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We believe there to be little prospect that the Canadians would in fact accept such a proposal. A similar proposal was made to Mr. Abbott by Mr. Nash during the Meeting of Commonwealth Finance Ministers and he rejected it out of hand. Canada's direct deficit with the United States is now running at about $700 millions a year (it has lately been rising). In order to provide us with our requirements without payment in dollars, they would either have to cut down their imports from the United States further or draw upon their reserves. Their reserves now stand at $980 millions, which are not large in relation to the scale of their tran- sactions with the United States. Thoir exports to the United States in 1949/50 are estimated at $1,400 millions they are substantially larger than those of the entire sterling area to the United States - and they are subject to just the same sort of fluctuations as the sterling area exports.
7.
The Canadian Government are at present taking a rather more optimistic view of the prospects of Canada's exports in the United States in the coming year than we are taking of our prospects. But their position is certainly very vulnerable. It would no doubt be possible for them to reduce their United States imports to an extent which would permit them to extend to us more credit than they are now doing. In the long run, if they discriminated greatly in favour of the sterling area against the United States, they could substitute sterling area imports in whole or in part for the United States imports thus given up. All the indications which we have received, however, suggest that they would be most unwilling to extend more credit to us except as part of a general settlement.
8.
It seems most unlikely, therefore that if we approached the Canadians now we should receive a favourable response; indeed, if we put the point too baldly we might well prejudice their attitude in the forthcoming tripartite
talks.
Import Cuts and Contracts
9. will.
them.
We cannot make Canada hold sterling against her If we take delivery of the goods, we have to pay for Our only means of avoiding a net payment of dollars would be to reduce our import programme from Canada to the point at which we could finance it with our earnings from Canada, eked out by E. C. A. dollars for offshore purchases.
for
10.
Our uncut programme from Canada is set out in Annex A. Out of this uncut programme of $691 millions, we
The wheat is are already contracted for over $500 millions. contracted for the full year; the bacon, eggs and cheese are contracted up to the end of 1949; raw materials are substan-
Certain of our tially contracted only to the end of 1949. supplies from Canada must be purchased in any event; example, if we did not buy more ferro-alloys, we should be
Of faced with a catastrophic decline in steel production. the uncommitted part of our programme - the difference between $691 millions and $500 millions- it would probably be physically impossible to make cuts of more than the $100 millions which Ministers are already allowing.
The result
of this is that we should be forced to cancel contracts if we wished to reduce our imports from Canada to a point at which we did not have to pay them dollars from our reservo.
•
11. Page of 662 pay in dollars, evePage 298 of 66pied by willingness to make payment in inconvertible sterling, would not save us from the consequences of repudiation of the contracts. The contracts inevitably provide for payment in
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SEMARKETS monstersONOPERA KARLANEANTASANTEOIR, BAZANADAKANATHAYYESOR