ica becomes more competitive in the world, will this not add a new competitor against us as well as others? The short answer is that we may suffer some specific losses but we firmly believe that the overall gains will greatly outweigh those losses.

We have learned within our own national market and during the last 30 years in the world at large that one region's prosperity is bound up with the prosperity of others, that trade is mutually profitable.

And growing prosperity for Latin America is not merely in our affirmative economic interest; it is even more in our affirmative political interest in the broadest sense of that term. Latin Americans place the same high value on peace and freedom in the world that we do. As they grow in numbers and economic strength, they will play a steadily greater role on the world stage, and we can expect it to be conducted constructively and responsibly in pursuit of a mutually beneficial world order.

Looking ahead a decade, Latin American trade expansion, fortified by economic integration, should permit the ending of bilateral aid on concessional terms.

Meanwhile, however, continued aid to support national and multinational development efforts is an essential requirement. As the Alliance for Progress has developed, such aid is being increasingly well used, guided by a special inter-American committee known as CIAP [Inter-American Committee on the Alliance for Progress]. Each year there has been a major step forward in the domestic mobilization of resources, their direction into high-priority objectives, and in coordinated support from the InterAmerican Development Bank, the World Bank, other international institutions, and the agencies of our own Government. The pace must surely be accelerated, but the directions are sound.

Before concluding, I should like to touch on another aspect of Latin American resource use which has been prominently noted in the press in recent weeks. This is the concern that purchases of military equipment by Latin American countries may constitute some kind of "arms race," diverting resources from badly needed efforts for economic development and social progress.

It has been asked how U.S. military assistance activities can be reconciled with some of these recent reports, which portray the Latin nations as contending with each other for odern weapons in order to defend themselves against each other. The facts are quite different, and many of these reports have been exaggerated and distorted."

The proportion of gross national product expended in the defense budgets of the Latin American nations is among the lowest in the world, averaging about 14 percent. The lion's share of these modest defense expenditures goes for pay and allowances and maintenance, with less than 10 percent being used for new equipment for force improvement. The United States assistance programs have given overwhelming priority to economic and social development, with only about 7 percent of our aid consisting of military assistance and 93 percent economic.

Furthermore, this aid has been provided with a view to discouraging the acquisition of costly and sophisticated nonessential military equipment. In contrast to other areas of the world, there are no supersonic aircraft in Latin America. Latin American navies have acquired no ships larger than destroyers in the 1960's. Army equipment programs have been modest, directly related to internal security needs, with heavy emphasis on transportation and communications.

With respect to recent aircraft purchases for Latin American countries, U.S. Government spokesmen have already pointed out that this has been essentially a matter of replacing obsolete and virtually unusable equipment. The planes purchased have all been subsonic and roughly comparable in performance to aircraft already in service in the area. They are intended not to expand air forces but to replace planes of the early postwar vintage which have become almost impossible to keep operational.

Lest I be considered a biased commentator, let me quote from a recent British study of arms to developing countries published by the Institute for Strategic Studies in London. On the question of Latin American air forces they say:

"In the decade after World War II there were two transfusions of

See supra.

military aircraft into South America: a large one, when American World War II piston-type aircraft were made available as excess stocks, and a smaller one of British aircraft sold as new equipment. However, since that time these nations have shown a considerable reluctance by comparison with some other areas of the world to pay for the modernization of their air forces."

The various Latin American air forces began to discuss this problem with our military aid authorities 2 or 3 years ago, long before the sale to Argentina which many of the press reports have characterized as triggering an "arms race." 78

At a later point, the same British study discusses the peculiarities of each underdeveloped region in relation to arms and says:

"It is impossible to equate the 'arms race' in the Middle East with the arms walk' in Sub-Saharan Africa."

In this line of phrasemaking, I would feel tempted to describe Latin America's rate of arms acquisition over recent years as an "arms crawl."

As experience has all too clearly shown in several countries of Central and South America, the threat of guerrilla insurgency and violence is not an imaginary one. It continues to be backed by Cuba and by extracontinental Communist powers. While efforts are being concentrated on positive measures for economic and social advance, the maintenance of internal security cannot be left neglected. Perhaps paradoxically, some of the most ruthless efforts to disrupt orderly progress through violent subversion have occurred precisely where democratic regimes are most strenuously devoted to improving conditions for the masses of their people.

T6 In 1965, the U.S. sold jet fighters to Argentina for the use of the Argentine Air Force. Partial delivery was made in 1966 (U.S. commitments in Viet-Nam precluded full delivery), and, according to the press, this action revived the "threat of an arms race" in Latin America. Chile and Peru allegedly reacted by unsuccessfully attempting to make similar purchases from the U.S. Chile then negotiated the purchase of 21 British planes. See The New York Times, Oct. 24, 28, and Nov. 6, 1966.

Moreover, in many countries the armed forces are, alongside their primary security mission, engaging in road construction in difficult terrain, assistance to community development projects, literacy and vocational training, and other civic action contributions to affirmative economic and social progress.

Several Latin American nations have also participated in international peacekeeping missions under the aegis of the United Nations or the Organization of American States, and in an uncertain world it would be rash to assume that they will not again be called on in the future.

Nor should it be assumed that a modest level of arms modernization has anything to do with the problem of military coups against democratic regimes. Where conditions of political stability, responsible government, and respect for constitutional authority do not exist, coups can take place with a handful of small arms. The problem of strengthening representative democracy in Latin America is indeed a serious one, and happily one on which much progress has been made in recent years. It should not be confused, however, with the problem of arms supplies.

I do not wish to suggest that there is no problem whatsoever of rivalry among Latin military establishments and a resulting latent danger of resource wastage on unnecessary military equipment with nothing to justify it except prestige. Certainly resources are too precious and too badly needed for developmental purposes for any such wastage to be afforded.

This is a problem which we believe can be best dealt with through friendly understandings among our Latin neighbors. This continent has in fact now enjoyed many years of freedom from border conflicts. Its governments are pledged to peaceful settlement of disputes under the charters of both the United Nations and the Organization of American States. They also have the protection of special mutual defense arrangements under the

tried to suggest to you, there is a long hard road ahead, but we are moving along that road and we have every reason for confidence that it leads in the right direction.

Samuel Johnson once wrote that: "Self-confidence is the first requisite to great undertakings." To me the greatest achievement of the Alliance for Progress in its first 5 years has been the visible growth of self-confidence on the part of the forwardlooking leadership of Latin America. With such leadership and with our own steadfast cooperation, we can all be confident in the growing well-being and solidarity which the future holds in store for the peoples of the Americas and the pan-American community of nations.

United States Secretary of State and the Canadian Secretary of State for External Affairs reviewed major recent international developments.

The Committee exchanged views on current developments in the closely related economies of the two countries, noting with satisfaction that both had achieved a record of sustained economic expansion unparalleled in their histories and they looked forward to another year of strong growth. They recognized, however, that maintaining price and cost stability will require close and continuing attention.

The Committee discussed the balance of payments of both countries. They recognized that decisive progress had been made toward reducing the United States balance of payments deficit and reviewed the measures being taken to bring the United States external accounts into balance. In this connection, the Committee noted the measures that have been taken to maintain access to the United States capital market for an unlimited amount of new Canadian securities free of the Interest Equalization Tax.2 The United States members reaffirmed that, in buying such issues, U.S. investors were completely free to be guided by market considerations.

Canadian Ministers expressed their concern over the possible implications for Canada of the United States voluntary program on direct investment and the relation of this program to the position of Canadian subsidiaries of U.S. corporations. The United States members made clear that the U.S. Government was not requesting U.S. corporations to induce their Canadian subsidiaries to act in any ways that differed from their normal business practices as regards the repatriation of earnings, purchasing and sales policies, or their other financial and commercial activities. United States members re-emphasized the view that United States subsidiaries abroad should behave as good citizens of the country where they are located. Where U.S. companies were in doubt as to these views, the U.S. Govern

2 See American Foreign Policy: Current Documents, 1964, p. 437; for the text of Executive Order No. 11304, Sept. 12, 1966, relating to the exclusion from the Interest Equalization Tax of original or new Canadian issues when required for international monetary stability, see Presidential Documents, Sept. 19, 1966, p. 1276.

See American Foreign Policy: Current Documents, 1965, pp. 1057ff.

ment would ensure that any misunderstandings would be dispelled.

The Canadian Ministers expressed serious concern that proposed Securities and Exchange Commission regulations would subject to United States law Canadian companies not deliberately seeking to sell securities in the United States if their shares had happened to be purchased by United States residents. These regulations, moreover, would discriminate against Canadian companies by imposing more severe requirements relative to other foreign companies. Canadian Ministers referred to plans under way in Canada to improve the disclosure of information regarding Canadian enterprises and the regulation of the issue of securities. They strongly urged that the United States authorities refrain from applying these SEC regulations to Canadian companies which do not seek to sell their securities in the United States. The United States members appreciated the concern of the Government of Canada and assured the Canadian members that the most careful consideration would be given to Canadian views in an effort to work out at an early date mutually satisfactory arrangements.

The Committee discussed United States foreign assets controls as they may affect the exports of companies in Canada. The United States members reaffirmed their readiness to consult promptly on any transactions of importance to Canada which are affected by United States foreign assets control. They also stated that regulations over exports of technical data are being revised and that, in light of the Committee's discussions, further consideration will be given to the possibilities of additional modifications of the regulations.

The Committee discussed a number of specific bilateral trade and financial matters on both sides, including Canadian cheddar cheese and Canadian oil exports to the United States. and agreed to keep them under review. The Committee agreed that a joint examination should be made of trade in agricultural implements, tractors, and aircraft for which tariff liberalization would be most impor

tant.

They agreed that the removal of unnecessary restrictions on the free flow of goods and services across the border would contribute importantly to the continued prosperity of both

countries. The Committee recognized that the Automotive Agreement * represents a long stride toward free trade in a basic industry of major importance to the two countries and had resulted in a substantial increase in two-way trade to the benefit of production and employment both in Canada and the United States. Greater benefits are to be expected as industry in both countries adjust their operations to take full advantage of the opportunities afforded by the Agreement.

In the area of international economic relations, the Committee agreed that the Kennedy Round negotiations in Geneva provided an unparalleled opportunity for the substantial liberalization of world trade, which would benefit all participating countries developing as well as developed. The Committee, therefore, concluded that the highest priority must be given to the timely completion of these negotiations which are now entering their critical phase. They agreed that the Canadian and US. delegations would continue to work closely together in the interest of a successful conclusion of the Kennedy Round negotiations, including the negotiation of a world cereals agreement in which the two North American exporting countries have a strong common interest.

The Committee reviewed the trade and development problems of the developing countries particularly in food and agriculture. They noted the food needs in India and the steps being taken by the Indian Government to deal with the problem. Although both countries were providing assistance to India and other developing countries, they noted that more would be needed during the period ahead from other countries. The Canadian members informed the Committee of Canada's recent decision to make available to India a substantially larger amount of food aid."

The Committee discussed the consultative arrangements between the two Governments in the light of the Heeney-Merchant report' and agreed on the importance of close and effective working relationships between the two Governments.

Text ibid., pp. 1040-1041.

See The New York Times, Dec. 30, 1965; Jan. 2, 1966.

Text in American Foreign Policy: Current Documents, 1965, pp. 1044-1046.

The Committee took note of the importance of the work on improving the international monetary system being undertaken by the International Monetary Fund and the Deputies of the Group of Ten. They expressed the hope that the Deputies will be able to reach agreement on a constructive report to the Ministers, which would permit further negotiations on a broader basis.

The Ministers noted with concern the serious problem of pollution of Lake Erie, Lake Ontario and the international section of the St. Lawrence River, as described in the recent Interim Report to the Canadian and the United States Governments by the International Joint Commission.' They recorded their support for the recommendations in the report and agreed that efforts in both countries should be coordinated to deal with this problem as a matter of urgency.

The Canadian Delegation was led by the Honorable Paul Martin, Secretary of State for External Affairs, and included the Honorable Robert Winters, Minister of Trade and Commerce; the Honorable Mitchell Sharp, Minister of Finance; the Honorable Charles M. Drury, Minister of Industry; the Honorable Jean-Luc Pépin, Minister of Mines and Technical Surveys; the Honorable John J. Greene, Minister of Agriculture; Louis Rasminsky, Governor of the Bank of Canada; Sydney D. Pierce, Chief Canadian Trade Negotiator; the Honorable C. S. A. Ritchie, Canadian Ambassador to the United States, and advisers.

The United States Delegation was headed by the Honorable Dean Rusk, Secretary of State, and included the Honorable Henry H. Fowler, Secretary of the Treasury; the Honorable John T. Connor, Secretary of Commerce; the Honorable Orville Freeman, Secretary of Agriculture; John A. Carver, Jr., Under Secretary of the Department of Interior; Thomas C. Mann, Under Secretary of State for Economic Affairs; the Honorable Christian A. Herter, the President's Special Representative for Trade Negotiations; the Honorable Gardner Ackley, Chairman of the Council of Economic Advisers; the Honorable W. Walton Butterworth, American Ambassador to Canada, and advisers.

7 See Department of State Bulletin, Feb. 21, 1966, pp. 293–294.