108 Wheeler to McFarlane

Letter (extract) CANBERRA, 3 June 1947

BY AIR BAG PERSONAL AND CONFIDENTIAL

Trade and Employment Discussions

Coombs arrived for his lightning visit shortly after your departure. [1] He was only in Canberra for four days and the going was fairly hectic. We were more or less continuously in committees of one sort or another, both Ministerial and Departmental.

Coombs' main item for discussion was, of course, the American attitude on wool. But although it was the major policy problem it occupied a relatively small place in the discussions. This was because the attitude of the Ministers, particularly that of the Treasurer, was so clear cut and firm.

All agreed with Mr. Chifley that a trade agreement without any reduction in the American wool duty just could not be sold in Australia and the Treasurer himself maintained his earlier intransigent attitude of 'No wool cut, no participation by Australia'.

Coombs himself was anxious to avoid any definite decision as to what would be done if it proved impossible to alter the present American response but the going was difficult until the Cabinet Committee in which Dr. Evatt participated. In this Committee Dr.

Evatt pooh-poohed any idea of walking out of the Conference, and argued that this was not the way things were done. This had considerable effect on the phraseology used as to what Australia would do, but I am not clear as to what it means in the substance.

It certainly does not mean any alteration of the view that an agreement without a wool cut is just a political impossibility for us.

So at the moment the matter stands on the basis that Coombs has been strengthened in the very firm line he took with Clayton at Geneva, but the ultimate possibilities have been, at any rate nominally, left open.

Articles 14 and 24 of the draft Charter were also thoroughly discussed with Ministers whilst Coombs was here. Article 24 you remember is the one known as the 'automatic rule' which provides that any reduction in a foreign rate of duty must automatically operate to reduce the margin of preference between B.P.T. rate and the M.F.N. rate. This is the rule which Australia has refused to accept and Ministers reiterated this viewpoint. It is, of course, a perfectly logical and valid viewpoint for Australia to take and the Americans have admitted this in private conversation. The difficulty for the Americans is that the automatic rule has political significance in Washington. Consequently, Coombs is, at the moment, pursuing in Geneva some form of re-draft which will, it is hoped, remove our objections whilst at the same time preserving its political value to the Americans.

Article 14 is the article which prohibits any new preferences but at the same time saves the British Preferential system as existing at the end of the Geneva negotiations. You will remember that it was this Article which Coombs had failed to discuss sufficiently with Ministers and which was the subject of that telegram of ours to the Delegation setting out all the difficulties which we felt were associated with our acceptance of the Article.

Article 14 was thoroughly canvassed with the Ministers and Coombs emphasised that, so far as the Americans were concerned, it was a case of 'No Article 14-no agreement'. In other words it is the American 'wool cut'. Coombs also argued that the British Commonwealth was in a very favoured position under the Article for the following reasons- (a) practical politics precluded any significant extensions of British Preferential system anyway;

(b) the Article specifically preserved the existing preferential system (i.e. after Geneva);

(c) the only elimination of British Preferences as between now and the end of Geneva would be negotiated ones in return for value received;

(d) the Article prohibited new preferential systems on the part of other countries. Coombs stressed this latter point particularly.

He pointed out that in present circumstances there would naturally be a tendency for many countries to establish new preferential systems which, by definition, must necessarily be to the detriment of the British Commonwealth. Coombs further argued that there were already many significant indications that this tendency to establish new preferential systems was in fact already operating, e.g., Eastern Mediterranean countries.

After weighing up these advantages as put by Coombs against the admitted disadvantages as set out in our telegram, it was finally decided to refrain from pressing objections to Article 14 provided that Article 24 was suitably amended. Everybody, even Customs, seemed pretty happy with this decision. The United Kingdom is of course already committed to it as you are aware.

1 McFarlane was in London for talks on the sterling situation.

[AA: AA1968/391/1, 96]