Foreign Relations of the United States, 1949, The United Nations; The Western Hemisphere, Volume II

711.42/3–2449

Memorandum by the Assistant Chief of the Division of British Commonwealth Affairs (Snow) to the Director of the Executive Secretariat (Humelsine)

secret

[Washington,] March 24, 1949.

Subject: Progress Report on Questions Raised at February 12 Conference between the President and the Canadian Prime Minister.

• References: (1) Memorandum of conversation prepared by the Secretary on February 13, 1949 covering the conversations.
• (2) Similar memorandum prepared by the Canadian Ambassador (copy attached).¹

I. St. Lawrence Seaway and Power Project. The discussion between the President and the P.M. on this subject was general and no commitment was made. The issue is an old one dating from the late 1920s and hinging now upon Congressional approval of the U.S.-Canadian Executive Agreement of 1941.² Mr. Gross’³ office is handling the legislative side of this question for the Department, assisted by BC and IR. Since Mr. Aaron Ford was appointed a few days ago as coodinator of this project for the Executive Establishment, no further major developments have come to our attention. The matter, however, is being actively followed by all concerned in the Department and two research studies requested by BC have now been completed for use in support of the legislative effort. Likewise, PL is coordinating two draft papers for circulation inside and outside of the Department in regard to the St. Lawrence Project.

II. Canadian Military Procurement in the U.S. and Vice Versa. The Prime Minister raised this point and the President agreed to have the subject examined by this Government. The question is a very complicated one concerning which much work has already been done and much remains to be done. It came to the fore in June 1948 when surplus property procedures were terminated so that beginning July 1st, Canada could no longer procure equipment from surplus stocks. It is an established policy that Canada and the U.S. shall standardize their military equipment and procedures to the maximum degree. Theoretically, Canada can now place contracts direct with private industries in the U.S., subject to export control licenses when the products are finished. In practice, this is of little avail for reasons of priority, price, lateness of design, government inspection, production of some items solely by U.S. Government arsenals, and involved design and patent rights. Hence, it is essential in the interests of standardization and suitable Canadian armament for Canada to be able to procure from and through the National Military Establishment. For a time it was thought that passage of the projected Inter-American Military Cooperation Act would solve the problem but that bill has failed of passage in two sessions and been at least temporarily put aside. Recently, 22 U.S.C. 421 has been considered as the clue to a partial solution of the problem. It is now being discussed with the Budget Bureau by the N.M.E. and the U.S. Section of the Permanent Joint Board on Defense, with the possibility that it may be brought into play within the next few weeks to make possible Canadian purchases of jet aircraft, among other items. L and BC are actively following this matter. The best solution of all would be the passage of the proposed Military Assistance Act of 1949.⁴ As you know, the Department is playing a leading role in that connection. Another partial and temporary expedient for facilitating Canadian procurement was disclosed last week at the Defense Board meeting by Major General Bolte of the Army. It would provide, on a limited scale for an exchange of equipment through a third party such as a U.S. manufacturing concern and the Canadian authorities are pursuing this with the U.S. Army at the moment.

In December 1948 the Defense Board passed a formal recommendation in favor of arrangements which would permit of Canadian military procurement and this is being submitted to the Secretary and the President for approval within the next few days,⁵ having already been approved by the four Defense Secretaries. When the question of separate legislation just for Canada has been raised, our position has been that broader pending legislation would be more desirable and more readily obtainable, with particular reference to the Military Assistance Act of 1949.

The Prime Minister also discussed with the President the Canadian dollar exchange position as it will affect procurement. He said that unless the U.S. would be prepared to contract for certain items of equipment in Canada over and above raw materials, Canada would soon find itself without sufficient U.S. dollars to carry forward its program and fulfill its defense responsibilities. The Journal of the Joint Defense Board for our meeting of March 17–18, 1949, which will be ready in a few days, reflects a full discussion on this point and a realization on the part of all military services that the problem requires attention. There is in prospect the early formation of a joint U.S.-Canadian Industrial Mobilization Committee⁶ which would be the ideal group to undertake a study of World War II procedures under the Hyde Park Agreement and to recommend a current solution. The final details of this committee’s establishment are being worked out by the Department and the NSRB, with the expectation that an instruction will be going to Ottawa within the next two weeks. I have been designated the Department’s observer alongside this projected committee and will introduce the procurement question at the first available moment once the committee starts functioning.

The main barriers now in the way of U.S. military procurement in Canada are (a) the “Buy American” legislation still in force, (b) the wording of the annual military appropriation bills, and (c) a certain reluctance on the part of the N.M.E. to place vital contracts outside of the country.

As the North Atlantic Pact moves along, the self-help and mutual aid aspect of it will come up for analysis and will constitute another approach to the idea of reciprocal procurement.

III. North Atlantic Treaty. The discussion under this heading was general and called for no commitments.

IV. Communications with Alaska. The President directed the attention of the Prime Minister to the desirability of improving the land communications between the U.S. and Alaska, and made specific reference to a proposed rail connection from Prince George, B.C. to Fairbanks, and to a highway which would roughly parallel this rail route. Senator Magnuson⁷ has introduced a bill and a joint resolution into the Senate in relation to the rail project. There is likewise an Inter-Agency Committee on Alaskan Development on which I am the Department’s representative and which has been studying Alaskan communications for some months. On behalf of this committee, we approached the Canadians last November, asking for a meeting in Ottawa to discuss the whole problem. We were turned down in December, and this position was reaffirmed informally by Ottawa three weeks ago.

For current political reasons, as well as for those of national pride and sovereignty, Canada does not wish to discuss the communications subject. Dominion-Provincial relations are involved; the railway project is somewhat visionary, and complicated by the activities of an unscrupulous promoter … and it does not have the enthusiastic support even of our military, although they would like to see a railroad there if the project did not have too high a construction and money priority. The more we press the Canadians, the more inclined they are to feel resentful and unwilling to take action. We have informed Senator Magnuson and the Interior Department (the latter is also pressing us) that we will gladly approach the Canadians again at the appropriate time on the communications subject but that time will doubtless not be before the Canadian general elections this coming fall.

V. Off-shore Purchases of Canadian Wheat by ECA. The Prime Minister expressed concern to the President lest increasing supplies of wheat in the United States should force wheat to be declared surplus within the meaning of ECA legislation. If this should occur, ECA would no longer be able to finance British purchases of Canadian wheat. The President and the Secretary expressed interest in the Prime Minister’s statement and agreed to investigate and to institute any appropriate action. I believe the Secretary later spoke with the Secretary of Agriculture⁸ and that the Prime Minister on February 13 had a conversation with Mr. Hoffman⁹ at the Secretary’s house. Furthermore, a Canadian delegation came to Washington a short time afterward and went into the matter thoroughly with officers of the Department and ECA. The result has been that wheat has not yet been declared surplus in the sense that the Prime Minister meant because the British have been persuaded to discontinue placing their Canadian wheat purchases through ECA. Other means will be sought whereby an equivalent amount of ECA dollars will reach British hands so that Britain can continue to absorb Canada’s wheat surplus under its current contract with Canada. If this continues to work, it means that Canada will not, for the time being, have either a pressing wheat commodity or dollar exchange problem. Messrs. Thorp, Nitze and Willoughby can give you better and more current information on this topic.

VI. Newfoundland Bases. The Prime Minister brought up this issue in much the same manner as the Canadian Ambassador did with Mr. Lovett last November.¹⁰ The President was fully informed on the basis of the brief prepared for him and the Secretary by BC a few days before. There has been no essential change of position since that brief was prepared in the second week of February. We are waiting for the Canadians to come forward with a specific set of requests and proposals for renegotiation of the 1941 Bases Agreement.¹¹ As indicated to the P.M. by the President, these will receive full consideration when they are forthcoming.

VII. New Trade Negotiations. Mr. Willoughby of CP is the best authority on this. For some months the Canadians have shown a desire for both political and commercial reasons to open negotiations with us for a further reduction in trade barriers. CP’s general feeling has been that there was relatively little leeway left for further profitable negotiations under existing legislation but the Canadians have persisted. Most recently they have asked if they could include in their budget submission a statement to the effect that new negotiations were being initiated. We have said in reply that this would be highly inadvisable since a bill for the renewal of our trade agreements authority was still pending before the present Congress. Once Congress has taken action, it will probably be possible to arrange something which will satisfy Canadian political, if not commercial, requirements.¹²

VIII. Status of the Canadian Liberal Party. In view of the forthcoming general election and the prospect of a hard-fought campaign in connection with it, the Prime Minister saw fit to suggest that it would be in the interest of this Administration to do nothing which would prejudice the chances of the Liberal Party. The President and the Secretary naturally made no commitment on this subject and so it is not a pending issue in the strict sense.

For your information and convenience, I am enclosing a copy of the Canadian Ambassador’s memorandum of the conversations held on February 12th.

1. Not printed.
2. For text, see Foreign Relations, 1941, vol. iii, p. 159.
3. Ernest A. Gross, Legal Adviser of the Department of State.
4. President Truman signed the Mutual Defense Assistance Act of 1949 on October 6. For text and accompanying statement by the President, see Department of State Bulletin, October 24, 1949, pp. 603–608. For documentation concerning the development of this legislation as it related to the North Atlantic Treaty Organization and steps toward European integration, see vol. iv, pp. 1 ff.
5. Approved by the President in late March or early April (842.20 Defense/3–2549).
6. For text of an agreement between the United States and Canada respecting a Joint Mobilization Committee, effected by exchange of notes signed at Ottawa April 12, 1949, see Department of State Treaties and Other International Acts Series TIAS No. 1889, or 63 Stat. (pt. 3) 2331.
7. Warren G. Magnuson, Senator from Washington.
8. Charles F. Brannan.
9. Paul G. Hoffman, Administrator, Economic Cooperation Administration.
10. The Canadian Ambassador, Hume Wrong, raised this subject with Acting Secretary Robert A. Lovett in a letter dated November 19, 1948, not printed. He pointed out that complications could develop and friendly relations between Canada and the United States might be endangered if the United States continued to exercise extraterritorial jurisdiction over nonmilitary activities in the leased areas after the union of Newfoundland and Canada. (811.34544/9–948)
11. See footnote 3, p. 396.
12. On September 19, Canada devalued its dollar. The American Ambassador in Canada, Laurence A. Steinhardt, in his telegram 146 of September 20, not printed, said that Canadian Finance Minister Douglas C. Abbott had intimated that devaluation would tend to lessen the need for further restrictions on imports from the United States (842.5151/9–2049). In telegram 150 of September 23, not printed, Steinhardt indicated that official sources in Canada seemed to feel that there was still scope for further tariff reductions and that Canada would approach the United States on the subject when further study made discussion of a new trade agreement possible (611.4231/9–2349).