My dear Prime Minister,
IMPERIAL ECONOMIC COMMITTEE
I have been going rather carefully into the question of the coming year's work of the Imperial Economic Committee. The Committee is setting itself a large task in proposing to deal with four main reports and two trade surveys.
You have already indicated that you will do your best to appoint some distinguished visitor from Australia to the Committee for the principal part of the Main Session but it is, I imagine, rather improbable that you will be able to get anyone to serve from the beginning of February until the end of July. There is also the question of a representative on the Committee and the many Sub- Committees that are now likely during the remainder of the year.
Under these circumstances I felt justified in sending you a cable suggesting that the precedent already established by India should be followed by Australia and that Faraker  should be appointed by you, not as a member of the Committee, but as an alternate, just in the same way as Lindsay , the Trade Commissioner for India is an alternative for Sir Atul Chatterjee, the High Commissioner. India thus has three persons on whom it can rely for representation; Sir Atul Chatterjee, M. M. S. Gubbay, the General Manager of the P. & O. Banking Institution, who is a full member of the Committee, and Lindsay, an alternate.
My suggestion with regard to Australia is that our representation should consist of myself as the full permanent member, the best available man that you can select for some period during the Main Session and particularly for the months of May, June and July, when the principal reports are likely to be in process of final discussion and signature, and Faraker as an alternate, who can serve on Sub-Committees and attend the Main Committee with full rights of discussion when Australia has only one other representative, but would have no vote and would not sign reports.
I really do not know whether this suggestion will meet with your approval but I cannot see any prima facie objections. 
The results of the Northampton By-Election, which were published yesterday, are decidedly interesting. Northampton is a traditional Liberal seat which, I believe, has only been Conservative once for very many years before the last Election of 1924. The result of the election is a distribution of votes in almost exactly the same proportion as at the General Election of 1924, the Socialists, however, winning the seat owing to the advent of an Independent Conservative who deliberately set out to ruin the Government Candidate's chance of success.
It is believed that Lord Rothermere  has a good deal to do with this Independent Candidature. The really interesting point is the failure of the Liberals to make any substantial improvement in their position.
I enclose the 'Manchester Guardian' comment which shows that the Liberals are very disappointed at finding no sign of the much heralded Liberal revival in this election. 
MR. BALDWIN  AND THE EMPIRE MARKETING BOARD
On Saturday the Prime Minister made an important speech in his own Constituency, during which he referred, for the first time, at considerable length to the work of the Empire Marketing Board. I am enclosing a copy of his speech with the portion about the Board marked. 
I am glad that Baldwin has recognised the importance of the Board's work but I trust that he will not attempt to claim undue credit for the Government as this would tend to make the work of the Board into a Party affair. This is the last thing that one could desire.
You will remember that when you were here last year, you expressed very emphatic views as to how desirable it had been that the Government should have secured the services of members of the Labour Party on the Empire Marketing Board. The process of making the Board a definitely non-party organization has now been completed by an invitation from the Government to the Liberals to appoint a member of that Party to serve on the Board. Sir Archibald Sinclair  has been invited to serve and has accepted the invitation. I understand that, in the improbable event of a Liberal Government being formed, Sinclair would be sure of Cabinet rank. We, therefore, now have on the Board 1 member of the Cabinet, 4 junior Ministers, 1 member of the Front Opposition Bench and 1 leading Liberal with, in addition as you know, 2 other members of the official Opposition Front Bench serving on the Research and Publicity Committees.
EMPIRE INDUSTRIAL ORGANIZATION
I have, from time to time, let you know of the way in which certain people in this country are beginning to take an interest in the idea of discussions between the leaders of British and Dominion industries with a view to some arrangements whereby the competitive spirit, as between the British manufacturer and the local manufacturer in the Dominions, may be eliminated and amicable arrangements arrived at for cooperation based on the idea that the Dominions are certain gradually to develop their manufactures but that it is desirable that that development should be carried out in such a way as to inflict the least possible burden on the primary producers of the Dominions and as little disorganization as possible in British industry.
The British iron and steel people are very anxious indeed to see some such discussion initiated as between themselves and the iron and steel manufacturers in Australia. I think it would be very valuable if you would be good enough to let me have some indication of your views on this matter. Do you, for instance, think it at all possible that this subject might form an item on the Agenda of the next Imperial Conference? If so, do you, in the meantime, see any objection to an organization such as, for instance, the British Iron & Steel Federation initiating discussions with the Broken Hill Proprietary Co.? 
The subject is of so great interest that I propose to put together such ideas as I have in the form of a memorandum which I hope you will find of interest. I personally feel that it ought to be possible to find some means whereby, through amicable arrangements between the British and the Dominion manufacturer, many of the difficulties confronting Australia in regard to the extremely high levels of the tariff might be overcome without raising all the political obstacles which are obvious to me and which must be much more present to your mind.
This morning's 'Times' contains the preliminary trade figures for the month of December 1927 and for the year. You will perhaps remember that the November figures showed a really substantial improvement in British exports. This improvement has not been maintained in December, the value of British exports being 11 1/2 million less than in November and 6 millions less than in December 1925.
So far as the year is concerned, British exports naturally show an improvement for 1926 when the coal stoppage profoundly affected the trade of the country. 1927 shows a total of 709 millions worth of British exports as against 653 millions worth in 1926 but in 1925 the total reached 773 millions worth, so that even after making an allowance for the decline in price levels, 1927 shows no improvement over 1925. The adverse balances of visible imports over visible exports for the last three years are as follows:
1927 391 I imagine that, when the Board of Trade has fully taken into consideration all the forms of invisible exports, it will be found that in 1927 there was no favorable balance in the trade of this country.
One of the most striking features of British trade recently has been the growth of the imports of manufactured goods. I have prepared a table, a copy of which I enclose, which shows that the ratio of imported manufactures to manufactured exports has passed 50% in 1925 and for 1927 has reached the very formidable ratio of 57.2. I think you should look at this table rather carefully.
IMPERIAL ECONOMIC COMMITTEE
I have just received your cable of today's date, in which you reply to my cable of the 7th January, saying that you concur in the idea of the appointment of a second Australian representative for the Main Session and will advise me later. You do not, however, reply to my suggestion that Faraker should act as an alternate. It is, of course, possible that you do not desire to see any closer connection between the official Australia House organization and the Imperial Economic Committee. Should this prove to be the case, I can quite understand that you did not wish to express this view in a cable. I know that you are aware of my appreciation of Faraker's ability and you will understand that I should find him very useful.
If the fact that you did not mention my suggestion in regard to Faraker in your cable is not caused by any question of policy but is simply due to the fact that you want to consider the matter more fully, then I should be very much obliged if, on receipt of this letter, you would send me a cable indicating your views. If, on the other hand, it is due to policy then I shall understand that if I do not receive a cable within, say, a week of the date when this letter should reach you, I shall regard the question of the use of Faraker as an alternate as one which you do not desire raised again. 
I enclose a copy of the letter from Julius  to Sir Philip CunliffeLister  which was, unfortunately, omitted from my last week's letter.
Yours sincerely, F. L. MCDOUGALL