13 Minute by Robertson [1]

UNITED KINGDOM TRADE POLICY

The attached file is mainly composed of letters received by the Department of the Treasury from Mr. Nimmo, the Australian Representative on the Sterling Area Statistical Committee.

2. The letters are of a personal nature and do not attempt any comprehensive survey of United Kingdom trade policy. The contexts of the letters are rambling but do contain a fair amount of information which confirms our recent views regarding United Kingdom trade diversion policy and is indicative of possible future trends in United Kingdom export-import trade.

3. The information contained in the letters may be conveniently reviewed under the following headings-

(1) United Kingdom Import Policy (a) From Dollar Areas. The United Kingdom appears to apply the essentiality test when licensing imports from North America.

Restrictions imposed by the United Kingdom on imports of goods from dollar areas do not appear to be as stringent as those imposed by Australia and as an illustration it may be noted that the United Kingdom is licensing imports of machinery and equipment from the dollar area provided that these imports will result in dollar savings within two years. As a further illustration I think it can be said with certainty that the United Kingdom has never yet cancelled an import licence once issued and does not show any intention of resorting to a means so drastic although Australia did not hesitate to cancel import licences in the latter part of 1947.

It should also be noted that although little information is available as to the restrictions placed on importations from dollar areas by other members of the sterling area, it is suspected that other members of the sterling area have not adopted restrictions as drastic as those of Australia. This is confirmed by the unwillingness of New Zealand and Eire to discuss dollar restrictions imposed by their Governments during sessions of the S.A.S.C. although their objection thereto was made on the formal ground that policy matters are outside the scope of the Committee.

(b) Section 9 of the U.K.-U.S. financial Agreement of December 1945. The letters do not furnish any evidence as to the extent which the U.K. has excluded imports from sterling area countries in pursuance of the non-discriminatory provisions of this section.

South Africa is, however, becoming apprehensive regarding the possible effect of the Section on her exports to the United Kingdom and the Crown Colonies.

(2) United Kingdom Export Policy There are frequent references to the United Kingdom's export drive and trade diversionary policy but the information is of a very fragmentary nature. It is doubtful as to what extent the Government's trade diversionary policy is being implemented by export control. Statements made by Government officials in the United Kingdom would indicate that there is little or no export control exercised with the object of diverting goods to dollar and other hard currency markets. However, export control may be greater than the United Kingdom Government is prepared to admit since certain Australian importers have, on inquiring from United Kingdom manufacturers whether they can obtain goods which those manufacturers have in stock, been informed that the goods have been earmarked by export control authorities for specific markets.

The Australian High Commissioner in the United Kingdom has broached [the question] [2] the effects on Australian industry of the diversion of commodities in short world supply from Australian markets to hard currency areas, but has obtained rather evasive replies and few assurances that Australia will be able to expect increased supplies of specific goods in the near future. He has however been informed that Australia has recently obtained considerable quantities of telephone equipment of which the United Kingdom is herself short and large quantities of cotton yams and thread. He was also informed that as Australia had obtained large quantities of goods from the United Kingdom during the war years she could not complain if the United Kingdom sought to re- establish her trade with North America and other hard currency countries to which the United Kingdom had exported very little during the war years.

Australia has in recent months been surprised that increasing quantities of goods of United States manufacture or processed from raw materials obtained from the United States have been exported from the United Kingdom to Australia. On inquiry from official sources in the United Kingdom Mr. Nimmo ascertained that the United Kingdom regards this entrepot [trade] as normal and legitimate. Three particular commodities have come under notice Cigarettes-Large quantities of cigarettes processed from American tobacco are being exported by the United Kingdom to Australia. The volume of exports appears to be growing and the United Kingdom has stated that if under Marshall Aid large supplies of American leaf become available to the United Kingdom none of the leaf will be exported to Australia but plenty of cigarettes and processed tobacco will be made available. The United Kingdom is quite definite on this point.

Moulding Powders ) Accounting Machines) In both of these cases the attitude of the United Kingdom appears to be that if Australia would be prepared to import these goods from dollar areas there can be no objection from a sterling area point of view to the United Kingdom supplying these goods to Australia. Moreover the United Kingdom appears to consider that there is no objection to the United Kingdom making profits from this entrepot trade.

I think that the import of cigarettes and various other dollar goods from the United Kingdom can only be justified if it is considered that the practice affords the United Kingdom an opportunity to reduce its large balances with other members of the sterling area.

(3) Liaison Between the United Kingdom and Australia The lack of effective liaison between the two countries has rendered the United Kingdom trade diversionary policy very serious from Australia's point of view. Despite the statements of the United Kingdom officials to the effect that they do not exercise substantial control over general export trade it appears certain that some control must be exercised otherwise the United Kingdom would be unable to fulfil commitments regarding the supply of specific commodities in pursuance of the numerous agreements which have recently been concluded by the United Kingdom with various countries. The apparent unwillingness on the part of the United Kingdom to be perfectly frank in this matter means that Australia is often faced with an injurious fait accompli when agreements have been concluded which entail the diversion of scarce commodities from Australian to hard currency markets.

There are at present two sources of information open to Australia from which some idea of the effect of the trade diversionary policy can be gauged. These are- (a) The S.A.S.C. Unfortunately there are strong grounds for believing that this Committee was instituted so that the United Kingdom could obtain certain statistical information from sterling area countries and not with a view to integrating the industrial and commercial relations of the Empire considered as a single unit. The Committee is not empowered [to discuss] and several of its members have strongly objected to discussing questions of policy.

Certain information as to agreements concluded by the United Kingdom is furnished at meetings of the Committee but this information is very limited and as far as I can see of little or no value.

(b) The text of the agreements concluded by the United Kingdom with various countries. Generally the information as to specific commodities which is given in abridged texts, such as cablegrams, is incomplete and only two of these agreements, namely those concluded with Argentine and the U.S.S.R., have been printed. Both of these agreements include undertakings as to commodities of which Australia is particularly short, but even here the information is not sufficiently detailed.

(4) Future Trends Many of the goods which Australia is particularly anxious to obtain from the United Kingdom are now only available at very long delivery dates and it is important to consider the possible future effects on Australian industry of an intensified United Kingdom programme of trade diversion and future monetary policy. [3]

Mr. Nimmo is of the opinion that the overseas trade of the United Kingdom is moving away from the long established pattern. His view is supported by the Canadian Representative on the S.A.S.C.

Neither of them however have any clear conception of the nature of the changes which may ensue and base their assumption on recent statements of United Kingdom officials. Mr. Nimmo considers his opinion is strongly supported by the many recent references made by the United Kingdom officials to the necessity for Australia to curtail still further her imports from dollar areas and exhortations to increase her exports, as for example dried fruits, to dollar areas.

I am not sure whether available data supports Mr. Nimmo's views nor am I convinced that the United Kingdom has any definite long term policy towards empire trade. The following statement made by a member of the British Treasury is however very disconcerting- 'There are various schools of thought in the Treasury. Some officers think that each sterling area country should be required to live within its current dollar income or requested to meet its own deficit and be given freedom of action to do this. Others disagree with this suggestion.' The information contained in the letters when considered in the light of the acute shortages of certain goods which Australia formerly obtained from the United Kingdom and the growing tendency of the United Kingdom to conclude bilateral agreements indicates that it would be dangerous to delay any longer a discussion of future United Kingdom - Australia trade relations. This discussion should be carried out at the highest possible level so as to obtain some definite statement from the United Kingdom as to her future intentions. Arrangements should also be made for a senior member of this Department to be stationed permanently in the United Kingdom to act as a Liaison Officer between the Australian Government and the British Treasury, Board of Trade and Bank of England. Only a Departmental Officer with high status and an intimate knowledge of Australian industry, overseas trade and monetary policy could properly carry out the task and the necessity for such an appointment is very urgent. [4]

[AA: A9879, 2911]

1 R.G. Robertson, Department of Trade and Customs.

2 Matter in square brackets inserted by hand by Robertson.

3 The last four words of this sentence have been struck out in the copy on file.

4 An annotation was made to the minute on 5 May stating that the Minister, Senator Courtice, 'has approved of a senior official proceeding to London'.

[CANBERRA], 22 April 1948