My dear Prime Minister,

IMPERIAL ECONOMIC COMMITTEE

I have been going rather carefully into the question of the coming
year's work of the Imperial Economic Committee. The Committee is
setting itself a large task in proposing to deal with four main
reports and two trade surveys.

You have already indicated that you will do your best to appoint
some distinguished visitor from Australia to the Committee for the
principal part of the Main Session but it is, I imagine, rather
improbable that you will be able to get anyone to serve from the
beginning of February until the end of July. There is also the
question of a representative on the Committee and the many Sub-
Committees that are now likely during the remainder of the year.

Under these circumstances I felt justified in sending you a cable
suggesting that the precedent already established by India should
be followed by Australia and that Faraker [1] should be appointed
by you, not as a member of the Committee, but as an alternate,
just in the same way as Lindsay [2], the Trade Commissioner for
India is an alternative for Sir Atul Chatterjee, the High
Commissioner. India thus has three persons on whom it can rely for
representation; Sir Atul Chatterjee, M. M. S. Gubbay, the General
Manager of the P. & O. Banking Institution, who is a full member
of the Committee, and Lindsay, an alternate.

My suggestion with regard to Australia is that our representation
should consist of myself as the full permanent member, the best
available man that you can select for some period during the Main
Session and particularly for the months of May, June and July,
when the principal reports are likely to be in process of final
discussion and signature, and Faraker as an alternate, who can
serve on Sub-Committees and attend the Main Committee with full
rights of discussion when Australia has only one other
representative, but would have no vote and would not sign reports.

I really do not know whether this suggestion will meet with your
approval but I cannot see any prima facie objections. [3]

NORTHAMPTON BY-ELECTION

The results of the Northampton By-Election, which were published
yesterday, are decidedly interesting. Northampton is a traditional
Liberal seat which, I believe, has only been Conservative once for
very many years before the last Election of 1924. The result of
the election is a distribution of votes in almost exactly the same
proportion as at the General Election of 1924, the Socialists,
however, winning the seat owing to the advent of an Independent
Conservative who deliberately set out to ruin the Government
Candidate's chance of success.

It is believed that Lord Rothermere [4] has a good deal to do with
this Independent Candidature. The really interesting point is the
failure of the Liberals to make any substantial improvement in
their position.

I enclose the 'Manchester Guardian' comment which shows that the
Liberals are very disappointed at finding no sign of the much
heralded Liberal revival in this election. [5]

MR. BALDWIN [6] AND THE EMPIRE MARKETING BOARD

On Saturday the Prime Minister made an important speech in his own
Constituency, during which he referred, for the first time, at
considerable length to the work of the Empire Marketing Board. I
am enclosing a copy of his speech with the portion about the Board
marked. [7]

I am glad that Baldwin has recognised the importance of the
Board's work but I trust that he will not attempt to claim undue
credit for the Government as this would tend to make the work of
the Board into a Party affair. This is the last thing that one
could desire.

You will remember that when you were here last year, you expressed
very emphatic views as to how desirable it had been that the
Government should have secured the services of members of the
Labour Party on the Empire Marketing Board. The process of making
the Board a definitely non-party organization has now been
completed by an invitation from the Government to the Liberals to
appoint a member of that Party to serve on the Board. Sir
Archibald Sinclair [8] has been invited to serve and has accepted
the invitation. I understand that, in the improbable event of a
Liberal Government being formed, Sinclair would be sure of Cabinet
rank. We, therefore, now have on the Board 1 member of the
Cabinet, 4 junior Ministers, 1 member of the Front Opposition
Bench and 1 leading Liberal with, in addition as you know, 2 other
members of the official Opposition Front Bench serving on the
Research and Publicity Committees.

EMPIRE INDUSTRIAL ORGANIZATION

I have, from time to time, let you know of the way in which
certain people in this country are beginning to take an interest
in the idea of discussions between the leaders of British and
Dominion industries with a view to some arrangements whereby the
competitive spirit, as between the British manufacturer and the
local manufacturer in the Dominions, may be eliminated and
amicable arrangements arrived at for cooperation based on the idea
that the Dominions are certain gradually to develop their
manufactures but that it is desirable that that development should
be carried out in such a way as to inflict the least possible
burden on the primary producers of the Dominions and as little
disorganization as possible in British industry.

The British iron and steel people are very anxious indeed to see
some such discussion initiated as between themselves and the iron
and steel manufacturers in Australia. I think it would be very
valuable if you would be good enough to let me have some
indication of your views on this matter. Do you, for instance,
think it at all possible that this subject might form an item on
the Agenda of the next Imperial Conference? If so, do you, in the
meantime, see any objection to an organization such as, for
instance, the British Iron & Steel Federation initiating
discussions with the Broken Hill Proprietary Co.? [9]

The subject is of so great interest that I propose to put together
such ideas as I have in the form of a memorandum which I hope you
will find of interest. I personally feel that it ought to be
possible to find some means whereby, through amicable arrangements
between the British and the Dominion manufacturer, many of the
difficulties confronting Australia in regard to the extremely high
levels of the tariff might be overcome without raising all the
political obstacles which are obvious to me and which must be much
more present to your mind.

BRITISH TRADE

This morning's 'Times' contains the preliminary trade figures for
the month of December 1927 and for the year. You will perhaps
remember that the November figures showed a really substantial
improvement in British exports. This improvement has not been
maintained in December, the value of British exports being 11 1/2
million less than in November and 6 millions less than in
December 1925.

So far as the year is concerned, British exports naturally show an
improvement for 1926 when the coal stoppage profoundly affected
the trade of the country. 1927 shows a total of 709 millions
worth of British exports as against 653 millions worth in 1926
but in 1925 the total reached 773 millions worth, so that even
after making an allowance for the decline in price levels, 1927
shows no improvement over 1925. The adverse balances of visible
imports over visible exports for the last three years are as
follows:

mill.

1925 383

1926 474

1927 391
I imagine that, when the Board of Trade has fully taken into
consideration all the forms of invisible exports, it will be found
that in 1927 there was no favorable balance in the trade of this
country.

One of the most striking features of British trade recently has
been the growth of the imports of manufactured goods. I have
prepared a table, a copy of which I enclose, which shows that the
ratio of imported manufactures to manufactured exports has passed
50% in 1925 and for 1927 has reached the very formidable ratio of
57.2. I think you should look at this table rather carefully.

12th January

IMPERIAL ECONOMIC COMMITTEE

I have just received your cable of today's date, in which you
reply to my cable of the 7th January, saying that you concur in
the idea of the appointment of a second Australian representative
for the Main Session and will advise me later. You do not,
however, reply to my suggestion that Faraker should act as an
alternate. It is, of course, possible that you do not desire to
see any closer connection between the official Australia House
organization and the Imperial Economic Committee. Should this
prove to be the case, I can quite understand that you did not wish
to express this view in a cable. I know that you are aware of my
appreciation of Faraker's ability and you will understand that I
should find him very useful.

If the fact that you did not mention my suggestion in regard to
Faraker in your cable is not caused by any question of policy but
is simply due to the fact that you want to consider the matter
more fully, then I should be very much obliged if, on receipt of
this letter, you would send me a cable indicating your views. If,
on the other hand, it is due to policy then I shall understand
that if I do not receive a cable within, say, a week of the date
when this letter should reach you, I shall regard the question of
the use of Faraker as an alternate as one which you do not desire
raised again. [10]

STANDARDIZATION

I enclose a copy of the letter from Julius [11] to Sir Philip
CunliffeLister [12] which was, unfortunately, omitted from my last
week's letter.

Yours sincerely,
F. L. MCDOUGALL