1. Further to my telegram 261. In order that the Cabinet Sub- Committee should have fullest possible background, I am sending supplementary notes which may be of assistance.
2. I now learn privately that decision to offer a reduction in duties was made by the President after a bitter struggle between Clayton and Anderson.  Wilgress, leader of Canadians who is well acquainted with American political scene, whilst agreeing that a reduction of 8 1/2 cents on 34 cents is inadequate is clearly impressed with action United States in making a reduction in face of recent political strife and offered view that reduction offered plus an insurance against increases when question of support was up for review in 1948 was of value. His further remarks suggested, however, that in his mind position of United States vis-a-vis United Kingdom in latter's present economic troubles was outstanding issue. The South African Ministers who are here will support us in any demand for higher offers but New Zealand cannot say much pending instructions. We have told United Kingdom of the position, but think very little can be said re their attitude until their Ministers have been consulted. Have had talk with Newcomen. He firmly believes [that a reduction in duties would in the long term be of real benefit to the industry and had hoped for the full 17 cents. He thinks, however, that]  we should get what we can even if it is as low as 8 1/2cents. He will not be consulting his organisation  unless asked but thinks they would agree with him. He further fears that if nothing is done fight for higher duties will again come up at end of 1948 and that this time an increase might result.
3. If Americans had agreed to all our requests namely 50% cut in wool, beef, mutton and lamb and butter we would have been pressed to agree to a 50% reduction in preference on raisins and canned fruits [in] Canada and United Kingdom and also to other reductions in preferences of less importance (other major preferences meat, sugar and butter will not come up) and to our reductions in our own tariff. I gather that it is likely that in negotiation we would have escaped with reductions less than 50% in dried and canned fruits margins but that offers on our own tariffs so far conveyed to United States would have been considered inadequate and that to got an agreement we would [have been] pressed to review such offers. in alternatives 2 and 3 of my 261 I referred to following possible lines of action- (a) To accept United States offers and to reduce our own correspondingly so as to secure a reasonable balance;
(b) To seek some improvement in United States offers to degree which negotiations show to be possible and to modify our own offers correspondingly.
Below I set out two propositions corresponding to those two alternatives and I endeavour to give an idea of price I think we might pay in each case.
Proposition 1. To accept United States present offers namely 25% cut on wool and beef 50% cut on mutton and lamb and 50% cut on 20,000 [tons of butter balanced by similar concessions on our side. For this light offer I suggest we could contemplate a cut on dried fruits from 4 cents to 3 cents in Canada and 10/6d. to 8/6d.
in U.K. and on canned fruits 15% to 12 1/2% in U.K. and small concessions-no greater than 1 cent in Canada. We might even be able to avoid completely a reduction in canned peaches (politically a difficult item). Our offers on the tariff would be lighter than in our original proposals. It is not possible to say by how much until they have been reexamined and perhaps negotiations commenced.
Proposition 2. To seek an increase in the offer of a cut on beef to 50% (an important item) and a substantial increase in butter duty quota]. (We think these advances on beef and butter not unlikely) with no improvement or some small improvement on their wool offer. In this case we would hope to avoid having to increase concessions on preferences on dried fruits beyond those set out in proposition 1 and same with canned fruits but including the peaches. On minor preferences and on tariff our concessions would need to be greater than for proposition.
4. Naturally these propositions refer mainly to preferences, and detailed tariff concessions involved would have to be assessed and would be worked out in detail as negotiations progressed. Meantime your reactions to my suggestions on reductions we might make on preferences would be appreciated.
5. If an agreement along lines of proposition 1 were concluded it would be argued by those looking for concessions from United States that gains were very small. On other hand criticism which might be expected to arise out of tariff and preference reduction would be lessened. Whilst a comprehensive agreement with United States would be to our long term benefit a modified (admittedly a much modified) agreement whilst giving less benefit might not be any more difficult to handle politically. In fact it might well be less difficult.
6. If Government were prepared to agree that we seek the best United States offers on above lines and that negotiations be opened accordingly we could then get ideas of concessions United States would expect and report further.
[7. If this course of action commends itself to Cabinet I would suggest that my reply to Clayton, after explaining why the offer must be regarded as unsatisfactory, might take the following line:
(a) that in lodging our original requests and making our original offers, we had hoped for a comprehensive worthwhile agreement.
(b) that with unsatisfactory responses from U.S.A., particularly on wool, it was clear that such an agreement was impossible.
(c) that we were, however, prepared to enter negotiations in the hope that a more modest agreement could be reached.
(d) that in such negotiations we would hope to secure some improvement in present U.S. offers (including wool), but it must be realised that our original offers were made on the basis of] our original requests and must necessarily be reduced in light of United States responses to those requests.