159 McFarlane to Coombs

Cablegram 5623 CANBERRA, 8 October 1946

SECRET MOST IMMEDIATE

Your T.E.6 [1], Quantitative Restrictions.

1. Our first reaction is that United Kingdom redraft is, with one important exception, satisfactory as to principles but requires considerable textual study.

2. Main defect is that it does not seek to define with sufficient precis[ion] the criteria according to which countries may impose or maintain restrictions. We attach importance to the inclusion of definite criteria as a means of limiting discretionary power of I.T.O., upon protest by other countries, to free them from their obligations under the Charter and we have attempted precise definition of such a criteria in paragraph 3(f) of our redraft of Article 20.

3. To help us in further discussion on this general question we should like to know what the United Kingdom had in mind by the item 'Special Credits' in paragraph 3(a) of their redraft.

4. We recognise difficulty of securing criteria which would be universally applicable but consider solution should be pursued as vital to acceptance of any formula by countries placed as ourselves.

5. Proposal in paragraph 6 of redraft under which I.T.O. may specify a release from obligations under the Charter should be very fully discussed, particularly if it proves impossible to limit this power by inclusion of definite criteria. It might be as well to provide for discussions between the parties before the 'due interval'. An opportunity should be given to the member country applying import restrictions to offer some concession, if it should desire to do so, before the rather drastic step of cancelling obligations is considered.

6. We are glad to note that United Kingdom also proposes to make provision for separate membership of I.M.F. and I.T.O. which we regard as important.

7. We also welcome proposal in paragraph 7 to discuss with members and other international organisations other measures to correct an adverse balance of payments and to bring pressure on countries with a favourable balance of payments. This might be developed and possibility of sanctions against countries with favourable balances considered. Suggest also proposal might be redrafted to cover case of one member country and the I.T.O. desiring, for example, to discuss with Monetary Fund an exchange rate alteration as an alternative to continuation of import restrictions.

8. We suggest that agreement should be sought as far as possible on principles listed in paragraph 6 of document entitled 'Australia's Interest in Balance of Payments Control' [2] as background to discussion of draft texts and as safeguard against possible confusion in such discussion.

9. Would be glad of early advice of outcome of today's discussions. [3]

10. Bank concurs in foregoing.

1 Document 154.

2 Commentary upon the U.S. proposals prepared for Coombs by the Treasury. The eight principles setting out Australia's desire for freedom to impose and to determine the extent of quantitative restrictions without prior consultation with the I.T.O., subject to the observance of objective criteria, were incorporated into the Australian 'Note on Quantitative Restrictions' (TN(P)(BC)(46)9), circulated with the U.K. draft.

3 The discussion was in fact held on 9 October. Coombs reported that the United Kingdom and Canada had not supported Australia's desire for precise definition of objective criteria, but had agreed rejoin a sub-committee to examine possible formulae.

Australian concern for provision for separate membership of the I.T.O. and I.M.F. had not been supported. He thought that the suggestion in the last sentence of paragraph 7 was potentially embarrassing and should be reconsidered.

[AA:A1067, ER46/1/27]