Your 1682. [1]

1. Liesching [2], accompanied by Shackle [3] and Cockram [4] of
the United Kingdom Delegation, asked to see me this afternoon to
discuss your telegram 1682 about Commercial Policy.

2. Liesching said that in the first place he would like to say
that the United Kingdom Government were engaged in their present
negotiations, both on finance and Commercial Policy, in the hope
of reaching a general economic concordat between the United
Kingdom and, he hoped, the other countries of the Commonwealth on
the one hand and the United States on the other as part of the
task of establishing a firm basis for co-operation which would be
essential also to good political and security understandings in a
dangerous world. On the economic merits of the plan it would be
for each country to judge when the United States, who were the
sponsors of this scheme, gave it out to the world, but he
suggested that for Australia, as for the United Kingdom, a world
of expanding trade was a condition necessary for prosperity and
full employment. Without such expanding possibilities, and with
the alternative of restrictionism which would follow a failure of
the present attempt it would, he feared, be inevitable not only
that the United Kingdom's purchasing power with all its effects on
the Australian economy would be reduced but that in the absence of
leadership from the two most powerful trading nations other
countries now in a desperate plight would raise even higher
barriers around themselves behind which vested interests of the
most dangerous kind, damaging alike to producers of primary and
manufactured products, would take root and thrive. If this process
gained headway, it would take many years to reverse it.

3. In dealing with specific points in paragraph 4 of your telegram
he made the following observations:-

(I) On 4-A (Preferences) he drew attention to the fact that (b)
and
(c) of paragraph 2 of formula in telegram D.2070 [5] are in fact
unchanged from (b) and (a) respectively in D.1909 [6] except for
the introduction of the word 'negotiated' in (b) of the latter
version. This word was in fact introduced in order to take care of
the very point about which you express concern with regard to
revenue duties. As now worded, the sentence makes clear that it is
only when reductions of most favoured nation rates are negotiated
that the reductions will operate to reduce or eliminate margins of
preference. Where a reduction is made not as the result of
negotiation but by the autonomous action of the Government
concerned, the preferential margin can be maintained. On the
criticism that there was no corresponding undertaking from the
United States he emphasised that the abandonment of the earlier
proposals for uniform horizontal rates or a tariff ceiling in
favour of selective treatment of tariffs and preferences meant
that both sides entered the bargaining prices of negotiations on
an equal basis. He said that the commitment to negotiate on this
basis in no way prejudiced the results. In this connection he
called special attention also to the way in which this point would
be made clear by United Kingdom Ministers in the House of Commons
in an explanation on the lines of the commentary quoted in
telegram D.2070. The point is made repeatedly that there will be
no unilateral surrender of preference, see in particular paragraph
4 (1) of the commentary. He suggested that there was little
difference between paragraph 4 (1) of the commentary and paragraph
1 of your telegram 1682.

(II) On 4-B (Quantitive Regulation) he explained that it had been
made perfectly clear in the present discussions that where there
was
a product on which no duty had hitherto existed the product being
subject to quota with a preference it would be open to the country
concerned to negotiate the establishment of a duty in lieu of the
quota arrangement and where a preference had been granted under
quota to negotiate also the establishment of a preferential
margin. He added that he thought it highly probable that the
products of particular interest to Australia under this head would
be brought under State trading arrangements by the United Kingdom
and said that it had also been made very clear in the negotiations
that preference would be applied under State Trading in accordance
with the principles agreed upon with regard to preferences in
general. (III) On 4-C (Balance of Payments) he said that the full
passage of the final text of Quantitive Restrictions had now been
telegraphed from London in telegram D.2090. [7] The use of quotas
to correct disequilibrium in the balance of payments was, he said,
of vital interest to the United Kingdom, and the United Kingdom
negotiators had, as would be clear from a perusal of the text,
been most careful to secure the necessary liberty in this respect.

The unacceptable version in Dominions Office despatch No. D.148
[8] to which you refer has been entirely superseded. (IV) On 4-D
(Export Subsidies) he suggested that there was nothing more
dangerous to primary producers competitive with the United States
than the use by the latter of their long purse in order to force
others out of their markets. Apart from this there was the grave
element of instability produced for importing countries when
others used export subsidies. No-one, he said, would suggest that
Australia had indulged in an unrestrained use of this weapon and
the object was to curb its abuse by the United States. He
explained that the provisions suggested in the document were
designed to prevent a country with a long purse from invading
markets disproportionately to its share of previous trade. There
would be nothing, he suggested, to prevent Australia or any
country from explaining and justifying at the Conference practices
which had a resemblance to export subsidies.

4. Liesching admitted that the final process of consultation had
inevitably been very rushed and that it was very understandable
that misapprehensions as to the exact effect of various passages
should have arisen. If, however, as stated in paragraph 5 of your
telegram, it was for these reasons that hesitations were felt in
Australia, he hoped that these anxieties would have been eased or
removed by the explanations he had given.

5. He drew attention to the important passage in the American
document which would deal with employment and handed to me the
text which I am sending in a following telegram.

6. In conclusion, there was some discussion between us on what
would be said by the United Kingdom Government in the event of its
deciding to accept the American invitation as regards the attitude
of Australia and other countries of the Commonwealth. Liesching
said that this would undoubtedly be settled in London as the
result of this final stage of urgent consultation now being
conducted from London. He said, however, that if the anxieties
under paragraph 4 and other paragraphs of your 1682 had as he
hoped been allayed, he felt that the first paragraph of your
telegram was so close to being the kind of acceptance which
Australia might see fit to give to the American invitation
foreshadowed in their document COMM/TRADE/4 [9] (see following
telegram) that he wondered whether, perhaps, the difficulties were
less great than had been thought, bearing in mind especially the
terms of the commentary contained in D.2070.