32 Note of Meeting with Plowden

NOTE OF A MEETING HELD IN SIR EDWIN PLOWDEN'S ROOM ON 14TH OCTOBER 1948, AT 5 P.M.

Present:-

Sir Edwin Plowden (in the Chair)

Sir Sydney Caine) Mr. T. L. Rowan) Treasure

Mr. E. A. Hitchman Central Economic Planning Staff Mr R. L. Hall Economic Section, Cabinet Office

Dr. H. C. Coombs) Mr. Wheeler Australia Mr. Wilson

Mr. D.A.V. Allen Lord Amberley

The meeting was called to consider some of the points made by the Deputy Prime Minister of Australia at the meeting of Commonwealth Prime Ministers on Wednesday, 13th October.

U.K. Purchases from Australia The Australian officials represented that the U.K. Long-Term Programme suggested an unnecessary limitation of purchases from the sterling area. in the case of Australia it assumed that the U.K. would not be able to spend any more upon Australian products in 1952-53 than in the current year. The Australians considered this limitation unnecessary. If the U.K. purchased more from Australia the Australians would almost certainly use the sterling they received for purchases within the sterling area, including purchases of U.K. exports and within Eastern Europe, or hold higher sterling balances. They could be trusted not to increase their dollar spending. The Australians attached great importance to this problem because they were afraid that the estimates in the Long-Term Programme would inevitably influence policy. They thought that there was some evidence already that the attitude to certain minor purchases was being affected. The small industries producing the so-called less essential goods were of particular importance to Australia because they were borderline industries.

They thought it would be disastrous if a pessimistic view of sales led to a general restriction of trade between the U.K. and Australia, with both countries having unused export capacity.

While there might be some risks involved to the U.K. if no limit were placed upon purchases from the sterling area, it would be impossible to re-establish a multilateral pattern of trade, which was a declared objective of U.K. policy, unless risks were taken at some time.

The U.K. officials said that the Long-Term Programme had been worked out for planning purposes on a conservative basis. It was not proposed to take decisions now about the purchases of inessentials from Australia in 1952. While the U.K. could agree with many of the points made by the Australians, there was a danger that if purchases from the sterling area were increased the extra sterling would be used to purchase exports from the U.K., which might otherwise have gone to dollar markets to pay for essentials. There was also the possibility that as the volume of trade on both sides was expanded the point might be reached when the U.K. consumer would prefer the goods which were exported to the imports they made possible.

The Australians should not overlook the fact that special measures were necessary to secure the U.K. export targets and the Australian arguments were not entirely valid in a situation when considerable controls over imports and exports were in force.

The Australians were given an assurance that the points they had made had been taken and that the suggestion that current year purchases were being affected would be examined.

Relationship of the Sterling Area and Western Europe The Australians were concerned about the size of the deficiency of Western Europe and what might happen when the Payments Agreement came to an end. They were afraid that an attempt might be made to bring about a bilateral balance of trade between Western Europe and the sterling area. Such a step would inevitably reduce the volume of trade.

The other participating countries must therefore be constantly pressed to earn a surplus in acceptable currencies elsewhere in the world, with which to balance their sterling area deficit. The United Kingdom was in the best position to press this point of view.

The U.K. and Australian officials were in general agreement about the nature of the problem and that in any event the basis of a solution must be increased production in Europe as a whole in order that Europe should be able to pay for its imports. The U.K.

were particularly interested in this because at present a heavy subsidy from the U.K. to Europe was necessary and the Australians might be assured that their point of view would not be overlooked.

The difficulty of the problem should not, however, be under- estimated.

Multilateral Trade with Dollar Areas and Long-Term Contracts The Australians said that it was the conclusion of the United Kingdom Long-Term Programme that it would not be possible in 1952- 53 to have a multilateral world which included the dollar area.

This might be disturbing to United States opinion, the more so as no speedy return to full multilateralism could be envisaged. They therefore urged that the conditions which would make multilateralism and convertibility possible should be thoroughly examined. They suggested that the solution lay in finding somewhere in the world an area which could on balance be a substantial dollar earner as were Malaya and the Netherlands East Indies before the war. Australia was very much interested in achieving a multilateral pattern of trade if this were possible.

As an illustration of the problems involved, they instanced the increased production of certain commodities such as sugar would be uneconomic in full competition with similar products from the dollar areas. Since producers could not always rapidly turn to the production of other products, the Australians thought that their long-term guarantees about markets were necessary if they were to undertake the increased sugar production which the U.K. had suggested. They added that since the possibilities of multilateral trade depended very much upon the willingness of the United States to take increased imports, the long-term programmes of the O.E.E.C. countries might provide a means of influencing opinion in the United States on this point.

The U.K. officials thought that the main problem was the future of U.S. commercial policy itself, which was extremely difficult to predict. They agreed that when suitably handled, the long-term programmes of O.E.E.C. might provide a means of influencing U.S.

opinion. The Australian arguments about multilateral trade were well taken and would be noted. So far as long-term contracts for Australian products were concerned, there was no objection to these in principle, but it would be necessary to examine each individual contract in detail when it was proposed.

[AA: A609, 552/69/1]

[LONDON], 14 October 1948