Prime Minister Joe Clark's government backed down on its controversial 1979 promise to move Canada's Embassy in Israel to Jerusalem in part over fears of possible economic fallout, according to secret cabinet documents obtained by CBC News.

Behind closed doors, cabinet ministers like Finance Minister John Crosbie and Industry Minister Robert de Cotret were particularly concerned, warning that ministers should carefully consider the possible economic effects and how to mitigate them. Communications Minister David MacDonald advised his colleagues that a company was "very concerned about its contract in Saudi Arabia."

While the name of the company is blacked out in the documents, obtained by CBC News under the Access to Information Act, cabinet discussions a month later mention that Bell Canada had a contract in Saudi Arabia.

When Clark's government announced its decision on to shelve its promise, it downplayed any suggestion that fears of an economic backlash had played a role in its decision.

"The Prime Minister agreed with the view expressed by other Ministers that his statement should avoid reference to commercial considerations and should be confined to a brief but frank exposition of the government's policy on the location of the Embassy," say the minutes of a hastily called cabinet meeting on Oct. 29, 1979.

Janice Stein of the Munk School of Global Affairs says the cabinet documents shed new light on why the Clark government shelved plans to move Canada's Embassy.

'Economics trumped politics'

Janice Stein of the Munk School of Global Affairs said the cabinet documents shed new light on the Clark government's decision.

"For the first time, documents confirm the preoccupation of the Conservative government with the consequences for the Bell Canada contract in Saudi Arabia, of its decision to move the Embassy to Jerusalem," said Stein.

"It appears that economics trumped politics."

The question of where Canada's Embassy in Israel should be located was again in the spotlight on Wednesday after U.S. President Donald Trump announced his government recognizes Jerusalem as Israel's capital and plans to move its embassy there from Tel Aviv. Canadian government officials have confirmed they have no plans to follow suit.

U.S. President Donald Trump on Wednesday recognized Jerusalem as Israel's capital despite intense Arab, Muslim and European opposition. (Alex Brandon/Associated Press)

While Israeli Prime Minister Benjamin Netanyahu praised Trump's decision, it angered Palestinian Authority President Mahmoud Abbas who said the U.S. is withdrawing from the role it has played in the peace process.

Jerusalem, which is home to Jewish, Christian and Muslim holy sites, is hotly disputed territory for both Israelis and Palestinians — both of which have staked claims.

It was also a hot button issue in 1979 when Conservative Leader Joe Clark made an election promise to move Canada's Embassy there.

The cabinet minutes provide a unique glimpse at what happened behind the scenes as Clark came to power and had to grapple with the issue.

At a meeting of his inner cabinet on June 7, only three days after he was sworn in, the "Jerusalem question" was raised by MacDonald, who relayed concerns expressed by the company with the contract in Saudi Arabia.

"The Prime Minister noted that on the question of Jerusalem the government commitment stood but there was no timetable established," say the minutes. "He indicated that Ministers should 'keep their heads down' on the question as much as possible as it was important not to exacerbate the situation."

Calming concerns

At an inner cabinet meeting on June 19, it was Crosbie and de Cotret's turn to raise concerns.

"The Minister of Economic Development and Trade and the Minister of Finance suggested that Ministers should be carefully considering the possible economic efforts of the planned move of the Canadian Embassy in Israel to Jerusalem and whether these effects could not be mitigated by taking some of the steps suggested publicly by the Secretary of State for External Affairs (Flora MacDonald), such as sending a mission to consult with Arab countries."

Clark moved to calm their concerns and unite his cabinet behind a common position.

"The Prime Minister agreed the Cabinet should indeed carefully consider the implications of the decision, but underlined the importance of not appearing to be unnerved by the pressures being applied by the Arabs and of not increasing the public profile of the policy by seeming to discuss it in Cabinet at every opportunity."

Two days later, on June 21, the issue was back before cabinet with Clark advising his colleagues of his plan to hold separate meetings with the Arab ambassadors, the ambassador of Egypt and the ambassador of Israel to inform them of his plans to name former Conservative leader Robert Stanfield to examine the question.

"In explaining the action, the Prime Minister pointed out that it would provide breathing space on the issue and allow the government to return to a low-profile position."

Clark discusses his plans to move the embassy to Jerusalem during a 1979 news conference. (CBC)

'Commercial considerations'

It all came to a head again in late October when Stanfield presented the government with an interim report and Clark's inner cabinet debated whether to hold to its election promise or accept Stanfield's recommendations to shelve it until the status of Jerusalem was clarified.

Once again, economic questions were part of the debate.

"It was noted that Mr. Stanfield had skirted the issue of commercial considerations in his report. A Minister suggested that the opportunity to respond to the expressed concerns of the business world should be grasped and that the Department of Industry, Trade and Commerce should immediately take steps to visit and to help restore trade with the Arab world."

Clark agreed his statement should avoid "reference to commercial considerations."

Canada's Jewish community was also among the considerations.

"A Minister suggested that the Jewish community would find offensive the report's failure to acknowledge that Israel has established its capital in West Jerusalem since 1949. Also difficulties could be expected if the closing paragraph of the report were interpreted to imply a degree of uncertainty in the position to be taken vis-à-vis the Arab boycott."

Elizabeth Thompson can be reached at elizabeth.thompson@cbc.ca