Yesterday I had informal talk with Clayton about import
restrictions. I outlined briefly our balance of payments position
both in total and in relation to dollar currencies and put to him
the following questions-
(1) What would United States reaction be to continuance of import
restrictions discriminating against United States after sterling
balance convertible.

(2) What would United States attitude be to modification of our
import restrictions in favour of countries particularly European
countries whose currencies were soft [1] for us.

(3) What would United States attitude be to relaxation of
restrictions on minor items not extended to United States, e.g.

Cuban cigars.

In putting question relating to continued discrimination after
convertibility of the sterling became effective I indicated that
we recognised that with convertibility of sterling we have right
to draw upon dollar pool freely in respect of our current earnings
and that it would be difficult for us to justify continued
restrictions on availability of dollars to Australia as we had
broadly justified it in the past. However, since, in short run,
dollars available to sterling balance were limited, we felt that
for us to exercise our right to draw on pool for dollars would
merely mean a reduction in dollar expenditure for other parts of
sterling area, particularly United Kingdom and we were
consequently anxious not to exercise our rights to an extent which
would impose increased hardship on United Kingdom.

Clayton said that the problem was essentially a political one and
his main fear was that there would be criticism in United States
that United Kingdom had sought our concurrence in an arrangement
deliberately designed to enable them to evade an obligation
accepted in loan agreement and that if such criticism developed on
any scale it would be embarrassing. Consequently administration
could not concur in any such arrangements and indeed there could
be no official discussions of such a question. On the other hand
he was sympathetic with our attitude and he was confident that
unless it became politically necessary administration would not
wish to make any complaint if we continued discrimination. The
main problem would be pressure by individual firms who might be
seeking an expansion of their exports to Australia. With present
export market more than adequate for most lines of goods, he
thought it unlikely that this would prove widespread and some
elasticity by Australia in order to meet pressure in relation to
particular classes of goods where export markets were less easy to
find than for commodities in general would probably deal with this
problem. For the rest he felt that provided any general criticism
was met by a clear statement that action was being taken without
agreement or understanding between Australia and United Kingdom
and that it represented a voluntary abstention from exercise of
its rights to dollars by Australia he did not anticipate any
serious difficulty. He would wish it to be understood however,
that if problem became politically difficult in United States they
might have to take the matter up with us.

With regard to the second question I indicated that while we were
not sure it seems possible that we might be able to purchase more
goods in aggregate and make some contribution to restoration of
certain European economies if we could ease our restrictions on
imports from such countries where currency difficulties were not
acute without having to relax them similarly for dollar areas but
we recognised that this would represent a further discrimination.

Clayton's views on this question seemed to be that it would
present little increased difficulty since it would have
justification for making possible a larger volume of trade.

In relation to Cuban cigars Clayton expressed doubts as to whether
the United States was a significant exporter of cigars and thought
it unlikely that we would get supplies from United States even if
restrictions were eased generally but it we felt it necessary to
discriminate he thought it unlikely that they would raise any
difficulties. He emphasised that indeed they would welcome any
contribution to solution of the Cuban problem since they too are
reviewing their general trade relations with Cuba to see whether
they can make some change in their present attitude which would
contribute to a settlement here more satisfactory to Cuba.

I emphasised to Clayton that my approach to him was on a purely
personal basis and not on instructions from the Government. He
said he welcomed completely personal and informal character of
conversation since he would find it difficult to express these
views in any official way but none the less we could regard them
as indicating his personal view of the attitude Administration
would be likely to adopt.