For the past week we have been in continuous discussion with
United States negotiators and [...] [1] Mr. Brown [2] leader of
United States Delegation we have reached stage where matter must
be submitted to Government.

Briefly, United States prepared offer in addition to offers
already received [3] full 50% on beef, approximately a doubling of
butter quota and its concentration in Southern Hemisphere season
and a few improvements on minor items but require reduction to 11
1/2% on canned fruit in United Kingdom and to 2 cents on raisins
in Canada. Their requirements on protective tariff present little
difficulty. Details follow.

OUR REQUESTS ON UNITED STATES
In addition to their responses already reported they now advise as
follows.

Beef and veal, they meet our request of 3 cents. Butter, will
confine quota to Southern Hemisphere season November to February
or March thus limiting concession to ourselves and New Zealand and
[...] will increase quota to figure to be negotiated with New
Zealand. (A lot of discussion took place on the quota. They
mentioned between 25 and 30,000 tons, we urged 50,000 our forecast
would be around 40,000.) Eucalyptol and tennis racquets, they meet
our request. Apples, 10% March and April and possibly May. Tallow
declined on grounds Argentine principal supplier. Tungsten
possible improvement of three cents only. Moutons they will
improve their offer.

[matter omitted]

UNITED STATES REQUESTS ON AUSTRALIA
Preferences
We have resisted strongly on preferences. It is very clear indeed
not only from their dealings with us but with United Kingdom (as
our advices to you will have indicated) that they set more store
by securing substantial cuts [...] preferences than in any other
phase of the tariff revision which is involved in all the
negotiations. They have retreated gradually and [...]

Proposals to eliminate all preferences on canned and dried fruits
and subsequently for severe cuts, all of which we told them flatly
were impossible. They have now said they must ask us put following
to our Government.

Raisins in Canada 2 cents as against our concurrence in 1 cent.

Canned apricots, peaches and pears in United Kingdom 25% reduction
in the margin (with offer of quarter per cent ad val[orem] ourway)
that is eleven and half percent ad val against the twelve and half
we concurred in. As an offset to the 2 cents in Canada they agree
to the raising of the United Kingdom proposed rate of 8/6d on
raisins, and to our making no reduction at all in prunes in
Canada. They stipulated however, that they held [to] elimination
of prunes in United Kingdom (in a last effort to relieve pressure
on raisins in both United Kingdom and Canada we had put in
elimination of prunes in both United Kingdom and Canada).

Canned Fruit Salad
United Kingdom claim that of the Commonwealth countries they have
greatest interest in this item (they make it up and can it from
imported fruits). They have told United States they will agree to
elimination.

[matter omitted]

COMMENTS
Canned Fruits
We did not admit validity of [...] on canned fruits for 25%
reduction in United Kingdom and used all the arguments against it.

We did, when they finally retired from higher demands, find some
difficulty in rebutting their constant reference to their 25% cut
on wool and greater cuts on other agricultural items. Though we
realise difficulty of the item on the Government, we would under
all circumstances recommend that we meet their proposal.

Raisins
We continued to resist this proposal until we were repeating our
case over and over again. In course of final argument it became
evident that this item is critical to United States. Winthrop
Brown emphasised strong attitude of their Agriculture Department
which felt Canada as natural United States market from which they
had their producers completely driven out by the preference which
has a very high ad val incidence. He said that he had a heavy
struggle with his trade agreements committee in whittling away
their demands on raisins and canned fruits preferences and he now
felt that he had reached the limit, and from what we know of the
men on this committee we believe this is so. Our main arguments
were of course that [...] only down 25% there was no case for a
reduction of a margin in such an important preference beyond 25%
and that overall picture, that is the concessions in the United
States tariff balanced against concessions in our tariff, plus
reductions in preference margins we had already conceded, did not
warrant any advance beyond 25% cut in the 4 cents. As against this
they pointed out that the rate is a very high one (in years before
the war 4 cents represented about 70% ad val and on present prices
it is nearly 50%), that about 20% only in margin will be given up
in best market (United Kingdom) against a 25% that might
reasonably be claimed and that a 50% reduction on Canada would be
less harmful to industry than a substantially lesser reduction in
United Kingdom. In this connection it is a fact that in arriving
at prices in Canada we have not availed ourselves of full 4 cents
duty and could retain completely our present position of having
practically all the market with a duty of 3 cents.

We have argued strongly the special difficulties of this request.

We have emphasised that fact that the industry grew up under
preference, that it was established after the United States had
closed her markets to us on wool, meat and butter and that the
industries were concentrated and local. We have also emphasised
the political factors involved. We have sought also to substitute
offers on our tariff which might have been easier.

Brown has given evidence of genuine desire to help and we are
satisfied that he has done his best with other Departmental
officials. It is clear however that they regard it of greatest
importance both in relation to our own agreement and in relation
to Commonwealth preference question as whole. They are convinced
that their claim is reasonable and we are satisfied that nothing
more can be done.

Our own view would be that with raisins in Canada at three cents
and the wool, beef and butter offers in their present form, the
balance would have been in our favour but with raisins at two
cents the balance swings in favour of United States. It is
possible, however, that major developments in our trade in meat
and butter with United States in the future may fully justify
agreement but on present indications we would, from point of view
of trade agreement alone, consider we were being asked pay too
much.

In your T261 you advised that elimination of margins on canned
fruit salad should not be concurred in. As stated here United
Kingdom have taken view that this preference is predominantly
theirs to [...] and we understand they are putting this view to
South Africa the country whose interests [...] may be stated to
come after United Kingdom. It seems to us we have not strong case
for resisting proposal to eliminate and would recommend we make no
protests.

We have gone over list of preferences to Colonies affected, and
are of view that there is nothing in it to give us concern, and
that therefore we might advise our acquiescence.

Canned fruit in New Zealand
New Zealand representative now advises that his Government will
not reduce Australian rate on peaches and in consequence he says
he does not think they can agree to margin of 20%. He says he
thinks America will agree to either a 12 1/2% Margin on apricots,
pears and peaches or 10% on apricots and pears and 15% on peaches
and pears which we prefer. Please confirm that Minister prefers
former as indicated T261. For reasons given in ITO[...] we think
latter more valuable to us though there is probably not much in
it. We have to handle this a little gingerly with New Zealand as
in their case the preference margins are not bound. They have
shown every disposition to consult us however.

[matter omitted]

GENERAL CONSIDERATIONS
Briefly if we accept United States offers we can gain-
(A) In relation to wool security against possible increase in
duties, lower starting point for subsequent negotiations and some
improvement in long term prospects.

(B) Access to United States market for our major export
foodstuffs, lamb, beef and butter.

(C) Some possibilities of trade expansion on number of minor
items.

For these benefits we would be paying somewhat more than we had
hoped particularly in respect to raisins, and we judge rather more
than the benefits we can make use of in short run are likely to be
worth. At same time, (A) our concessions in Australian protective
tariff look greater than they are in fact. We are fairly confident
that no significant loss of trade is involved for the Australian
industries concerned. (B) sacrifices in relation to preferences
leave substantial protection remaining and should be within
capacity of industries.

[matter omitted]

Furthermore we must take into account settlement between United
States and the Commonwealth as whole. Following points are
relevant-
(A) United Kingdom needs a settlement. Cripps informed Coombs on
Friday that United Kingdom was most anxious for settlement. Their
rejection of the United States offer was based on conviction that
politically in present state of United Kingdom sentiment [...]
they could not go further. Furthermore he thought it likely that
United States would in fact settle for less to avoid breakdown.

(B) We might be prepared go little beyond an exact balance to help
United Kingdom in overall preference position. Canadian leader has
advised that his Government is going considerably beyond what they
intended for this reason. For general political as well as
economic reasons it would appear worth some sacrifice to bring to
satisfactory conclusion present difficulty and at times bitter
negotiations between United States and Commonwealth countries.

(C) Recent improvements in United States offers on rubber and tin
are of general sterling area value, these with wool are major
dollar earners for sterling area as whole. In view of general
shortage of dollars these improvements are of value to us also.

(D) We are being asked to live within our dollar income. While
whole of our food surpluses are directed to Britain they may both
impose serious limitations on essential imports and force us into
undesirable dependence on United Kingdom manufactured goods and
capital equipment. Agreement does make possible substantial
increase in dollar earnings by sterling areas as a whole and by
ourselves to extent that production can be increased or it proves
practicable to divert exports from United Kingdom. Even if we do
not avail ourselves of these opportunities because of United
Kingdom need for food, it strengthens our case for an adequate
share of available dollars.

From long term point of view access to United States market for
Australian major exports may be of critical importance even if we
can make only limited use of it for time being.

[matter omitted]

CONCLUSION
As mentioned above we feel that the raisin requirement means that
from purely tariff agreement point of view we are being asked pay
too much for benefits in sight although long term developments
might fully justify the exchange. Taking into account general
considerations above however, particularly desirability of an
amicable United States Commonwealth settlement possible benefit to
dollar position and above all long term importance of an
alternative market for Australian major export industries we feel
we should recommend that Government should authorise us to
conclude negotiations on this basis. We are unanimous in this
conclusion.