112 McFarlane to Wheeler

Cablegram 2124 LONDON, 19 June 1947, 6.05 p.m.

IMMEDIATE

Your 2478 and I.T.O.128 Import Restrictions.

1. Proposals are important and have bearing on sterling talks.

Action contemplated is relaxation of restrictions not lifting as stated your telegram.

2. I appreciate Delegation's arguments and object but question of timing and reaction on talks here need careful consideration.

3. First there may be some risk in announcing discriminatory relaxation of licensing during tariff negotiations which are most- favoured-nation in character. Even though relaxation is unilateral one by Australia it will be seen as an indirect bargaining medium and may induce challenge by United States of our present discriminatory licensing system. I feel we should try to avoid this.

4. Secondly relaxation at present may be embarrassing in sterling talks as it would undoubtedly bring reaction from United Kingdom negotiators concerning addition to risk that Australia may want to draw down balances within next twelve months. [1] Though such risk is remote we cannot dismiss it from discussions [and] relaxation would give United Kingdom new negotiating weapon. The fact that additional resultant expenditure on imports may not be large and that we still retain licensing framework would possibly help our case but some embarrassment would remain. If relaxation is decided on I strongly urge no change in luxury types similar to those still controlled from United Kingdom.

5. I understand that United Kingdom with Australian and Canadian support are moving with strong hope of success to have Article 28(1)(E) of draft charter amended to permit import restrictions based on ability of member to pay. Discussion listed for 7th July.

In the circumstances may be wise to await outcome. In meantime countries concerned could be informed if necessary of our hopes on Article 28(1)(E) and that we should (as I assume is the case) operate import licensing on ability to pay principle.

1 On sterling balances see Document 153, paragraphs 20-23.

[AA : A3195, 1947, 1.12252]