Your I.T.O. 128-Proposal to relax import restrictions except for hard currencies.
1. Your suggestion was briefly considered by Cabinet Sub-Committee but unilateral action by Australia was not favoured.
2. Detailed views of inter-departmental Committee are set out hereunder.
3. From financial viewpoint it is felt action proposed would be unwise because balance of payments not yet normal and continued favourable balance cannot be taken for granted particularly in view of sharp increase in April and May imports. Further, pending outcome of McFarlane's discussions, extent of available international reserves and implications of convertibility of sterling on 15th July, 1947, are uncertain.  If continued discrimination against U.S. and other hard currencies after 15th July should prove impracticable we shall have to choose between- (i) removing all import restrictions; or (ii) imposing restrictions on less essential goods from all sources on a non-discriminatory basis.
4. From trade viewpoint it is felt your proposal might cause considerable embarrassment because:-
(a) Open increase in discrimination just prior to 15th July would presumably be strongly resented by U.S. and also Canada.
Convertibility clause of U.S.-U.K. Loan Agreement was expected to have 'the result that any discrimination arising from the so- called sterling area dollar pool will be entirely removed'.
(b) Although you only mentioned U.S. and Switzerland, United Kingdom hard currency list also includes all other Western Hemisphere countries, Iran, Portugal and the Soviet Union. While we may be in a position to disregard the reactions of a number of these countries there are some of importance to us from the trade point of view which would presumably be irritated by an open increase in discrimination at this stage.
(c) Proposal would also create difficulties in relation to countries intermediate between hard and easy currency groups, e.g., Sweden. Swedish currency is partly hard', but both United Kingdom and ourselves are finding it necessary to admit some less essential imports from Sweden in order to obtain best possible supplies of Swedish forest products and other scarce items. In current talks here Swedish Consul-General has already protested against increase in discrimination resulting from exemption of most United Kingdom goods from import licensing and would be incensed by further overt intensification of discrimination in favour of other countries. This might present us with choice between- (i) Losing our supplies of Swedish timber, pulp and paper; or (ii) Admitting freely all available imports from a 'partly hard' currency country.
5. Your point B suggests that you are contemplating a reciprocal exchange of assurances with various countries concerning quantitative import restrictions on commodities covered by the tariff negotiations. This would, of course, represent a most important extension of the scope of the Geneva talks. We have always avoided as far as possible giving any assurances in relation to future import licensing policy in relation to particular goods because, in the ultimate, such assurances can only be honoured if exchange is available to pay for them and we are inclined to feel that it would be unwise to go further than the existing Articles of the Draft Charter in attempting to safeguard tariff concessions from nullification by quantitative import restrictions.
6. In any event it seems questionable whether it would be tactically advantageous for Australia to relax import restrictions unilaterally at this stage if no similar action is contemplated by other countries maintaining similar restrictions.
7. Also please see telegram 2124 from McFarlane to Wheeler.
8. [Y]our telegram-Cuban Cigars. Cabinet Sub-Committee felt unable to agree to relaxation of prohibition of imports of Cuban cigars because of:-
(a) general undesirability of permitting expenditure of dollars on cigars while general policy is to restrict use of dollars to minimum requirements of essential goods; and (b) difficulty in confining concession to Cuba in view of the fact that both U.S.A. and the Philippines were important pre-war suppliers.
9. Presumably Cuba is confronted with similar difficulties in other countries and we should be glad of any information you may be able to supply on import licensing treatment accorded to cigars in other countries, particularly the United Kingdom and New Zealand.