Your I.T.O. 128-Proposal to relax import restrictions except for
hard currencies.

1. Your suggestion was briefly considered by Cabinet Sub-Committee
but unilateral action by Australia was not favoured.

2. Detailed views of inter-departmental Committee are set out
hereunder.

3. From financial viewpoint it is felt action proposed would be
unwise because balance of payments not yet normal and continued
favourable balance cannot be taken for granted particularly in
view of sharp increase in April and May imports. Further, pending
outcome of McFarlane's discussions, extent of available
international reserves and implications of convertibility of
sterling on 15th July, 1947, are uncertain. [1] If continued
discrimination against U.S. and other hard currencies after 15th
July should prove impracticable we shall have to choose between-
(i) removing all import restrictions; or
(ii) imposing restrictions on less essential goods from all
sources on a non-discriminatory basis.

4. From trade viewpoint it is felt your proposal might cause
considerable embarrassment because:-

(a) Open increase in discrimination just prior to 15th July would
presumably be strongly resented by U.S. and also Canada.

Convertibility clause of U.S.-U.K. Loan Agreement was expected to
have 'the result that any discrimination arising from the so-
called sterling area dollar pool will be entirely removed'.

(b) Although you only mentioned U.S. and Switzerland, United
Kingdom hard currency list also includes all other Western
Hemisphere countries, Iran, Portugal and the Soviet Union. While
we may be in a position to disregard the reactions of a number of
these countries there are some of importance to us from the trade
point of view which would presumably be irritated by an open
increase in discrimination at this stage.

(c) Proposal would also create difficulties in relation to
countries intermediate between hard and easy currency groups,
e.g., Sweden. Swedish currency is partly hard', but both United
Kingdom and ourselves are finding it necessary to admit some less
essential imports from Sweden in order to obtain best possible
supplies of Swedish forest products and other scarce items. In
current talks here Swedish Consul-General has already protested
against increase in discrimination resulting from exemption of
most United Kingdom goods from import licensing and would be
incensed by further overt intensification of discrimination in
favour of other countries. This might present us with choice
between-
(i) Losing our supplies of Swedish timber, pulp and paper; or
(ii) Admitting freely all available imports from a 'partly hard'
currency country.

5. Your point B suggests that you are contemplating a reciprocal
exchange of assurances with various countries concerning
quantitative import restrictions on commodities covered by the
tariff negotiations. This would, of course, represent a most
important extension of the scope of the Geneva talks. We have
always avoided as far as possible giving any assurances in
relation to future import licensing policy in relation to
particular goods because, in the ultimate, such assurances can
only be honoured if exchange is available to pay for them and we
are inclined to feel that it would be unwise to go further than
the existing Articles of the Draft Charter in attempting to
safeguard tariff concessions from nullification by quantitative
import restrictions.

6. In any event it seems questionable whether it would be
tactically advantageous for Australia to relax import restrictions
unilaterally at this stage if no similar action is contemplated by
other countries maintaining similar restrictions.

7. Also please see telegram 2124 from McFarlane to Wheeler.

8. [Y]our telegram-Cuban Cigars. Cabinet Sub-Committee felt unable
to agree
to relaxation of prohibition of imports of Cuban cigars because
of:-

(a) general undesirability of permitting expenditure of dollars on
cigars while general policy is to restrict use of dollars to
minimum requirements of essential goods; and
(b) difficulty in confining concession to Cuba in view of the fact
that both U.S.A. and the Philippines were important pre-war
suppliers.

9. Presumably Cuba is confronted with similar difficulties in
other countries and we should be glad of any information you may
be able to supply on import licensing treatment accorded to cigars
in other countries, particularly the United Kingdom and New
Zealand.