be kept in mind and that in any plans which the United States might develop to apply foreign assets control regulations in any quarter of the world that, in the interests of harmony between Canada and the United States, the United States would avoid any action that could trigger the type of Canadian reaction which he had outlined.
  3. Mr. Hamilton, the Minister of Agriculture, pointed out that he, as the Minister most closely concerned with the sale of wheat to China, was particularly perturbed about the question of bunkering of ships in Vancouver. He said that he felt he was sitting on top of a volcano and if the difficulties about bunkering became public he was sure that there would be the most severe Canadian reaction. He emphasized the general concern of Canadians about their independence and pointed out that there were a number of cases in the agricultural field where the impact of foreign assets control regulations was apparent. He described how several companies in the grain trade representing about 60% of the total private grain trade in Canada are affiliates of United States firms and have therefore not participated in the present trade in wheat with China. He also pointed out that Robin Hood Flour Mills, a leading Canadian flour miller, had, because it was an American subsidiary, enquired about the application of foreign assets control to its parent company in relation to sales of flour to China. This firm had been told that because there were Canadian owned flour mills available to do this business they would not be permitted to engage in this trade. Turning to bunkering, Mr. Hamilton said that he could not exaggerate the reaction if the Imperial Oil Company, a company considered to be a Canadian company by all Canadians were ever pointed out publicly as refusing to bunker ships with Canadian oil, the ships carrying Canadian products being exported as part of normal Canadian business. He said that Canadians wanted fair treatment as partners and recognition of their independence by the United States. The intrusion of foreign assets control regulations into the affairs of Canadian firms was not acceptable.
  4. Mr. Ball thanking Mr. Fleming and Mr. Hamilton for the frankness and vigour with which they had put the Canadian position on this question. Mr. Ball said that he knew that the Prime Minister, Mr. Diefenbaker, had discussed this question with President Kennedy during his recent visit to Washington. He promised that the United States authorities would give the most careful consideration to the points made by Canadian Ministers.
  5. Mr. Fowler, Under-Secretary of the Treasury, said that he would like to comment on the procedures which might be adopted to meet this problem. He began by saying that foreign assets control regulations were administered under the powers given the Administration under the Trading With the Enemy Act. The very designation of this Act gave an indication of the strong feelings involved in the United States on this question. He said that the foreign assets control regulations were in no sense designed to control the day-to-day trading and operations of United States companies abroad. They were confined to one narrow aspect. Since 1958 the United States authorities had been aware of the difficulty which had arisen with respect to subsidiaries in Canada of United States firms. The United States had been trying, and would continue to try, to find ways and means to avoid the creation of issues between Canada and the United States or of offending Canadian sensibilities, while at the same time not compromising a legal principle which the United States authorities felt necessary to safeguard the operation of the Trading With the Enemy Act in future. This Act and accompanying regulations had been important in World War II and such controls do have some potential for application to United States corporations in their overseas operations.
  6. Mr. Fowler recalled that in 1958 an attempt had been made to resolve this question with a special agreement where if the question of foreign assets control was raised by the Canadian authorities and it could be shown that particular export orders were vital to the Canadian economy where no Canadian company was available to do the business and where the goods involved were not strategic goods, the United States authorities were prepared to ensure that FAC regulations would not stand in the way of Canadian firms obtaining the business. Mr. Fowler said that since 1958 three cases have been brought to the attention of American authorities and in each of these cases licenses exempting the parent firms from FAC regulations had been granted. It seemed clear to him that up to the present FAC controls on Canadian exports had not been severe.
  7. Turning to the bunkering problem, Mr. Fowler said that, even though in this case the criteria adopted in 1958 were not all present, the United States had made a proposal on procedures which would permit United States subsidiaries in Vancouver to bunker ships carrying grain to China. He hoped that the informal proposal suggested might be satisfactory and, in any case, he suggested that informal consultations between Canada and the United States could resolve any problems involved with foreign assets control. Mr. Fowler reiterated that the United States wished to maintain the legal principle involved in these regulations, otherwise it might be difficult or impossible for the United States to enforce this law if it could be readily evaded by subsidiaries of American firms in Canada or elsewhere. He concluded by saying that the United States Government would continue to be ready to discuss individual questions with Canadian authorities as problems occurred, and he would welcome Canadian suggestions.
  8. Mr. Hamilton referred to the importance of ensuring that Canadian sovereignty was not being impinged. He agreed that, in wartime, restrictions concerning trading with the enemy would be acceptable in both Canada and the United States. However, in the present situation it was Canadian policy that trading with the Soviet Bloc maintained useful contacts, and there was the hope that as long as trading went on, fighting would not break out. Mr. Heeney said that there seemed to be two aspects of this problem which might best be kept separate in order to expedite solutions. There was the general point of principle that FAC regulations should not apply to firms in Canada operating within the limits of Canadian law. Mr. Heeney said that the United States had made efforts to meet individual difficulties which had arisen under the present law and regulations. The United States law seemed to have some flexibility but the procedures as outlined in foreign assets control may not have the necessary flexibility to meet the Canadian problem. Mr. Heeney hoped that the United States authorities would consider how they might change either the law or the executive regulations to eliminate their impact on Canadian firms. He felt it would be desirable for the United States to consider some fundamental change in their system.
  9. Turning to the second aspect of this problem, the urgency for solving the particular situation regarding bunkering of ships in Vancouver, he said that the Imperial Oil Company case was a perfect laboratory example confirming the opinion held by some Canadians that we cannot permit Canadian corporations to be owned and manned by foreigners without losing control over them. With regard to procedures which might be involved in relation to the bunkering case, Mr. Heeney felt that some satisfactory arrangement could be made if this problem did not become public knowledge. The proposal presently before the Canadian authorities did not yet meet our position. Mr. Heeney also pointed out that if the Canadian authorities should continue to discuss this particular question with United States authorities, this did not in any way represent acquiescence by the Canadian Government in supposed United States rights over the operations of subsidiaries, which rights Canada considered did not exist.
  10. Mr. Fleming drew attention to the recent order prohibiting United States citizens from owning gold outside the United States. He pointed out that this also appeared to be an attempt to apply United States law to action on Canadian soil. Regulations of this kind, involving extra-territorial effects, seemed to be issued by the United States authorities as a matter of routine without any apparent awareness of their implications.
  11. In concluding this item, Mr. Ball said that this was a question of broad principles which were necessarily complex. The United States Administration felt it essential that they have powers to prevent United States citizens, whether at home or abroad, from frustrating United States policies. He hoped procedures could be worked out to meet the Canadian point of view without upsetting the principles to which he and Mr. Fowler had referred.
  12. The Committee recessed at 12:30 p.m. It reconvened at 2:30 p.m.
    ITEM IV: COMMUNIQUÉ
  13. The Committee reviewed a draft communiqué and approved its immediate release.
    ITEM V: OTHER BUSINESS
  14. Mr. Ball stated that the meetings had proved most stimulating and that the candid and free expression of views would prove helpful in shaping United States thinking. Slight divergence of interests in small matters must be expected but this did not apply to the larger interest of the two countries. The United States Members of the Committee would look forward to future talks and he thought that a further meeting of the Committee might be envisaged sometime in 1962.
  15. Mr. Fleming replied by expressing the gratitude of the Canadian Members at the hospitality and the friendliness with which they had been received. The convocation of the Committee so soon after the installation of the new Administration, despite the many calls on the time of United States officials, was especially appreciated. He hoped that the Committee might next meet in Ottawa and suggested that, although there was no precise pattern to the timing of the meetings, they might in future be held at intervals of 8 months or so.
  16. The Committee agreed on the way in which press questions on the communiqué would be handled,Footnote 49 and adjourned at 3:00 p.m.

399. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], March 16, 1961

Present

  • The Secretary of State for External Affairs and Acting Prime Minister (Mr. Green) in the Chair,
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Assistant Secretary to the Cabinet (Dr. Hodgson),
  • Mr. D.F. Wall, Privy Council Office.
    . . .

Joint Canada-u.S. Committee on Trade and Economic Matters; Cuba

(Previous reference March 9)

  1. The Minister of Finance reported orally on the meetings of the Joint Canada-U.S. Committee on Trade and Economic Matters held in Washington on March 13th and 14th. He recalled that he had reported in detail on the previous day both in the House of Commons and at the Caucus. Generally, the meetings in Washington had been very cordial, and it had been apparent that the new U.S. administration would like to improve relations with Canada. The meetings had revealed a greater area of agreement in questions of multilateral trade, particularly in the marketing of agricultural products, than had been expected.
    The question of trade with Cuba was not discussed at the plenary sessions but was raised at an informal meeting on March 13th in which Messrs. Rusk and Dillon represented the United States and Messrs. Fleming, Hees and Heeney represented Canada, with senior officials of both governments in attendance. The U.S. representatives has said that Castro was importing more munitions and that increasing numbers of Soviet agents were arriving in Cuba. That country was likely to become a major Soviet missile and jet base unless present trends were immediately checked. Castro was also trying to extend his influence into other countries on the rim of the Caribbean. The stronger Latin American countries were concerned about current developments in Cuba, but were unable to give open support to the U.S.
    The U.S. administration had concluded that strong economic sanctions against Cuba at this time might avert armed intervention later. They had therefore decided to suspend forthwith all imports from Cuba, and all exports to Cuba with the exception of welfare food supplies. The Monroe Doctrine would justify the U.S. in taking strong measures to prevent Soviet penetration of this hemisphere, as would be the U.S. responsibility as a member of the Organization of American States to defend the Latin American area against aggression.
    The Canadian Ministers had therefore been asked whether Canada would prohibit the shipment to Cuba of (a) machinery and parts for oil refineries, (b) machinery and parts for sugar refineries and (c) truck parts. Mr. Fleming said that truck parts might be classified as strategic items, but not the other two items.
    During the course of this long informal discussion the Canadian Ministers had emphasized the fact that public opinion in this country would take violent exception to any step that might imply that U.S. laws were being granted an extraterritorial application in this country. The bunkering of the ships chartered to carry Canadian wheat to China had been quoted as an illustration. To guard against the danger that the U.S. representatives might have regarded the Canadian Ministers as having been un-cooperative or unrealistic at the informal meeting, Mr. Hees and Mr. Fleming had met again on March 14th with Mr. Dillon and Mr. Ball. The Canadian Ministers had then said that, if the U.S. should formally request Canada to ban shipments of the three kinds of goods specified, any such request would receive serious consideration and that Canada would wish to act as a good neighbour and ally. Meanwhile the question would receive preliminary study by the government of Canada. The Ministers had said that the banning of shipments of truck parts would probably not raise any serious problems. Investigation might show that Canada had never exported machinery for oil or sugar refineries to Cuba.
    The Canadian Ministers had emphasized that Canada would not be justified in imposing an embargo on trade with Communist Cuba, because Canada was selling grain to Communist China. Canada was not a party to the Monroe Doctrine. Canadian assets in Cuba, unlike those of the U.S., had not been confiscated. Therefore, the only ground for the banning of shipments of the machinery items would be the fact that Canada and the U.S. were allies and close neighbours.
    As planned, the Minister of Agriculture and the U.S. Secretary of Agriculture had discussed, informally, the proposed sale of grain by Canada to Communist China. No objection or adverse comment had been made by the U.S. Minister. Mr. Hamilton had also invited the U.S. Secretaries of Agriculture and of the Interior to visit Canada at an early date, and these invitations would probably be accepted.
  2. The Minister of Trade and Commerce pointed out that the Prime Minister had announced that Canada would trade with Cuba in non-strategic goods, and therefore an embargo on shipments of these kinds of machinery from Canada to Cuba would represent a reversal of policy. At the meetings he had gained the impression that the U.S. administration had expected the government of Canada to follow their lead almost automatically, and that the independence shown by the Canadian Ministers had surprised them.
  3. During the brief discussion the following points were raised:
    1. An armed intervention by the U.S. in Cuba would have the gravest international implications. It would enable the Communist nations to claim that the U.S. was bullying a small state in Latin America. Such a situation might even provoke a world war.
    2. Some Ministers said that the larger Latin American States did not in fact sympathize with U.S. policy in Cuba.
    3. No information had been received to confirm the statement that Cuba was being converted into a Soviet missile base.
  4. The Cabinet noted the oral reports of Ministers on discussions at meetings of the Joint Canada-U.S. Committee on Trade and Economic Matters held in Washington on March 13th and 14th.
    . . .

Section B - Class or Kind

400. DEA/3300-40

Secretary of State for External Affairs to Ambassador in United States

TELEGRAM E-60 Ottawa, January 17, 1961
CONFIDENTIAL. OPIMMEDIATE.
Repeat for Information: London, GATT Tariff Del, Geneva, NATO Paris, Brussels, Paris, Bonn, Wellington, Canberra, Tokyo.

Class or Kind Discussions with Us Officials

The following is a summary of the main points that emerged in the discussions between Canadian and US officials held in Ottawa January 10 and 11 on the changes in the class or kind provisions of the Canadian Customs Tariff.Footnote 50 A more detailed account of these meetings will be sent by bag to missions directly concerned.

  1. U.S. officials confirmed that the class or kind amendments had caused concern in several U.S. agencies; they argued that the amendments would have a substantial protectionist effect, that they impaired tariff concessions negotiated by Canada with the U.S. and that they could not be reconciled with Article X.3 of the GATT.
  2. Discussions focussed on three issues:
    1. Canada’s freedom to amend the class or kind provisions of the Customs Tariff without renegotiating concessions;
    2. The definition of shelf goods and custom made goods and the scope of the trade affected by the amendments; and
    3. The Minister’s final determination and procedure for appeal.
  3. Canadian officials explained (in the terms set out in the budget speech) that the purpose of the amendments was to clarify the meaning of the words “class or kind” for the purpose of the Customs Tariff. They also pointed out that in recent years the absence of an adequate definition had given rise to increasing difficulty, delay and uncertainty in making class or kind determinations, both in respect of custom-made goods and so-called shelf goods. Since the early 1950’s certain Tariff Board and court decisions had tended to narrow the fairly broad interpretation which previously had been applied. The present amendments were intended to provide a workable definition which would restore and confirm the historic interpretation. It was considered necessary to introduce a workable definition if “class or kind” items were to be retained in the Canadian tariff and it was suggested that the retention of low-rate “class or kind not made” items was in the mutual interest of Canada and her trading partners.
  4. With regards to the US suggestion that Canada should have conducted negotiations under Article XXVIII before introducing the new definition of class or kind, Canadian officials pointed out that this would have involved renegotiating something which had never been negotiated. Neither the language of Section 6(10) nor that of the 1936 Order in Council was bound. Moreover, the effect of the new provisions was not to depart from administrative interpretations and practices which had prevailed when the GATT was negotiated, but rather to restore and confirm them. It was pointed out that any limitations which had been placed on the right of importers to appeal class or kind decisions to the Tariff Board applied only to a limited area within which the exercise of some administrative discretion was in the nature of the case necessary. Moreover, in such cases the final arbiter would be a Cabinet Minister, accountable to Parliament, who could be held fully responsible for his actions. With regard to the scope of the trade potentially affected, it should be kept in mind that any tariff rate effects would be confined to border-line cases within the 75 or so “class or kind” items. The relationship between class or kind determinations and the application of dumping duties was also discussed.
  5. While no assurances were given beyond those contained in the supplementary budget speech, it is our impression that the explanations which were given reduced to a considerable extent the concerns felt by the US officials. We would hope that following the conversations their disposition would be to adopt a wait and see attitude, and to advise their Government against bringing the issue before the GATT on narrow legalistic grounds unless and until experience with the operation of the amendments should provide them with a basis for claiming actual damage to their trade interests.
  6. It was agreed that there would be no publicity about these discussions but that in reply to questions we might confirm that they had taken place as part of the normal and frequent consultations between the two countries on economic and trade matters.
  7. For London: We were also approached by the UK High Commissioner’s Office. The UK noted the changes in the class or kind provisions of the Customs Tariff and reserved their position particularly with respect to GATT Article 2 until practical effects became clear. We shall acknowledge UK message and send copy to you.

401. DEA/3300-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 181 Washington, January 17, 1961
CONFIDENTIAL. PRIORITY.
Repeat for Information: GATT Tariff Del (Priority), T&C Ottawa, Finance Ottawa, National Revenue Ottawa (Priority) from Ottawa.

Weiss, Deputy Director, Office of International Trade, State Department, told us yesterday that while the Ottawa talks had been most useful they had allayed only some of the lesser USA concerns and that their major problems remained. He said USA authorities continued to feel that we were changing concessions by redefinition and that they had a clear Article XXIII case. They were concerned not repeat not only with the effect on USA exports to Canada but also with the precedent for other countries. He said that according to present plans we could expect official representations in the near future and that these would probably (a) seek written confirmation of a number of points made by Canadian officials at the Ottawa talks and (b) propose that Canada enter into renegotiations under Article XXVIII. In this connection Weiss compared the principles raised by the Canadian measures to those involved in USA Congress redefinition of waterproof fabrics and rubber soled footwear in 1954. These items were renegotiated by USA. He commented that the proposed reaction was mild compared with some of the alternatives being urged by other agencies.

  1. We shall try to follow up and discuss USA reactions informally in more detail on the basis of your record of the Ottawa talks.

402. DEA/3300-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 228 Washington, January 19, 1961
CONFIDENTIAL. PRIORITY.
Repeat for Information: GATT Tariff Del (Priority), T&C Ottawa, Finance Ottawa (Priority) from Ottawa.

Class or Kind

I called today on Martin, Assistant Secretary Economic Affairs, State Department, at his request, accompanied by Schwarzmann, and was handed the following note: “The Secretary of State presents his compliments to His Excellency the Ambassador of Canada and has the honor to refer to the discussions held at Ottawa on January 10 and 11 between officials representing the Governments of USA and Canada concerning proposed revisions in the Canadian tariff law with respect to the treatment of imports of items “of a class or kind not repeat not made in Canada.” As was made clear in the course of those discussion, the Government of USA is deeply concerned over the potential effects of the proposed changes.
During these discussions, representatives of the Canadian Government presented the following interpretations of certain basic features of the proposed tariff revisions: (1) that the new category of “custom made goods” is, in fact, limited to items which are “one of a kind” such as electrical generators or steam turbines and does not repeat not include the mass production, according to specifications, of goods for resale, (2) that “available facilities” in Canada means the existence there or production capacity physically in being, of skilled labor and know how, and that the facilities would be ready to begin production promptly and would be able to turn out the goods within reasonable delivery dates, and (3) that a right of appeal to the Canadian Tariff Board would exist in relation to the interpretation and application of the newly introduced concept of “approximately of a class or kind not repeat not made in Canada” and the concept of “domestic production” in applying the 10 percent rule to so-called shelf goods and any limitations on the right of appeal would be strictly limited to the three matters specified in the proposed legislation. USA Government would appreciate confirmation that these interpretations will be considered as binding upon the Government of Canada in implementing these proposals.
Despite these understandings as to scope, it is nevertheless believed that the proposed changes with respect to “approximately” and “available facilities” constitute a narrowing of the scope of concessions under the General Agreement on Tariffs and Trade in violation of the obligations of Canada under Article II of that agreement unless the modification of such concessions is effected pursuant to some procedure under the agreement, presumably renegotiation under Article XXVIII. At the same time, these proposed changes will, in the view of USA Government, have a harmful impact upon USA trade with Canada and will seriously impair the concessions which USA obtained from Canada through negotiations.
In addition, the denial of a right of appeal to an independent body, presumably the Canadian Tariff Board, with respect to certain basic determinations required in implementing the “class or kind” section of the Canadian Tariff Law raises important legal questions as to consistency with Canada’s obligations under paragraph 3 of Article X of the GATT. These basic determinations relate to: (1) “normal Canadian consumption” of goods, (2) what constitutes “goods custom made to specifications,” and (3) “whether adequate facilities exist in Canada for the economic production of such goods (i.e. custom made goods) within a reasonable period of time.”
In light of the foregoing, USA Government urges that the Government of Canada renegotiate these concessions under appropriate GATT procedures. It is the view of USA Government that failure to do so would not repeat not only be viewed with great concern in USA, but would also have unfortunate effects on the future application of the GATT schedules of other Contracting Parties.”

[A.D.P.] HEENEY

403. DEA/3300-40

Secretary of State for External Affairs to Ambassador in United States

TELEGRAM E-875 Ottawa, May 1, 1961
CONFIDENTIAL. OPIMMEDIATE.

Class or Kind

Following is text of a reply to State Department’s Note January 19. We should be grateful if you would arrange to deliver this Note today. Text Begins:

Ambassador of Canada presents his compliments to Secretary of State and has honour to refer to former Secretary of State’s note of January 19 concerning proposed revisions in Canadian Customs Tariff with respect to treatment of imports of items of a class or kind not repeat not made in Canada.

  1. It will be recalled that these amendments were discussed briefly with USA officials prior to their introduction in House of Commons, discussed at more length in Ottawa on January 10 and 11, and discussed at Cabinet level in meeting of Joint Committee on Trade and Economic Affairs on March 13 and 14.
  2. In light of discussions which took place on January 10 and 11 USA note January 19 sought confirmation of following interpretations of three basic features of revised provisions: (1) that new category of “custom made goods” is in fact limited to items which are “one of a kind” such as electrical generators or steam turbines and does not repeat not include mass production according to specifications of goods for resale (2) that “available facilities” in Canada means existence there of production capacity physically in being of skilled labor and know how and that facilities would be ready to begin production promptly and would be able to turn out goods within reasonable delivery dates and (3) that a right of appeal to Canadian Tariff Board would exist in relation to interpretation and application of newly introduced concept of “approximately of a class or kind not repeat not made in Canada” and concept of “domestic production” in applying 10 percent rule to so-called shelf goods and any limitations on right of appeal would be strictly limited to three matters specified in proposed legislation. The note asked for confirmation “that these interpretations will be considered as binding upon Government of Canada in implementing these proposals.”
  3. Canadian Government confirms that understanding of USA Government on these three points is essentially correct. By way of further elaboration following may be helpful. Under point (1) it might be explained that so-called “custom-made” goods are limited to articles made to special specification for use of individual purchaser and would include such apparatus as electric steam turbo generator sets atomic reactors turbines etc. This category would not repeat not include broad range of goods made to manufacturer’s specifications and regularly offered for sale through catalogues price lists or from stock. As regards point (2), legislation requires that there be in existence in Canada adequate facilities for production of goods within a reasonable period of time. To comply with this requirement it is considered that there must be in Canada one or more manufacturers who have necessary installed manufacturing or producing equipment coupled with technical knowledge and personnel required to fabricate goods. A further requisite is that production of goods must be within a reasonable period of time. In this connection regard must be had for particular goods involved and standards established by good business practice in particular field. In matter of point (3) under new legislation regular appeal procedure to Tariff Board is available in respect of other than “custom-made” goods as to (a) whether imported goods are of “approximately” same class or kind as goods made in Canada (b) determination of amount of Canadian production and (c) whether or not repeat not quantity manufactured in Canada does in fact represent a minimum of 10 percent of normal Canadian consumption. Limitations on right of appeal are confined to two areas mentioned in legislation viz., normal Canadian consumption of goods other than goods custom-made to specifications and secondly whether goods are custom-made to specifications and whether adequate facilities exist in Canada for economic production of such goods within a reasonable period of time.
  4. While these interpretations are in accordance with Canadian Government’s understanding of meaning and intent of revised law and in accordance with the way it intends to administer it it should be noted that these interpretations could themselves be affected by judicial review in certain respects. For this reason and in light of fact that language of “class or kind” provisions in custom tariff has never been bound Canadian Government could not repeat not undertake that these interpretations are considered as “binding” upon itself.
  5. Canadian Government cannot repeat not agree that proposed changes constitute a narrowing of scope of concessions under General Agreement on Tariffs and Trade in violation of Article II. Provisions of Customs Tariff concerning meaning of “class or kind” were never bound nor was the Order-in-Council of July 2-36 which established the “ten percent rule.”
  6. From statements made by government spokesmen at time “class or kind” provisions were introduced into tariff it is clear that phrase “class or kind” was intended to have a reasonably broad interpretation i.e. that it was not repeat not intended that imported goods would be classified as “not repeat not made in Canada” simply because their size style or quality differed somewhat from that of similar products made in Canada. This was interpretation applied consistently throughout nineteen-thirties and nineteen-forties. Very few departmental rulings relating to “class or kind” were appealed during that period and such appeals as were made were almost invariably unsuccessful. This was the situation prevailing when bindings were accorded to USA on “class or kind” items under general agreement. It must be presumed that at that time USA was aware of and in evaluating these concessions took into account way in which these tariff provisions were then administered.
  7. From about 1950 there has been a great deal of litigation concerning “class or kind” rulings and outcome of decisions has been considerable narrowing of interpretation of phrase “of a class or kind made in Canada.” Purpose of amendment in this respect is simply to restore and confirm practice which prevailed at time of relevant negotiations under general agreement.
  8. USA note also raised questions about provision that decision of Minister shall be final with respect to following matters (a) normal Canadian consumption and (b) whether goods are custom-made to specifications and whether adequate facilities exist in Canada for economic production of such goods within a reasonable period of time.
  9. On matter of “normal Canadian consumption” object of making Minister’s determination final is to permit final rulings to be made within a reasonable period of time so that interested parties may plan for future with reasonable certainty. Necessity for this provision arose out of inadequacy of official statistics. In some instances official published statistics available are not repeat not broken down in sufficient detail to provide information required for determination of normal Canadian consumption. In absence of official published statistics customs authorities must turn to Canadian and foreign suppliers to obtain necessary information. Figures obtained in this fashion are usually of a confidential nature which Tariff Board is reluctant to use since they cannot repeat not be published. In many cases adequate published statistics on Canadian production exports and imports are available and in such cases calculation of domestic consumption on basis of published figures would not repeat not be a matter for litigation. Area of ministerial discretion therefore will in practice be a limited one. In matter of custom-made goods need for final determination by Minister arises out of impossibility of applying 10 percent rule to items which are in reality unique. In this connection it should be recalled that Tariff Board had itself drawn attention to inadequacy of 10 percent rule in respect of custom-made items.
  10. Effect of these provisions is to confine right of appeal to all questions of law and such questions of fact as are susceptible to judicial review. Experience has shown that litigation such questions of fact as are not repeat not really susceptible to judicial review gives rise to undue delays and continuing uncertainties. Effect is not repeat not to promote trade but to frustrate it.
  11. It should be noted that Bill now provides that any decisions of Minister in respect of these matters are to be published forthwith in Canada Gazette.
  12. USA Government has urged that Government of Canada renegotiate under appropriate GATT procedures concessions on items of a class or kind not repeat not made in Canada. It will be clear from what has been said earlier in this note that Canadian Government does not repeat not regard itself as under any obligation to renegotiate these tariff items. No repeat no change in wording of concessions is proposed and changes in administration of provisions of Customs Tariff in respect of “class or kind” are designed to restore interpretation and practice which prevailed at time these concessions were negotiated.

404. DEA/3300-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 1399 Washington, May 2, 1961
CONFIDENTIAL. OPIMMEDIATE.
Reference: Your Tel E-875 May 1.
Repeat for Information: T&C Ottawa, Finance Ottawa, National Revenue Ottawa (OpImmediate) from Ottawa, Tariff Del Geneva (OpImmediate).

Class or Kind

We presented yesterday the Canadian reply as a numbered note to Martin, Assistant Secretary for Economic Affairs, State Department.

  1. Martin commented that he saw no repeat no reference in this note to the right of appeal with regard to the concept of “available facilities in Canada.” He said USA authorities were particularly concerned with the possible interpretation that could be given to this concept which was a new element in Canadian legislation and was not repeat not envisaged by USA at the time of negotiation.
  2. Speaking more generally, Martin said that USA would probably have to maintain its stand that compensation, if only of a token character, was required. He said the Canadian legislation raised issues of principle since it changed the nature of concessions through administrative action. He thought it would be a dangerous precedent in GATT if our contention, that such administrative changes did not repeat not require negotiation, were allowed to go unchallenged. He suggested that Canada should share the USA concerns over the possible use that could be made of this precedent by other countries.
  3. Martin added that in the absence of any clarification of USA position, in the course of the Parliamentary debate in Ottawa, USA would have to issue a public statement making it clear that they had requested compensation from Canada. USA statement would be prepared in the light of the Canadian reply and we would be given advance notice.

405. DEA/3300-40

Secretary of State for External Affairs to Ambassador in United States

TELEGRAM G-206 Ottawa, May 5, 1961
CONFIDENTIAL. OPIMMEDIATE.
Reference: Our Tel E-875 May 1.
Repeat for Information: London, GATT Tariff Del.

Class or Kind

After discussion with Willis Armstrong of USA Embassy we would propose that the note which you submitted on basis of above telegram should be withdrawn and a revised version should be submitted in its place. We believe that USA authorities will appreciate changes which are being made. You might discuss with State Department whether they would wish the new note to be given the date of the original or whether it should contain date on which it is re-submitted. We would suggest that this substitution of notes should not repeat not take place before May 9 to 10.

  1. The following are changes which you should make in the text contained in telegram E-875:
    1. Confidential classification should be removed but State Department should be informed that we have no repeat no intention of publishing text and in keeping with normal practice would expect them to consult us if at any time they consider publication to be necessary.
    2. Revise paragraph 2 to read: “It will be recalled that these amendments were discussed on several occasions with USA officials, including discussions in Ottawa on January 10 and 11, and were discussed at Cabinet level in meeting of Joint Committee on Trade and Economic Affairs on March 13 and 14.”
    3. In paragraph 5 delete all of the last sentence beginning with the words “for this reason” and ending with “upon itself.”

406. DEA/3300-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 1506 Washington, May 10, 1961

CONFIDENTIAL. PRIORITY.
Reference: Your Tel G-206 May 5.
Repeat for Information: London, Tariff Del (Priority), T&C Ottawa, Finance Ottawa, National Revenue Ottawa (Priority) from Ottawa.

Class or Kind

We have today withdrawn the earlier note and given State Department the revised note as per your instructions. The revised note carries the same number and date (May 1) and also the same State Department internal registry number.

SECTION C

Royal Commission on Publications

407. D.M.F./Vol. 102

Memorandum from Minister of Finance to Prime Minister

SECRET [Ottawa], June 7, 1961

Royal Commission on Publications Fiscal Proposals

  1. The general nature of the ground explored by the Commission is by now familiar. The Commission finds that Canadian magazines are in serious trouble; their number has decreased over the years and the net mortality continues.
  2. The Commission recognize that magazines in other countries are also facing difficulties, chiefly because of the introduction of television. However, in Canada these normal difficulties are severely aggravated by what the Commission considers to be “unfair” competition from abroad, i.e. from the United States.
  3. This unfair competition takes a number of forms. The most important species involves the use, by U.S. publishers, of their own mass-circulation magazines as a means of diverting to themselves Canadian advertising expenditures that might normally be made in Canada. Thus U.S. publishers, using their own magazines as the basic medium, either make slight modifications in the form of “Canadian editions,” or “special editions” or “split runs” or else they use their own normal edition unchanged but with some sort of special advertising insert. In any of these cases, certain advertisements are primarily directed at the Canadian market, while the magazine itself is, largely or entirely, directed towards and its editorial and other costs are paid for by the U.S. market. Hence the unfair competition for Canadian magazines, which have to bear their own costs in full. Another form of unfair competition arises from the circulation-wars which break out between the U.S. magazine publishers and “overflow” into Canada. Here again, the general costs of the massive, high pressure U.S. sales campaigns, in particular the advertising circulars which are becoming more and more expensive, are borne by the U.S. market and it is difficult for Canadian publishers to compete against the overflow.
  4. The Commission argues that the maintenance of truly Canadian magazines is very much in the Canadian national interest having regard to both national identity and cohesion and also to the development of the capacities of Canadian authors.
  5. This leads the Commission to consider ways of assisting Canadian magazines. Government subsidization in any form is rejected. The basic conclusion of the Report is as follows:
    “The Commission concluded that a genuinely Canadian periodical press can only exist by assuring for Canadian publications, under equitable conditions, a fair share of domestic advertising.”
    In order to assure to Canadian publications a fair share of Canadian advertising, the Commission makes two main recommendations:
    1. That the deduction from income by a taxpayer of expenditures incurred for advertising directed at the Canadian market in a foreign periodical wherever printed be disallowed; and
    2. That the entry into Canada from abroad of a periodical containing Canadian domestic advertising be excluded under Schedule ‘C’ of the Customs Act.
  6. The Commission also makes a number of less important recommendations. For convenience, the Commission’s own summary of their recommendations is reproduced and attached hereto.† It will be noted that both the main recommendations (as quoted above) are fiscal in nature, one involving the Income Tax Act and the other the Customs Tariff. In addition, two of the minor recommendations involve the Customs Tariff, viz two recommendations relating to Tariff Item 178, the first relating to advertising circulars and the second relating to catalogues.
  7. In passing, it should be remarked that while most of the recommendations seem to flow in one way or another from the analyses and conclusions of the Report, a few of them seem to be quite disconnected. The recommendation regarding catalogues would seem to be an example of the latter type of recommendation. Three months ago the Chairman ceased to play an active role and one of the other Commissioners in effect “took over.” This fact may explain some of the anomalies and discontinuities in the Report.
    Scope of Government Action.
  8. If the Government is going to give support to the conclusions and recommendations of the Royal Commission, it will have to implement the two main recommendations, whether in the precise form proposed or in some modified form. However, before proceeding to an analysis of these and other recommendations there is an important point of substance to be considered.
  9. The basic theme, developed early in the Report, is that, if a nation’s media of communications are to be healthy and independent of Government, the nation’s advertising expenditures must supply the necessary financial support to these media. It follows from this that the nation’s advertising expenditures cannot be allowed to flow abroad in large quantities.
  10. Now this philosophy is general; it applies to the support of all media of communication, and not merely to magazines. And it is well known that there are other types of Canadian advertising, in addition to magazine advertising, that flow abroad in large quantities. By far the most important is the Canadian television advertising that is placed with U.S. stations near the border. There is also an appreciable flow of Canadian advertising expenditures devoted to the purchase of circulars of many sorts which Canadian firms, or Canadian-American firms, buy in the United States and cause to be mailed from the United States into Canada. In many cases, we are informed, such circulars are rather like “split run” magazines in that the circular is basically designed to advertise a product in the U.S. market and, with slight changes, is adapted to the Canadian market at a cost far below what would be necessary to produce the circular in Canada for the relatively small quantities needed to cover the Canadian market.
  11. If the Government were to take action to prevent or restrict those Canadian advertising expenditures now flowing into U.S. television stations, there is a general presumption that some Canadian media of communication, no doubt including television, would benefit. But there is no presumption that Canadian magazines would benefit appreciably. Nor is there anything specific in the Report, as it has emerged, that would provide a basis for action affecting Canadian television expenditures placed abroad; (a memorandum providing extensive information on this matter was prepared by the Commission staff but was not included in the Report or Appendices.) On the other hand the Report does contain a recommendation that would curtail Canadian expenditures on circulars printed abroad; this is considered below.
  12. Thus, the Government seems to be confronted by two basic decisions rather than one: Should the basic recommendations of the Report be carried out in relation to Canadian periodicals? If so, should these recommendations be broadened to affect Canadian advertising expenditures relating to other media besides periodicals, specifically broadcasting and circulars, or should they be confined to periodicals?
    Recommendations Regarding Income Tax.
  13. The Recommendation regarding income tax is, in essence, quite straightforward: that expenditures by Canadians on advertising in “foreign” magazines should not be a deductible expense for tax purposes insofar as that advertising is directed, not at the foreign market, but at the Canadian domestic market.
  14. Difficulties, of definition and administration arise at two points. The first is: What is a “foreign” magazine from which Canadian advertising outlays are to be diverted? The answer given by the Commission is that a “foreign magazine” is any magazine that is not Canadian, and a Canadian magazine is defined as follows:
    “A Canadian periodical is one published in Canada, owned either by Canadian citizens, or, if a corporation, by a company incorporated under the laws of Canada or of one of its provinces, and which is controlled and directed by Canadian citizens and is not a licensee of or otherwise substantially the same as a periodical owned or controlled outside Canada.”
  15. It is quite clear that the “Canadian” editions of U.S. magazines are to be classified as “foreign,” whether printed in Canada (Reader’s Digest and its French-language counterpart Sélection) or printed in the United States (Time and various others). It is apparently the expectation and intention of the Commission that such editions should stop publication and that Canadians should revert to reading the ordinary U.S. editions; the incidence of the income tax proposal would be such as to make the placing of Canadian advertising in all “foreign” media prohibitively expensive for the Canadian advertiser.
    1. The cases in which it is not the Canadian advertiser that pays for the advertisement, but his U.S. “parent firm,” are to be dealt with by the tariff amendments discussed below.
    2. The definition of “a Canadian periodical” is now being studied by the Department of National Revenue from the point of view of administration. The proposed line of distinction between these and foreign periodicals is by no means devoid of difficulties. If, for example, a magazine is owned by a corporation, the citizenship of the shareholders is to be ascertained. If the controlling shareholders are Canadian individuals, the magazine may be classified as Canadian. According to the literal text of the criteria put forward by the Commission, it appears that if a publishing company is controlled by another company, the magazine could not be qualified as Canadian. If the Toronto Star is a corporation, as we suppose it is, the effect of the definition in its present form is to render the newspaper foreign by reason of its being owned by a foundation rather than by Canadian citizens. The criteria, therefore, require clarification. It is clear that whenever a periodical is published by a corporation that citizenship of the shareholders is to be ascertained as well as the citizenship of the directors. The Income Tax Act as it stands is based upon residence but no detail in it is based upon citizenship. Consideration might be given to whether the Canadian character of a publication could be based to the satisfaction of the Government upon the established and familiar concept of the residence of shareholders and directors rather than upon their citizenship. However these points are resolved, the Department of National Revenue (Taxation) would presumably be required to maintain at all times a current list of Canadian magazines. Magazines not included in this list would be regarded as foreign.
  16. With respect to advertising placed in “foreign” magazines by or on behalf of Canadians, determinations are to be made in each case as to whether it is directed at the Canadian consumer or at the foreign consumer. It is clearly essential that some types of Canadian advertising should continue without penalty to be placed in foreign periodicals, e.g. advertising of Canadian export products and advertising designed to bring tourists to this country. The distinguishing feature of such advertising is that it is directed at the foreign consumer, not the Canadian. In many cases, this determination may be easy and obvious. In other cases, however, it may be more difficult. Nice points are undoubtedly capable of being resolved in the courts. It should be borne in mind, however, that U.S. publishers in their annoyance will choose cases to embarrass the Government. This Department, in collaboration with the Department of National Revenue (Customs and Excise) and the staff of the Commission, has developed an alternative approach to this present point which is set forth in paragraph 20 below in connection with tariff proposals. The alternative form can be defended and administered, but it does not provide for complete certainty, especially for purposes of the Income Tax Act.
    1. Advertising agents and their clients will wish to know in advance whether particular advertising programmes and particular advertisements will be regarded for tax purposes as being directed at the Canadian market. They will not wish to spend their money on advertising which might be disallowed as an expense at a later date. It will be appropriate, therefore, for the Department of National Revenue (Taxation) to undertake to certify in advance. Hitherto that Department has opposed advance rulings and may regard the current proposals as the thin edge of a wedge.
    2. Only a small proportion of corporation income tax returns are assessed in each year. The Department of National Revenue will be unable, therefore, to assess a very large proportion of advertising expenditures to see whether they were in fact paid to foreign periodicals and, if so, whether the advertisements were in fact directed at the Canadian market. To some extent this lessens the effectiveness of the proposal but does not destroy it as long as the average taxpayer believes there is a good chance that he may be assessed.
    3. In effect, the Commission has recommended that certain expenditures on advertising should be disallowed for reasons that are irrelevant to the normal determination of income. This is not of itself necessarily objectionable but it is novel. There is no exact precedent in the Income Tax Act. Certain tax concessions have been made available in connection with work undertaken in Canada, for example, on new mines or on scientific research, but the current proposal is a little bit different. From the legal point of view, new ground is being broken. There is some danger that the courts may decide the new scheme to pertain to something other than taxation.
  17. However, before leaving the matter of income tax, it should be pointed out that it is in this field in particular that the Government must decide whether its actions are to relate specifically to magazines or, more broadly, to other media as well. The non-deductibility of expenditures on advertising in “foreign” media can be confined to magazines or extended to others, including television. In this connection, however, it should be noted that the television problem differs from the magazine problem in at least one important respect. If a U.S. parent places Canadian-directed advertising in a magazine printed in U.S.A., it is possible to prevent that magazine from entering Canada; but there is no way of preventing U.S.-paid but Canadian-directed advertising from being broadcast into Canada from U.S. television stations near the border. (We are not, presumably, going to consider “jamming” the broadcasts!)
  18. This consideration suggests that, at least for the moment, Government action, in the income tax field at least, should be confined to magazine advertising. The Government may, however, wish to pursue studies of the practicability of broader action in this field.
    Recommendations Regarding the Tariff.
  19. There are three recommendations regarding tariffs and imports; one regarding periodicals in the form of special editions, or split-runs, or carrying Canadian-directed coupons, inserts, etc.; a second regarding advertising circulars mailed into Canada from abroad; and a third regarding catalogues. In regard to the first, the Commission recommends an outright ban; in regard to the second and possibly the third the Commission recommends the imposition of substantial, although not prohibitive duties on material that is now entering Canada duty-free.
    Imports of Periodicals Carrying “Canadian” Advertising.
  20. If it is decided to place a ban on imports of split-runs, Canadian editions, etc., this could be implemented by the introduction into Schedule ‘C’ (the prohibited list) of the Canadian Customs Tariff an item in the following sense:
    Periodicals which, under Regulations prescribed by the Governor-in-Council, have been found to contain advertising which indicates the availability of a product or service in Canada, except where the reference to availability in Canada is primarily (or principally) directed to consumers outside Canada. This item shall come into force on Proclamation.
  21. The proposed regulations would spell out in some detail the interpretation that would be applied by the Department of National Revenue to such phrases as “availability in Canada” and “primarily (or principally) directed to consumers outside Canada.” They would also provide for notification to a foreign publisher as soon as apparently illegal advertising in one of his issues came to the attention of the Department of National Revenue. Further, the regulations would provide for a reasonable period of time (during which the publisher would no doubt come to Ottawa for discussion and clarification) before a formal finding of illegality was reached and the actual ban imposed.
  22. Provision for such regulations seems to be necessary because legal provision for an outright ban, without elasticity, could not be administered without causing serious resentment both in Canada and abroad. Periodicals, being by nature “perishable” as far as the reader is concerned, cannot be held up at customs’ ports while local appraisers read all the advertisements and form judgements whether or not their advertising content conforms with the detailed provisions of the proposed law. Canadian subscribers, as well as foreign publishers, would be up in arms. The major U.S. publishers will undoubtedly attempt, once the law is enacted, to conform to it; the full weight of the ban should not be imposed because of accidental, temporary or sporadic infringement. Advertising Circulars.
  23. So much for certain imports of periodicals at present coming into Canada under tariff Item 184a. Turning to Item 178, let us consider first the imports of advertising circulars. These at present enter Canada free of duty under the fifth paragraph which reads as follows:
    “Advertising and printed matter, whether imported by mail or otherwise, when in individual packages valued at not more than $1.00 each and when not imported for sale or in a manner designed to evade payment of customs duties, shall be exempt from customs duty when produced in countries entitled to the British Preferential or the Most-Favoured-Nation Tariff.”
  24. The Report recommends the complete deletion of this paragraph. If that were done, all imports at present covered by it, and weighing not more than one ounce each, would become dutiable, prepayable by customs duty stamps, at 1 cent (B.P.) or 2 cents (M.F.N.).
  25. If the Recommendation were adopted the new duties would affect the following types of circular:
    1. Circulars promoting Canadian subscriptions to “foreign” publications;
    2. Circulars printed abroad but carrying advertising of goods or services to be sold within Canada; and
    3. Circulars offering to Canadians goods or services available abroad.
  26. There is nothing in the Report which supports any action in relation to class (iii) above, and it is generally desirable that Canadians, whether individuals or businesses, should be aware of goods and services that can be bought abroad. (The goods, if imported into Canada, would of course be subject to the tariff.) Therefore, it is proposed that this paragraph should not be deleted in its entirety.
  27. The question remains whether this paragraph permitting free entry should be amended so that it ceases to apply to (i) or (ii) or both. The Report argues strongly in favour of some protection for Canadian publishers against the intensive circulation-wars that are so frequently waged by big U.S. publishing houses. The amendment relating to (i) above would be defensible on these grounds, and it fits in with an attempt to give support to Canadian magazines.
  28. The amendment relating to item (ii), on the other hand, does not relate to magazines; it flows from the general philosophy that Canadian advertising ought, in general, to be available to support Canadian media. This argument is not too convincing in this particular case. If a tariff is applied, and it becomes too expensive to print circulars in the United States, the circulars will probably be printed in Canada. This gives protection to the Canadian printing trades, but does not in any direct way support “media of communication in Canada.” Accordingly, the argument for amendment relating to (ii) seems far less strong than that relating to (i).
  29. If either or both amendments were to be introduced the wording of the fifth paragraph of Item 178 would be changed by adding either or both of the groups of words underlined below and identified by the relevant numerals:
    Advertising and printed matter, (ii) other than printed matter specially designed to promote the sale of goods or services by any person in Canada or (i) designed to promote the sale of periodicals, whether imported by mail or otherwise….
    1. Department of National Revenue (Taxation) are examining the administrative problems involved in amending the fifth paragraph of Item 178 in either or both the ways suggested. It may well be that they will find it administratively impracticable to split the paragraph. In that case, the Government would be faced by a straight choice between retaining or deleting the whole paragraph. However, for the time being it is assumed that the paragraph can be split.
      Catalogues
  30. The Report also contains a recommendation:
    “That Catalogues entering Canada from abroad be subject to the same taxes and duties as other printed advertising matter.”
    The purpose of this recommendation is not clear. It can be interpreted simply as an exhortation that National Revenue should enforce the law more rigorously. It may be that catalogues are improperly entering the country under the fifth paragraph of Item 178 (quoted above, with possible amendments) rather than under the much more limiting phraseology of the fourth paragraph which reads as follows:
    “Bona fide trade catalogues and price lists not specially designed to advertise the scale of goods by any person in Canada, when sent into Canada in single copies addressed to merchants therein, and not exceeding one copy to any merchant for his own use, but not for distribution, shall be exempt from customs duty under all Tariffs.”
  31. If the scope of the fifth paragraph of 178 were to be narrowed by amendments of the type proposed in the preceding section of this memorandum, it might serve as less of a loophole for catalogues. Apart from this, no action is recommended in relation to catalogues or seems to be advisable. The Commission’s recommendation seems to be largely, if not entirely, of a commercial nature and has little if anything to do with support of Canadian communications media.
    Commercial Obligations – The GATT
  32. The Tariff items under which magazines (184a), advertising circulars (178, final paragraph), and catalogues (178 penultimate paragraph), enter Canada are bound under the GATT. Further, the GATT specifically forbids the imposition of any new prohibitions on imports, e.g. any new additions to Schedule C of the Canadian Customs Tariff. Accordingly, if the Government decides to adopt the recommendations of the Commission in this field it will be necessary to consider how to square our action with our commercial obligations.
  33. Serious consideration has been given to this matter and it is suggested that, if the Government decides to adopt the tariff recommendations, it should take the stand that the purpose of its action is not commercial but is designed to support and protect that essential part of the national life or national identity which depends upon “communications” in the form of Canadian magazines. To cover such action the Government should propose, not a waiver in GATT because this has been used in the past generally for commercial purposes, but rather an appropriate amendment to the Articles of Agreement.
  34. The proposed amendment would constitute an addition to the items enumerated in Article XX. This item provides for “General Exceptions” to the trade rules laid down in other articles. The exceptions include measures “necessary to protect public morals … human, animal or plant life or health … importation or exportation of gold or silver … relating to the products of prison labour … imposed for the protection of national treasures of artistic, historic, or archaeological value …,” etc.
  35. We must assume that the United States will object to any action that infringes or impairs our existing obligations. How far they will go in opposing us bilaterally and in GATT remains to be seen. However, it would be unwise to underestimate the very strong pressures that the United States’ magazine industry can generate at short notice, both in Washington and also in Canada. Many Canadian advertising agencies are branches of U.S. firms.
  36. The United States would, no doubt, take the line Canada is bound to renegotiate the Tariff items which are being affected by our actions. This raises the question whether we could, if we so desired, offer “compensation.” Our import statistics do not separate imports of magazines from imports of newspapers; the recorded total runs about $28 million annually of which virtually all comes from the United States and the great bulk must consist of magazines. We do not know what proportion of these imported magazines carry “Canadian” advertising. However, a substantial part of these imports would continue. Magazines that do not carry “Canadian” advertising would not be affected; magazines that do at present carry such advertising would cease to do so and no doubt their circulation in Canada would be reduced over a period of time. But Time would continue to sell in Canada without its edition that carries Canadian advertising, and Saturday Evening Post would continue to sell without its “split runs” designed for Canada. Thus, it might be argued that this tariff item is very little impaired; but this is not the way it will look to the U.S. publishers or to the U.S. Government.
  37. As for the circulars imported under paragraph 5 of Item 178, we believe that the bulk of them are sales literature for U.S. magazines. But we do not really know anything about their value.
  38. The conclusion is that the “compensation” which the U.S. would demand would be far more than we could pay (unless the Government were willing to make tariff cuts that would really hurt other Canadian industries). How far the U.S. authorities would be willing to go in accepting the proposed amendment to Article XX as “cover” remains to be seen; but they will certainly be under the strongest pressure from their powerful magazine publishers to make things difficult for us.
    Concluding Remarks
  39. The decision whether or not the Government should, broadly speaking, support the recommendations of the O’Leary Commission is a political one in the widest sense of that word. The Commission argues that the matters with which it deals are close to the heart of Canadian national life. It establishes, beyond reasonable doubt, that the continuation of genuinely Canadian magazines is in jeopardy, primarily although not entirely because of “unfair” competition. It makes a case, that most Canadian readers will find compelling, for the part which Canadian magazines can and should play, politically and culturally, in the development and strengthening of our national identity. Finally, the Commission produces a most persuasive rationale for Government measures relating to private expenditures on advertising, i.e. that any country’s media of communication must depend, for their life-blood, on that country’s advertising expenditures, hence it is not only justifiable it is essential in the national interest to prevent any large-scale outflow of advertising expenditures into the support of the communications-media of other countries.
  40. On the other hand, the Government will no doubt want to consider very seriously whether “the game is worth the candle.” While the Commission argues most persuasively that the Government should follow a certain path, it points out virtually none of the difficulties and pitfalls. For, in effect, the Government is invited to take fiscal measures that would:
    1. Put an end to the “Canadian” editions of Reader’s Digest (in English and French), Time, and several other U.S. magazines. This will involve the closing down of the printing and publishing operations of Reader’s Digest in Montreal.
    2. the impression will inevitably (perhaps deliberately) be created that the Government is going to prevent Canadian readers from obtaining these magazines; (actually, it is only their “Canadian” editions that would be affected, and Canadian readers will continue to have access to the ordinary U.S. editions – and, presumably, a French-language edition of Reader’s Digest).
    3. The Government will also be taking action to interfere with and re-arrange the advertising programmes of the many Canadian advertisers who now make use of what the Commission calls “foreign” magazines. Neither the Canadian advertisers nor their advertising agencies will take kindly to this sort of Government intervention.
    4. Looking abroad (to the United States), all magazine publishers that at present carry, in one form or another, any advertising that is “primarily (or principally)” directed at the Canadian market, will also be affected by the Canadian Government action. A survey of magazine imports from U.S.A. last March indicates that some 50 of them, with Canadian circulations of more than 20,000, carried at least one Canadian-directed advertisement or insert, and some 75 of them with smaller Canadian circulations carried such advertisements.
      It is surely an understatement to say that the whole advertising community, in the United States as well as Canada, will view the proposed fiscal measures with considerable coolness. Moreover, while the arguments and recommendations of the Commission will commend themselves to many Canadians, they will unquestionably be misunderstood in the United States; in some quarters they will be deliberately perverted and misrepresented and, even in quarters where they are understood, that understanding may lack full conviction. Certainly it will be charged that this is only one more evidence of alleged Canadian protectionism and isolationism. The Government may expect prompt and strong representations from the U.S. Government.
  41. Another issue on which the Government will have to judge, is whether, having asked for and obtained the O’Leary Report, it would be practicable or acceptable for the Government to do little or nothing about it.
  42. Another question that might arise, in connection with the Commission’s Report is whether it was necessary, indeed wise, to propose the attainment of its highly desirable national objectives – the health and vigour of Canadian magazines – by means of financial or fiscal devices. For example, if special Canadian editions are to be stopped, would it not be preferable to try to accomplish this by direct legislation (adapted, of course, to take account of constitutional limitations) rather than accomplish it by an income tax device which makes them unprofitable in Canada and a tariff device that prevents importation? This is not really a financial matter and it is questionable whether a budget is an appropriate vehicle for its presentation to Parliament and the public.
  43. It may also be asked whether action on the main recommendations of the Report could or should be delayed. One possible reason for delay arises from the fact, explained above, that the main argument of the Report (about preventing advertising expenditures from flowing abroad) is not relevant to the magazine field only; it affects radio and television also. It would certainly not seem prudent to introduce legislation regarding advertising in the radio and television field without careful consideration, and perhaps some sort of enquiry; yet to legislate for magazines alone would seem to be less than adequate, particularly when it is recognized that certain Canadian advertisers who now find U.S. magazines to be convenient and effective vehicles, might well, if they were cut off from these, decide to advertise on U.S. television rather than in Canadian magazines.
  44. This year’s budget is of an unusual character and will have widespread and important economic effects. Both the public reception of it and the beneficial results which may be expected to flow from it will depend in large measure upon the publicity obtained at the time and during succeeding weeks. It would be quite unfortunate if the press, radio, television and the periodicals were to be preoccupied with their own interests in measures affecting advertising revenues rather than with the measures which will be at the heart of the budget.
  45. If action were postponed regarding the main recommendations affecting magazines, would implementation be easier or more difficult next year? The position of Canadian magazines would not be likely to deteriorate seriously in the meanwhile; the fact that the Report was under consideration would no doubt deter any U.S. publisher who was considering any major incursion into the Canadian market. However, the intervening period would be one in which Canadian and U.S. magazine publishers and groups in the advertising community, would be jockeying for position and bringing to bear on the Government all the various pressures that they could mobilize. It is predictable that the editorial content of the magazines (not to mention other publications) would be affected during the period of uncertainty.
  46. If the Government does decide to take action on the basis of the Report then it would seem to follow that it should accept the two main recommendations of the Report (adjusted to administrative requirements) and such other recommendations as are found on investigation to be practicable.
  47. It is recommended that any action in the fiscal field should, at this time, be limited to those tax and tariff measures that relate directly to periodicals, along the lines indicated above. This would exclude the extension of the income tax provision to affect television advertising, etc. It would also confine the amendment of Tariff Item 178, if administratively practicable, to that relating to magazines, excluding circulars of other types and also excluding catalogues.
  48. In addition, of course, the Government will no doubt consider the Recommendations in fields other than fiscal. Particular attention will need to be paid to the postal recommendations and also to the recommendation that “use of a combined rate should be prohibited by an amendment to the Combines Investigation Act.” The latter is a recommendation that is intended to give direct aid and comfort to certain Canadian publishers of French language magazines. It is, however, aimed directly against the practices of publishing houses that produce similar periodicals in French as well as English: the new French-language publications of MacLean-Hunter, and also Sélection du Reader’s Digest (if the latter were to survive the fiscal measures proposed elsewhere in the Report).
  49. The recommendations of the Commission pertain to three “operating” Departments, namely, the Post Office, National Revenue (Taxation) and National Revenue (Customs and Excise). If these recommendations are embodied in legislation it appears quite possible that the original purposes might become changed and distorted in the course of a few years. If the Government decides to implement the proposals, therefore, it might be sensible to consider whether to create a central direction for the continuing programme under an appropriate Minister and including one or more “policy” Departments.

[DONALD FLEMING]

408. D.M.F./Vol. 128

Memorandum from Under-Secretary of State for External Affairs to Prime Minister

CONFIDENTIAL [Ottawa], June 16, 1961

Report of the Royal Commission on Publications

Mr. Merchant, the United States Ambassador, called on me this afternoon concerning this report. He indicated that he was not calling as a result of any formal instructions from Washington, but had decided that he should make the call on his own initiative in view of the concern expressed by those who had been able to make a preliminary examination of the report in the State Department and at the Embassy here.

  1. Ambassador Merchant stated that, on a first examination, it appeared that the consequences of the recommendations in the Royal Commission’s report could be very serious for at least two substantial publications in which the United States was interested. He expressed the hope, therefore, that, before any action is taken on the recommendations, some time will be allowed to elapse to enable the United States authorities to study the report more thoroughly. He also hoped that any action would be delayed long enough to enable the United States to consult with, and explain their views to, the Canadian Government on any points of legitimate concern to the United States authorities.
  2. I told Ambassador Merchant that it was not, of course, possible for me to comment on the nature or timing of any action which the Government might decide to take. I promised, however, that his remarks would be brought to your notice and to the notice of the Minister of Finance.

N.A. ROBERTSON

409. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], June 19, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

The Budget; Report of Royal Commission on Publications

(Previous reference June 5)

  1. The Prime Minister said that Ministers among themselves had reviewed the budget proposals of the Minister of Finance and had reached substantial agreement, but that a question arising from the Report of the Royal Commission on Publications should be further discussed at this time.
    Some had said that the Reader’s Digest in Canada would be injured if the government should adopt the Commission’s recommendation that advertising expenditures in foreign periodicals be disallowed as deductions from income tax. On the other hand, the Reader’s Digest had been established in Canada in 1943. Over the years the company had paid very large dividends. At this time the magazine itself represented 65 per cent of the company’s business, the remainder coming from books and records. These percentages would probably be reversed within a year. The Montreal branch plant of the Digest imported its editorial matter without paying duty, and was competing inequitably with Canadian periodicals.
    In 1956, the former government had imposed a tax on advertising in foreign publications in Canada. The Reader’s Digest and Time magazine had thereupon raised their advertising rates, and therefore the effect of the tax had been that foreign publications received an increased share of the Canadian advertising dollar.
    The Report of the Royal Commission showed that the printing and publishing of magazines in Canada received less protection from the government than the corresponding publishing business of most other countries. The government would place itself in a difficult position if it should make a special law for the benefit of one company.
  2. During the discussion the following points were raised:
    1. The government had stated publicly that it would give a fair deal to foreign investors in Canada if they behaved like good citizens. The Reader’s Digest had spent about $30 million in Canada for wages, materials and other items. It had been a good company. A private person could become a Canadian citizen in five years, and this company had been operating in Canada for eighteen years. The company had several Canadian directors. If it should be treated in the same way as companies that made no effort to be good citizens, foreign investors in general might conclude that they would not have enough security to operate on a normal business basis in Canada.
    2. The report of the Royal Commission stated that Canadian periodicals should receive a fair share of Canadian advertising, but the recommendation on income tax might have the effect of giving them almost all of the Canadian advertising placed in magazines. Maclean Hunter publications already had 46 per cent of the domestic market, and acceptance of the Commission’s proposals might further strengthen that company’s dominant position as against smaller Canadian magazines.
    3. If the government should change the income tax position of advertisers in the Reader’s Digest, as proposed by the Commission, such advertisers would criticize the government for adversely influencing their business decisions. Many of the one million readers of the Digest would also criticize the government. In addition, the French edition of the Digest might be discontinued as a result.
    4. The Commission’s recommendation would likely have the effect of diverting the funds of Canadian advertisers away from the Canadian editions of U.S. magazines to television, radio and billboards, and the Canadian magazines might gain only a small share.
    5. A compromise solution might be to provide that the advertising expenditures in “foreign periodicals” exceeding 15 per cent of expenditures in all periodicals printed in Canada would be disallowed as a deduction from income for tax purposes.
    6. Much of the newspaper criticism of the Royal Commission’s Report emanated from persons who had formerly been closely associated with Time or the Reader’s Digest, and whose views were therefore not to be regarded as objective.
    7. Some years ago, the Reader’s Digest had been published without advertising material, but this would probably be financially impossible now because of the higher costs of production. Acceptance of the Commission’s proposal would probably not put the Digest out of business in Canada. It was noted that the Company printed some of its U.S. edition in Montreal because costs were lower in this country.
    8. The Report of the Royal Commission contained a long list of defunct Canadian periodicals, thus providing tangible evidence of the unfairness of present conditions.
    9. At this time it would not be physically possible to amend the Budget speech and resolution as some had proposed, and therefore the real choice was between proceeding on the basis of the Commission’s recommendation or deleting the subject from the Budget.
  3. The Cabinet agreed that no change should be made at this time in the Budget speech or resolutions on Canadian and foreign periodicals.

R.B. BRYCE
Secretary of the Cabinet

410. D.M.F./Vol. 102

Memorandum from Under-Secretary of State for External Affairsto Prime Minister

CONFIDENTIAL [Ottawa], June 19, 1961

Royal Commission Report on Publications

Supplementing the oral remarks made by the U.S. Ambassador on Friday, the United States Embassy has now formally submitted the attached note. The note expresses the hope of the United States Government that the Canadian Government will delay the introduction of “… legislation or action until the United States Government has had an opportunity to present its views to the Canadian Government on the Commission’s recommendations at greater length than is now possible.

  1. In submitting this note, the Embassy indicated that it might become necessary for the United States to publish the text.

N.A. ROBERTSON

[ENCLOSURE]

Note by Embassy of United States

NOTE NO. 614 Ottawa, June 19, 1961

The Embassy of the United States of America presents its compliments to the Department of External Affairs and has the honor to state that the Government of the United States has taken note of the recommendations of the Royal Commission on Publications. Among these recommendations are two which would clearly affect American magazine publishing interests. The first of these would alter allowable deductions from income tax of expenses for advertising directed to the Canadian market in a foreign periodical and the second would exclude periodicals containing domestic advertising from entry into Canada. In view of the United States interest, the United States Government would hope that, prior to any action by the Canadian Government to implement the Commission’s recommendations, by legislation or otherwise, the United States Government would be given an opportunity to present its considered views on these recommendations. More particularly, if the Canadian Government is now planning to include any proposed legislation or other action to implement the Commission’s recommendations in the forthcoming budget to be presented to Parliament on June 20, it would be difficult for such consultation to take place.

The United States Government hopes, therefore, that the Canadian Government will delay the introduction of such legislation or action until the United States Government has had an opportunity to present its views to the Canadian Government on the Commission’s recommendations at greater length than is now possible.

411. D.M.F./Vol. 128

Memorandum by Assistant Deputy Minister, Department of Finance, to Deputy Minister of Finance

[Ottawa], August 4, 1961

O’leary Report – Reader’s Digest and Time

Yesterday the Minister received visits from Reader’s Digest (Mr. Zimmerman and Mr. Davey) and, later, from Time (Mr. Laybourne and Mr. Brad Gundy). The most interesting point that emerged from these two visits – which, I understand, were arranged quite separately – was that neither Reader’s Digest nor Time said that they would take immediate steps to shut up shop if the two main recommendations of the O’Leary Report were implemented, i.e. the recommendation regarding income tax deduction and the recommendation regarding imports of magazines carrying Canadian-directed advertising.

On the other hand it is also important to record that each of them expressed very grave doubts indeed about their ability to continue to operate under the terms of the Report. What they said was, in effect, that they would continue to operate on an experimental basis for a limited period of time to see how things turn out; their expectation was that they would find themselves forced to cease operations.

The representatives of Reader’s Digest had various possible alternatives in mind. First, they might continue to publish in Canada as at present hoping that the new tax arrangements would not prove lethal. Second, they might stop printing operations in Canada but import and sell the U.S. edition of their magazine in Canada. (They might also import and sell, in French-speaking Canada, their edition published in France although a preliminary examination suggested that the expense would be prohibitive.) They suggested that the price to the Canadian subscriber would have to be substantially increased to make up for the loss of Canadian advertising revenue. Third, they might print in Canada without carrying advertising but raise the price to the Canadian subscriber. Preliminary surveys, however, suggested that if they raised their prices substantially they might expect to lose a very large proportion of their subscriptions.

Any loss of subscriptions to Reader’s Digest in Canada would cut into their revenues from their supplementary operations – the publication of book digests and the sale of records. Actually, these activities provide about fifty per cent of the revenues and of the profits of their Canadian operation but they were based in each case on the Reader’s Digest mailing list. A reduction in this mailing list would reduce profitability from these subsidiary operations.

In the course of their discussion the Digest representatives referred to the old “magazine tax.” The Minister took the opportunity to tell Mr. Zimmerman how very upset he had been by being subpoenaed to appear in person in Montreal in connection with the Government’s action against Reader’s Digest for non-payment of the taxes. The Judge, said the Minister, had considered it outrageous that the Minister should be subpoenaed and he himself warmly agreed. The Minister said that in his discussions with representatives of Reader’s Digest before the tax was repealed, he had understood (although he had no proof of this) that if the tax were repealed, Reader’s Digest would pay the money due and the case would be dropped. Mr. Zimmerman was clearly thrown off-balance by these comments. He said he had not knowledge of any such understanding with the Minister which would have taken place before he came to Reader’s Digest. He undertook to look into it.

Mr. Zimmerman occupied most of the discussion with the Minister in going through a brief dated August 3. He left one copy with the Minister and another copy is attached.

Mr. Laybourne, speaking for Time, said that they were proceeding with their arrangements to print in Canada. Last month they had to make a decision one way or the other and they decided, despite the risks involved, to proceed. They hoped that the Government would not consider this “an arrogant act.” The Minister assured them that their action had not been taken in this sense.

Mr. Laybourne went on to say that they were also proceeding with their plans to transfer to Canada the editing of the Canadian section of the Canadian edition. “About twelve people” would be “moved into Montreal” soon after printing operations began there. The Minister questioned him about the nationality of the twelve persons and Mr. Laybourne said that no decisions had been reached; some of the twelve might be Canadians already in the employment of Time in Canada.

As a result of recent changes in the Canadian and United States mailing charges, Time had now begun to mail in Canada, putting the Luce publications together they would be spending something like $1 million.

If, when printing and other operations had started in Canada, the tax proposals of the O’Leary Report were introduced, Time would continue to operate. They would certainly anticipate losses for two or three years but might find ways of breaking even after that period by adjustments in circulation, editorial content, elimination of colour printing, etc. However, according to their present appraisal they doubted their ability to continue indefinitely under the proposed tax arrangements.

A.F.W. PLUMPTRE

412. D.M.F./Vol. 128

Memorandum by Assistant Deputy Minister, Department of Finance

[Ottawa], August 9, 1961

O’leary Report – Periodical Press Association

Yesterday, Mr. Laurin of Maclean-Hunter, who is this year President of the Periodical Press Association, called on Mr. Fleming to discuss the O’Leary Report and its disposition. He emphasized that the decline in the position of Canadian magazines was continuing and was now accentuated by the uncertainties created as a result of publication of the O’Leary Report without any indication of Government action. (He admitted that magazines all over this continent were in difficulties but emphasized that the difficulties for Canadian magazines were intensified.) In this connection, he mentioned that Maclean-Hunter was now estimating losses on their magazine operation this year of well over $1 million. Canadian Homes was in the worst position; it had already showed losses of $388,000 this year. Maclean-Hunter had decided to carry on with Canadian Homes on a temporary basis but would have to reach a decision, one way or the other, in October. At present, due to uncertainties, Canadian advertisers were beginning to shift away from magazines and into other media. Losses of this sort might take many years to regain.

The Minister asked Mr. Laurin what results he would expect if the main recommendations of the O’Leary Commission were put into effect. Mr. Laurin replied that he anticipated no sudden upturn in the revenues of Canadian magazines. It would take perhaps three or four years to readjust fully to the new situation. However, he would expect Reader’s Digest and Time to go out of business as far as Canadian advertising was concerned. Of the $9 to $10 million worth of advertising now placed with them, he would anticipate $2 or $3 million shifting to Canadian magazines. The rest would shift very largely to other Canadian media, although some might go to U.S. television stations just across the border.

Mr. Laurin emphasized his strong support for the general principle that a nation’s advertising should be available for the support of that nation’s media of communication. This principle applied to magazines but also to other media such as television. The Minister said that this point had been noted but questioned whether it would be possible to apply the principle to media other than magazines without allowing those media the possibility to express their opinions, for example, by setting up another Royal Commission. Mr. Laurin recognized this point. He referred to a coming meeting of the Canadian Association of Radio and Television Broadcasters and indicated that he planned to be in touch with the President of the Association before the meeting.

The Minister invited Mr. Laurin to give his opinions on the two main recommendations of the O’Leary Report, indicating that in his view one was mainly designed to deal with Time and the other with Reader’s Digest. However, Time was now moving to print in Canada so it might not be affected by the recommendation designed to deal with it.

Mr. Laurin replied that the recommendation proposing a ban on imports of magazines with Canadian directed advertising was, as he understood it, designed to deal with a wide range of publications. It would deal not only with Time, as long as it continued to print abroad, but also with split runs and other types of operation. It would affect not only U.S. consumer magazines entering Canada but also, and of increasing importance, U.S. trade papers which were increasingly carrying Canadian directed advertising. He recognized that the proposed ban might involve the Government in international difficulties although it was the “cleanest way” of dealing with the situation. As an alternative he suggested the imposition on imported magazines carrying Canadian directed advertising of the tariff rates applicable to advertising (Item 178) with the necessary renegotiations with other countries affected.

Turning to the income tax proposal, Mr. Laurin said that the Periodical Press Association had neither proposed nor opposed this particular suggestion as a means of achieving the end which they regarded as highly desirable. The only effective alternative they could think of would be too close to the old “magazine tax” to be really effective. He recognized that Reader’s Digest, because they had been operating so long in Canada, might claim that they were being dealt with very unjustly. He commented on various misleading implications in the case put forward by Reader’s Digest and emphasized that their investment in Canada had been built up almost entirely from profits made in Canada on the basis of “unfair” competition. However, if the Government felt that the recommendations of the O’Leary Report were too harsh in respect of Time, it would surely be possible to work out some special sort of arrangement which would allow that Company to continue its operations although not on the unfair basis existing up to the present.

The Minister invited Mr. Laurin to comment on the other recommendations. He said that the postal recommendations were sound and should be put into effect. The recommendation regarding importation of illegal advertising (food and drug) were desirable but quite impracticable. The proposal that advertising should be identified as such was the normal practice with all magazines and the problem involved was not serious. The proposals regarding imports of circulars would give very desirable relief to the Canadian printing trades. On the other hand, he warned that the U.S. printers, who were very well organized, would be up in arms. He was not disposed to consider that the implementation of this recommendation would give much relief in respect of the overflow circulation of U.S. magazines into Canada. If the circulars could not be imported from the U.S., he believed that they would and could be printed and mailed in Canada and with no very great increase in cost. In this connection, he mentioned that the printing plates used in the U.S. would no doubt be brought into and used in this country. (In the light of Mr. Laurin’s remarks, we should look again carefully at the action we had proposed in this field if the Government decided to implement the O’Leary Report.)

In conclusion, Mr. Laurin emphasized the urgent necessity, from the point of view of magazine publishers, of a Government announcement of intention regarding the O’Leary recommendations. Early action was also desirable and he wondered whether it was absolutely necessary for action to await the next budget, which probably would not be brought down before next March or April. Mr. Fleming replied that the more important proposals of the O’Leary Report would normally require a budget. It was conceivable that they might be handled on a different basis if Parliament were amenable but, particularly with election rumours in the air, it was not at all clear that Parliament would be amenable. He did, however, recognize the difficulties for Canadian magazines of going through a period of eight or nine months without an indication of Government policy in this field. He commented that the activities of some magazines were not such as to make the Government very sympathetic.

Mr. Laurin said that the Periodical Press Association was compiling a summary of editorial opinion on the O’Leary proposals. This opinion, he claimed, was two to one in favour. The material would be supplied to the Minister as soon as it was available. In addition, the magazines would be running a two page advertisement in September which would describe what the O’Leary recommendations really were and would clear up certain misconceptions which had arisen or which had been promoted in various quarters. He asked whether there was anything further that his Association could do to assist the Minister at this juncture. The Minister had no suggestions to make at this time. He and other Ministers would be interested to see the comments of the P.P.A. on the arguments put forward by Time and Digest and their summary of Canadian editorial opinion.

A.F.W. PLUMPTRE

413. D.M.F./Vol. 102

Note by Embassy of United States

NOTE NO. 27 Ottawa, August 4, 1961

The Embassy of the United States of America refers to the report of the Royal Commission on Publications, which was made public on June 15, 1961. The Royal Commission recommends in its report that the Government of Canada take certain actions, by legislation or otherwise, which would affect foreign periodicals. The United States Government has examined the Commission’s report and believes that the recommendations of the Commission regarding foreign periodicals would clearly have prejudicial effects on the interests of the United States. For this reason, the United States Government wishes to present to the Government of Canada the considered views of the United States Government on the specific recommendations of the Royal Commission on Publications which affect foreign periodicals. The United States Government is not herein presenting its views on certain other broader aspects of these recommendations which are also considered undesirable.

A. The following are the views of the United States Government on certain of the recommendations of the Royal Commission on the general subject of advertising in foreign periodicals.
The Commission recommends:
That the deduction from Canadian income tax by a tax payer of expenditures incurred for advertising directed at the Canadian market in a foreign periodical wherever printed be disallowed. Implementation of this recommendation by the Government of Canada would mean, in effect, subjecting income spent on expenditures incurred for advertising directed at the Canadian market in a foreign periodical to the normal corporate tax rate of approximately fifty per cent. This proposal is thus of the same character as the twenty per cent tax previously imposed by the Canadian Government on the advertising revenues of special editions of non-Canadian magazines circulated in Canada,Footnote 51 and which was withdrawn by the Canadian Government on the officially stated grounds that it was “unjust and ineffective.”

The United States Government regrets to note that, despite the representations of the United States on this twenty per cent tax imposed previously and despite what was conceded to have been the ineffectiveness of this previous tax in assisting Canadian periodicals, the Royal Commission on Publications has revived a concept of discriminatory taxation, which had been previously proved in application to be ineffective for its stated purpose.

The United States Government also believes that this recommendation of the Commission is inconsistent with the basic principle enunciated in Article III of the General Agreement on Tariffs and Trade, that internal taxes should not be applied so as to afford protection to domestic production. This recommendation of the Royal Commission is avowedly intended to protect Canadian periodicals from the competition of special editions of non-Canadian magazines.

The United States Government would regret to see the Canadian Government take a step which would lead to a weakening of respect for one of the basic principles enunciated in the General Agreement and, consequently, of respect for the General Agreement itself.
The Commission also recommends:

That the entry into Canada from abroad of a periodical containing domestic advertising be excluded under Schedule ‘C’ of the Customs Tariff. “Domestic advertising” shall include postcards, coupons and inserts contained in a periodical and indicating the availability of a product or service in Canada.
Although the wording of the action proposed in this recommendation of the Commission would ban entry of all foreign periodicals meeting the criteria of the recommendation, it is clear both from the report of the Royal Commission and from study of the facts regarding entry into Canada of foreign periodicals containing domestic advertising that such periodicals originating in the United States would be those most seriously affected. It is also clear from the report of the Royal Commission that this recommendation of the Commission is avowedly intended to have this effect. The United States Government considers, therefore, that acceptance by the Canadian Government of this recommendation would impair the benefits which the United States derived from the binding in Canadian Customs Tariff Item 184 A of a duty-free entry into Canada of foreign periodical publications, which binding was freely negotiated with the United States in negotiations held pursuant to the General Agreement on Tariffs and Trade. Therefore, if the Canadian Government were to accept and implement this recommendation of the Commission, as presently worded, the United States Government would expect the Canadian Government to provide the United States with satisfactory compensation under the appropriate procedures of the General Agreement on Tariffs and Trade for the effective impairment of these benefits.

B. The following are the views of the United States Government on the recommendations of the Royal Commission on the general subject of circulation of foreign periodicals.
The general effect of the recommendations of the Royal Commission regarding the circulation of foreign periodicals would be to raise the costs and increase the difficulties of exportation of foreign periodicals to Canada. Since periodicals published in the United States would be those most seriously affected by these recommendations, the commercial interests of the United States would be damaged if these recommendations were accepted by the Canadian Government. In such event, United States commercial interests would be damaged directly by the reduction in exports of United States periodicals below what they would have been in the absence of such action and also by the increased costs of the remaining export of United States periodicals to Canada, and indirectly by the reduced access of the magazine-reading public of Canada to advertisements of products available from the United States.
The United States Government considers that acceptance by the Canadian Government of the recommendation with respect to the fifth paragraph of Canadian Customs Tariff Item 178 concerning the Customs treatment of promotional advertising would lead to the same results as those discussed above with respect to Canadian Customs Tariff Item 184 A.

C. The following are the general views of the United States Government on the recommendations of the Royal Commission which would affect foreign periodicals.
The United States Government believes that these recommendations do not accord with past efforts of both Governments to encourage the development of mutually beneficial commercial relations between the two nations and that acceptance of these recommendations by the Canadian Government would be likely to hinder efforts to promote the most desirable policies in the future. Quite apart from the commercial considerations involved, it is in the interest of both countries that there should be as free a flow of information as possible among the nations of the free world, including many nations where it is of paramount importance that the aims, ideals and activities of Canada, the United States and their allies should be better known. If the recommendations of the Royal Commission on Publications regarding foreign periodicals which have been specifically cited earlier in this communication were accepted and implemented by the Government of Canada, repetitions of such action in other parts of the world could severely restrict one of the most effective methods by which such information is spread.
It is the hope of the Government of the United States that the Canadian Government, acting in the light of the general and specific views of the United States Government on the recommendations of the Royal Commission which would affect foreign periodicals, and in consideration of the potential effects of acceptance and implementation by the Canadian Government of these recommendations, will avoid any action in regard to these recommendations which would be inconsistent with the General Agreement on Tariffs and Trade, which might damage mutually beneficial commercial relations between the United States and Canada, which might prove a precedent harmful to the encouragement of policies favored by both nations, and which would prejudice the interests of both nations in the prevention of undesirable restrictions to the free flow of information.

414. D.M.F./Vol. 128

Minister of Finance to Prime Minister

PERSONAL AND CONFIDENTIAL. Ottawa, August 11, 1961

My dear Prime Minister:
In recent days I have met with representatives of the Periodical Press Association, Reader’s Digest, and Time to discuss the O’Leary Report. Their representations were almost entirely directed towards the “fiscal” proposals of the Report, i.e. those involving taxes and tariffs. By far the most important are the two proposals that expenditure on advertising in “foreign” magazines should not be deductible for tax purposes and that an import ban be placed on magazines carrying advertising directed to the Canadian market.

Some two months ago I sent to you a memorandum entitled “Royal Commission on Publications: Fiscal Proposals;” it had been prepared in this Department and was dated June 7, 1961. The representations that I have recently received throw some additional light on various points in the memorandum and raise, as a matter of urgency, questions as to the position the Government is to take in regard to the main recommendations of the Report and how and when should this position be announced.
Moreover, the U.S. Government has now put forward, in a Note dated August 4, its views on the O’Leary Recommendations. These views are closely in line, in nature and temper, with what was forecast at various points in our Memorandum of June 7, particularly paras 35-38, and para 40.
The following points emerged during the representations to which I have referred:

  1. In the Memorandum of June 7 (para 15 and para 40(a)) I indicated that, if the two main recommendations were implemented, the Canadian editions of Time and of Reader’s Digest (in both languages) would cease publication and that this appeared to be the intention of the Royal Commission. I also indicated that this would involve the closing down of the printing and publishing operations of Reader’s Digest in Montreal. On these points, the Periodical Press Association appears to be in agreement. As for the representatives of Reader’s Digest and Time, it is important to record that they do not forecast immediate cessation of the Canadian editions, if the O’Leary Report is implemented. Instead, they say that they expect that they will be forced, after an experimental period of some months or years, to discontinue these editions; meanwhile they would attempt, by various adjustments, to keep going.
  2. The representative of Time explained that his firm was proceeding with arrangements to print their Canadian edition in Canada instead of the United States, and to establish a staff of about a dozen persons in Montreal to edit its “Canadian” section. The presses and the staff should be installed by the end of this year. At that time they would cease to be affected by the main tariff recommendation and would instead be affected by the main tax recommendation of the Report.
  3. The representative of the Periodical Press Association emphasized that the main tariff recommendation was designed to prevent, not only the importation of Time when printed in the United States, but also many other U.S. periodicals, both “consumer magazines” and “trade papers,” carrying Canadian-directed advertising. (See para 40(d) of the Memorandum.)
  4. The representative of the P.P.A. expressed doubts regarding one of the less important recommendations relating to tariffs, i.e. a recommendation which would subject to customs duties imported circulars which now come in free of duty. He believed that the relief given to Canadian magazines, by means of lessened circulation pressure from foreign magazines, would not be substantial and warned that the U.S. printing trades would object strongly. (Paras 23-29(a) of our Memorandum.)
  5. The point which the representative of the P.P.A. stressed most repeatedly and emphatically was the urgent need of the Canadian magazines for an announcement, and if possible a favourable announcement, of Government policy regarding the two main recommendations of the Report. He said that the publication of the Report without a statement of policy had substantially hurt their situation. Canadian advertisers and advertising agencies, in making their plans this autumn, are confronted by a situation in which they simply do not know what their position will be if they continue, alter or enlarge their advertising in magazines. As a result, there is a growing tendency to avoid magazines and use other media instead. Advertising, once lost by magazines, will be very difficult to recapture.
  6. The representative of P.P.A. strongly supported, on behalf of his Association, the two main recommendations of the Report, although he did not reject the possibility of modifications. In this connection he referred to claims that there ought to be some tempering in the severity of the main tax proposal in order to avoid actually driving out of business an established operation in Canada, i.e. Reader’s Digest. He also strongly supported the principle on which these and other recommendations were based, i.e. that a nation’s advertising expenditures should support its own media of communications and not those of other countries. He pointed out that this applied to television and other media besides magazines, but recognized that it would be difficult to apply it to these other media at least without full hearings such as had been provided by the O’Leary Commission.
    Against this background it has in my opinion become imperative that some announcement of Government policy be made as early as possible in the resumed session of Parliament. It may be expedient to concentrate attention on the two main proposals in the Report. There are three possibilities: to reject these proposals and take no action; to accept them substantially in the form proposed (with minor modifications for administrative purposes); or to adopt them in substantially modified form.
    Most of the advantages and disadvantages of outright acceptance or rejection are reviewed in our Memorandum of June 7 and do not need to be repeated here.
    There appear to be two types of major modification which might be considered, one of substance and the other of form:
    1. Reader’s Digest has been printed and published in Canada for many years and Time is expected to do so shortly. It is for consideration whether some modification or modifications should be introduced into the main tax proposal to take account of their situations and permit them to continue. If general guidance were given by Ministers, officials could be asked to work out detailed proposals.
    2. In paragraph 42 of our Memorandum, the question is raised whether it is desirable to pursue the broad national objectives of the O’Leary Report by means of tax and tariff devices. Are there constitutional means whereby, for example, special Canadian editions could be stopped by direct legislation? It may be that the Commission fully explored such possibilities but, if so, it is not reflected in their Report. This question might be referred to officials, and in particular the Department of Justice, if Ministers considered that it was worthy of investigation.
      In conclusion, may I again mention the emphasis laid particularly by the Periodical Press Association on the need for an early announcement of Government policy followed, as soon as practicable, by appropriate legislative action.

Yours sincerely,
DONALD FLEMING

415. D.M.F./Vol. 102

Memorandum by Assistant Deputy Minister, Department of Finance

[Ottawa], August 31, 1961

O’leary Report

Yesterday afternoon Mr. Fleming called a meeting of the Cabinet Committee on the O’Leary Report, attended by Messrs. Nowlan, Hamilton, Walker and Dorion, with himself in the Chair. Messrs. Isbister, Grey Hamilton and myself were also present.
The Committee decided to instruct officials to explore modifications of the two main recommendations of the O’Leary Report sufficient to allow Reader’s Digest and Time to maintain operations in Canada. The view was expressed that such modifications should be the minimum necessary to achieve the purpose. It was recognized that with Time as well as Reader’s Digest being printed and published in Canada, the modifications in question would relate primarily, if not exclusively, to the tax rather than the tariff recommendation.
Officials were also invited to review and make such comments as they thought might be useful regarding any of the other recommendations, including those regarding imports of circulars and “combined rates.”
Officials were also invited to explore whether there was any possibility of achieving the main objective of the O’Leary Commission, not by adjustments of taxes or tariffs, but by other more direct legislative means. Since the question of constitutionality would arise, an approach to the Department of Justice would be required.
It was agreed that in pursuing all this work officials ought to make the fullest possible use of work already done by the staff of the Royal Commission and for this purpose the ex-secretary of the Commission, Mr. Michael Pitfield, should be fully consulted.
The Committee emphasized the urgency of this work in view of the impending re-opening of Parliament.Footnote 52

A.F.W. P[LUMPTRE]

416. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], September 7, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Dr. Hodgson).
    . . .

Report of Cabinet Committee on the O’leary Report

(Previous reference August 28)

  1. The Minister of Finance said that the Cabinet Committee on the O’Leary Report had met almost daily during the past week, and that its final report should soon be available to Ministers. Consideration should be given to the reply to be made on this day to expected questions in the House of Commons on the government’s policy in this field.
    The Committee had concluded that it would be impossible to adopt any course of action that would be satisfactory to all the interests involved, and that controversy would be inevitable. The Committee would recommend that the government should adopt the Commission’s proposal that an embargo be placed on the importation of Canadian editions of foreign magazines. This would create difficulties in G.A.T.T. negotiations, and would be a disappointment to the United States government which had made strong representations to the government of Canada. Such editions should however be produced in Canada.
    The other major recommendation of the O’Leary Commission was that advertising expenditures by Canadian taxpayers on Canadian editions of foreign periodicals be disallowed as expenses for income tax purposes. The Reader’s Digest had asserted that adoption of this recommendation would put them out of business in Canada, but it now appeared that the magazine would still break even in Canada and that the company would receive substantial profits from its other activities in this country. It could be argued, however, that these Canadian editions printed in Canada were providing employment to Canadians. The Committee would therefore recommend that only a portion of the advertising expenses be disallowed.
    In addition, the Committee would recommend removal of the subsidy available to Canadian editions of foreign periodicals under second class postal rates. The second class rate should continue in respect of their editorial matter but the first class rate should apply to their advertising matter. Under present arrangements a copy of the Reader’s Digest was delivered through the mail for about 4/5 of 1 cent, whereas the cost was about 5 cents. The Committee was recommending that the postal charge should be approximately equal to cost.
    An early announcement of government policy was desirable because advertisers were postponing their contracts while awaiting an indication of the government’s intentions.
  2. The Cabinet,
    1. noted the statement of the Minister of Finance on the progress made by the Cabinet Committee on the O’Leary Report;
    2. agreed that further consideration should be given to the government’s policy in this field following receipt of the Committee’s final report; and,
    3. agreed that Mrs. Fairclough should be added to the Committee.
      . . .

417. PCO

Memorandum from Chairman, Cabinet Committee on the Royal Commission on Publications to Cabinet

CABINET DOCUMENT NO. 350-61 [Ottawa], September 22, 1961

CONFIDENTIAL

The Royal Commission on Publications established to their satisfaction that serious damage is being done to the Canadian publishing industry by the competition of foreign periodicals and Canadian editions. They concluded that if measures were not taken to correct the situation it would result in the total disappearance of genuine Canadian magazines.
The following is a proposal designed to enable the Canadian publishing industry to continue in business and, ultimately, to expand both existing publications and encourage the introduction of new ones. At the same time it would not necessarily destroy foreign publications which have established themselves in Canada at this date.
First, magazines printed outside Canada which contained advertising placed by Canadian companies and directed to Canadian consumers would not be allowed to enter Canada. Canadian companies engaged in selling abroad would, however, still be perfectly free to place advertising for the promotion of their sales outside Canada in such magazines.
It is felt this first recommendation would be generally acceptable both in Canada and in other countries and would meet with no severe criticism.
In itself it would not be sufficient to meet the problem of Canadian magazines because 40 per cent of the advertising placed in Canadian magazines, and which is urgently required for their support, does not go to genuine Canadian periodicals but to Canadian editions of United States magazines, primarily Reader’s Digest and Time.
Therefore, a second measure is proposed which would make it economically impractical for a publishing house outside Canada to establish a Canadian edition of their magazine either in or out of Canada and compete for advertising with genuine Canadian publications.
Again, this second measure, which exempts Reader’s Digest and Time and one or two other small publications already established, would meet with no strong opposition because it merely prevents the future establishment of a certain type of business practice which the Canadian government does not feel it can condone; with the exceptions cited, no one is injured.
Third, to give consideration to the position which certain periodicals (Reader’s Digest and Time, etc.) have already established in Canada, while still offering a measure of assistance to Canadian publications which have been severely hurt by their activities, it is proposed that advertising in such Canadian editions now in existence would be allowed as a deduction for income tax purposes by the companies advertising therein only in the amount of 50 per cent of such expenditures.
If such publications made no downward adjustment in their advertising rates, the effect of such a proposal would be to increase their advertising rates to the advertisers by 33a per cent. It is unlikely that they would sell much advertising under these circumstances, and therefore it is expected that they will reduce their rates somewhat, thus reducing their profits.
A reasonable estimate would seem to be an adjustment in advertising rates allowing for a net increase to the advertiser in the cost of advertising in these publications of from 15 to 20 per cent. To accomplish this the publications would each have to reduce their profits from their 1959 rate of about $1 million to about $300,000 to $350,000.
Both these actions would be of substantial help to Canadian publications while it would seem that the Canadian editions would still remain profitable enough to remain in business, thus acknowledging their “grandfather rights.”

G.C. NOWLAN

418. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], November 2, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretary to the Cabinet (Mr. Waters).
    . . .

Report of Royal Commission on Publications

(Previous reference October 30)

  1. The Minister of Finance reported verbally on the recommendations of the Cabinet Committee on the Report of the Royal Commission on Publications. The Committee favoured dropping the previous proposal on postal rates. Their recommendations, which follow, were within the four corners of the O’Leary Report,
    1. An amendment to the Customs Act to apply an embargo against the entry of periodical publications published abroad which contained advertising directed to the Canadian consumer.
    2. To disallow as a deduction from income for tax purposes all expenditures of Canadian taxpayers incurred for advertising directed at the Canadian market in “foreign periodicals” whether printed in Canada or not unless subject to the exception below.
    3. That this disallowance be 50 per cent in the case of magazines which were printed and published in Canada on a date to be chosen (either the date of the announcement or the date of the Speech from the Throne) and which were edited in Canada within three months of that date.
      An announcement on this subject be made now to clarify the government’s intentions because advertising contracts were being held up all over the country.
  2. The Minister proposed that, at the forthcoming session, the necessary amendments be made in the Customs Act and Income Tax Act. The announcement should contain the statement that the situation would be reviewed in a year or two after there had been time for the changes to be given a fair trial.
  3. Mr. Fleming said that at present, the section in Time magazine dealing with Canadian news was written up in New York and sent to Canada for inclusion in the magazine. Under the Committee’s proposal this would have to stop within three months. The exception in recommendation (c) was made for the purpose of allowing Time and Reader’s Digest, which had been established in Canada for some time, to survive. The indication of an intention to review the situation would have a restraining effect because no one could be precise now as to how the proposals would affect either advertising revenues or the circulation of Time and Reader’s Digest, or how much it would benefit Canadian periodicals. No one could say whether and how much advertising withdrawn from Time and Reader’s Digest would be given to Canadian T.V. or radio.
  4. During the discussion the following points were raised,
    1. Although a case could be made for helping Reader’s Digest to survive, it was difficult to see why an effort should be made to keep Time in business in Canada. The two magazines were quite different in nature, and it was felt that Time should not receive any preference over such magazines as Newsweek or U.S. News and World Report.
    2. It was pointed out that it was difficult to devise a formula which would give preference to Reader’s Digest and exclude Time, if the preference was to be established on the high ground of “printed and published in Canada.” Others felt that Time could be eliminated by a requirement that the periodical must have been published in Canada for ten years. However, this would look like retroactive legislation.
    3. Some were of the view that no announcement should be made of reviewing the legislation in a year or two. This would imply that there was a possibility of changing the legislation, and there would be a tendency to continue pressure to alter it by those not in favour.
    4. Others felt that Time would be hostile to the government in any case.
    5. A Note had been received from the U.S. government which criticized the action proposed in the O’Leary Report on the grounds that it did not coincide with the best efforts of the two countries to bring about mutually beneficial commercial relations and was inconsistent with the General Agreement on Tariffs and Trade.
    6. It was explained that G.A.T.T. negotiations would be required to carry out these recommendations and Canada would have to make some concessions. The modifications of the O’Leary Report in favour of Time and Reader’s Digest recommended by the committee would please the U.S. government to some extent. Changes in the law could be put into effect before the G.A.T.T. negotiations.
    7. The suggestion was put forward that the editing required in Canada should cover only material which was not identical to material in the parent magazine.
    8. The Cabinet noted the report of the Minister of Finance on the findings of the second Cabinet Committee on the Report of the Royal Commission on Publications and agreed to consider them further at a later date.
      . . .

Section D - Oil

419. PCO

Memorandum from Chairman, Cabinet Committee on Oil Policy, to Cabinet

CABINET DOCUMENT NO. 14-61 [Ottawa], January 16, 1961

SECRET

  1. The Cabinet Committee on Oil Policy has recently considered the position of the oil industry, having had before it comprehensive memoranda, which included a number of recommendations, from the National Energy Board.
  2. The Cabinet will recall that in July, 1959, the Royal Commission on Energy emphasized the importance of maintaining oil production at a rate which would permit a reasonable level of exploration and development and increasing Canadian participation in the industry, and recommended that consideration of the Montreal pipe line project be postponed until the industry had had an adequate opportunity to establish that it could, by concerted effort, secure adequate outlets in more desirable markets in Canada and in the United States.
  3. The National Energy Board has thoroughly reviewed the situation confronting the oil industry in Canada and concurs in the essential recommendations of the Royal Commission but concludes that Government action is required to offset outside pressures on the industry and ensure increased sales of Canadian crude in market areas nearer to the sources of production than Montreal.
  4. The oil industry is virtually unanimous in advocating that the Montreal pipe line be postponed until an alternative programme, based on voluntary efforts by the industry but followed, if necessary, by licensing of crude oil and product imports, has been fully tested. The success of such a proposed programme would depend heavily on the attitude of the United States Government to increased Canadian exports. In addition, the co-operation of the producing provinces, in counteracting the outside pressures on the industry, or on specific companies, and in keeping down the cost of oil production in Canada, is integral to the Government’s programme.
  5. The Committee therefore recommends:
    1. that the Government adopt the policy of fostering the use of Canadian crude in markets which can be reached through established pipe lines, namely, Canadian markets west of the Ottawa Valley and U.S. markets adjacent to the international boundary including the Puget Sound and the St. Paul-Minneapolis and Toledo areas of the Middle West;
    2. that a target level of production of 625,000 barrels a day by June 1961 be set for the industry, such a target to be followed by further six-monthly targets with the expectation that production will rise in 1963 to a level substantially as high as would be attained if the Montreal market were reserved for Canadian crude;
    3. that the Government programme for expanded production of oil be on a voluntary basis but that importers of crude and petroleum products be required to report their imports monthly from January 1, 1961 in order to permit the National Energy Board to continue to assess the situation;
    4. that the Government indicate to the industry that in adopting this policy it is prepared to take all necessary steps, including the proclamation of Section 87 of the National Energy Board Act (which provides for the regulation of imports and exports of oil), to ensure the success of its policy of increasing the level of oil production in Canada, and that it has instructed the National Energy Board to evaluate the contribution of individual companies to the general efforts of the industry, as well as to report periodically on the progress of the industry;
    5. that as soon as practicable and prior to any announcement of policy, consultations be held with the United States; and
    6. that consultations be held with the producing provinces.

GEORGE HEES

420. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], January 19, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretaries to the Cabinet (Mr. Fournier), (Dr. Hodgson).
    . . .

OIL POLICY; REPORT OF CABINET COMMITTEE

  1. The Minister of Trade and Commerce said that the Cabinet Committee on Oil Policy had considered the position of the oil industry, having had before it comprehensive memoranda, including a number of recommendations from the National Energy Board. He recalled that the Royal Commission on Energy had suggested that every effort should be made to ensure that the Canadian crude oil production reach 700,000 barrels per day by the end of 1960. This target had not been reached, the present production figures being 595,000 barrels per day. The Commission, in 1959, had recommended that consideration of the Montreal pipeline project be postponed until the industry had had an adequate opportunity to establish that it could, by concerted efforts, secure adequate outlets in more desirable markets in Canada and the United States. In the opinion of the National Energy Board, government action was required to offset outside pressures on the industry, and to ensure increasing sales of Canadian crude in market areas nearer to the sources of production than Montreal.
    The oil industry was virtually unanimous in advocating the postponement of the Montreal pipeline until an alternative programme, based on voluntary efforts by industry but followed, if necessary, by licensing of crude oil and product imports, had been fully tested. The success of such a programme would depend heavily on the attitude of the U.S. government to increased Canadian exports. The Minister referred to the Cabinet Committee’s recommendations in the document which had been circulated (Cab. Doc. 14-61) and noted that a target level of production of 625,000 barrels a day by June 1961 should be set for the industry. Such a target should be followed by further six-monthly targets, with the expectation that production would rise in 1963 to a level (815,000 barrels a day) substantially as high as would be obtained if the Montreal market were reserved for Canadian crude. The industry should be persuaded to expand its production of oil on a voluntary basis, and should be told that, if this did not prove satisfactory, the government would be prepared to take the necessary steps, including the proclamation of Section 87 of the National Energy Board Act (which provides for the regulation of imports and exports of oil), to ensure the success of its policy of increasing the level of oil production in Canada. It was expected that the Board could establish, after three or four months, whether production on a voluntary basis was giving adequate results.
    An explanatory memorandum had been circulated (Memorandum, Chairman, Cabinet Committee on Oil, Jan. 16 and attachment, Cab. Doc. 14-61).
  2. Mr. Hees said that both the industry and the United States should be made to understand that, if under both the voluntary and mandatory systems no progress was made, then the Montreal pipeline would have to be built. It was the only alternative available to increase the production of crude oil.
    He referred to the agreements in force between Canada and the United States and noted that both governments had agreed that they would consult should they plan changes in their petroleum trade policies. He considered it important that consultations take place as soon as possible and said that, if Cabinet agreed, he would proceed to Washington on the following Wednesday with the Minister of Finance and officials to discuss with the United States Secretary of the Treasury and the U.S. Secretary of the Interior the proposed Canadian oil programme.
    He further noted that it was in the interest of the United States that the Montreal pipeline be not built. Such a pipeline would greatly diminish the Canadian purchase of off-shore crude oil and would force the United States to purchase that much more off-shore oil. It was not certain whether, as a result of the construction of a pipeline, oil could be laid down in Montreal as cheaply as off-shore oil. The National Energy Board were of the opinion that the Montreal refineries were not paying the list prices. Discounts were the regular procedure. The construction of a pipeline might result in lower prices at the oil head in Alberta and higher prices in the Quebec area unless the federal Treasury made up the difference.
  3. During the discussion the following points were brought out:
    1. The question was whether the course in the Cabinet Committee’s report should be followed or whether the government should face the possibility of building a Montreal pipeline. The Canadian Ministers visiting Washington should be in a position, some thought, to indicate to their American counterparts that there were strong pressures within Canada to build the pipeline, and that these pressures would be irresistible unless the objectives of the National Energy Board to increase Canadian production could be attained. Some pointed out that the United States could cut down its imports from Canada if it so desired. The threat of the pipeline proposal should therefore not be over-emphasized.
    2. Some objected to the statement contained in the report of the Cabinet Committee to the effect that the oil industry was virtually unanimous in advocating that the construction of the Montreal pipeline be postponed until an alternative programme had been fully tested. 90 per cent at least of the independent Canadian oil producers wanted the pipeline, whereas the American controlled interests were mostly against it. It seemed that it was just a matter of time before the government would have to agree to the construction of the pipeline. The independent oil producers claimed they could build it without government assistance, provided import controls were introduced. These might have to shut off foreign oil for twenty years. Canada was the only country in the world which did not have import controls. The question was whether the Montreal refineries would have to pay a higher price in order to pay the costs of construction of the pipeline. The independent industry claimed that this would not be necessary.
    3. The Cabinet should not face now the question of building a pipeline or not. It should limit itself to advising the Ministers of Finance and of Trade and Commerce on the attitude they should adopt during their consultations in Washington.
  4. The Cabinet noted the report of the Cabinet Committee on Oil Policy and agreed that,
    1. Mr. Fleming, Mr. Hees and officials proceed to Washington the following week to hold consultations with the U.S. Secretary of Treasury and the U.S. Secretary of the Interior on the proposed Canadian oil programme;
    2. in their discussions in Washington, Mr. Fleming and Mr. Hees would be guided by the points raised during the discussion in Cabinet and, in particular, would indicate that there were strong pressures in Canada to build the Montreal pipeline and that, unless the objectives of the National Energy Board to increase Canadian production could be attained, the Canadian Government might find those pressures irresistible.
      . . .

421. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], January 26, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale),
  • The Minister without Portfolio (Mr. Halpenny).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretaries to the Cabinet (Mr. Fournier), (Dr. Hodgson).

Oil Policy; Oral Report of Ministers on Discussions with U.S. Government

(Previous reference January 19)

  1. The Minister of Trade and Commerce said that the meeting in Washington on the previous day with members of the new U.S. administration had been cordial and apparently successful. He and Mr. Fleming had represented Canada, and the United States had been represented by Douglas Dillon, Secretary of the Treasury; Luther Hodges, Secretary of Commerce; and Stewart Udall, Secretary of the Interior. Mr. Ball, U.S. Under Secretary of Commerce, the Canadian Ambassador to the U.S., and other officials had been in attendance.
    As this was the first official meeting between Canadian ministers and members of the new U.S. administration, he had expressed the hope that the friendly and informal relations that had previously existed between the two national governments would continue, and this sentiment had also been expressed by the U.S. representatives.
    He had then outlined the policy which the Canadian government was planning to announce on oil. He had made it clear that he was acquainting them with the proposed policy and not consulting them on its formulation. Therefore it was not possible at the meeting to ask for their agreement. Nevertheless the discussions indicated that the U.S. ministers were impressed by the reasonableness of the position being taken by the Canadian government. The Canadian ministers had explained that as the policy would involve the export of oil overland to the U.S., Canada needed the goodwill of the U.S. government in the matter.
    He had pointed out that the U.S. oil industry produced about 84 per cent of the domestic needs of that country, and that the proposed Canadian production target of 815,000 barrels per day by the end of 1963 would have the incidental effect of raising Canadian production to 83 per cent of our domestic needs. The target was therefore not unrealistic or unfair. The U.S. ministers had been impressed by this comparison. He had gone on to explain that the only two possible ways of achieving this target would be to supplement the normal growth of Canadian production either by increased exports, chiefly to the U.S., or by restriction of imports of foreign oil in order to give the Canadian industry a larger share of the domestic market. Therefore, unless oil exports to the United States were increased, the Canadian government might be under irresistible pressure to authorize construction of an oil pipeline to Montreal. The U.S. ministers were aware that this in turn would lead countries such as Venezuela, which now sold oil in Eastern Canada, to press the U.S. government to accept increased oil imports from them. Therefore an increase in exports of Canadian oil to the U.S. was in the best interest of both countries.
    The U.S. ministers had asked that the text of the Canadian announcement should be in a form that would cause the least concern on the part of the U.S. public. The Canadian ministers in reply had offered to make the text available to the U.S. ministers before release, and to consider any suggestions they might make on verbal changes not affecting the substance.
    The U.S. ministers had also asked whether the Canadian industry would be likely to export oil to new areas of their country. The Canadian ministers had replied that most of the exports would be sent to the Middle West and the Northwest (Districts IV and V) which were already receiving Canadian oil. New markets might develop, however, in the Chicago area, and, accordingly, the announcement would not contain any assurance that Canadian exports would be entirely confined to these districts. In reply to a further question, the Canadian ministers had said that the target figure of 815,000 barrels per day covered both oil and oil products.
    The Canadian ministers had stated that the announcement would be made in about one week’s time.
    Officials were preparing a draft announcement. He would submit it to the Prime Minister, and subsequently the Canadian Ambassador would be instructed to forward the draft to the U.S. ministers to permit them to suggest verbal but not policy changes.
  2. Mr. Fleming said that while in Washington he had suggested to the U.S. ministers that a meeting of the Continuing Joint Committee on Economic Questions might be held in Washington or in Ottawa at their early convenience. They had agreed and undertaken to propose a date for the meeting.
    Mr. Dillon had also spoken very frankly to him about the tax proposals which President Kennedy would place before Congress in several weeks’ time. The proposals were rather similar to those that had been included in the current Supplementary Budget of the Canadian government. The U.S. authorities were concerned about their country’s balance of payments position, which had deteriorated greatly in the past two or three years. The proposed tax measures would be designed to plug loopholes in the existing tax legislation that had enabled U.S. corporations to improve their tax position by carrying on business abroad. None of the measures involved retaliation against Canada.
  3. The Cabinet
    1. noted with approval the oral reports of Messrs. Hees and Fleming on their discussions on oil policy in Washington on January 25th with members of the new U.S. administration;
    2. agreed that a draft public announcement on oil policy would be prepared by Messrs. Hees and Fleming, and would then be submitted to the Prime Minister for approval and subsequently forwarded through the Canadian Ambassador to the U.S. ministers to allow them an opportunity to suggest verbal (but not substantive) changes in the announcement prior to its release; and,
    3. noted that the U.S. ministers had undertaken to propose a date for the next meeting of the Continuing Joint Committee on Economic Questions.
      . . .

422. DEA/14404-C-8-40

Briefing note for Prime Minister

[Ottawa]. February 17, 1961

Notes on the New Canadian Oil Policy

A new national oil policy was announced in the House by the Minister of Trade and Commerce on February 1, after consultation with the United States Government. The following considerations were advanced in these consultations:

The policy of maintaining an unrestricted market for imports of crude oil and products may prove intolerable unless the level of production of oil in Canada rises. The possibilities for increasing use of Canadian oil to meet Canadian demand west of the Ottawa Valley are physically limited, so a continuing increase of exports of Canadian oil to markets in the United States to which it can economically be transported is fundamental to any program for increasing Canadian production which does not include arranging for a pipe line to Montreal. The Canadian position has been developed in the knowledge of the complex and awkward domestic and international problems which would result from the virtual exclusion of imported crude oil and products from the Central Canadian market which would be necessarily incidental to any decision to force Canadian oil into the Montreal market, and the Government takes the view that there may be mutual advantages to the United States and Canada in securing the desired improved level of oil production by fostering the traditional pattern of growth of the industry.

In considering the volume of exports which might be expected in the next few years, the Government has adopted estimates considerably below even the more moderate among previous forecasts, such as those of the Borden Commission. It is therefore hoped that realization of these export targets would not embarrass the Government of the United States or place in jeopardy the present exemption of Canadian crude oils from United States import controls.

In the event that the efforts of the Canadian industry to increase production do not produce satisfactory results, the Government of Canada will of course give further consideration to restriction of imports and to arranging for a pipe line to Montreal. It will inform the Government of the United States in advance if it becomes necessary to undertake such measures.
The target for the production of Canadian oil, (including natural gas liquids) was set at about 800,000 barrels per day in 1963. The interim targets were 640,000 barrels per day in 1961, with at least 625,000 barrels per day to be attained by mid-year. Canadian production in 1960 was expected to average 548,000 barrel per day, and exports to the United States 113,000 barrels per day.
The planned increase in the use of Canadian oil in Ontario west of the Ottawa Valley is consistent with the public announcement made by the Venezuelan Government that it considers Venezuelan oil should not reach these markets in the interior of Canada. The expansion of export sales to the United States, which will be necessary to reach these targets, is regarded as consistent with the growth of sales of Canadian oil contemplated when exemption from United States oil import controls was established for Canadian oil moving in by pipe line.
Attached are copies of the Minister of Trade and Commerce’s statement in the House and of the statement made by United States Secretary of the Interior Udall on February 2.Footnote 53

423. D.M.F./Vol. 128

Memorandum from Assistant Deputy Minister, Department of Finance to Minister of Finance

CONFIDENTIAL [Ottawa], May 8, 1961

Meeting with Mr. Udall on Oil

You will have in your possession the briefing material prepared by the National Energy Board† for the meeting on oil matters with Mr. Udall, Tuesday, May 9, at 3.30 p.m. This memorandum provides supplementary information arising from a meeting we have had with Mr. McKinnon.
We do not know the exact purposes Mr. Udall had in mind when he requested that oil be placed on the agenda during his visit in Ottawa. We suspect that it is connected with the pressure which is being exerted on the U.S. Administration to impose greater restrictions on oil imports. Conceivably, Mr. Udall may ask us to cut back on Canadian exports to the United States. In this connection the following observations are relevant.
Our oil exports have increased in 1961 and this increase is more or less in line with the programme envisaged under the national oil policy. It is true that some fortuitous and unexpected increases occurred during the first quarter of 1961 but swings of this type are bound to level out over the longer run and in any event are not inconsistent with the general trend in our exports as made known to the U.S. Government earlier this year. In fact, Canadian companies are in close liaison with the National Energy Board and are fully alive to the sensitive issues involved. Indeed, they have themselves exercised restraint and could actually have sold more oil in the U.S. than they did. Also, the Energy Board has refused to fall in with proposals of some Canadian companies which wanted to be relieved of their obligation in whole or in part to use more Canadian crude for domestic consumption and meet their targets under the national oil policy by an increase in exports of Canadian crude to the United States.
As indicated in the N.E.B. Brief, Mexican oil is entering the U.S. in increasing quantities by taking unfair advantage of a loophole in the over-land exemption. The U.S. Administration finds it very difficult to live with this and they might be forced to ask the Mexicans to restrict such imports. Clearly, the reasons which might justify such U.S. action in respect of Mexican oil are not relevant to the Canadian situation.
Mr. Hees expects that Mr. McKinnon will carry the main burden of responding to the Americans. While there is agreement that we should be quite frank with the U.S., it is felt that the briefing papers, and in particular the statistical statements, are solely for internal use on the Canadian side and should not be shown to our visitors, particularly since the figures include preliminary estimates.
I am attaching a Note† prepared for the Prime Minister regarding Mr. Udall’s visit to Ottawa.Footnote54

.F.W. PLUMPTRE

424. DEA/50316-6-40

Memorandum from Assistant Under-Secretary of State for External Affairs to Head, Economic (1) Division

RESTRICTED [Ottawa], May 9, 1961

Oil: Talks Between Messrs. Hees and Udall

The conversation had to do with the rather rapid increase in Canadian exports, especially to Districts I - IV and the problems which such an increase presented for the continuation of the exemption. Mr. Kelly (the Assistant Secretary of the Interior) estimated that if recent trends continued, the increase might proceed at a rate three or four times as great as that contemplated when the Canadian national oil policy was communicated to the United States authorities. Mr. Kelly stated quite definitely that if it was thought necessary to restrict the Canadian exemption, there would be consultation beforehand.

  1. Mr. Hees assured the United States group that the Canadian Government was anxious not to contribute to the problems confronting the United States in this field.
  2. It was agreed that Mr. McKinnon and Mr. Kelly would keep in close touch.
  3. .Mr. Kelly suggested at one point that the Canadian authorities would be welcomed if they saw fit to present their views to the hearings taking place in the next few days. After discussion it was agreed this would not be appropriate.

A.E. R[ITCHIE]

425. D.M.F./Vol. 128

Memorandum by Department of Finance

SECRET Ottawa, October 26, 1961

Memorandum on Proposals Relating to Changes in U.S. Oil Import Program

  1. U.S. Interior Department Proposed Changes in Oil Import Program.
  2. Interior Department’s Proposal to Canada.
  3. Inter-Departmental Consideration of Kelly Proposal.

Appendices

I. Statistics

  1. Exports of Canadian Crude Oil, 1961
  2. Exports and National Oil Policy Targets, 1961

II. Some details on Interior’s Proposed Changes in U.S. Oil Import Program.

[ENCLOSURE 1]

Memorandum

SECRET

Memorandum on Proposals Relating to Changes in U.S. Oil Import Program

1. U.S. Interior Department Proposed Changes in Oil Import Program

At a meeting between Mr. Kelly, Assistant Under-Secretary of State for the Department of the Interior, and Mr. McKinnon in New York on September 21, Mr. Kelly advised Mr. McKinnon that the Department of the Interior was about to submit proposals for changes in the United States Oil Import Program to the State Department. These changes, he advised Mr. McKinnon, affected Canada in that he believed a definitive figure for Canadian exports in 1962 would be required in order to apply the new system. Some particulars of the proposed changes, as these have been revealed progressively to the National Energy Board, appear in Appendix II.
In essence the Department of the Interior is proposing to further restrict imports of off-shore crude and unfinished oils by seeking amendments to the Presidential Proclamation of March 10, 1959 and by introducing changes in the related Regulations. Mr. Kelly’s proposed program does not materially change the present situation in District V (the Pacific Coast area) but would introduce a significant departure regarding Districts I-IV, which include those market areas east of the Rockies served by Canadian crude.
If Mr. Kelly’s proposals are implemented, off-shore or licenced imports of crude (i.e. imports which exclude Mexican and Canadian crudes) into Districts I-IV in 1962, would be limited to a fixed percentage of refinery inputs of domestic crude (runs to stills) during the year ending September 30, 1961. The figures would be revised at six-monthly intervals. Imports of products, other than residual fuel oil, will not be allowed to exceed the level of imports into these Districts in 1957. The calculated effect of the proposed changes in Districts I-IV is to give a larger share of the market for crude oil, and probably of the growth of demand, in the area to the United States’ domestic industry.
Interior has effected an informal arrangement limiting Mexican export to the United States to 30,000 barrels a day over a period of three years commencing May, 1961. Canadian exports, which have risen rapidly in 1961, pose a serious difficulty in the proposed program. Canadian exports could, theoretically at least, increase in 1962 so as to frustrate Interior’s purpose underlying the revised program. Mr. Kelly is therefore seeking to negotiate some agreed limitation on Canadian exports in 1962 and specifically, as will be noted later, has suggested that total Canadian exports of crude and unfinished oils be limited to 190,000 barrels a day in 1962.
It should be noted that Interior is proposing changes in the Regulations relating to allocation of import quotas to refiners which could effect a change in the marketing pattern of recent Canadian exports, particularly if implemented under any total limitation of Canadian exports. Refiners in the St. Paul-Minneapolis area, for example, have been purchasing high priced North Dakota and other domestic crudes rather than Canadian crudes largely because they have received import quotas which could be traded for as high as $1.25 per barrel as a condition of their using offsetting volumes of United States crude. The proposal, now under consideration by Mr. Kelly, to lower the quota allocation to these refiners and others in the Northern Tier area, by eliminating Canadian crude imports under the Voluntary Program in future calculations of quotas, would make Canadian crudes highly attractive in St. Paul-Minneapolis. Growth in these markets could lead, if total exports were limited, to a frustration of desirable developments such as the construction of the pipe line to Buffalo.
National Energy Board discussions with Interior on more technical problems relating to proposed changes in the U.S. program indicated that Mr. Kelly may be somewhat flexible in a number of matters. It is possible that his request for a definitive figure for Canadian total exports may be modified as there are indications that he has a new appreciation of the special position of District V and the relative insignificance of an increase in Canadian exports into that District. It appears also that he is considering some modification of his proposed changes in the regulations relating to the St. Paul-Minneapolis area.
There is then, a certain degree of fluidity in the Interior Department’s proposed changes and, it should be noted, other United States departments, including State, have yet to consider Interior’s proposals.

2. Interior Department’s Proposal to Canada

At the September meeting, Mr. Kelly not only gave some preliminary indications of the changes he contemplated in the U.S. import program, but also asked Mr. McKinnon to present a proposal to the Canadian Government that the level of Canadian exports of crude and unfinished oils for 1962 be fixed at 190,000 barrels a day. He indicated his desire to avoid any formal restriction on the entry of Canadian crude into United States markets but considered it necessary to the U.S. program to have some agreed limitation for 1962. He suggested that 190,000 barrels a day could be considered a satisfactory level in view of previous discussions between the two countries. Mr. Kelly indicated that he foresaw Canada sharing in future growth of United States demand for crudes on an equitable basis and that he would participate in joint studies to facilitate orderly growth of Canadian exports. He suggested that his proposal be stated as follows:

  1. If the Canadian Government accepts the proposal in total, a confirming letter is to be written by the Honourable Mr. Hees to Secretary Udall and no further meetings will be necessary.
  2. If the Canadian Government accepts the principle of fixing levels of exports but wishes to introduce qualifications, a meeting would be arranged at whatever level Canada desires. Assistant Secretary Kelly would accept Chairman of the National Energy Board.
  3. If the Canadian Government will not accept the principle in respect of limitation of exports, a meeting at high level with representatives of interested United States and Canadian Departments would have to be arranged.

3. Inter-Departmental Consideration of Kelly Proposal

Mr. Kelly’s proposal has been considered on two occasions by an Inter-Departmental Committee composed of representatives of the Departments of Finance, Trade and Commerce, External Affairs, Privy Council and the National Energy Board. Our Energy Counsellor at the Embassy in Washington attended one of the meetings.
These meetings served to focus attention on a number of important issues involved in considering the proposal. The procedure followed by Mr. Kelly is distinctly irregular and State Department, which traditionally has been helpful on many occasions in negotiations between the United States and Canada, could easily be offended if ignored by Canada in the negotiations. State has indicated its interest in the matter. The principle of limiting Canadian exports to the United States is clearly unsound in the circumstance of a large unfavourable balance of trade between the two countries and equally clearly there can be no diminution of the great importance placed by Canada on the exemption of Canadian crudes from U.S. oil import restrictions negotiated in 1959. The helpful role of State Department at that time is a matter of record. The meeting re-emphasized the extent to which information has been lacking regarding important details of the changes being proposed to the United States Government by Mr. Kelly. Subsequent discussion on these matters, as noted above, suggest a greater degree of flexibility on the proposals as these relate to Canada than might have been anticipated.
The Committee also recognized that a completely non-cooperative approach to the Department of the Interior is inconsistent with discussions with Mr. Udall, the traditional relations between the two countries and could unduly antagonize that Department. If carefully conducted, continued discussions with Interior might bring certain advantages. Mr. Kelly, for example, suggested on one occasion that some understanding on the level of exports from Canada would eliminate difficulties now becoming apparent regarding the use of the U.S. authorities of the hitherto technical requirement of a Presidential Permit for new international connections of pipe lines and similar facilities, to control U.S. imports. However, it was recognized that any cooperation afforded Interior should not violate Canada’s vital interest in preserving its special position relating to the U.S. import restrictions nor interfere with existing sound relations with State Department through normal established channels of communication. Canada’s oil industry has the capacity for substantial growth in export markets, and it is vital to secure continued access to these markets for the present and future on the best possible terms. Canada could not expect to limit exports to 190,000 B/D in 1962 without introducing formal controls.
In summary, the Inter-Departmental Committee would recommend for Ministerial consideration that further discussions might be held between Mr. McKinnon and Mr. Kelly. Mr. McKinnon would clarify for Mr. Kelly the vital importance placed by the Canadian Government on the continued exemption of Canadian oils from any restrictions associated with the U.S. Oil Import Control Program. He would seek further clarification of Mr. Kelly’s proposed revisions to the program and to the extent necessary give Mr. Kelly a National Energy Board forecast of Canadian exports in 1962 (it now appears possible that the forecast could be limited to Districts I-IV), recalling for Mr. Kelly the well-established cooperation existing between the Canadian oil industry and the Energy Board. This would be given on the understanding that the forecast would not be publicly attributed to Canadian sources. Mr. McKinnon would warn Mr. Kelly that the Canadian Government is not prepared to undertake control of oil exports. (No part of these discussions should be committed to paper.)
The Committee would also recommend that the Canadian Ambassador in Washington concurrently advise State Department on progress of discussions between the National Energy Board and Interior and the essential points of the further discussions to be held with Mr. Kelly, stressing that the Canadian Government attaches the highest importance to the unimpaired continuation of the overland exemption of Canadian crudes.

[ENCLOSURE 2]

Appendix I

SECRET

Statistics

  1. Exports of Canadian Crude Oil, 1961 (in Thousands of Barrels per Day)
    Districts I-IVDistrict VTotal
    Target (Minimum Objective)7075145
    Probable9391184
    Average, 4th Quarter108112220
  2. Exports and National Oil Policy Targets, 1961
    Target '000 B/DPercent Total IncreaseProbable '000 B/DPercent of Total Increase
    Domestic Use4906745229
    Exports (Crude)1453318471
    (Products)57
    Total640100643100

[ENCLOSURE 3]

Appendix II

Information Supplied by Mr. Kelly and His Assistant, Mr. Snedeker, on Interior’s Proposed Changes in the United States Oil Import Control Program

The proposed changes relate to:

  1. The Proclamation
  2. The Regulations.
  1. Proclamation
    An important amendment is to be made to Section 2 (a)(1) of the Proclamation to provide that in Districts I-IV the maximum level of licensed imports of crude oil and unfinished oils will be limited to a fixed percentage of refinery inputs of domestic crude (runs to stills) during the year ending 3 months prior to the allocation period fixed by the Secretary of the Interior. The first period to be fixed will be the year ending September 30, 1961 and the figures will be reviewed every 6 months. Within this maximum level, imports of unfinished oils will not be allowed to exceed 10 per cent of the permissible imports of crude oil and unfinished oils. Imports of products, other than residual fuel oil to be used as fuel, will not be allowed to exceed the level of such products imported into these Districts during the calendar year 1957.
    Section 2(b) is to be amended essentially to provide for corrections of under estimates of demand by the United States Bureau of Mines and overages of Canadian imports. The emphasis here is to provide for a constant stock level. The amendment also relates to controlling shipments of crude and products from the West Coast to Districts I-IV and will provide that any such shipments in excess of the 1958 level will not count as demand in District V.
    District V allocations are made up in the following manner: The maximum domestic production for District V is calculated (approximately 830 MB/D). To this is added the maximum capacity of the Four Corners Pipe Line (80 MB/D). Product transfers from District IV are added in (50 MB/D). Natural gas liquid production is included (70 - 75 MB/D). Finally, an estimate for Canadian crude is calculated and added into the number. The difference between the addition of the above factors and estimated demand (approximately 1,300 MB/D demand) is equal to the overall offshore import allocation.
    Under the new set-up the Department of the Interior will correct for overages and shortages in estimates on the West Coast every six months by a running adjustment. For example, if Canada brings more crude into District V in a six month period than estimated, then in the next six month period, a corresponding reduction will be made in offshore imports. Section 9 (f), the definition of crude oil, is to be amended to read as follows:
    “‘Crude oil’ means crude petroleum as it is produced at the well-head and any mixture of hydrocarbons existing in a vaporous phase in the reservoir, which is recovered as a liquid under atmospheric conditions but which is unsuitable for use as a finished product without being refined, and is not over 65 PI gravity at 60o F.”
    Section 9(g), definition of “natural gasoline” or “plant condensate” is to be amended to mean
    “a product from wet gas or from a mixture of vaporous hydrocarbons of an oil- or gas-bearing reservoir manufactured in a plant or factory by the process of absorption, adsorption, compression, refrigeration, cycling, or a combination thereof and which, without further processing, is suitable as a blending component of the finished product.”
  2. Regulations
    It is understood that Section 10 of the Regulations dealing with the allocation of crude oil and unfinished oils, is to be amended. Subsection (b) is to be amended to provide that there will be a sliding scale for three categories only:

0 to 30,000 B/D
30,000 B/D to 100,000 B/D
100,000 B/D plus.

Subsection (c) is to be amended to provide that the percentage of the applicant’s last allocation of imports of crude oil under the Voluntary Oil Import Program will be reduced by 2 per cent every six months and there will be a further amendment to provide that the last under the Voluntary Oil Import Program shall not count for quota allocation purposes to the extent that it include any oil subsequently exempted under the overland provision under the amendment to the Proclamation.
Discussions with Mr. Snedeker in Ottawa 18-20th October, indicated Mr. Kelly may introduce some further amendments relating to this item.

426. DEA/14405-C-8-1-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

CONFIDENTIAL Ottawa, October 31, 1961

Canadian Oil Exports to the United States Formal Communication to the United States Government

Attached for signing, if you approve, is a telegram to our Ambassador in Washington instructing him to present to the State Department the formal communication on the subject of Canadian oil exports to the United States which was agreed upon by the Cabinet Oil Committee.Footnote 1

A.E. R[ITCHIE]
for Under-Secretary of State
for External Affairs

[ENCLOSURE]

Secretary of State for External Affairs to Ambassador in United States

TELEGRAM E-2204 Ottawa, October 31, 1961
CONFIDENTIAL. OPIMMEDIATE.
Repeat for Information: NATO Paris (OpImmediate).

CDN Oil Exports to Usa: Formal Communication to USA Govt.

Ministers have now approved the following text of a formal communication to the USA Government on the subject of Canadian oil exports to the USA. Text Begins:
The Canadian Government is aware that following public hearings the USA Government is considering modifying the mandatory oil program. Any changes of course would affect imports into the USA. The Canadian Government attaches the highest importance to the unimpaired continuation of the overland exemption set out in the Presidential Proclamation 3279 of March 10, 1959, as amended by Proclamation 3290 of April 30, 1959, the reasons for which remain valid.

The policy of the Canadian Government with respect to exports of Canadian oil is to encourage their expansion without serious disruption of markets. It is not repeat not the intention of the Canadian Government to impose export controls.

The National Energy Board intend to continue their close and valued cooperation with the Department of the Interior and will from time to time provide information regarding the anticipated pattern of Canadian exports as may be forecast by the National Energy Board. Text Ends.

  1. You should now present this to the State Department at a senior level.
  2. Ministers also approved the suggested verbal communication to be made by McKinnon to Kelly. McKinnon is now in Paris and will be seeing Kelly we expect on November 1, though we do not repeat not know at exactly what time. He has been informed that you have been instructed to present the formal communication set out above.

H.C. GREEN

427. DEA/14405-C-8-1-40

Memorandum from Secretary of State for External Affairs to Prime Minister

CONFIDENTIAL [Ottawa], December 8, 1961

Imports of Canadian Oil into the United States

As you are aware, the United States administration has been under heavy pressure from domestic industry to cut the current United States quota for imports of foreign oil. The Department of the Interior, though it did not suggest doing away with the “overland exemption” under which Canadian oil moves to the United States, wished to see Canadian imports held to about 190,000 B/D and based its proposals for revised import quotas for non-Canadian oil on that figure. These proposals have now been examined by President Kennedy, who has announced (a) that the present import quota system, instead of being revised on January 1, 1962, will be continued to June 30, 1962; and (b) that a comprehensive study of petroleum requirements and supplies in relation to national security will be undertaken at once, to be completed by mid-1962. These findings will form the basis of a new import programme.

Our Embassy in Washington has sent comments on the President’s statement of policy which you may find of interest. In the first place, the Embassy points out that the President has removed the discussion of oil policy matters from the predominant control of the Department of the Interior and ensured that it will be subject to the collective consideration of all the executive agencies concerned. Secondly, the Embassy continues as follows:

“What we think the President has called for is a completely new approach and appraisal against the backdrops of the determination of administration to pursue in the Congress and with the public a broader, liberal and different international trade policy, and the increasing incursions of Soviet oil into the Western markets.”
Finally it is suggested that the United States administration’s evident belief in the need for a general reappraisal of oil policies may well mean that Canada will be asked to participate in discussions to this end.

H.C. G[REEN]

Section E - Turkeys

428. DEA/3300-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

CONFIDENTIAL [Ottawa], November 28, 1961

Further United States Complaint about Canadian Import Restrictions on Turkeys

At the request of the United States a consultation was held between United States and Canadian officials in Ottawa on November 10 on the subject of our import restrictions on turkeys. This consultation was requested by the United States under the terms of paragraph 1 of Article XXII of the General Agreement on Tariffs and Trade, which reads as follows:
“Each contracting party shall accord sympathetic consideration to, and shall afford adequate opportunity for consultation regarding, such representations as may be made by another contracting party with respect to any matter affecting the operation of this Agreement.”

  1. These import restrictions were imposed in July 1957 in connection with a domestic price support programme for turkeys. At that time Canadian producers were only beginning to develop large-scale production and marketing techniques and were faced with severe competition from a much more highly developed United States industry which was exporting large quantities into Canada. The support programme established a minimum price at which the Canadian Government undertook to intervene in the market to purchase turkeys. The import restrictions were imposed in order to avoid the depressing effect of imports on the Canadian price level and to guard against the eventuality that the Government might find itself purchasing imported turkeys in taking action to support the domestic price. The price support measures and related import restrictions were regarded at the time as a temporary measure to allow and encourage the Canadian industry to develop large-scale modern production and marketing techniques. These developments have in fact taken place. Over the past few years, Canadian producers have generally been marketing their birds at prices comparable to those prevailing in the United States and at times have exported quantities to the United States. The question therefore arises of whether the support price measures on turkeys and the related restrictions are any longer really required by the Canadian industry.
  2. The United States, which is the only country affected, has objected to these import restrictions on turkeys from the beginning; and this problem, although affecting an insignificant part of total Canadian-United States trade, has been a persistent irritant in Canada-United States trade relations. Some satisfaction was given to the United States in October 1958 by the opening of a 300,000-lb. quota for the fourth quarter of that year. In 1959, following strong representations by the United States Government a 4,000,000-lb. annual quota was established, with a provision that no more than 1,000,000 lbs. could be imported in any one quarter. Somewhat later the quota was modified so that within the 4,000,000-lb. annual quota up to 2,000,000 lbs. could be imported in one quarter. The amount of this quota is substantially below the quantities imported from the United States during the years before the restrictions were imposed.
  3. The United States Government, however, has remained dissatisfied and on many occasions has protested that these restrictions are (a) inconsistent with Canada’s obligations under the General Agreement on Tariffs and Trade, (b) constitute an impairment of tariff concessions on turkeys negotiated by the United States and bound under the Agreement, and (c) result in substantial damage to United States exports. The United States has not so far taken the matter before GATT Contracting Parties, although they have threatened to do so on a number of occasions. At the recent consultation on November 10, the United States representatives stated that they might well carry their complaint forward under the procedures of the Agreement unless we were able to resolve the problem by removing the restrictions at an early date or by granting a more generous quota for United States exports, preferably in time to benefit exports for our Christmas trade.
  4. Should the United States take their case to the GATT Contracting Parties, it would be difficult, to say the least, for us to argue that these restrictions were consistent with our obligations under the General Agreement. An adverse ruling by the GATT Contracting Parties, moreover, might lead to a formal request by the United States for compensation or to retaliatory action by the United States against some portion of Canadian exports. An adverse ruling would also be damaging to the efforts which Canada has been making in the GATT and elsewhere to achieve a relaxation of import restrictions imposed by other countries on important Canadian agricultural exports. There is no question that the removal of these restrictions or the enlargement of the quota would have an effect on Canada-United States trade relations far greater than would be indicated by the amount of trade involved.
  5. In the circumstances you may wish to discuss with other Ministers concerned the question of an early removal of these import restrictions on turkeys or if this is not possible the enlargement of the existing 4,000,000-lb. quota on imports. Officials in the Departments of Agriculture, Trade and Commerce and Finance are briefing their Ministers on this subject, as a result of the November 10 consultation, and we understand that the Minister of Agriculture may be prepared to agree to some early action. If you think this matter might be discussed in Cabinet, we should be glad to proceed now, in consultation with other Departments concerned, with the preparation of an appropriate Memorandum to Cabinet to be submitted by the Ministers mainly concerned.Footnote 56

N.A. R[OBERTSON]

P.S. We have learned that the United States Minister of Agriculture a few days ago telephoned Mr. Hamilton on this matter, requesting that measures be taken to permit further United States exports before Christmas.

429. DEA/3300-40

Economic (1) Division to Embassy in United States

PERSONAL AND CONFIDENTIAL. Ottawa, December 8, 1961

Dear Maurice [Schwarzmann],

Gatt: Canadian Import Controls on Turkeys

With reference to your telegram no. 3703 of December 6† and our reply which is going forward today,† you will be interested in the attached letter dated November 23 from Mr. Hamilton to Mr. Freeman,† marked “Personal and Confidential,” on this subject. I am sending this to you for your own information, of course.
Also for your own information, Mr. Green has indicated that External Affairs should take no initiative in this matter. However, Mr. Hees, after being consulted by his Department, indicated that he would be prepared to explore with his colleagues the possibility of dismantling the restrictions some time next year. The next step would seem to be for Trade and Commerce to follow this up with Agriculture and possibly Finance. No doubt the possibility and the timing of an election here will be an important factor in reaching a decision.
The subject has not therefore been mislaid or forgotten here, and I hope you will impress your American colleagues with this fact and try to persuade them not to carry the matter further in GATT for the time being at any rate.

Yours sincerely,
W.F. STONE

430. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], December 21, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill), (for morning meeting only)
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker), (for morning meeting only)
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge), (Mr. Watters).
    . . .

Price Support for Turkeys

  1. The Minister of Agriculture said he was recommending that price support be continued for the year 1962 at the present rate of 20 cents per pound, which was 58.8 per cent of the base price of 34 cents per pound. If Cabinet approved his proposal, he had an announcement to make to the press in which he would say that there would be no change in the import control programme on turkeys for the present. He was under pressure from the United States to take off the import controls and he wanted to assure the Canadian producers that the import controls would remain for the time being at any rate.
    (Minister’s memorandum, Cab. Doc. 474-61, Dec. 20).†
  2. During the discussion it was said that nothing would be gained by referring to import controls and the reference might cause concern among the U.S. hog producers.
  3. The Cabinet agreed,
    1. that, for the 12 months from January 1st, 1962, turkeys produced in Canada be designated as an agricultural commodity for the purpose of sub-para. (ii) of para. (a) of sub-section (1) of Section 2 of the Agricultural Stabilization Act;
    2. that the support price for the period should be 58.8 per cent of the base price of 34 cents per pound, f.o.b. Toronto, or 20 cents per pound for live No. 1 Turkeys weighing at least ten pounds but under twenty pounds; and
    3. that there should be no reference to import controls in the press release of the Minister of Agriculture.
      (An order in council was passed accordingly; P.C. 1961-1845, Dec. 21).
      . . .

Section F - Food for Peace

431. DEA/11049-40

Ambassador in United States to Secretary of State for External Affairs

TELEGRAM 348 Washington, February 3, 1961
CONFIDENTIAL
Repeat for Information: Prime Minister Ottawa, T&C Ottawa, Finance Ottawa, Agriculture Ottawa from Ottawa, London, Paris, Rome from Ottawa.

Food for Peace; Policy of Kennedy Administration

At his request, I called on George McGovern, the new Director of Food for Peace, yesterday February 2. Marshall and MacNaught accompanied me. McGovern’s position, which was formerly held by Dr. Paarlberg, is now on the executive staff directly under the President. The Director’s establishment has been substantially strengthened by full and part time officials from the Departments of Agriculture and State. McGovern seems to know Canada; his family lived for some years in Calgary. His attitude yesterday morning was very friendly and cooperative.

  1. McGovern opened our conversation by asking what I thought he could do in order that maximum benefit be derived all round from USA Food for Peace activities. He was anxious that what was done by the new Administration should carry the judgement of other countries like Canada which had surplus food stuffs and similar objectives.
  2. In response I expressed appreciation of his invitation to call on him and mentioned our own great interest in developments which would take place in the USA programme. I pointed to the close cooperation which had been developed between us over past years in this area and reminded him that Canada had from the outset supported and encouraged the Food for Peace concept. He would be aware that the Prime Minister was personally very much interested and had actively espoused the objectives of a coordinated programme. We believed, as did USA, that available foodstuffs should be used to the greatest possible extent for the alleviation of distress and hunger.
  3. Having said as much, I went on, it should be borne carefully in mind that the carrying out of our programmes in this area raised many questions, particularly in relation to normal commercial trade. In Canada wheat was, as the Director would know, of special concern because of its much larger relative importance to Canadian economy than to that of USA. So we would hope, indeed expect, that in the implementation of USA policies due regard would continue to be had for Canada’s interests. The pattern of consultation which had been developed, particularly over recent years, had on the whole worked well. We trusted that it would be continued and that care would be taken to give us adequate notice and opportunity for discussion on USA deals in contemplation.
  4. McGovern, pointing out that he came from a wheat growing state, said that he welcomed and had sought this opportunity to assure us that we could count on full consideration of Canadian interests by him and his officials. The machinery of joint consultation would certainly be preserved and, where possible, strengthened. Anything which would tend to upset or depress the markets of the Canadian wheat farmer would not repeat not help USA but in the long run would affect adversely the interests of American producers as well. He and his officials would work very closely with us.
  5. Naturally I expressed appreciation for the assurances given me by the Director and thanked him for this early opportunity of meeting him and explaining our position. Many difficulties in this area, but not repeat not all, had been resolved between us in the past. No repeat no doubt there would be difficulties and differences in the future for the pressures were great and the situation complex. It was in both our interests that such difficulties should not repeat not develop to the point of attracting public attention. McGovern expressed full agreement on these points.
  6. The Director then referred to the impending USA mission to South America.Footnote 57 This, he said, would be of a technical nature. When the mission had returned and reported to the Government, he himself would probably head another group to negotiate agreements with the countries where possibilities had been uncovered. Before any such agreements were made, however, we would be fully consulted. He went on to volunteer that in these arrangements particular stress would be placed on the principle of “additionality.” The mission would be concerned with what assistance might be given to alleviate distress and for economic development, such as assistance in land reform; for example, the donation of feed grains to farmers settling on new land to enable them to get a start. They would seek to avoid deals which would impinge upon normal commercial marketings.
  7. Returning to the mutual interest that our two countries had in the orderly disposal of surplus wheat, McGovern mentioned a friend who had undertaken a very sizeable deal in soya beans. The deal was so large that although he could have handled it himself, he decided to share it with his competitors on the ground that this would be in the best long range interests of all. He drew the analogy with the USA-Canadian position in wheat; anything which hurt the Canadian farmer must in the long run have undesirable repercussions on the American farmer. It was in USA’s own interest to preserve and improve our existing relationships in surplus disposal and he proposed to operate on this principle.
  8. If as time goes on the Director is able to abide by the policy he stated yesterday (and I believe he will do his best to do so), the prospect for cooperation with his organization is good and the activities of the expanded food for peace programme should not repeat not cause undue apprehensions in Ottawa. But we will be in a better position to judge of this a year from now.
  9. Incidentally, among those working with the new Director are officials such as O’Leary, formerly of Agriculture, and Bramble of State, both of whom are fully aware of the value of close cooperation and consultation with us.
  10. I am leaving Latin American distribution of this message to the Department.

[A.D.P.] HEENEY

Part 7

Chicago Diversion

432. DEA/1760-B-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

CONFIDENTIAL [Ottawa], October 12, 1961

Chicago Diversions: Cases Before the United States Supreme Court

Background:
In the summer of 1959 the United States Supreme Court appointed a Special Master (Mr. Justice Maris) to hear evidence on both sides of the diversion controversy. As we understand it, the purpose of the hearings before Judge Maris is to take any evidence bearing on the controversy with regard to diversions, past and prospective, in the areas of power production, navigation, possible pollution and recreational facilities resulting from continuing unlimited diversion or new diversions out of the Great Lakes Basin for domestic pumpage.

  1. There are four cases before Judge Maris. In cases numbers 2, 3 and 4, six Great Lakes States are asking that the Supreme Court order Chicago to treat the water it uses for domestic purposes (1,700 c.f.s.) and return it in a purified form to Lake Michigan. If this suit were successful, the effect would be either a reduction or a limitation of the amount of diversion for domestic pumpage purposes which is now being made by Chicago.
  2. In the fourth case, No. 12, the Elmhurst - Villa Park - Lombard Water Commission seeks authority to divert 30 to 50 c.f.s. from Lake Michigan for domestic purposes with disposal into the Mississippi drainage basin. (In May, 1960, Judge Maris refused a request for an advance ruling by Illinois to permit these three Chicago suburbs to take unlimited amounts of water from Lake Michigan on the grounds that they had a water shortage; he found no evidence that a genuine water shortage existed.)
  3. If case No. 12 were successful, and there were no requirement that the water diverted be returned to the Great Lakes Basin, the Elmhurst - Villa Park - Lombard Commission diversion would constitute an unilateral diversion from Lake Michigan. While the amount of water proposed for diversion in this case would not perhaps in itself have much effect on navigation or power interests downstream, a favourable decision would establish a precedent for unilateral diversions which might well be followed by other lake shore communities on Lake Michigan.
  4. The United States Government applied for and received Leave to Intervene in all four cases outlined above and has already presented to the Court summaries of treaty and other arrangements between the United States and Canada with a view to reserving its rights.
    Recent Developments:
  5. You will recall that earlier this summer the State Department informed us that it proposed to have the United States Solicitor General intervene in these cases later this autumn or next winter. The State Department asked us whether we would like to submit an Aide Mémoire (or note) making it clear that Canada is unalterably opposed to unilateral diversion as envisaged by the Elmhurst - Villa Park - Lombard Water Commission; and that permission for the diversion in case No. 12 would establish a precedent for other communities to take similar action. The State Department has recently informed us that it does not propose to have the United States Solicitor General appear before the Court, although he might be called before it by Judge Maris, but intends rather that he should submit further evidence to the Court in writing. For this purpose, of course, a document from Canada would be particularly useful.
  6. Careful consideration has been given to the form in which Canadian views on Chicago diversion might most suitably be made known to the Court. In the light of this consideration, I now wish to recommend that we accept the suggestion made by the State Department that Canadian views on Chicago diversion be reaffirmed and that our views be conveyed in a first person note from the Canadian Ambassador in Washington to the United States Secretary of State. I further recommend that this note make reference to all four cases before the Supreme Court, even though Case No. 12 original, involving as it does the possibility of a new unilateral diversion, gives undoubtedly cause for greater concern than the prospect of a decision favourable to Illinois in the other three cases which, while not limiting domestic pumpage diversions, would not necessarily increase them either.
  7. If you agree with these recommendations, a draft note to the United States Secretary of State is attached for your consideration.Footnote 58

N.A. R[OBERTSON]

[ENCLOSURE]

Draft Note from Ambassador in United States to Secretary of State of United States

Excellency,
On instructions from my Government, I have the honour to refer to cases now before the Supreme Court of the United States, October term 1959, Nos. 2, 3 and 4 between the States of Wisconsin, Minnesota, Ohio, Pennsylvania, Michigan and New York as complainants and the State of Illinois and the Sanitary District of Chicago as defendants; and case No. 12 original between the State of Illinois as complainant and the States of Michigan, Ohio, Pennsylvania, New York and Wisconsin as defendants.
It is noted that in cases Nos. 2, 3 and 4, the complainants ask that the defendants be restrained from discharging any of the treated effluents emanating from the Sanitary District’s sewage and industrial treatment facilities into the Chicago Sanitary and Ship Canal, and that the said defendants be required to return all of said effluent to the Great Lakes Basin from which it originally came in the form of “domestic pumpage;” and alternatively that a Permanent Master be appointed for the purpose of determining whether measures other than the return to Lake Michigan of the Chicago domestic pumpage effluent can be put into effect so that such measures will either reduce the direct diversion or limit the Chicago domestic pumpage, to the end that the total amount of diversion from the Great Lakes at Chicago will be reduced or restricted.
It is further noted that in case No. 12 original the complainant asks the Court to declare that the State of Illinois and its instrumentality, the Elmhurst - Villa Park - Lombard Water Commission, are entitled to proceed with a programme for the construction of a water supply system and the withdrawal of water from Lake Michigan, and further asks the Court to restrain the defendants from interfering with such construction and withdrawal.
It is a matter of satisfaction to my Government that the United States of America, in applying for Leave to Intervene in cases 2, 3, 4 and 12 original in order to protect its interests, included among those interests the “maintenance of friendly relations with Canada.” Your Excellency will recall that representations have been made to the Government of the United States of America on numerous occasions during a period of many years with respect to a variety of proposals concerning the diversion of water from Lake Michigan out of the Great Lakes watershed at Chicago; that the Canadian Government has never consented to any such diversion; and that it has repeatedly expressed its unalterable opposition to such unilateral diversions which, in its view, are in violation of Canada’s rights under many agreements and understandings between the United States of America and Canada. Because of the importance to Canada of the questions under consideration in the cases referred to above, the Government of Canada, while fully reserving its rights, believes that it is timely to re-examine the considerations which it regards as relevant and material to any proposals involving diversions of water out of the Great Lakes watershed.
Furthermore, the Government of Canada, while not submitting in any way or for any purposes to the jurisdiction of the Supreme Court of the United States in these cases, considers that its views should be reiterated at this time so as to avoid any possible misunderstanding as to the nature and extent of Canada’s rights and interests in the outcome of the cases referred to above. I have accordingly been instructed to bring the following considerations to your attention.
Every diversion of water out of the Great Lakes watershed at Chicago inevitably decreases the volume of water remaining in the Great Lakes Basin for all purposes. Any lowering of the water levels has measurably adverse effects upon Canadian navigation in the Great Lakes and the St. Lawrence River. Similarly, any decrease in the outflow of Lake Erie and Lake Ontario causes a proportionate reduction of the power potential of the Niagara and St. Lawrence Rivers. Consequently, diversions such as that under consideration in case No. 12 original would impair Canada’s legitimate interests. Conversely, any restriction upon presently existing diversions not previously consented to by Canada such as is under consideration in cases No. 2, 3 and 4 would be consistent with Canada’s legitimate interests.
The causal relationship between diversions out of the Great Lakes Basin and the resultant adverse effects upon Canadian and United States of America navigation and/or power interests is recognized in the following treaties and agreements:
Treaty between Canada and the United States of America relating to uses of waters of the Niagara River, signed at Washington, February 27, 1950. CTS 1950/3;
Treaty between Great Britain and the United States of America relating to Boundary Waters and Questions arising along the boundary between Canada and the United States, signed at Washington, January 11, 1909. CUS 1927/312;
Exchange of Notes between Canada and the United States of America concerning the construction of the St. Lawrence Seaway, signed at Washington, June 30, 1952 and January 11, 1952. CIS 1952/30;
Exchange of Notes between Canada and the United States of America modifying the Exchange of Notes of June 30, 1952 concerning the construction of the St. Lawrence Seaway, signed at Ottawa, August 17, 1954. CTS 1954/14;
Exchange of Notes between Canada and the United States of America relating to the Great Lakes – St. Lawrence Basin (Niagara Falls – Long Lac Ogoki Works – Albany River Basin), signed at Washington, October 14 and 31 and November 7, 1940. CTS 1940/11.
In accordance with the aforementioned treaties and agreements various hydro-electric power installations and navigation channels, including those of the St. Lawrence Seaway, have been constructed. Such projects would be jeopardized by diversions of the kind under consideration in case No. 12 original. Moreover, apart from damage immediately attributable thereto, such a diversion would establish an extremely undesirable precedent with serious implications for Canada.
For the foregoing reasons, and bearing in mind the importance attached by the United States of America and Canada to the honouring of international undertakings in letter and in spirit, I have been instructed to convey the Government of Canada’s serious concern at the prospect of any action being taken which would impair the legitimate interests of Canada, including Canada’s rights under agreements and undertakings between our two countries relating to the Great Lakes Basin, and would constitute an irritant to good relations between Canada and the United States of America.

(to be signed by
A.D.P. HEENEY)

433. DEA/1760-B-40

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

RESTRICTED [Ottawa], October 31, 1961

Chicago Diversion

There has been a new development in the series of cases concerning present and proposed diversions from Lake Michigan, and the delivery of the proposed note to the U.S.A. on the question which you approved in mid October has been held up briefly in order to give time to consider its implications.

  1. After the transmission of the note to our Embassy in Washington, but before its delivery to the State Department, our Embassy learned from Counsel for three of the Great Lakes States opposing the proposed diversion from Lake Michigan that the Assistant Attorney General of Michigan is at present engaged in bringing together all the past documentation and testimony which deals with the international implications of Chicago Diversion with a view to presenting it to the Court. We understand that it is their thinking that evidence of Canada’s interests can be used to buttress theirs; and indeed may be the strongest weapon at their disposal. This is in some ways a favourable development, since it is an additional means of ensuring that the Canadian position is made known to the Court. However, there may be certain dangers involved which, while not requiring a redrafting of our note, do suggest the advisability of a slight change in procedure subsequent to its delivery.
  2. As you will recall, the State Department asked us not to reiterate the arguments put forth in our note of April 9, 1959,Footnote 59 (which had been directed at legislation pending before Congress and not to the present litigation), and made clear that if we did so they might feel obliged to query them in Court. Our main concern, therefore, was to ensure that the Canadian position would be properly presented to the Court while at the same time avoiding, if possible, an argument in Court with the State Department which might blur the Canadian legal position and thereby weaken our case. An examination of the Petition for Leave to Intervene and Motion in support thereof presented by the State Department indicated that while the specific arguments outlined in our earlier note had not been reiterated, both the treaty provisions and the factual situation on which they were based had been included in the State Department brief and in fact a large part of the U.S.A. argument was directed to the question of the “maintenance of friendly relations with Canada.” In these circumstances, and bearing in mind the extent of our mutuality of interests with the State Department in this case, it was felt that the risk of leaving the presentation of the Canadian case to the State Department was relatively slight and we need not, at least at this stage, appear by amicus curiae, nor, since the substance of our case had already been presented to the Court, precipitate a difference in Court with the State Department by reiterating in detail the particular arguments outlined in our earlier note. The note which you approved was therefore carefully drafted so as to include the essential elements of the Canadian position without going into those arguments which might invite controversy with the State Department.
  3. The possibility now arises that Counsel for the Great Lakes States opposing the diversion may raise the very questions which we have avoided and in so doing embroil us in controversy with the State Department. It is known, however, that some degree of co-operation exists between the State Department and the Great Lakes States in question, and it is a reasonable assumption that the State Department will attempt to ensure that the arguments to which they take exception are not raised by the States. It may therefore prove possible to continue to maintain the active support of the State Department for our position while also gaining that of those States with whom our interests coincide. Consequently, there would seem to be no reason for redrafting our note nor altering the decision not to appear at this stage by amicus curiae. Since, however, we would have no control over the line of argument which might be taken by the Great Lakes States, the possible dangers involved in their support provide an added reason for keeping a careful eye on developments in the four cases in which we are making representations, with a view to enabling us to determine as developments occur whether or not it would be advisable to intervene at some stage by means of amicus curiae. I have, therefore, drafted the attached telegram to our Mission in Washington,† for your signature, if you agree, assessing the significance of the possible intentions of the Great Lakes States in question as providing merely an added reason for continuing to closely observe developments in the four cases, and confirming that the note should be delivered in its present form.Footnote 60

M. C[ADIEUX]
for Under-Secretary of State
for External Affairs

434. DEA/1760-B-40

Ambassador in United States to Under-Secretary of State for External Affairs

LETTER NO. 1732 Washington, December 18, 1961
RESTRICTED

Diversions from Lake Michigan

A member of the Embassy recently had a conversation with Mr. N. Olds, Assistant Attorney General for Michigan, and Mr. Roy Vallance, Counsel for four of the Great Lakes states in the cases now being heard by the Special Master of the Supreme Court. Mr. Olds outlined the measures that Michigan and the other Great Lakes states had taken to prepare their cases and reiterated that it was the view of the Great Lakes states that the international implications of these cases would have an important bearing on the attitude of the Special Master and the justices of the Supreme Court. The states were urging the Solicitor General to present as much evidence and material as possible bearing an earlier expressed Canadian concern at the effects of diversions from Lake Michigan, but they were not at all convinced that the Solicitor General would do this.

  1. Olds went over much the same ground as Vallance had with us earlier and emphasized that the injuries to the states from additional diversions would be felt in Canada and it was for consideration, therefore, whether the Canadian Government might not wish to submit to the Department of State documentary material bearing on the injuries which would be sustained by Canada through any additional diversions. He pointed out that the Supreme Court, in cases of this kind involving its original jurisdiction, reached a decision not so much on the law involved but rather on the broader question of public interest. That is to say, it based its decisions on a judgement of the extent of injuries which would result to either party. He used as an illustration the drawing up of a balance sheet, on one side of which would appear the costs to the Sanitary District of Chicago of providing for optimum treatment facilities so as to return treated effluent to the Great Lakes basin and, on the other side, the costs to the other interested parties of remedial works which would be required to offset any net additional diversions.
  2. It was Olds’ view that an assessment of the material injury to Canada of additional diversions should appear as an entry in the “balance sheet,” but it could not be assumed that the Court would take cognizance of these injuries unless the Canadian Government took steps to ensure that the Special Master was aware of them. Olds and Vallance had in mind the submission by Canada of material not unlike that submitted to the Secretary of War in 1912 which would give an estimate of the injurious effects of additional diversions on power, navigation, recreation and related riparian interests.
  3. While Olds was optimistic as to the Supreme Court’s ruling, there was no certainty in his mind that the problem would be resolved once and for all or that a completely satisfactory decision would be arrived at. In his view, the international aspects of the question would carry great weight with the Supreme Court and he was not convinced that at the present time the State Department and the Solicitor General were contemplating doing enough to ensure that the Special Master would be aware of all the ramifications involved. While the Executive and Legislative branches of government were very much aware of Canadian concern, these cases were now before the Judicial branch of government and in his estimation, the Court would only take cognizance of those things to which its attention was explicitly directed.
  4. In essence, it seems to us that Olds is arguing that while the State Department, in presenting our note to the Court, is making its case on the “maintenance of friendly relations with Canada” aspect, there is still the question of direct Canadian riparian interest on which Canada could, in a sense, argue its own case.
  5. We thought it desirable to apprise the State Department of the views expressed by Olds and we spoke to Carlson, Officer-in-Charge of the Canadian Desk. Carlson was aware, in general terms, of the position Olds had adopted since the latter had been in touch with the Legal Adviser’s Office in the State Department. We pointed out to Carlson that naturally the Canadian authorities would want to be assured that they had done all they could to ensure that the Special Master was aware of the Canadian interests involved in these cases. Carlson took the view that, in the circumstances, the Canadian note of November 2 expressed in clear, concise and unequivocal terms the degree of Canadian interest and concern with regard to these cases. It was the State Department’s opinion that this note conveyed in a dignified and objective manner the great importance the Canadian Government attached to these matters and that it could not but impress the Court. In addition, the Department of State in its letter of transmittal conveying the Canadian note to the Solicitor General would express the view that the note clearly portrayed the importance of these cases with regard to the maintenance of friendly relations with Canada.
  6. In the State Department’s view, moreover, it is not necessary (or perhaps even desirable) at this stage for the Canadian Government to attempt to provide documentary evidence and material intended to enlarge upon the general principles expressed in the note. To do so, indeed, might very well dilute the impact of the note which addressed itself to the principles involved. In any event, the states themselves are providing a mass of information on the material damage which would result to riparian interests from additional diversions from Lake Michigan. The new and unilateral diversions contemplated by the communities of Elmhurst, Villa Park and Lombard did not, in themselves, involve significant diversions of water and for the Canadian Government to attempt to measure these effects in real terms might, in the State Department’s opinion, tend to divert the Special Master’s attention from the basic premise of the Canadian note, which is that these contemplated diversions are wrong in principle, regardless of the amount involved since they are unilateral and potentially precedent-making.Footnote 61
  7. Carlson added that, in any event, the Canadian Government would always be able, should it so decide, to make further representations to the United States Government in this matter and that, all things considered, it would be desirable to let the present note stand as presenting the Canadian Government’s views.
  8. As a result of this discussion and further consideration, we are inclined to agree with the Department of State that we should not, at this time, add to the representations we have already made, but let the note stand as expressing Canadian interest and concern on these cases. We will, of course, want to watch developments closely so as to ensure, as far as possible, that the Special Master and the Supreme Court can be in no doubt as to the Canadian position. At the same time, you will no doubt wish to consider whether there is anything that might be done in order to have available, should it be found desirable, any additional documentary evidence bearing on these questions which could be presented to the Court through the Department of State.Footnote 62
  9. We would propose, if you agree, that if Olds or Vallance enquires as to the Canadian Government’s attitude as a result of the considerations they have raised, we would inform them that, in the light of all the circumstances, it is not proposed to add anything at this time to the note which has been presented to the Department of State.
  10. We are informed by the Legal Adviser’s Office that the Department of State hopes to forward our note to the Solicitor General before the end of the year. It is now generally expected that the Special Master will wind up his hearings in the summer of 1962, probably take as much as a year to write his report to the Supreme Court, and that it might well be another year before the Supreme Court holds hearings and hands down its judgement – i.e., sometime in 1964.

A.D.P. HEENEY

Part 8

Columbia River Treaty

435. D.M.F./Vol. 20

Assistant Deputy Minister of Finance to Minister of Justice

Ottawa, March 15, 1961

Dear Mr. Fulton:
Yesterday in Washington, Mr. Fleming had a talk with Mr. Ivan White (U.S. State Department) about matters affecting the Columbia River Development. I was present and he asked me to give you a report.
Mr. White, who had sought the talk with Mr. Fleming, said that what he was going to say modified to some extent things that had been said at the last [three]-day Canada-U.S. meeting.Footnote 63 The question concerned the disposal of the very large blocks of power to which British Columbia would become entitled as downstream benefits as Canadian storage facilities came into operation. While this matter had been referred to on a number of occasions it was not until the last meeting that the British Columbia authorities showed an active interest in the arrangements that might be made between the two Entities. Mr. Bassett of British Columbia had appeared particularly disturbed because ability to finance the large investments in storage dams would be related to B.C.’s ability to use their downstream benefits to good advantage immediately they became available. Since the blocks of power would be much too large to be absorbed suddenly within British Columbia, Mr. Bassett had been hoping that the United States would be able to purchase them at a reasonable price. The United States team, on the other hand, had indicated that they were very doubtful how far the Pacific North West could absorb the Canadian share of the downstream benefits in addition to their own share.
It was against this background that Mr. White wanted to provide us, confidentially, with further information. He thought we would be interested to know that the new Administration was now considering a transmission line from the Pacific North West down to California. If this line were put in place the possibilities of absorbing Canadian power in large blocks would be substantially increased. On the other hand, this power would have to be made available over a long enough period to amortise the power line.
Mr. White emphasized that he was not making any proposal because what was involved here might be considered to imply Canadian export of power – a subject on which he knew the Canadian authorities were sensitive. However, the situation had changed since the last Canada-U.S. meeting and he wanted us to be informed on this new development. If Canada wished to take the initiative and ask for further discussions along the lines indicated these could be arranged. Since the changed situation might effect the coming financial discussions between Mr. Fleming and Premier Bennett, he was anxious that Mr. Fleming should be fully informed.
I am taking the liberty of sending copies of this letter to Mr. Fleming and also to Messrs. Heeney, Gordon Robertson, Ritchie and Parkinson.

Yours sincerely,
A.F.W. PLUMPTRE

436. D.M.F./Vol. 20

Minister of Finance to Prime Minister

PERSONAL AND CONFIDENTIAL. Ottawa, March 17, 1961

My dear Prime Minister:
As you know, I am to meet Premier Bennett in Victoria on Friday, March 24th, to discuss the financing of the Columbia River Development.
Two days ago I was made aware for the first time of discussions which I understand have been carried on between the Department of External Affairs and the Department of Northern Affairs and National Resources concerning a proposal that the Federal Government should give a guarantee with respect to the cost of developing downstream power and to underwrite either a loan or, in association with British Columbia, any excess in the cost of developing this power above 4.6 mills. I do not need to tell you that I am profoundly disturbed at any such suggestion. It appears that someone is endeavouring to draw the Federal Government deeper and deeper into underwriting the cost of various features of this development. I would suggest that before the matter is allowed to go further it should be discussed in Cabinet.
At the close of the meeting of the Joint Canada-United States Committee on Trade and Economic Affairs on Tuesday, Mr. Ivan White of the U.S. State Department spoke to me concerning some new features relating to the marketing of power to be developed in future. I enclose herewith a memorandum regarding the discussion.† Since the export of power is such a sensitive political question, I would think this question merits Cabinet consideration also. I should appreciate being instructed on it before my talks with Premier Bennett in case the question should be raised by him.

Yours sincerely,
DONALD M. FLEMING

437. H.C.G./Vol. 3

Minister of Finance to Premier of British Columbia

Ottawa, May 17, 1961

Dear Premier Bennett:
The Government has given careful consideration to the proposals contained in your letter to me of March 23rd,† as amplified in our discussions in Victoria on March 24th and 25th. Under your first proposal the Government of Canada would be required to assume full responsibility for the financing and construction of the three storage dams, and of the transmission lines necessary to carry out the requirements of the Treaty with the United States. The Government of Canada would also be responsible for the compensation of the citizens whose properties would be flooded, and, would be required to pay to British Columbia the sum of approximately $64,000,000, being the entire capital amounts which the Government of Canada would expect to receive from the United States by way of flood control indemnities. Finally, the Government of Canada would be expected to pay for the pre-engineering costs already assumed by the Province and, ultimately, to transfer the ownership of all the works and transmission lines without charge to the Province, as soon as the capital costs of the Government of Canada had been liquidated, but not later than fifty years hereafter.

The Government of Canada finds this proposal unacceptable. In the first place, we are dealing with a project which is designed to confer a very substantial benefit on one province alone; it is a self-liquidating project; and, provided a reasonable measure of assistance is forthcoming, as is the case, it is not beyond the capabilities of the province to handle. In view of these circumstances, it is not appropriate that the province should not share in the financial responsibility for the cost of development.
Furthermore, while the international character of the project is such as to warrant a degree of federal participation which is not ordinarily appropriate in projects of this kind, nevertheless it would be imprudent and impracticable for the Federal Government to assume responsibility for an undertaking which must be subject at every turn to various provincial controls – as in the siting of the installations, their design and construction, arrangements for the compensation to be paid, arrangements for the sale and perhaps transmission of power, and the rates charged or levied therefore. It will also be apparent that the success of the enterprise could be jeopardized by any decisions the Province might make in the future for the authorization of other power projects designed to serve the market which should properly be served by Columbia River power. It is the Government’s view that these and other such difficulties and uncertainties could only be avoided if the Province had a stake in the enterprise at least comparable to that of the Government of Canada.
In the light of the factors mentioned above, it is not necessary to dwell on one other feature of your first proposal which also is unacceptable. You suggest that the Government of Canada should pay the whole cost of development, including the cost of compensation for flood and other damage, thus giving rise to charges which must be reflected in the overall cost of power, but at the same time you propose that there should be handed over to the Province of British Columbia for its retention the $64,000,000 for flood control benefits, notwithstanding the fact that this sum has, in all our joint calculations hitherto, always been taken into account as reducing the sum requiring to be amortized and thus charged into the cost of power. In other words, this particular suggestion would have the direct and immediate effect of increasing the cost of power to the consumers of British Columbia.
Under your second proposal the Government of British Columbia would assume full responsibility for the construction and financing of the projects but would require the Government of Canada to guarantee that the net cost of Columbia River power delivered to the Vancouver area would not exceed 4.25 mills per kwh. In addition, you suggest that the Government of Canada should arrange with the United States authorities to purchase any Columbia River power that might become surplus to the needs of the Province at a price not lower than 4.25 mills per kwh.
The Government of Canada is not able to accept this proposal, either. As to the first suggestion, a guarantee by the Government of Canada of the cost of power to be produced by a provincial entity would have the effect of reducing the incentive of the Province to build and operate the project in the most economic manner. While we rely upon the accuracy of the cost estimates arrived at jointly on the advice of the experts of the two Governments, it would be neither prudent nor practical for the Federal Government to give such a far-reaching guarantee of cost unless the Government of Canada, as guarantor, were to take exclusive control of all those factors in connection with construction, etc., which affect the cost of power. This is a situation expressly negative by your proposal that the Province assume sole responsibility in relation to these factors.
As to the branch of this proposal concerning the export of surplus Columbia River power, in the first place it should be pointed out that under your proposal the Province would be in a position to make all or most of the Columbia River power surplus to provincial requirements merely by authorizing the construction of power projects elsewhere in the Province and by pre-empting the natural market for Columbia River power for the benefit of such other producers. The conclusion to be drawn from this reasoning, in the view of the Government of Canada, is that the most appropriate form of federal participation or guarantee is one in which the Federal Government would share in the enterprise with the Province.
Secondly, as to the question of the disposition of Columbia River power generally, I should like to remind you that the discussions that took place with the Province during the period when the treaty negotiations with the United States were proceeding were all conducted on the assumption that the major portion of the power to be produced by the Columbia River projects, including that part of it which would be received from the United States in the form of downstream benefits, was intended for the use of consumers in British Columbia. The calculations of the benefits were not based upon any expectations or requirements concerning exports, and no thought was given by either party to export. What was in mind here was that such amounts of downstream power otherwise returnable to Canada as may be temporarily surplus for the periods immediately following the times when the projects are first brought into operation, might, with the approval of the Governments of Canada and the United States, be disposed of downstream during the periods when they may be surplus to British Columbia’s requirements. It was never thought that these benefits should be disposed of primarily downstream, or that the power to be generated at site when Mica Creek or the other projects are machined and which, in combination with the downstream portion will represent cheap power, should be exported. On the contrary, we have always assumed that the benefits to be derived from the Columbia River projects in the form of low-cost power would be enjoyed by consumers in British Columbia.
There was never any thought on the part of the Government of Canada, or any representations from the Province, that the economic viability of the Columbia River project as conceived under the Treaty was in any way dependent upon the large scale export of power, as visualized in the proposal under discussion. The Government of Canada would therefore hope that our present discussions looking towards an early agreement on plans for the financing and constructing of the projects, and the ratification of the Treaty, can be continued without considering at this time any departure in future from established export policy. Even apart from the historic objections of the Federal Government to the export of large quantities of hydro-electric power, the project is sound enough to warrant our two Governments proceeding with plans to finance and commence construction in conformity with the undertakings covenanted for in the Treaty, and hitherto approved by both our Governments.
As to the financing, ownership and management of the Columbia River project, the Government of Canada would like to suggest that we should continue our discussions, basing our plans upon the original offer of the Government of Canada, as modified by certain of your suggestions. As mentioned in my letter of December 6th last,Footnote 64 we would contemplate that a joint federal-provincial entity would be created and given powers that would enable it to perform such functions, amongst others, as would enable it to safeguard the general obligations of the Federal Government as well as those specific obligations imposed upon it by the Treaty and to receive and advance to the operating agency the financial contribution of the Federal Government. The Government of Canada would be agreeable to the issuance of securities by this joint entity, with equal federal and provincial guarantees behind them, for the purpose of financing the projects, if you prefer this method of federal financial participation to the one suggested in my letter of December 6, 1960.
The suggestion of a joint entity of this character is somewhat unique in Canadian experience, although I believe it holds out very good prospects for the people of British Columbia and Canada as a whole.
It seems to me that we should begin as soon as possible to work out together the details of a federal-provincial agreement, including those related to the proposed joint entity. With this in mind I would suggest that we resume our discussions of the various questions at issue as soon as possible. For my part I should be glad to meet with you as soon as mutually convenient arrangements can be made.

Yours sincerely,
DONALD M. FLEMING

438. DEA/5724-2-40

Memorandum by Assistant Under-Secretary of State for External Affairs

RESTRICTED [Ottawa], May 9, 1961

Columbia River: Talks Between Messrs. Udall and Fulton

Secretary Udall indicated that his main purpose in calling on Mr. Fulton was to enable the Canadian authorities to say that the United States was “ready to go” and was in fact rather impatient to get started – if the Canadian authorities thought such an impression would be helpful in getting action out of British Columbia.

  1. Secretary Udall did not seem to be too disturbed at the possibility that ratification here might be delayed until the autumn, although the United States Administration had hoped that the exchange of ratifications might have taken place earlier. He intimated that a delay into next year could have the effect of requiring a re-examination by the United States of alternative possibilities to the proposed Columbia development.

A.E. R[ITCHIE]

439. D.M.F./Vol. 20

Premier of British Columbia to Minister of Finance

Victoria, June 9, 1961

Dear Mr. Fleming:
I am very glad that we were able to meet last month at the Seigniory Club in Quebec for further discussions relative to the development of the Columbia River; and I am equally appreciative of the fact that we have been able to put forth the viewpoints of our respective Governments in an atmosphere of cordiality.
As I advised you during our discussion at the Seigniory Club, the proposal of the Government of Canada outlined by you in your letter of May 17th is not acceptable to the Government of British Columbia.
This proposal suggests that discussions be resumed on the basis first outlined in your letter of December 6th last;Footnote 65 namely, that a joint Federal-Provincial entity be created to carry out financial arrangements for the development. You visualize the issuance of securities by the entity, and I must point out that such an arrangement would impose on British Columbia responsibility for 50 percent of any losses which may be incurred. As you know, I am most apprehensive that unless firm agreement is reached concerning the disposal of power through export, and unless financing can be arranged at an interest rate far more reasonable than that which now prevails, substantial losses may indeed be incurred.
I would add further, in amplification of our earlier discussions relative to the disposal in the United States of downstream benefits, that the sound approach would be to dispose of the total amount as firm power, for which a very favourable price could be negotiated. As I pointed out during our discussion, the sale of any lesser amount, or its sale on an interruptible basis, would present two dangers: first, the certainty of a lower price for the power and second, the burden of installing expensive transmission lines to return a smaller portion of downstream benefits to Canada.
I know I need hardly assure you that British Columbia is anxious to see the project commence at the earliest possible date. It is for that reason that on-site engineering is continuing, and it is for that reason, too, that the Water Comptroller of British Columbia has been authorized to call public hearings leading to the granting of the necessary water licences. But I cannot agree with your statement of May 17th that the development “will confer a very substantial benefit on one province alone,” even if highly attractive financing can be arranged. As you know, great equipment purchases will require to be made in Eastern Canada, and immediately the actual construction is under way, income tax deductions will begin; of the amount collected, only 14 percent will be returned to British Columbia. Thus the benefits of the project will be truly national in effect.
For these reasons, I continue to feel strongly that the Federal Government should make a real financial contribution to this imaginative project, as it has done in the case of lesser projects elsewhere in Canada. I believe further that the $172,000,000 investment by the Government of Canada suggested by you in our earlier correspondence should not take the form of an interest-bearing loan but should instead be an outright grant.
Looking forward to an early resumption of our discussions, I remain, with kindest personal regards,

Yours sincerely,
W.A.C. BENNETT

440. H.C.G./Vol. 3

Minister of Finance to Secretary of State for External Affairs

PERSONAL AND CONFIDENTIAL. Ottawa, June 12, 1961

My dear Colleague:
I enclose herewith a copy of a very important letter dated June 9th which I have received from Mr. Leon Ladner outlining information he has received concerning Premier Bennett’s plans in relation to power development in British Columbia. I have also sent a copy of this letter to the Prime Minister and our colleague Mr. Fulton.
I understand that you have now received from Mr. Ladner a lengthy memorandum accompanying his letter dated June 10th.† I have assured him that I will give the greatest care to studying the memorandum.

Yours sincerely,
DONALD M. FLEMING

[ENCLOSURE]

Letter

PERSONAL AND URGENT PLEASE. Vancouver, June 9, 1961

Dear Don [Fleming]:
Referring to my letter to you in connection with my concern about Mr. Bennett’s plan and the political reaction, I have by accident obtained some amazing information which you should know about. I got most of it in confidence excepting that I am privileged to write you.
W.C. Mainwaring is President of the Peace River Power Development Company. I have known him very well for many years, and worked a lot with him some years ago on Rotary activities. He gave me the following information a few minutes ago:
He had several talks with Premier Bennett, one of which extended for two hours one evening. I asked him, as a friend, what were Mr. Bennett’s plans, and this was the answer : Mr. Bennett is planning to take over the B.C. Electric Company and the East and West Kootenay Power Companies on the Columbia. He told my friend that the B.C. Electric under an item of deferred credit respecting taxes, etc., has an unimpaired reserve in excess of $44 million. In 1959, it was $35,900,000 and in 1960 $44,456,000. Mr. Bennett said that taking over the B.C. Electric was a natural. The Government would buy the common shares at market value or a little better, costing about $150 million, he had this sum tucked away. Government ownership would make the Company free of income tax and would make available the $44 million which is one-third of the purchase price of the shares.
Mr. Mainwaring told him that the investors in London with whom he had spoken were frightened at such a threat. Mr. Bennett’s reply was “That was no threat; that was a promise.” (The conversation with Bill Mainwaring was over the telephone and I made notes at the time.)
Apparently, Premier Bennett has made an extensive study of the financial and economic situation of the B.C. Electric Company. He pointed out to Mr. Mainwaring that the electric revenue is $67 million divided in equal proportions between the industrial on the one part and the domestic on the other part, that is about $33 million each. He emphasizes the most important point of all that he would be able to cut electric rates from 15% to 20%. You will notice in the other memo that I wrote the figures which I had were 15% for domestic and 5% for commercial. These latter figures are authoritative.
Mr. Bennett’s plan is to let the Company run as it is under the existing management. He believes that savings can be made in other respects, i.e., the use of Crown lands, the elimination of the Public Relations Department of some forty people, the reduction by two-thirds in the size and cost of the Public Utilities Commission which is really the rate-making Department of the Government, reduction in the cost of the Engineering Department as they would be combined with the existing Department of the Public Utilities Commission. He also figures that he could cut one or one and a half million dollars off operating costs.
I then asked Mr. Mainwaring what about the Peace River. His reply was that, of course, he would have to take over the Peace River project also.
In my opinion, Premier Bennett plans a major stroke of far-reaching economic and political consequences. His plan is to establish a second Ontario Hydro; further the development of the Peace River District and relieve the present precarious position of the investors by paying them out, and reduce domestic rates thereby building a tremendous political strength.
This amazing information referred to above, which came into my hands by accident, strengthens my original conviction that it is of the greatest importance politically (and that is the responsibility I am trying to discharge here) to outwit Mr. Bennett, move rapidly and establish a favourable position with the public by being the first to offer a plan to reduce the costs of electricity to the consumers and the industrialists. If we lose this chance, we lose a tremendous opportunity.
I want to assure you again that neither I nor my firm have any financial or other interest directly or indirectly in the B.C. Electric, Peace River or the outcome of the matters referred to in this letter. Nobody in or out of my firm knows of my correspondence with you on this subject excepting the Prime Minister, Howard Green and Davie Fulton. In this case I am only writing to you and am not sending copies of this letter to anybody else. Later, when my memo is completed, I think I should send it to the Prime Minister.
The complete memo which I will be sending to you in a couple of days on this matter is now nearing completion. It is authoritative, comprehensive and a factual statement of the whole matter. I suggest, as you of course will, that you discuss this matter as soon as you can with the Prime Minister, Howard and Davie. We have a great opportunity, in my judgment to be far ahead of Premier Bennett. His plan of selling Columbia River power in the States where it is produced and bringing the money back here is a very serious political mistake on his part. Until our own plans have been acted upon so that he cannot withdraw, we should take no steps to discourage him in his plans to sell Columbia River power in the United States. This cheap power, in my judgment, must come to Vancouver.

With personal regards,
Yours sincerely,
LEON J. LADNER

441. D.M.F./Vol. 20

Minister of Justice to Minister of Finance

PERSONAL AND CONFIDENTIAL. Ottawa, June 14, 1961

My dear Colleague:
I acknowledge with thanks receipt of your letter of June 12th enclosing copy of a very important letter of June 9th which Leon Ladner sent you, regarding Premier Bennett’s plans vis-à-vis the B.C. Electric Company.
I felt all along, and indeed I have predicted, that unless we were a little more flexible in connection with the offer of financial assistance that we were prepared to make to the province, we were frittering away a marvellous chance of putting Mr. Bennett at a disadvantage. An increase in our offer to guarantee the cost of construction, to cover the whole cost including transmission lines as well as storage projects, would have had such a public appeal that it would have placed him at a permanent disadvantage. Because of this inflexibility, he has been firing all the shots and we have simply been doing the receiving.
He has, however, now made one grave blunder, as I see it – and in this I agree with Mr. Ladner – in that he has publicly committed himself to the permanent alienation to the United States, of all the downstream benefits to which Canada would be entitled under the Columbia River development. It would simply not be possible to sell these to the Americans at a price anything like the cost and value to us so that he is now in a position where we can expose him completely. To do so, however, we require to make a considered statement of our position on this point, coupled with a recapitulation of our position as to the extent to which we are prepared to help in the financing of the Columbia River project. Unless we do this quickly, Mr. Bennett may see the danger of his position, and with his usual skill may alter that position and deprive us of an advantage which we should have.
I therefore consider it is essential that we should have an immediate meeting of the Cabinet Committee on the Columbia River to review the whole situation. We have not had a meeting of this Committee for some months now, and I propose to ask our Colleague, the Honourable Alvin Hamilton, as Chairman of the Committee, to convene a meeting at the earliest opportunity. I do hope that you will be able to attend, and that you will agree with me that this whole matter requires immediate study with a view to assessing our position and making an appropriate recommendation to our Colleagues.
I am sending a copy of this letter to the Prime Minister, and to Mr. Green, to whom you sent copies of your letter.

Yours sincerely,
DAVIE FULTON

442. D.M.F./Vol. 20

Secretary of State for External Affairs to Minister of Finance

CONFIDENTIAL Ottawa, July 21, 1961

My dear Colleague,
I have reviewed the draft letter to Premier Bennett enclosed with your letter to me of July 7.†
It seems to me that the first sentence of paragraph 2 implies that the proposed joint entity would have grater responsibility for construction than was suggested in your previous letters. Accordingly, I think the safest thing to do is to refer to your previous letters in order to avoid any misunderstanding. I also think that since Premier Bennett refers specifically to the issuance of securities by the entity, your letter should recall that this suggestion was an alternative to another method of federal financial participation suggested in your letter of December 6, 1960.
I think it would be unwise of us to invite Premier Bennett to suggest possible alternative sources of cheap power (as is done in paragraphs 2, 3, 10 and 13 of your draft), in view of the possibility that the British Columbia Energy Board will allege in its forthcoming report that Peace River power would be as cheap as Columbia power or cheaper. In my view, we should concentrate rather on the theme that the cheap power to be derived from implementation of the treaty should be for the benefit of consumers in British Columbia.
In summarizing Premier Bennett’s objections, I think it would be useful to point out more clearly that he is suggesting that all of Canada’s share of the downstream benefits should be disposed of in the United States. I think the summary of his objections should also refer to the suggestion, made near the end of his letter, that an outright grant of $172 million should be made by the Federal Government.
With respect to export of power and the disposal of downstream benefits, I think we should confirm that the position of the Federal Government remains as explained in your letter of May 17. This would make it possible to telescope somewhat your arguments against the possibility of losses.
In your draft you make the point that we have estimated the probable effect on the unit cost of power of the possibility that the quantity of Canada’s share of the downstream benefits in distant years may turn out to be lower than is now thought probable. I think we should also point out that these downstream benefits might be greater than anticipated, in which case the unit cost of Canada’s share would be reduced. You also make the point on page 3 that even if the load growth in British Columbia expanded at the rate of 6% instead of 8%, the cost of the downstream benefit power would only increase by 3/10 of a mill. I am not sure that it is wise to use such specific figures at this time in your letter and suggest you enclose instead a copy of whatever summary of the report of the Montreal Engineering Company is to be made public.
With respect to the last paragraph of your draft, I suggest that the reference to the question of ratification should follow and not precede the reference to the question of an early agreement between our two governments.
Finally, I personally think that we should offer to share the transmission costs associated with implementation of the treaty, as well as the capital cost of creating the storages necessary to implement the treaty.
Attached for your consideration is a redraft of the proposed letter† to Premier Bennett. You will note that in redrafting your letter to take account of the comments above, some re-arrangement of the material in your draft has been made and the paragraphs are not therefore directly comparable. You will also note that I have suggested language regarding an offer to share in the costs of transmission within Canada.
I am sending copies of this letter and its enclosure to the Prime Minister and to our colleagues Messrs. Fulton, Dinsdale and Alvin Hamilton.

Yours sincerely,
H.C. GREEN

443. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], August 9, 1961

Present

  • The Minister of Finance and Acting Prime Minister (Mr. Fleming) in the Chair,
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O=Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Minister of Forestry (Mr. Flemming),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge).
    . . .

Expropriation by Province of British Columbia; B.C. Electric Co. And Peace River Development Co.

  1. Mr. Fulton reported that the government of British Columbia had taken over the B.C. Electric Company and property of the Peace River Development Co.
    The expropriation of these companies has been based on two assumptions:
    1. the first was that the Peace River power would cost over 6.5 mills per kilowatt if operated by a private company but only 4 mills if operated as a public undertaking.
      A dissenting view had been expressed by the chairman of the provincial public utilities who stated that in his opinion the evidence was inadequate to support an opinion of this character.
    2. The second was that the estimated cost of the Columbia River power was 4.1 or 4.3 mills. These figures had been arrived at by excluding an item of $65 million compensation for flood control benefits. Another item excluded by the province in determining costs was the price reducing effect of tying in the cheaper power from Kootenay. This item was said to have been eliminated on the ground that no decision had been made as to how the Kootenay power would be distributed.
      Mr. Bennett had instructed the B.C. Electric to develop the Peace River immediately. Was this bluff or was it genuine? He was capable of meaning it and of going ahead with the Peace River development and dropping the Columbia project altogether.
      The Federal government had an interest in the Peace River development. It could rightly object to an application by the B.C. government and not permit the development while the plans for the international project were underway.
      In any case, the development of the Peace River at a cost of $650 million would not be economical without disposal of the surplus power. It could not be operated in a small way – it was a case of all or nothing. The overhead was too high for partial operation.
      The Columbia River project, meanwhile, had bogged down. The Federal government had offered to pay half the cost of storage dams – about $170 million – out of a cost of $450 million for the total project. Mr. Bennett said that this was not enough and that he needed more money, yet he was prepared to spend $650 million on the Peace River.
      In expropriating these companies he had seized the initiative. The Federal government’s position, because of the technicalities involved, was not generally understood. Mr. Bennett had now created the impression that he was simply fed up with delays and was going it alone.
      The public should know that the Columbia River would provide cheaper power than the Peace River; that if the Columbia was not developed it would be because of Mr. Bennett’s attitude. If B.C. went on its own way it would be to the prejudice of its own people.
    3. Mr. Fulton felt that the time had come to release the report of the consulting engineers employed by the Federal government.
      This would produce a demand for publication of the report of the B.C. Energy Board, so that both reports might be compared.
    4. During the discussion the following points were raised:
      1. The non-recovery of downstream power benefits did not involve the export of power and there would be no need for export permits as the electricity would be generated on the U.S. side.
      2. For the B.C. side of the Columbia project to produce enough for its requirements would take ten years.
      3. Under Mr. Bennett’s plan B.C. would export the more expensive power. It was felt that the Federal government should not commit itself on the question of export of electricity nor state that it has been a traditional policy not to allow the export of electricity. The Federal government was the first to establish an Energy Board. No application could be submitted to it unless there existed a contract for the sale of the power to be exported. It was not likely that the U.S. would take power at 6 mills per kilowatt hour.
      4. Some Ministers said that there had been much resentment in financial circles over the expropriation of the Peace River Development Co. and that B.C. would certainly experience extra difficulty in getting the required $650 million.
      5. Some said that the Federal government should agree to pay not only one-half of the storage costs but also one-half of the cost of transmission lines. This would mean $172 million for storage and some $57 million for the lines.
      6. B.C. had been officially represented throughout the meetings of the Advisory Committee by no less than a Deputy Minister who was also Chairman of the B.C. Policy Liaison Committee. Mr. Fulton, as Head of the Canadian Negotiating team, had written to the provincial representative before the signing of the treaty saying that the signing of the treaty will therefore be with “your knowledge and approval.” Acknowledgement was made to this letter without any objections being voiced.
    5. The Cabinet noted the statement by Mr. Fulton, as Head of the Canadian Negotiating Team on the Columbia River development, on the action taken by the B.C. government to expropriate the B.C. Electric Company and the Peace River Development Company and the reasons given publicly for this action.
      . . .

444. H.C.G./Vol. 3

Minutes of Meeting of Cabinet Committee on Columbia River Problems

CONFIDENTIAL [Ottawa], August 25, 1961

Members Present:

Secretary of State for External Affairs (Mr. Green)
Mr. Fulton
Mr. Harkness
Mr. Dinsdale

Others Present:

Mr. Fleming
Mr. J.F. Parkinson, Department of Finance
Mr. K. Kristjanson, Department of Northern Affairs and National Resources (Secretary).

The meeting was called to consider the position of the federal government in light of the fact that Premier Bennett is attempting to put the federal government in the position of holding up development for denying exports.

It was thought that Premier Bennett could not sell large quantities of power at reasonable prices. This belief is based on discussions with the U.S. negotiators when the Treaty was being drafted, at which time it appeared that they would not pay more than 3 mills per kwh, as well as recent informal discussions with U.S. officials. It was thought desirable to get as much information as possible, on an informal basis, about the potential market in the U.S. It was subsequently suggested that an official of the Department of Finance, Mr. Kennett, should go to the U.S. Pacific Northwest to make informal enquiries about market potentials. The Minister of Finance thought this matter should first be cleared with the Prime Minister. If the Prime Minister agreed with this procedure Mr. Fleming would also agree.

Some ministers thought consideration should be given to saying as little as possible publicly during the next two months.

Mr. Fulton reported that a study is underway to ascertain the federal interest in the development of the Peace River.

The implications of the B.C. Energy Board report were discussed.
It was agreed that:

  1. Subject to the Prime Minister’s approval informal enquiries should be made in the U.S. Pacific Northwest about the potential market in order to be in a position to counteract Mr. Bennett’s case.
  2. Officials of the Department of Finance should prepare two drafts of a letter to Mr. Bennett for Mr. Fleming’s signature. One should attempt to meet the points raised in Mr. Bennett’s last letter to Mr. Fleming, whereas the other should be shorter and might state that the B.C. Energy Board Report had thrown new light on the overall situation. It should point out, however, that nothing in the report seemed to change the relative position of the Columbia. Therefore the federal government would be interested in knowing whether the Premier had any new views on the matter of proceeding with the development of the Columbia River. These two drafts were then to be circulated to Committee members for comment before clearing with the Prime Minister.
  3. The Montreal Engineering Company should be asked as soon as possible to provide an analysis of the figures in the B.C. Energy Board report and indicate the comparative costs of Columbia and Peace River power.
  4. The Department of Public Works should be asked to withhold any licence for development on the Peace River.

K. KRISTJANSON
Secretary

445. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], August 29, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of Justice (Mr. Fulton),
  • The Minister of National Defence (Mr. Harkness),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of Mines and Technical Surveys (Mr. Comtois),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale)
  • The Minister without Portfolio (Mr. Halpenny).
  • The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge).
    . . .

Columbia River Negotiations

(Previous reference August 9)

  1. The Minister of Finance said that, in view of the recent takeover of the British Columbia Electric Company by the provincial government, consideration should be given to the question whether or not the treaty with the United States should be ratified.
  2. During the discussion the following points were raised,
    1. Two Ministers of the B.C. government had given assurances that the province would support the treaty, and the recent statements and actions by the provincial premier were incompatible with those assurances.
    2. No time limit for ratification was mentioned in the treaty. Secretary Udall was pressing for ratification, however, and it seemed likely that the U.S. would arrange for alternative sources of power unless construction of the Columbia development could begin in the spring of 1962. Thereafter, the co-operative development of the Columbia River might be no longer possible.
    3. Some said that the provincial government wished to sell the whole of the downstream power benefits to the United States, and to use the profits for the financing of other provincial schemes. The purpose of the Federal government in supporting the Columbia development, on the other hand, had been to provide cheap power to the Vancouver area. In view of the position taken by the provincial government, the Federal government should not contribute toward the cost of the Columbia development and should not ratify the treaty.
    4. The Department of Public Works had been requested by the Cabinet Committee on the Columbia to withhold the issue of a permit for the development of the Peace River if applied for.
    5. If the province did not alter its position on the Columbia development, the Federal government should consider taking over the construction and operation of the projects involved.
    6. It had been proposed that a federal official be sent to the western U.S. to explore future power markets. This should not be done because such a survey would almost inevitably attract public attention and would give the impression that the Federal government was considering a reversal of its policy on the export of power.
    7. The Federal government would suffer a serious setback if it did not ratify the treaty.
  3. The Cabinet agreed to give further consideration, at another meeting of the Cabinet, to the question of the ratification of the treaty with the United States on the Columbia River development.
    . . .

446. D.M.F./Vol. 20

Economic Counselor, Embassy of United States, to Minister of Justice

Ottawa, October 18, 1961

Dear Mr. Minister:
I understand that the enclosed statement was prepared by the Bonneville Power Administration in response to informal requests from you and officials of the Province of British Columbia. The Department of State has requested me to forward it to you on a confidential basis and to say that it is being given to British Columbia officials on the same basis.

Sincerely yours,
FRANCIS A. LINVILLE

[ENCLOSURE]

Draft Statement by Bonneville Power Administration

The Bonneville Power Administration has contacted utilities both in California and in the Pacific Northwest as to their possible interest in purchasing power from British Columbia. Our discussions with them indicate that there is a market for such power in the United States, but that the quantity that the utilities would be interested in purchasing and the price they would be willing to pay depends on the terms and conditions of sale at the time of a firm offer. All utilities are proceeding with plans for new generation to meet anticipated load growth. As these plans are firmed, interests in outside purchases of necessity will be modified. In any event it appears that if part of the benefit power is initially used in British Columbia, marketing in the United States becomes simpler in that plans are currently being made by utilities in the United States to meet the load growth of the middle 1960s.
Canada’s share of the downstream benefits is estimated at 916,000 kilowatts in 1966 with Arrow Lakes and Duncan and increasing to a total of 1,300,000 kilowatts in 1971 with the addition of Mica. The average load factor of this power would be about 60%. Public agencies in California, including agencies of the State, estimate that they could use about 500,000 kilowatts of Columbia Treaty power in 1966 and over 1,200,000 kilowatts by 1971 if this power were available until 1985. Replies were not received from all private utilities but, after present resources are used and assuming the construction of the Wells project, for which license is expected shortly they will require around 500,000 kilowatts in 1966 and over 1,500,000 by 1971. Public agencies in the Pacific Northwest were not interested in power available only until 1985.
No definitive data can be given on price at the present time. The value of the power would vary substantially according to the terms and conditions of sale. Also, potential purchasers are naturally unwilling to state the maximum price they would pay until actual negotiations are undertaken and concrete proposals considered. Important factors affecting the price would be:

  1. Term. The longer the term the power is available, the higher the price the purchaser will be willing to pay. This is largely due to the anticipation of continued inflation. If this power has to be replaced from new generation sources in the future then it is anticipated that alternative costs would be higher than if steam plants or hydroelectric plants were built today.
  2. Rate of Pullback. Some utilities express concern at the pullback of all power in one year. If the pullback could be arranged over a period of time, it appears that some utilities would be willing to pay a somewhat higher price than in case all of the power were withdrawn at once.
  3. Load Molding. Utilities have expressed a desire to have power fit their load shape after the use of other resources. If the energy can be arranged so that California utilities secured more of summertime energy and Pacific Northwest utilities more of wintertime energy, it appears that the power would have more value than if it were sold at a constant amount each month of the year. Bonneville could perform this load mold for British Columbia.
  4. Escalation Clause. Most utilities said they would not buy power with an escalation clause unless there was a relatively low initial price. (The fixed costs involved in their own power plants would not, of course, be subject to any escalation.)
  5. Load Factor. We discussed with utilities sale at about 60% load factor. Some would prefer a lower load factor, some a higher load factor. Adjustments among utilities could be made. It would appear that since utilities would be buying two commodities – capacity and energy – that demand and energy would be preferable to a kilowatt hour rate.
  6. Price. There was considerable variation among utilities in considering price based on different assumptions. Price will, of course, depend on the situation at the time power is offered on a firm basis. All utilities indicated that they would pay less for purchased power than from alternative sources that they would own. Ownership would probably give them the resource for a longer period of time. In case of private utilities, ownership would give them other advantages such as inclusion in their rate-base upon which their rate of return is calculated.
    Sales would be between British Columbia and each utility. The Bonneville Power Administration does not have authority to purchase this power. The Bonneville Power Administration would be willing to make arrangements for the sale of the power, load molding and wheeling. In the case of Pacific Northwest utilities, the transmission grid is in existence and is continually expanding to meet area needs. Sales in California would depend on construction of high voltage transmission facilities interconnecting California with the Pacific Northwest. A task force from the Department of the Interior will report shortly on the feasibility of such an interconnection.

447. DEA/5724-2-40

Minister, Embassy in United States, to Assistant Under-Secretary of State for External Affairs

PERSONAL AND CONFIDENTIAL. Washington, November 2, 1961

Dear Ed [Ritchie]

Columbia River

We have studiously avoided raising the question of the Columbia River Treaty with United States officials and apart from passing references to current difficulties in Canada, American officials had not raised the question with us. There had, up till now, also been no significant reference to the Treaty in the Washington press. On October 30, however, the attached article, appeared in the Washington Post.Footnote 66 While as far as I know no enquiries on the article have reached the Embassy, the State Department has had calls from reporters and Congressmen about it.
John Sharpe was in talking to Del Carlson of the Canadian Desk about another matter on October 31 and Del had a copy of the item on his desk. They discussed the article and agreed that there were two or three pretty glaring inaccuracies, but Del thought that, on the whole, it was a fairly reasonable layman’s account of a very complicated situation. One point he took rather more serious exception to was the statement in paragraph 3 that United States officials had recently rebuffed “a bid by Liberal minority leader Lester Pearson that the sixty-year Treaty be rewritten and set next March as the deadline for Canada to ratify it.” In the ensuing conversation, Del made a number of points which I think you will find of interest.
In the first place, he said that as far as he knew, no United States official had commented on Mr. Pearson’s statement which he said was, in any case, inaccurately reported on in the article. Mr. Pearson had evidently made a statement at a recent Canadian Club meeting in VancouverFootnote 67 and, according to Carlson, what he apparently said was that if the Treaty were to be renegotiated, it would be desirable to make the provisions for a time-table of construction in British Columbia more flexible and to include a more specific statement on the allocation of downstream benefits. Carlson stated quite categorically that there was no inclination in the United States to reopen the Treaty. To do so, he said, would be a retrograde step. He thought Mr. Fulton was aware (from conversations he had had with Luce, Head of the Bonneville Power Authority and from his meetings with Carr, Deputy Under Secretary of the Interior at the Spokane meeting last week) that the United States, for its part, was prepared to be as helpful as possible on the question of downstream power benefits. He said the United States was prepared to consider purchasing Canadian downstream power if this would be helpful and, on the other hand, was equally prepared not to accept it or to help work out a compromise on purchase of part of the downstream power benefits if this approach commended itself to Canada.
Carlson said United States officials were very conscious of the difficulties the Canadian Government faced but that they were naturally anxious that the Treaty go forward as quickly as possible. While there was no question of a time limit, as suggested by the article, he thought that if there were no signs of progress by the time Congress reconvenes early in January, there would be questions raised by interested Congressmen and pressure would grow for the United States to proceed with some of the projects on its own.
Carlson was concerned that it might be necessary, in the absence of Canadian ratification, for the United States to proceed with certain projects associated with developments on the Columbia River and that a stage might very well be reached where it would no longer be possible for the United States to implement its part of the Treaty obligations. He said that one could conceive of a situation where certain projects were so far advanced that a point of no return could be reached where it would simply not be possible to reorient the work so as to fit into the pattern of the developments envisaged by the Treaty. There is apparently growing pressure in the northwest states to go ahead with some of these projects. Undoubtedly, there is more public interest and enthusiasm for these works, engendered by the publicity attendant on the Treaty negotiations, which made the public more aware than they otherwise would have been, of the benefits to be derived from carrying out reclamation, irrigation and flood prevention work.
Carlson clearly implied that officials would soon have to consider what approaches might be made to the Canadian Government with regard to Canadian failure to ratify the Treaty. Sharpe got the impression that no consideration had yet been given to what approaches, if any, would be made, but clearly people’s minds are moving in that direction and in the absence of progress in Canada, I think we can expect some kind of representation from the United States in the not too distant future, and probably before Congress reconvenes. I would guess that such an approach might, at least in the first instance, be limited to obtaining from the Canadian Government a statement of the current situation which could be used to answer Congressional and other enquiries. In this connection, Carlson did remark that the United States was, at the moment, without an Ambassador to Canada. He wondered somewhat ruefully whether Merchant, on the basis of experience gained in helping to resolve the current dispute between Afghanistan and Pakistan, might be able to make his good offices available in helping to settle differences between British Columbia and Ottawa! Carlson said he would not be surprised if some of the less responsible newspapermen didn’t very soon start taking advantage of the situation to get a few headlines and exert pressure on Congress. Presumably, some of these articles might be inspired by special interests in the Pacific northwest. If this did happen, the State Department would undoubtedly have to respond to some pretty pointed enquiries on what was going to happen.
Although this was an informal conversation, John Sharpe thinks it was “staged” since the suggestion he see Carlson on the other matter “and sound him out on the Carr ‘Spokane’ speech” came from the Legal Adviser’s Office and not at our initiative. I thought you would want to know that we might expect developments on the Columbia front. We will continue our passive role in all this and keep you informed of developments. We have asked Murray Cook to obtain for us, if possible, copies of recent statements by Mr. Fulton outside the House and anything you are able to give us on the situation will be very much appreciated.
Best wishes.

Yours sincerely,
SAUL [RAE]

448. DEA/5724-2-40

Memorandum from Secretary of State for External Affairs to Prime Minister

CONFIDENTIAL [Ottawa], November 27, 1961

Columbia River Treaty

We know from public and private statements that the United States authorities are becoming increasingly concerned with the delay in ratification of the Columbia River Treaty. If it is not ratified by next spring higher cost alternatives might have to be adopted for meeting the foreseeable power and flood control needs of the Pacific Northwest States. The reasons for delay are well understood in the United States. But recent events have led me to review official United States actions and statements to determine whether they appear to support Premier Bennett’s position on the sale in the United States of Canadian downstream power benefits under the Treaty.

About ten days ago Premier Bennett met and talked briefly with President Kennedy at a dinner in Seattle in honour of Senator Magnuson. While in Seattle, Premier Bennett was reported to have talked, as well, to the Head of the Bonneville Power Administration and the Manager of its Washington office. We have been assured in confidence by the State Department that the United States Government had nothing to do with the invitation and that there was no substantive conversation on the Columbia Treaty between the President and the Premier. President Kennedy asked that this not be attributed to him; but there was no objection to our saying that we had no reason to believe that there was any substantive conversation on the subject.

Last week United States Secretary of the Interior Udall was interviewed by the Press in Seattle. Reports of this press conference were varied. According to one report he stated that United States officials have been discussing the treaty formally with Ottawa and informally with Premier Bennett. In another he was alleged to have said that he had no doubt that the sale to the United States of Canada’s entitlement to power under the Treaty would be approved by Ottawa and that Canada’s concern about difficulty over recapture of the power sold to the United States under long term contracts was “stuff and nonsense.” On his return to Washington Mr. Udall issued the following statement in response to requests for clarification of his Seattle remarks:

“Under the terms of the proposed Canadian Treaty providing for joint development of the upper reaches of the Columbia River, it would be the responsibility of the Canadians to decide what part of their share of the power they wish to market in the United States and under what terms and conditions. It would, as I stated in Seattle earlier this week, be nonsense for anyone to take a position that the United States would not honor any commitment made to return the power to Canada if the Canadians so desire, at the expiration of the agreed contracts.

Our Government looks forward to early ratification of the Treaty by Ottawa. It is our position that the United States is willing to work out any reasonable arrangement for the disposition of Canada’s share of the power in the United States after the Canadian Government has ratified the Treaty.”

I think it is clear therefore that Mr. Udall’s remarks in Seattle and Washington were unfortunate and can be interpreted as favouring Premier Bennett’s position.
As you know Premier Bennett has stated that Canada’s share of the downstream power benefits should be sold in the United States and that he believes that it could be sold for 5 mills per kilowatt hour. We have no reason to believe that there is a ready market for this power at the price quoted. In fact a confidential report prepared last month by the Bonneville Power Administration gives no precise answers to the question of the extent of the market in the United States for British Columbia power or the price at which such power might be sold. Market possibilities would be better for long term contracts and it would appear that utilities in California might be more interested than utilities in the Pacific Northwest. However the report does not confirm that all of the downstream power benefits could be sold in the United States at 5 mills per kilowatt hour, at least during the early years of development. While this report is confidential Mr. Luce, Head of the B.P.A., stated publicly some time ago, according to the press, that his organization had promised to obtain data regarding power markets in the United States for the British Columbia Power Commission. We also know that British Columbia power officials have discussed the possibility of sales to California with public utilities in that State. B.P.A. is also very interested in an intertie with California for the sale of secondary interruptible energy. This power is now being wasted in the Pacific Northwest, and B.P.A. is reported to be losing money. Mr. Luce was reported last August as having said that this interruptible power would be sold to California at 2 mills but that this would not compete with “first power” from British Columbia in the California market. In the same interview he was also reported as saying that if, as a means if implementing the Columbia Treaty, British Columbia arranged to sell firm power in the California market the B.P.A. system would co-operate in its transmission. On the other hand Mr. Luce also indicated that he would not be interested in Peace River Power in the absence of the Columbia development but that it would be necessary for the United States to construct its own projects which “while more costly than the Columbia River storage sites in Canada, are nevertheless cheaper than Peace River power, in addition to providing flood control needs.” In June Mr. Luce was quoted in the press as saying “that if the Canadians find it advantageous to market in the United States their share of the power developed under the Treaty, then we will do all we can to help them.”

Mr. Luce’s statements can be interpreted at least as not discouraging Premier Bennett’s conviction that there is a market for British Columbia power in the United States and, so far as we are aware, there have been no official denials that it could be sold at 5 mills. To the extent that both B.P.A. and British Columbia are interested in the California market, B.P.A. studies of and enthusiasm for an intertie with California give further encouragement. In addition while B.P.A. apparently has no present authority to purchase power from Canada or other sources it has been reported that such authority will be sought by means of an amendment to the B.P.A. Act. The Northwest Public Power Association recently endorsed this proposed action and the following extract from an article in the Financial Post for November 25 commenting on it is of interest:
“The likely buyer of Columbia power would be the Bonneville Power Administration, but so far Bonneville has no federal authority to buy such power from Canada, and it cannot state its desire yet without seeming to be aiding Bennett in his pressure against Ottawa.
Bonneville did, however, ask the U.S. government last week to enact the necessary legislation to put it in position to negotiate contracts immediately – when Ottawa and Victoria agree.” There have been press reports that some unidentified United States experts would favour a revision of Canadian federal policy to allow long term export of surplus Canadian power to the United States, but to the best of my knowledge only one such statement has been attributed to a direct source. Mr. Howard Morgan, United States Federal Power Commissioner, was reported in August by the Christian Science Monitor as suggesting that the Ottawa Government should re-examine its policy against the export of power. He was also reported as saying that the United States should work to expedite the completion of a high voltage transmission intertie between British Columbia and California to siphon off surplus Canadian power, on a replaceable basis, to United States industry. As the result of events in the past ten days the State Department and presumably Mr. Udall are even more aware of our concern over any actions or statements which might be interpreted as interference in Canadian affairs. I think however that we can expect the United States Administration and Congressmen to be subject to increasing pressure by the press and special interest groups and press accounts of the most careful replies to specific questions may create further difficulties for us.

H.C. G[REEN]

449. D.M.F./Vol. 20

Premier of British Columbia to Minister of Finance

Victoria, November 27, 1961

Dear Mr. Fleming:
In view of our previous discussions concerning the implementation of the Columbia River Treaty, I thought you should be advised, as the year end approaches, of British Columbia’s endeavours to see the Treaty projects take shape.
First, licensing procedure under the “Water Act” of this Province were undertaken by British Columbia Power Commission commencing the 24th day of June 1961, and hearings were conducted by the Water Comptroller, Mr. Paget, commencing the 18th day of September and will conclude in all likelihood before the end of this year. The Water Comptroller’s Report, we trust, will follow shortly thereafter.
Secondly, the massive engineering required to give definition to the Treaty projects has been under way since November 1960. Three consortiums of engineers have been put to work, each concerned with one of the three Treaty projects involving Arrow Lake storage, Duncan Lake and Mica Creek. By the end of this calendar year $4,400,000 will have been expended by British Columbia for these purposes and it is now to be anticipated that definitive engineering will be virtually complete on Duncan Lake by early 1962, Arrow Lakes by mid-1962 and Mica Creek early 1963. Detailed engineering will proceed concurrently with construction when authorised.
The most important question remaining, among a number posed by the Treaty, arises under provisions of Clause 8 of the Treaty and involves the contemplated disposition of Canadian downstream benefit electricity in the United States. I refer especially to this matter among the various factors affecting finance, because you are aware that British Columbia feels that the exchange of notes establishing sale of downstream benefits pursuant to Clause 8 is the key to Canadian financial well-being. Canada’s position is, of course, in effect to be assumed and discharged by British Columbia. Therefore this matter is of paramount importance to us in arranging finance.
My purpose in writing is to suggests that time and events are becoming appropriate for our respective financial officers to bring themselves up to date on this whole matter. I would appreciate learning from you a date which might be suitable for a further meeting and would be pleased to suggest, if it were convenient to you, that you and your advisors might meet in Victoria, but if this is not possible I shall be glad to meet you in Ottawa. While I am very busy preparing for the opening of our own Legislature, and with the preparation of the Budget, yet I feel that the Treaty should be ratified as soon as possible, and therefore, will be pleased to go to Ottawa.
Kindest personal regards.

Yours very truly,
W.A.C. BENNETT

450. H.C.G./Vol. 4

Memorandum from Under-Secretary of State for External Affairs to Secretary of State for External Affairs

CONFIDENTIAL [Ottawa], November 28, 1961

Columbia River: Talks Between Premier Bennett and Bonneville Officials

Mr. Willis Armstrong of the U.S.A. Embassy, telephoned this afternoon to read over to us some extracts from the informal record which U.S.A. officials kept of the recent conversation between Premier Bennett and Mr. Luce, the head of the Bonneville Power administration (and various other U.S.A. officials including Dubrow and Kinney). It seems clear from these extracts that the Bonneville officers behaved themselves quite correctly and gave very little satisfaction to Premier Bennett.

  1. Premier Bennett apparently stated quite explicitly that he would like to sell all down-stream benefits to the U.S.A.
  2. Mr. Luce stated that, apart from anything else, the regional solicitor for Bonneville doubted that Bonneville could legally engage in the purchase of such power from Canada. Although the departmental solicitor in the Interior Department in Washington, D.C., thought a legal argument could be made for Bonneville’s participation in such purchases, Mr. Luce considered that the B.C. authorities should regard the legal position as uncertain, to say the least.
  3. Moreover, the private power interests in the Pacific North West might not be greatly interested in committing themselves to purchase power in view of their involvement in the Middle Snake development.
  4. The Bonneville people said that they were in no position to state that the Canadian down-stream benefits would be purchased by the U.S.A. or to agree on any price until such time as the Canadian Federal Government had given its permission for such sales.
  5. During the course of the conversation, Premier Bennett is reported to have expressed an interest in assistance from the U.S.A. Government with the financing of the projects in Canada. The U.S.A. side mentioned that an offer of financial assistance had been made at one stage during the negotiations but had been turned down by the Canadian negotiators. Premier Bennett seemed to be unaware of this earlier exchange regarding the possibility of U.S.A. financing.

A.E. R[ITCHIE]
for Under-Secretary of State
for External Affairs

451. DEA/5724-2-40

Secretary of State for External Affairs to Minister of Justice

RESTRICTED Ottawa, December 1, 1961

My dear Colleague,
I am enclosing for your information and comments a copy of Note No. 124 of November 30, 1961 from the United States Embassy concerning recent statements about the Columbia River Treaty. The statements made in the Note seem generally accurate in most respects. As you will recall, the text of Mr. Udall’s statement of November 24 was given to you by telephone as soon as it was received in this Department, and later that day was dictated over the telephone to your secretary. Insofar as the United States Embassy’s statement of November 29 is concerned, I understand that copies were delivered to your office and to this Department by the Embassy at about the same time that it was released to the press. The one respect in which the Note is not strictly correct is in its references to the Canadian Press story of November 27. In that instance the United States Embassy did mention the story to us at the time but warned us that it might not be accurate since it was apparently based on a private interview rather than a formal press conference. Accordingly, they did not suggest that this Canadian Press story could be taken as clarifying Secretary Udall’s original statement.
In my view, the best course would be to simply acknowledge receipt of the Embassy’s note and the two statements enclosed with it. Accordingly, I attach for your comments a draft reply.† Yours sincerely,

HOWARD GREEN

[ENCLOSURE]

Note from Embassy of United States

NOTE NO. 124 Ottawa, November 30, 1961

The Embassy of the United States of America presents its compliments to the Department of External Affairs and has the honor to refer to a conversation between the Honorable E. Davie Fulton, Minister of Justice of Canada, and the Ambassador of the United States of America, which occurred on November 23. During that conversation the Minister of Justice asked the Ambassador for clarification of certain press reports concerning statements by the United States Secretary of the Interior, the Honorable Stewart Udall.

It will be recalled by the Department of External Affairs that, in response to a press statement issued late in the day on November 23 by the Minister of Justice of Canada, the Secretary of the Interior of the United States issued a statement, copies of which were furnished to the Department of External Affairs on November 24, with the request that the Minister of Justice be informed. The Department of External Affairs will also recall that the Embassy drew to its attention on November 27 a Canadian Press story of an interview with the Secretary of the Interior, which provided further clarification of the reports about which the Minister of Justice had inquired. The Embassy suggested at that time that the Department might wish to draw this report to the attention of the Minister of Justice.

On the morning of November 29, there came to the attention of the Embassy press and radio reports of a speech made by the Minister of Justice at Prince George, British Columbia, in which references were made to statements alleged to have been made by the United States Secretary of the Interior.Footnote 68 On that same morning the Embassy received from the Departments of State and Interior in Washington a statement for transmittal to the Canadian Government, providing further clarification in response to the inquiries which the Minister of Justice had made on November 23. In view of the public interest in the matter evoked by the press reports of the speech of the Minister of Justice, the Embassy was instructed to release the statement to the press and other media coincidentally with the provision of copies to the Government of Canada.

Copies of the statement of November 24 and of the Embassy’s press release of November 29 are transmitted with this note.† The Embassy would appreciate receiving an exact text of the speech delivered by the Minister of Justice at Prince George, British Columbia, on November 28.

452. DEA/5724-2-40

Minister of Justice to Secretary of State for External Affairs

PERSONAL AND CONFIDENTIAL. RESTRICTED. Ottawa, December 8, 1961

My dear Colleague,
I acknowledge with thanks receipt of your letter of December 1st enclosing copy of U.S. Embassy Note No. 124 dated November 30, together with a draft suggested reply, dealing with Secretary Udall’s statements and my Prince George speech on the Columbia River.
By way of background for your consideration in connection with your reply, or for use in any subsequent conversations or correspondence, I think I should outline to you the effect of my conversation with the American Ambassador on November 23rd.
He attended in my office together with Mr. Willis Armstrong and I explained to them both the reason for our very grave concern over the reports that had appeared in Seattle about Secretary Udall’s statements there. There were three statements reported:

  1. That Canada’s concern over difficulty in recapturing power sold on long-term contract was “stuff and nonsense.”
  2. That he was “confident” that the Canadian Government would agree to such sales of power.
  3. That they had had official talks with Ottawa and talks with Premier Bennett “on the side.”

These reports had appeared first in the Seattle Post-Intelligencer under the by-line of Fergus Hoffman. Actually, members of the Press Gallery here had been in touch with Mr. Hoffman and he had confirmed that the Secretary had said these things at a press conference, and that he had him in quotes, particularly on the statement as to his confidence that Canada would agree to such sales.

I explained to the Ambassador that very intensive and effective use was being made of these reported statements by Premier Bennett and other provincial government Ministers and officials and that, particularly in the light of the meeting between Bennett and President Kennedy, the very definite impression was being created that the Government of the United States was fully in favour of a long-term sale being made of our downstream power entitlement. I outlined in very clear terms to the American Ambassador the great undesirability of statements being issued to create this impression.

He told me that day that it could be stated that the President had had in effect only a social meeting with Mr. Bennett and that no specific problems or policy with regard to Columbia River had been discussed. However he told me he had not as yet been able to obtain confirmation or denial with regard to the Udall Statements.

It is true that on November 24th the U.S. Embassy transmitted a message containing a further statement by Secretary Udall, and this was communicated to me. However the important thing is that while the U.S. Embassy message suggested that Secretary Udall had been misquoted in Seattle, there was no specific denial. More importantly, Secretary Udall’s statement, – the only statement which he or the U.S. authorities had issued – was merely a statement of what purported to be his continuing position: It in no way denied that he had said what he was quoted as saying in the Seattle paper. I indicated to your Department (I think it was Ed Ritchie) that this was not at all helpful; my recollection is that Mr. Ritchie said that it was the best that we had been able to get.

Meantime, of course, the Udall statements continued to be used by Premier Bennett and his publicity claque in the most deliberate and effective manner. Particularly there was no denial of his statement about being confident that the Canadian Government would approve such sales, or of the fact that they had had official talks with us about it and talks with Bennett “on the side.” With regard to the statement of November 27th, this did not come to my attention before I delivered the Prince George speech. In any event, although I have seen it since, it is not effective by way of a denial of what was reported to have been said in Seattle.
This was the situation when I made my speech in Prince George on the 28th. It was only after I made that speech that Secretary Udall issued a statement denying that he had said what he was quoted as saying in Seattle. This, notwithstanding that the American Government had the clearest indication of the damage that his reported statements were creating.
Perhaps it might not be appropriate to put all this in the text of the reply, but I think it should be used in discussion with the American Ambassador and other American officials. I feel we have nothing to apologize for either in fact or even with regard to strict protocol: Any regrets due are due from them for having placed us in that position. Furthermore I feel it should be made clear to them again that since we signed a treaty designed to secure the return to Canada of one-half share of the downstream benefits, that the United States should indicate an unwillingness to talk with Bennett or anybody else from British Columbia about the sale of our power down there in a manner completely at variance with the arrangements contemplated by the negotiators of the Treaty and by the Treaty itself, that is, a long term contract for the sale of our whole entitlement.
Indeed it is their readiness to have such discussions – which I think would be improper – which has created the mischief.
As indicated, I only suggest for your consideration that you might consider it advisable to put some of this information in the reply, but if you feel that it should not be used in the reply but only in discussions, then I concur in the draft reply you sent me.Footnote 69

Yours sincerely,
DAVIE FULTON

453. D.M.F./Vol. 20

British Columbia Power Corporation, Limited to Secretary of State for External Affairs

[Victoria], December 12, 1961

Dear Howard [Green]:
Once again thank you so much for seeing me on 29th November and for arranging for me to meet the Prime Minister on 1st December. You may be interested in having, for your file, the enclosed copy of the memorandum that I left with the Prime Minister.†
During our brief conversation at the airport on 1st December, you said that part of what I had to suggest about the Columbia River was in line with what you had been saying, but that among my ideas there was one that was new to you. In the hope that it will be of some assistance, I take the liberty of putting on paper the effect of what I tried to convey.
Public opinion in British Columbia favours the export of electricity, regarding it like any other energy-producing commodity. People believe that the old reasons against exporting hydro power are no longer sound, because energy can now be produced cheaply by thermal means. In fact, approximately 80% of the electric energy now used in the United States is generated thermally. In these circumstances the Government should stress that, in principle, it is not against the export of electricity in proper cases: it brought in the National Energy Board Act, and applications to export will be considered on their merits.
However, such part of Canada’s share of downstream benefits under the Columbia River Treaty as may be sold in the United States will not be exported and different considerations apply. The delivery to Canada of downstream benefits resulting in the United States depends at all stages on contract (i.e., treaty). If we feel that we can rely on the Americans’ covenant to start delivering downstream benefits in, say, 1968, there is no good reason why we should not be prepared to rely on a covenant to start delivering them ten or twenty years later. As a matter of practicability for the U.S., with improvement in the efficiency of conventional thermal plants and the probability that nuclear power will be available within the next twenty years at competitive rates, the Americans should have no difficulty in making provision to generate the equivalent of the downstream benefits that Canada wishes from time to time to recapture. If my reasoning on this is sound, difficulty of recapture should not be advanced as a reason for not allowing the long-term sale of downstream benefits.
In deciding whether Canada should ratify the Columbia River Treaty and in deciding whether it should make taxpayers’ money (raised from all of Canada and not just B.C.) available to produce downstream benefits, special considerations arise. The decisions must be affected by whether Canada’s share of the downstream benefits is to be used by Canadians or Americans. If the share is to be used by Canadians and if thus they will get large quantities of power cheaper than they would otherwise, the flooding of the Arrow Lakes country, consent to the building of Libby Dam, the limiting of Canada’s right to divert the Kootenay River, the giving up for the treaty period of any right to divert the Columbia, or a part thereof, into the Fraser, and the contribution of Canadian taxpayers’ money can be justified. They cannot be justified if the principal result is to provide cheap power for the Americans.
One argument that British Columbia may advance against this is that the sale of downstream benefits will yield a cash profit. The answer must be that the Dominion does not make Canadian taxpayers’ money available for business ventures of individual provinces. It might be otherwise if the province were to agree to devote the profit (including earnings on or savings from the payments for flood control) to providing equally cheap, or cheaper, energy to British Columbians from another source. The other source could be the Peace River, if it could be demonstrated that power from there could be delivered to the load centres as cheaply or cheaper than downstream benefits could be; more appropriate might be generators installed at Mica Dam (and other points on the Columbia).
While these thoughts touch on only a few of the many factors involved, I hope that they may be of some slight use to you. Though you did not react with any enthusiasm to my idea that, in any arrangement between the Dominion and the Province (and the U.S. ?) with respect to the Columbia River, there should be included a requirement that the dissatisfaction with the treatment of the shareholders of the B.C. Electric under the Power Development Act, 1961, of B.C. be removed, I have not abandoned the idea; and I hope that I may return to it again one of these days.
I shall send a copy of this letter to Davie.
With all good wishes,

Yours sincerely,
A. BRUCE ROBERTSON

454. DEA/5724-2-40

Draft Note by Department of External Affairs

RESTRICTED Ottawa, December 14, 1961

The Department of External Affairs presents its compliments to the Embassy of the United States of America and has the honour to acknowledge the Embassy’s Note No. 124 of November 30, 1961. The Department of External Affairs also wishes to acknowledge receipt, on November 24 and November 29 respectively, of the texts of the statements attached to the Embassy’s Note under reference. It will be appreciated that the statement issued by the United States Secretary of the Interior on November 24 did not cover all aspects of certain earlier statements attributed to him in the press reports which were discussed, on November 23, by the Minister of Justice of Canada and the Ambassador to the United States of America. Insofar as the statement of November 24 did deal with the matters discussed it did not appear to provide satisfactory clarification or correction of the press reports.
With respect to the Canadian Press report of November 27, to which the Embassy’s Note refers, the Department of External Affairs does not consider that it was drawn formally to its attention of that its content were vouched for by the United States Embassy. In any event it did not appear to provide satisfactory clarification either.
As requested, a copy is attached of a Press Release containing the text of the Notes prepared for an address delivered by the Minister of Justice at Prince George, British Columbia on November 28, 1961.Footnote70

455. H.C.G./Vol. 4

Extract from Minutes of Meeting of Cabinet Committee on Columbia River

CONFIDENTIAL [Ottawa], December 17, 1961

Present:

Hon. H.C. Green, Secretary of State for External Affairs (Acting Chairman)
Hon. D.M. Fleming, Minister of Finance
Hon. E.D. Fulton, Minister of Justice

Also Present:

Mr. R.B. Bryce, Secretary to the Cabinet
Mr. A.E. Ritchie, Department of External Affairs
Mr. J.F. Parkinson, Department of Finance
Mr. R.G. Robertson, Deputy Minister, Department of Northern Affairs and National Resources
Mr. T.M. Patterson, Department of Northern Affairs and National Resources
Mr. G.M. MacNabb, Department of Northern Affairs and National Resources
Dr. J.S. Hodgson, Privy Council Office (Secretary)
Mr. D. Beavis, Privy Council Office (Asst. Secretary)

Columbia River Negotiations with the Province

The Committee considered two draft replies† to Premier Bennett’s letter to Mr. Fleming dated November 27th. During the discussion the following points were made:

  1. Some thought that to encourage a meeting with the Premier to discuss financial details of the project when such a meeting would be based on Mr. Bennett’s misinterpretation of Article VIII of the Treaty concerning the disposition of downstream power benefits would compromise the federal government’s position, and that it would be preferable not to ratify the Treaty, rather than to meet on such a basis. Others thought that a reply could be so worded as to make clear the government’s desire for ratification but only on the terms mutually agreed between the province and Ottawa during the negotiation period before the signing of the Treaty. This would publicly fix the responsibility for any delay in ratification on the Premier of British Columbia.
  2. Some thought that several federal Ministers should be included in any discussions with the Premier, because the discussions would probably raise policy questions other than those of a financial nature. Others thought that the reply should exclude reference to the attendance of other Ministers; rather, it should suggest that, if Mr. Bennett was prepared to meet on a basis which would preserve the principles contained in the Treaty and to which both the Province and the federal government had agreed at the time the Treaty was signed, then the Minister of Finance would welcome a meeting with the Premier to discuss financial details.
  3. If all Columbia River downstream benefit power were, as Premier Bennett wished, to be sold to the United States, British Columbia would have to depend on the higher-cost Peace River power. This was a misuse of the Columbia and a reversal of national policy. It would result in Canada selling low-cost power to United States industries competing with industries in British Columbia under circumstances precluding effective Canadian competition in view of the subsidization of power cost known to exist in the United States.
  4. Some said that the fundamental judgment was whether Premier Bennett was determined to develop the Peace River at all costs. If so, he would have to finance it by exploiting the power market in the Vancouver area. It would not be possible to develop both rivers without large scale exports of power. Others said that the alternative would be not to develop the Columbia at all.
  5. U.S. representatives had indicated informally that they might be prepared to deliver part of Canada’s entitlement at Blaine. About one-third of Canada’s share of the downstream power benefits could be carried by this line, and if a satisfactory market could be found for the remainder, perhaps the construction of the transmission line between Oliver and Vancouver might be postponed for six or seven years.

After further discussion the Committee agreed:

  1. that officials should prepare a further draft of a proposed reply to Premier Bennett, for consideration by the Cabinet on December 18th;
  2. that the reply should:
    1. indicate clearly the federal government’s desire to ratify the Treaty and that Premier Bennett’s stand had been the only reason for the delay,
    2. state the federal government’s reservation that further discussions could proceed only on the basis of the principles concerning disposal of downstream benefits established in the Treaty,
    3. contain a reference to the minutes of the December 8-9th meeting of the Policy Liaison Committee at which the British Columbia representatives had agreed to the principle of sale of surplus power on a short-term basis,
    4. be the means of sending to the Premier a copy of the Montreal Engineering Company report in which the federal cost figures were confirmed,
    5. have as an attachment a memorandum from the Department of Northern Affairs and National Resources based on the Draft Press Release dated 8th November 1961, revised as an analysis of the Montreal Engineering Company Report. This memorandum brought out the fact that, with downstream benefit power returned to Canada as envisaged in the Treaty, the Columbia development would provide 60% more power for Canada and at a 25% lower unit cost than would the development of the Peace River.

Tabling of Montreal Engineering Company Report and Draft Press Release,
The Committee agreed during the discussion of item I that the Montreal Engineering Company report and a suitable revision of the draft release would be attached to the draft reply to Mr. Bennett’s letter of November 27th.
Proposed Pamphlet on Columbia Development
After a short discussion, the Committee agreed

  1. that officials should be authorized to prepare a draft pamphlet for consideration at a later date by the Committee;
  2. that the pamphlet will not be released until authorized by the Committee.
    . . .

456. D.M.F./Vol. 20

Member of Parliament, Vancouver South, to Minister of Finance

PERSONAL AND CONFIDENTIAL. [Ottawa], December 14, 1961

Dear Don [Fleming]
Leon Ladner has asked me to write to you in regard to the Columbia River development and its political effects in British Columbia. I understand Leon talked to you about this, and he considered it most urgent that I give you my own opinions, which in many ways are shared by the other private members from British Columbia.
A short time ago we had a meeting with Howard Green when he was out here, and present at that meeting were: Bert McPhillips, Harry McQuillan, Bill Payne, Bill McClennan, Harold Hicks, Doug Jung, John Taylor and myself. Also present were Leon Ladner and Theo DuMoulin, Vice President of the B.C. Conservative Association.
Howard had been asked to make no statement on the Columbia until he met us, and his first words were that why were we so concerned because the Columbia was no longer of political importance in British Columbia. He also stated that suggestions made by the members to Davie Fulton, and which were carried by Davie back to the Cabinet in Ottawa, were unacceptable to him and he had managed to block them.

Without exception, everyone at this meeting indicated they felt Howard was out of touch with political matters in British Columbia, and that we disagreed in many respects with the stand he was taking on this issue. My own opinion is that Howard has become so completely engrossed in international affairs that he has lost touch with political sentiment in this Province. He himself, of course, will be elected by a tremendous majority, but the issues which he does not consider important could well defeat a large number of our British Columbia members.
Davie Fulton did recover some ground with his speech at Prince George, only because Udall made this possible. The effect of this will wear off and we will be faced with the fundamental issue of whether the Columbia development will proceed or not, and if it does not proceed, we will receive most of the blame for this, although as you and I know, Mr. Bennett is the real villain in the piece. Nevertheless, we face the electors before he does, and we will be the first people they will have a chance to show their resentment against. Mr. Bennett will also suffer from this resentment, but by the time his election comes along somehow or other he will have managed to have got himself off the hot spot. I have talked to many people who fully realize the harm Mr. Bennett has done, but who look to Ottawa to do something about this and to get this great project moving, and how we do it they do not particularly care. In my opinion, however, public sentiment has started to harden into a “plague on both your houses” attitude, and you know that reason and logic are not really good election weapons when compared with achievements or emotional appeals. Perhaps all I am saying is let’s get away from name calling and try some honest hard negotiating for a change.
This letter is for your own personal use, and I would suggest you also check when the House reassembles with some of the other members from British Columbia.
Best personal regards,

Yours sincerely,
ERNIE [J. BROOME]

457. PCO

Extract from Cabinet Conclusions

SECRET [Ottawa], December 20, 1961

Present

  • The Prime Minister (Mr. Diefenbaker) in the Chair,
  • The Secretary of State for External Affairs (Mr. Green),
  • The Minister of Finance (Mr. Fleming),
  • The Minister of Trade and Commerce (Mr. Hees),
  • The Minister of Transport (Mr. Balcer),
  • The Minister of Veterans Affairs (Mr. Churchill),
  • The Minister of National Revenue (Mr. Nowlan),
  • The Minister of Citizenship and Immigration (Mrs. Fairclough),
  • The Minister of Fisheries (Mr. MacLean),
  • The Minister of Labour (Mr. Starr),
  • The Postmaster General (Mr. William Hamilton),
  • The Solicitor General (Mr. Browne),
  • The Minister of National Health and Welfare (Mr. Monteith),
  • The Minister of Agriculture (Mr. Alvin Hamilton),
  • The Minister of Defence Production (Mr. O’Hurley),
  • The Minister of Public Works (Mr. Walker),
  • The Associate Minister of National Defence (Mr. Sévigny),.
  • The Minister of Forestry (Mr. Flemming),
  • The Secretary of State (Mr. Dorion),
  • The Minister of Northern Affairs and National Resources (Mr. Dinsdale).
  • The Secretary to the Cabinet (Mr. Bryce),
  • The Assistant Secretaries to the Cabinet (Dr. Hodgson), (Mr. Labarge), (Mr. Watters).
    . . .

Columbia River Negotiations with Province of British Columbia

(Previous reference November 30)

  1. The Prime Minister said that consideration should be given to a draft letter from the Minister of Finance to the Premier of British Columbia in reply to the Premier’s letter of November 27th proposing further discussion of the financial arrangements for the project. The draft had been prepared under the direction of the Cabinet Committee on the Columbia River. He now wished to get into the Columbia question himself.
    The first question to be considered was whether the government wished to see the Treaty ratified. If so, it would probably be necessary to seek some reasonable compromise with the province, and the draft letter should reflect the disposition to seek a solution. This might involve the sale in the United States of a considerable proportion of Canada’s share of the downstream power benefits. Did Ministers wish to adhere to the present negotiating position, even if this inflexibility led to the lapsing of the Treaty?
    In the future, public statements by Ministers on the Columbia should be made only after consultation with himself or with the Cabinet. He had not been consulted before a Minister had recently made a speech attacking the U.S. for allegedly interfering with Canada’s affairs relating to the Columbia.
  2. The Minister of Finance said the draft letter made it clear that the Federal government favoured the sale of power benefits, if surplus to Canadian requirements, but that the sale of all the benefits would violate the Treaty.
    He recalled that he had held discussions with Premier Bennett in April and May 1961, but the province’s proposals for financing the project had been unacceptable, and the discussions had lapsed. In September, the Cabinet Committee had prepared two alternative draft letters to the Premier in order to reopen the discussions, but on the Prime Minister’s advice neither had been sent. The Premier’s recent letter was amicable in tone, and it indicated that the province had made considerable progress on the engineering aspect of the project. The province was urging that the Treaty be ratified, and the Federal government should not place itself in the position of appearing to oppose ratification.
    The Premier might argue that the Treaty made possible disposition of all the downstream benefits, but minutes of earlier meetings showed that his government had formerly regarded Clause 8 of the Treaty as applying only to the sale of power not needed in Canada. Premier Bennett would take the position that, by selling all the benefits, he could save the $110 million otherwise required to build transmission lines, and could use the proceeds of the sale for both the machining of the Mica dam and the development of the Peace River.
    It was important that the draft letter should reply to Premier Bennett’s arguments, so that the Federal government’s position would be clearly on the public record. The Treaty would be highly beneficial to Canada, and it was the result of very skilful negotiation.
  3. Mr. Green said that the original purposes of the treaty negotiations had been to obtain cheap power for the Lower Mainland of British Columbia and, by machining the Mica project, to bring cheap power also to the southern part of the provincial interior. The Treaty itself contemplated the sale in the United States of part of Canada’s share of downstream benefits, but only if surplus to Canadian requirements. Premier Bennett was trying to make possible the premature development of the Peace River by selling all the Columbia benefits, but this would deprive the Lower Mainland of the low-cost power needed for industrial development.
    The original conception of the Treaty had been remarkable because the notion of obtaining payment for downstream benefits was a new principle for international agreements. During the negotiations, however, several compromises had been necessary in order to keep the support of the province, and the Treaty itself was far from the original plan. Indeed, the best interests of both British Columbia and Canada might be served if the Treaty were allowed to lapse, and if the Columbia was later developed as a Canadian project.
    It was proposed to send to Premier Bennett, with the letter, the recent report of the Montreal Engineering Company and a departmental memorandum setting forth some of its implications. These two documents showed clearly that Columbia power would be much cheaper than Peace River power.
    Resumption of discussions with Premier Bennett might not result in any accomplishment. He would be apt to use the occasion chiefly for propaganda purposes and to wrest further compromises from the Federal government. It was difficult to trust the statements of the present provincial administration, because several times during the negotiations it had broken faith and forced changes in the Canadian negotiating position.
    Finally, unless the government supported the position taken by the B.C. Ministers, it would lose much of its political strength in that province, and the present provincial administration would be greatly strengthened.
  4. During the discussion the following points were raised:
    1. Most said the Treaty should not be allowed to lapse if some reasonable compromise with the province would enable it to be ratified. Any such compromise should not jeopardize the main principles of the Treaty. The Federal government was being criticized by the public in British Columbia and elsewhere for its apparent inflexibility on this subject, and the people wished to see the Treaty ratified.
    2. The province would appear ridiculous if it seriously proposed the sale of power needed in B.C. On the other hand, the Federal government would appear ridiculous if it advocated the return to Canada of power that was surplus to Canadian requirements. The Federal government should agree to a compromise based on the sale of the surplus power as determined by the National Energy Board.
    3. On the other hand, if the Federal government agreed to the sale of all surplus power from the Columbia, the province would proceed with the Peace River development, thereby making the entire power production from the Columbia surplus to Canadian requirements.
    4. The draft letter should not state the Federal government’s position too definitely, or Premier Bennett might conclude that there would be no purpose in further discussions.
    5. Clause 8 of the Treaty referred to the sale of “portions” of the Canadian share of the downstream power benefits, but contained nothing which would expressly preclude the sale of the whole of the benefits for limited periods, if not needed in Canada.
    6. The third page of the letter should be amended to make clear that the purpose of the Treaty would be defeated if “the bulk of” the benefits were sold for several decades. A sentence stating that provincial policy was the “obstacle” to ratification should be deleted, and other provocative expressions should also be changed.
  5. The Cabinet agreed,
    1. that arrangements should be completed if reasonably possible for the ratification of the Treaty with the United States on the development of the Columbia River, and that the government would be willing to make some compromise with the government of British Columbia on the question of downstream benefits if necessary to achieve the purposes of the Treaty;
    2. that page 3 of the draft letter from the Minister of Finance to the Premier of British Columbia should be revised in line with the discussion at the Cabinet; and,
    3. that the revised draft letter should be submitted for the consideration of the Prime Minister and Messrs. Green and D. Fleming before despatch.
      . . .

458. D.M.F./Vol. 20

Minister of Finance to Premier of British Columbia

Ottawa, December 23, 1961

My dear Premier:
Before going overseas to the NATO meetings last week, I sent you an interim reply on December 9th to your letter of November 27th concerning the Columbia River Treaty. I have now had an opportunity to review the situation.
I would welcome an early resumption of discussions on the financial arrangements, but my colleagues and I feel that it is most important that we should first remove any misunderstanding that may exist about the real purpose of the Treaty. In your earlier letter of June 9th you stated that in your view all of Canada’s share of the downstream power benefits should be disposed of to the United States. You return to this point in your last letter, and say that it is of paramount importance to you.
This stand is quite contrary to the fundamental purpose of the Treaty, which is to secure for the people of British Columbia directly and immediately the cheapest and most abundant electric power available.
I believe it essential to reaffirm the basic position outlined in my letter of May 17th regarding the use which has been clearly envisaged from the beginning on both sides for these power benefits. As you were aware, throughout the negotiation of the Treaty, discussions in the Canada-British Columbia Policy Liaison Committee were based on the intention that the bulk of Canada’s share of the low-cost downstream power benefits would be delivered to Canada for the use and benefit of consumers in British Columbia. The Treaty itself accurately reflects this principle. I refer in particular to the following provisions of the Treaty:
“Article V – Entitlement to Downstream Power Benefits

  1. Canada is entitled to one half the downstream power benefits determined under article VII.
  2. The United States of America shall deliver to Canada at a point on the Canada-United States of America boundary near Oliver, British Columbia, or at such other place as the entities may agree upon, the downstream power benefits to which Canada is entitled, less
    1. transmission loss,
    2. the portion of the entitlement disposed of under article VIII(1), and
    3. the energy component described in article VIII(4).”

    “Article VII – Determination of Downstream Power Benefits

    1. the downstream power benefits shall be the difference in the hydroelectric power capable of being generated in the United States of America with and without the use of Canadian storage, determined in advance, and is referred to in the treaty as the downstream power benefits.
    2. For the purpose of determining the downstream power benefits:
      1. the principles and procedures set out in annex B shall be used and followed;
      2. the Canadian storage shall be considered as next added to 13,000,000 acre-feet of the usable storage listed in column 4 of the table in annex B;
      3. the hydroelectric facilities included in the base system shall be considered as being operated to make the most effective use for hydroelectric power generation of the improvement in stream flow resulting from operation of the Canadian storage.
    3. The downstream power benefits to which Canada is entitled shall, be delivered as follows:
      1. dependable hydroelectric capacity as scheduled by the Canadian entity, and
      2. average annual usable hydroelectric energy in equal amounts each month, or in accordance with a modification agreed upon under paragraph (4).
    4. Modification of the obligation in paragraph 3(b) may be agreed upon by the entities.”

“Article VIII – Disposal of Entitlement to Downstream Power Benefits

  1. With the authorization of Canada and the United States of America evidenced by exchange of notes, portions of the downstream power benefits to which Canada is entitled may be disposed of within the United States of America. The respective general conditions and limits within which the entities may arrange initial disposals shall be set out in an exchange of notes to be made as soon after the ratification date.
  2. The entities may arrange and carry out exchanges of dependable hydroelectric capacity and average annual usable hydroelectric energy to which Canada is entitled for average annual usable hydroelectric energy and dependable hydroelectric capacity respectively.
  3. Energy to which Canada is entitled may not be used in the United States of America except in accordance with paragraphs (1) and (2).” . . .
    “Article X – East-West Standby Transmission
  1. The United States of America shall provide in accordance with good engineering practice east-west stand-by transmission service adequate to safeguard the transmission from Oliver, British Columbia, to Vancouver, British Columbia, of the downstream power benefits to which Canada is entitled and to improve system stability of the east-west circuits in British Columbia. . . .”

These provisions obviously rest on the intention that, in the normal course, our downstream benefits will be physically returned to Canada. I draw your attention to the word “portion” in Article V and the word “portions” in Article VIII. At no time prior to the signing of the Treaty was it even hinted by you, your Ministers, or your officer who was appointed as one of the four negotiators, that your government would demand that Canada’s share of downstream benefits be sold in the United States.

The basic purpose of the Treaty is to provide large supplies of cheap power and thereby benefit the people of British Columbia and the economy of Canada as a whole through the industrial development and employment which can be expected to result. This purpose would be defeated and British Columbia producers put at a competitive disadvantage if the bulk of the low-cost downstream benefit power is committed to the United States for several decades.

The great advantages to Canada of the development and use of the low-cost of the Columbia are brought out once again in specific terms in a study made of them by the Montreal Engineering Company. I am sending you under separate cover a copy of this report in two volumes, and I am enclosing herewith a departmental memorandum setting forth briefly some of the conclusions reached in this report.

We have accomplished what seemed at many times to be an unattainable objective when we were able to negotiate for the return to Canada, free, of one-half of the downstream benefits. My colleagues and I would hope that you will be able to return to the real purpose of the Treaty and agree that the bulk of Canada’s downstream benefit power should be brought back for use in British Columbia, with only the temporary surpluses being sold to the United States, as provided in Article VIII of the Treaty.

I am, as always, ready to meet with you, and invite you to suggest several alternative dates in January for consideration.
Wishing you the Compliments of the Season, I am,

Yours sincerely,
DONALD M. FLEMING

Footnotes

Footnote 1

Action in USA on balance of pay[men]ts [J.G. Diefenbaker]

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Footnote 2

See Newsweek, September 25, 1961, p. 19.

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Footnote 3

See John F. Kennedy, Good Fences Make Good Neighbours: Convocation, Tuesday, October 8th, 1957 (Fredericton: University of New Brunswick, 1960).

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Footnote 4

See also documents 334 and 336.

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Footnote 5

Marginal note: Not sent. [Author unknown]

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Footnote 6

See Public Papers of the Presidents of the United States: John F. Kennedy, Containing the Public Messages, Speeches, and Statements of the President, January 20-December 31, 1961 (Washington: United States Government Printing Office, 1962), documents 17, 23.

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Footnote 7

See “Joint Communiqué,” Globe and Mail, February 21, 1961, p. 9. For the American record of the meeting, see Foreign Relations of the United Sates, 1961-1963, Vol. XIII (Washington: United States Government Printing Office, 1944), document 418.

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Footnote 8

See Public Papers of the Presidents of the United States: John F. Kennedy, Containing the Public Messages, Speeches, and Statements of the President, January 20-December 31, 1961 (Washington: United States Government Printing Office, 1962), documents 191-193; “Kennedy Bids Canada Join U.S. in Hemisphere Role,” New York Times, May 18, 1961, pp. 1, 12; “Diefenbaker-Kennedy Pledge Defense Co-operation and Pursuit of End to War,” Globe and Mail, May 19, 1961, p. 8.

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Footnote 9

On nuclear weapons, see document 390. For American records of the conversation, see Foreign Relations of the United States, 1961-1963, Vol. XIII (Washington: United States Government Printing Office, 1994), documents 421-425.

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Footnote 10

Saw Dana Wilgress & George Ignatieff Jan. 13-61. [H.C. Green]

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Footnote 11

See Canada, House of Commons, Debates, 1959, Volume II, pp. 1221-24.

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Footnote 12

See Volume 27, document 277.

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Footnote 13

See Volume 27, document 302.

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Footnote 14

See Canada, House of Commons, Debates, 1959, Volume II, pp. 1221-24.

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Footnote 15

Mentioned by P.M. possibly one master agreement. [A.D.P. Heeney]

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Footnote 16

No ref. made. [A.D.P. Heeney]

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Footnote 17

No ref. [A.D.P. Heeney]
Canadian forces are equipped to make use of them if necessary. [Auteur inconnu/Author unknown]

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Footnote 18

Ditto. [A.D.P. Heeney]

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Footnote 19

Ditto. [A.D.P. Heeney]

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Footnote 20

Ditto. [A.D.P. Heeney]

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Footnote 21

On the Montebello meeting, see Volume 27, document 302.

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Footnote 22

See Volume 27, document 277.

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Footnote 23

Noted by Prime Minister. H.B. R[obinson] May 9/61.

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Footnote 24

The Minister made extensive revisions to the redrafts.

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Footnote 25

SSEA says PM has decided to take schedules to Cabinet. Draft to be held. R. C[ampbell] 13/9
Not dealt with in Cabinet 14/9. [Ross Campbell]

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Footnote 26

See Volume 27, document 302.

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Footnote 27

See “Text of Diefenbaker Statement,” Globe and Mail, September 24, 1958, p. 8.

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Footnote 28

See Canada, House of Commons, Debates, 1959, Volume II, pp. 1221-24.

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Footnote 29

See Walter Gray, “Fallout Tops UN Agenda after Canada Points the Way,” Globe and Mail, October 7, 1961, p. 1.

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Footnote 30

See Public Papers of the Presidents of the United States: John F. Kennedy, Containing the Public Messages, Speeches, and Statements of the President, January 20-December 31, 1961 (Washington: United States Government printing Office, 1962), pp. 618-26.

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Footnote 31

See document 370.

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Footnote 32

See Volume 27, Chapter 3, Part 4 (b).

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Footnote 33

I. H.B. R[obinson] To be sent at Minister’s request to Prime Minister for his approval of the telegram. R. C[ampbell] 28/8
II. P.M. agrees with External Affairs comments and thinks they should be sent by tel. to Washington. H.B. R[obinson] Aug. 28
III. DL-1062 signed by SSEA 28/8. R. C[ampbell]

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Footnote 34

See Canada Treaty Series, 1958/9

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Footnote 35

See Volume 27, document 298

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Footnote 36

See document 315.

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Footnote 37

Volume 27, document 299.

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Footnote 38

Not found.

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Footnote 39

For example, see document 331.

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Footnote 40

I think the “presentational” aspect is of great importance. There should be 2 stages:
(1) the swap deal (i.e. F101’s delivered on a nuclear-capable basis)
(2) decision re storage & use of nuclear weapons.
S. Rae

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Footnote 41

I wholly agree. [A.D.P. Heeney]

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Footnote 42

This wd. correspond to P.M.’s statement to the press. [A.D.P. Heeney]

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Footnote 43

See Canada Treaty Series, 1961/5

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Footnote 44

See Canada Treaty Series, 1960/12.

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Footnote 45

OK. H.C. G[reen] 13/10

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Footnote 46

See “Kennedy Seeking Loan for Poland,” New York Times, February 9, 1961, p. 1; “Senate Votes Red-Bloc Aid Bill,” Washington Post, May 12, 1961, p. A4; “How House Voted on Aid Measures,” ibid., August 19, 1961, p. A4.

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Footnote 47

See Volume 24, document 373.

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Footnote 48

See Volume 25, document 6.

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Footnote 49

See George Bain, “Canada Defends Tariff Change: Think U.S. Ready to Delay Five,” Globe and Mail, March 15, 1961, p. 1.

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Footnote 50

The changes were announced in the supplementary budget speech on December 20, 1960. See Canada, House of Commons, Debates, 1960-1961, Vol. I, pp. 1006, 1013-14.

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Footnote 51

See Volume 23, Chapter I, Section 3(b).

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Footnote 52

Noted. D.M. F[leming]

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Footnote 53

See David Halberstam, “Canada Warned on Oil Campaign,” New York Times, February 3, 1961, pp. 31, 36

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Footnote 54

Noted. D.M. F[leming]

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Footnote 55

Marginal note:
Signed by SSEA 31/10. R. C[ampbell]

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Footnote 56

Please take no initiative on this. H.C. G[reen]
Leave to Mr. Hamilton. 30/11 [Ross Campbell]

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Footnote 57

See Foreign Relations of the United States, 1961-1963, Vol. IX (Washington: United States Government Printing Office, 1995), document 87.

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Footnote 58

OK. H.C. G[reen]
Text approved by SSEA 20/10. R. C[ampbell]

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Footnote 59

Marginal note: Check with F.O. by phone. [Author unknown]

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Footnote 60

Marginal note: Signed by SSEA 28/11. R. C[ampbell] Sent Tel. N-126 28/11. R. C[ampbell]

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Footnote 61

Marginal notes: Mr. Ignatieff We agree with Gen. Burns’ analysis as far as it goes. We would like to discuss the implications with you before you leave for Paris. K.D. M[cIlwraith] Dec. 7/61 No time for detailed discussion before G.I. left for Paris. He and Ross Campbell took with them copies of Gen. Burns’ draft memo. K.D. M[cIlwraith]

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Footnote 62

See Foreign Relations of the United States, 1961-1963, Vol. VII (Washington: United States Government Printing Office, 1995), document 93, note 5.

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Footnote 63

Approved by Cabinet on August 9, 1961, with the provision that the initial Canadian contribution of up to five million dollars should not exceed one tenth of the contribution of the United States. Further contributions might be made up to a limit of another five million dollars during the first three year period of the programme’s operation if necessary, subject to a similar limitation.

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Footnote 64

See Volume 27, documents 429, 430.

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Footnote 65

Marginal note: Tel G-80,† as amended in final para, signed by SSEA 28/3. R. C[ampbell]

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Footnote 66

See A.J. Glass, “Canadian Politics Doom Columbia River Treaty,” Washington Post, October 30, 1961, p. A22.

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Footnote 67

See “Halt Power Battle: Negotiate Again with U.S., Says Pearson,” The Province, October 3, 1961, p. 17.

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Footnote 68

See “Columbia A-Boil: Fulton Rakes Bennett, U.S.: Fury of Attack Stuns Ottawa,” The Province, November 29, 1961, pp. 1-2.

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Footnote 69

SSEA was inclined to agree that some might be incorporated & asked that you [J.M. Cook] consider a revision of the proposed Note. R. C[ampbell] 8/12

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Footnote 70

Approved by SSEA 17/12. R. C[ampbell]

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