I was glad to get your personal note of 29th October.

We are, I think, making pretty good progress, and on most of the
issues which seem to us to be important to Australia I think we
will obtain fairly wide support, although of course we won't get
quite as much as we would like.

The real testing time for the preference issue [1] does not come
until the actual negotiations covering tariffs and preferences
begin next year. Here the main things which we are concerned with
are-
(1) to ensure that there is no question of preferences being
reduced without full compensating concessions and that preferences
existing after the negotiations next year will be fully protected;

(2) to ensure the right to take emergency action if individual
industries are seriously affected by modification of preference
accepted in the negotiations.

I think these will be quite safe.

I have had a talk with McCarthy about the political aspects of
preference, and it is his view that the problem may not be as
difficult as one might have expected. First of all, we would not
make any concessions on preference unless the cuts in other
people's tariffs on primary commodities were such as to open the
American market to wool, meat and butter, and the European market
to meat. These factors would, he believes, be politically very
valuable since they affect the major rural industries very
favourably. He does not expect that it will be necessary at the
next negotiations to modify the British preference on meat
although in his opinion if we can open the American and European
markets, the benefits to the meat industry would far outweigh the
loss of preference. He thinks it unlikely that we would have to
accept a cut in preferential margins on other products of more
than 50% of the present margin, and he thinks that we would have a
reasonable chance of getting away with a reduction by a third. He
has already had consultation with the representatives of the
industries mainly affected, and he thinks, particularly at present
prices, they could stand a reduction of this order without
detriment. However, the canned fruits and dried fruits industries
might conceivably be difficult and require some direct assistance
from the Government to assist partial changeover to other types of
production in the irrigation areas. The Bureau of Agricultural
Economics is working on this problem now, and McCarthy expects
that they will have a plan ready for the consideration of the
Government if it is required. Sugar is another industry to which
preference is fairly important, but McCarthy considers that the
problems of this industry can best be dealt with by an
international sugar agreement, negotiations for which he hopes
will be commenced fairly soon.

Personally I feel that the tariff concessions which we are called
upon to make may involve some political difficulty since they are
likely to be fairly numerous, although none of them individually
is very large. I am fairly confident that with the war-time
changes in costs in the different countries an Australian industry
is in a very good position to accept some such changes in the
level of protection, provided we can get compensating benefits,
but some conscious educational work may be required before the
issue comes to Parliament. We have been giving this matter some
thought over here, and I hope to write to you about it
particularly before very long.

I attach a summary of the various phases of the preference issue
which have been discussed so far during the conference.

The team were pleased to receive your kind regards and to know
that their work is being appreciated.

H. C. COOMBS