Further our I.T.O. 388.
Method suggested by the United Kingdom for expressing any agreement that may be reached on issues connected with Ottawa Agreement. We quote below text of draft minutes which we handed informally to the United Kingdom officials for their preliminary study and reactions. (Begins) 'The Australian Delegation said Australia would like to reach clear understanding with the United Kingdom in the matter of resolving problem which presented itself to the Australian Government.  The problem arose from the nature of certain commitments of Australia to the United Kingdom under the Ottawa Trade Agreement, and the fact that in certain circumstances those commitments could not be reconciled with other commitments which the United Kingdom and Australia were both assuming as contracting parties to the General Agreement on Tariffs and Trade without possibility of seriously prejudicing Australian interests.
The particular commitments of Australia to the United Kingdom, to which the Australian Delegation referred, were- (1) Australian undertaking in Article 10 of the Ottawa Agreement that Australian Tariff should be based on the principle that protective duties shall not exceed such level as will give the United Kingdom producers full opportunity of reasonable  competitive basis of relative cost of economical and efficient production.
(2) Australian undertaking in Article 12 which sets forth that no existing duty shall be increased on United Kingdom goods to an amount in excess of recommendation of the Tariff Tribunal.
(3) Associated Australian undertakings under Article 8, which, when read in conjunction with schedule F obligated Australia accord minimum margin of preference to the United Kingdom on practically all goods except goods of class or kind not commercially produced in the United Kingdom.
The terms of GATT are such that on entry into force of that Agreement it will no longer be practicable for Australia to apply the provisions of the Ottawa Agreement in their entirety.
In the first place, negotiations with the United Kingdom and Australia at Geneva have resulted in mutual agreement as to the rate of duty that shall in future be applied in Australia to many specified goods of United Kingdom origin and binding of duty which shall apply to those goods.
In the second place, negotiations between Australia and various countries not entitled to preferential treatment have resulted in binding of M.F.N. rate of duty, fixation of maximum permissible margins of preference for future, and consequential fixation of rate of duty that shall apply to like goods of United Kingdom origin.
In the third place, the general provisions of GATT determined in respect of every product maximum margin of preference which Australia may accord to the United Kingdom.
In the light of the consultations which have occurred concurrently with negotiations which resulted in the conclusion of the General Agreement on Tariffs and Trade, it is our understanding that on the entry into force of the GATT British Preferential rates of duty established on all protective items listed in either Part I or Part II of the GATT shall by common consent be regarded as rates consistent with the principles of Article 10.
Although an understanding to the foregoing effect will dispose of the Australian problem on bound protective items there remains the field in which rates of duty are unbound.
Think it will be evident that where commitment exists requiring British Preferential Rate of Duty to be based on the principle of Article 10 and that commitment is associated with another commitment fixing the maximum margin of preference which Australia may accord to the United Kingdom, instances may arise where it would be impossible to establish M.F.N. rate sufficiently high to afford protection to Australian industry. Instances would be likely to occur wherever cost and prices of other external competitors are substantially lower than United Kingdom costs and prices.
The Australian Government wishes to avoid modifying functions of the Tariff Board or altering any of the associated obligations under the Ottawa Agreement on either side, except to the extent necessary to cope with difficulties inherent in the assumption of commitments contained in the GATT. At the same time Australia could not accept the situation which precluded Australia from affording Australian industries the measure of protection against competition from M.F.N. countries which the Tariff Board considered necessary merely because M.F.N. rate resulting from the addition of  [the maximum permissible margin of preference to the British Preferential Tariff Rate determined on the principles of Article 10 falls below the M.F.N. rate considered necessary by the Tariff Board.
It is anticipated that as a result of the new commitments to be assumed by Australia, it will be necessary for the Tariff Board to direct itself in future to making separate recommendations on the British Preferential Tariff Rate and the M.F.N. rate for each item, based on relative costs and prices, both with respect to the United Kingdom and M.F.N. countries without regard for considerations bearing on margins of preference.
It will then rest with the Australian Government to apply the recommendations of the Tariff Board in the light of the Board's recommendations with] respect to M.F.N. rate and Australia's obligations with respect to margins of preference permissible on particular item while at the same time observing as closely as the circumstances of each case permit recommendations of the Tariff Board with respect to B.P.T. rate. In cases where the recommended B.P.T. rate plus bound margin of preference is less than recommended M.F.N. rate, the Australian Government would wish to reserve the right to apply M.F.N. rate and deduct from it the bound margin of preference in order to determine the operative B.P.T. rate.
It is the desire of the Australian Government to obtain the concurrence of the United Kingdom.
There is another provision in the Ottawa Agreement which is no longer entirely compatible with the provisions of the GATT.
In Article 15 of the Ottawa Agreement Australia undertakes to accord to British non-self-governing Colonies any preference for the time being accorded to the United Kingdom if the United Kingdom should so request in respect of any particular preference.
The provisions of Article 1 of the GATT are such as to forbid accord of new preferences. It will, therefore, be apparent that on the entry into force of the GATT Australia will not be in a position to establish preferences in favour of non-self-governing Colonies on items on which those Colonies do not at present enjoy preference.
Should like it to go on record that we have discussed the position with respect to Article 15 and agreed that it will in future be impracticable for Australia to entertain requests for the accord of new preferences to non-self-governing Colonies.' (Ends) 
From short informal talk we gained impression that there would be no difficulty in getting the United Kingdom to endorse something very close to the draft.
They, and particularly Dalton, were at first inclined to revert to the old issue of the Tariff Board's interpretation of Article 10.
We drew attention to 1938 Memorandum of Conclusions in which the United Kingdom agreed not to press their objection to the interpretation now placed by the Australian Tariff Board on Article 10, and said we felt the issue should be regarded as closed. They did not pursue the issue and we do not expect them to raise it again.
The only other point raised by them was the proposal that there might be consultation with the United Kingdom before an item was referred to the Tariff Board. They had in mind that if terms of particular reference to the Board embraced fairly broad class of goods, the Board's recommendations may be such as to result in the United Kingdom losing some of the Ottawa margin on wider variety of articles than is absolutely necessary. We replied that we did not think Australia could accept the idea of consultation with the United Kingdom before reference to the Tariff Board, and that in any case we felt that both the Tariff Board and the United Kingdom interests concerned in particular investigations would ensure that no avoidable departures from our obligations under the Ottawa Agreement would result. They did not press their point but indicated they might have something general to say about the consultation.