I was glad to get your personal note of 29th October.
We are, I think, making pretty good progress, and on most of the issues which seem to us to be important to Australia I think we will obtain fairly wide support, although of course we won't get quite as much as we would like.
The real testing time for the preference issue  does not come until the actual negotiations covering tariffs and preferences begin next year. Here the main things which we are concerned with are- (1) to ensure that there is no question of preferences being reduced without full compensating concessions and that preferences existing after the negotiations next year will be fully protected;
(2) to ensure the right to take emergency action if individual industries are seriously affected by modification of preference accepted in the negotiations.
I think these will be quite safe.
I have had a talk with McCarthy about the political aspects of preference, and it is his view that the problem may not be as difficult as one might have expected. First of all, we would not make any concessions on preference unless the cuts in other people's tariffs on primary commodities were such as to open the American market to wool, meat and butter, and the European market to meat. These factors would, he believes, be politically very valuable since they affect the major rural industries very favourably. He does not expect that it will be necessary at the next negotiations to modify the British preference on meat although in his opinion if we can open the American and European markets, the benefits to the meat industry would far outweigh the loss of preference. He thinks it unlikely that we would have to accept a cut in preferential margins on other products of more than 50% of the present margin, and he thinks that we would have a reasonable chance of getting away with a reduction by a third. He has already had consultation with the representatives of the industries mainly affected, and he thinks, particularly at present prices, they could stand a reduction of this order without detriment. However, the canned fruits and dried fruits industries might conceivably be difficult and require some direct assistance from the Government to assist partial changeover to other types of production in the irrigation areas. The Bureau of Agricultural Economics is working on this problem now, and McCarthy expects that they will have a plan ready for the consideration of the Government if it is required. Sugar is another industry to which preference is fairly important, but McCarthy considers that the problems of this industry can best be dealt with by an international sugar agreement, negotiations for which he hopes will be commenced fairly soon.
Personally I feel that the tariff concessions which we are called upon to make may involve some political difficulty since they are likely to be fairly numerous, although none of them individually is very large. I am fairly confident that with the war-time changes in costs in the different countries an Australian industry is in a very good position to accept some such changes in the level of protection, provided we can get compensating benefits, but some conscious educational work may be required before the issue comes to Parliament. We have been giving this matter some thought over here, and I hope to write to you about it particularly before very long.
I attach a summary of the various phases of the preference issue which have been discussed so far during the conference.
The team were pleased to receive your kind regards and to know that their work is being appreciated.
H. C. COOMBS