My dear Prime Minister,

Yesterday evening I met Neville Chamberlain [1] in the House of
Commons and we went on the Terrace and had about an hour and a
quarter's conversation, which proved extremely interesting.

I first of all emphasised to Chamberlain the extraordinary
opportunity that existed at the present moment in regard to the
development of the idea of Inter-Imperial economic cooperation. He
immediately agreed and said that he thought that at no time since
his father's [2] great campaign had the opportunity been so great.

I then went on to say that I was really anxious lest stupid
speeches, such as the one made by Snowden [3] in the House of
Commons, or the ill-considered advocacy of free trade within the
Empire based on food taxes on wheat and meat in this country and
the abolition of tariffs against British manufactures in the
Dominions, might spoil the opportunity which existed. To my very
great relief, I found that Chamberlain agreed completely on both
points. He told me that he made his speech [4], which aroused so
much interest, without any knowledge that Beaverbrook [5] had
started a campaign for free trade within the Empire. He reminded
me of his use of the phrase that 'the Tory Party were now relieved
of all their pledges and could start again with a clean slate' but
he went on to say that he thought that the question of what was to
be written on the slate was a matter of the greatest importance
but also one that required the most careful thought.

We then discussed the general position. I suggested to Chamberlain
that the proper line of country was to definitely claim that
Inter-Imperial economic cooperation was an agreed policy of Great
Britain and that it had now become the national policy. The
important thing to do was to get down to practical methods whereby
the national objective could be put into operation. I said that I
thought if he, with his position and authority, were to make or
statement that, although he believed that the tariff method was
the best, he and his friends refused to insist that Empire
economic cooperation could only be achieved through protection and
preference and would be prepared to examine every feasible
alternative, it would be a gesture which would have a profound
effect and would materially help towards a really satisfactory and
improved Imperial Economic Conference.

Chamberlain said that he would certainly consider that idea and
discuss it with his friends. He then went on to say something that
I thought was profoundly true. He said that he had become
convinced that the fiscal controversy had gone on so long in
England that people were fundamentally bored with it. A
protectionist would make a definite statement supported by facts
and figures; he would immediately be followed by some free trader
with an equally defined statement also supported by facts and
figures and the general attitude of the country was a 'plague on
both your houses'. The same attitude of mind affected a very large
number of the members of the House of Commons. As a result, he
could not but regard the prospect of the success of a whole-
hogging protectionist campaign as being very dubious and at the
least a very difficult and tedious job. He further felt that not
only as regards Empire Development but also as regards British
industry, it was essential to examine the position afresh and see
to what extent the question could be restated. He felt that the
future of British industry and British agriculture all depended
upon their problems being envisaged and stated in Imperial terms.

He then went on to tell me that he had been discussing these
questions during the last week with Baldwin [6] and that they both
saw eye to eye on the subject, so much so that Baldwin had asked
him to assume the leadership of a Committee of the Party to frame
the new policy in regard to Imperial trade and also industrial
matters. This I regarded as being very interesting news because it
definitely marks the cleavage between Amery [7] and the rest of
the members of the ex-Government. Personally I very much hope that
Amery will come round and see how much better it is to cooperate
along lines that afford a reasonable prospect of success rather
than to attempt to rush the country once again with a whole-
hogging protectionist programme.

Chamberlain then talked about bulk purchase and said that, for his
part, he was perfectly prepared to examine the matter thoroughly.

I then said that I felt pretty certain that, if the Tory Party
really intended, next time they were in power, to carry out a real
policy of Empire cooperation, it was essential that they should
place at the Exchequer a Chancellor who would be fundamentally
sympathetic with Empire economic cooperation and Empire
development. I pointed out that the Treasury was profoundly
indifferent to Empire considerations. To this Chamberlain agreed
and went on to say that, while he realised the force and
significance of the point that I had just made, I should also
recognise the political difficulties.

Chamberlain then raised the question of the possibility of
Commercial Treaties between Great Britain and the Dominions. I
told him that you were also very interested in the idea. [8] He
said that he thought it was quite possible that Great Britain
could be induced to agree to certain fiscal preferences as a part
of a Commercial Treaty which we would not agree to unless the
matter was dearly stated in treaty form. He went on to say that he
did not, of course, include any idea of taxes on wheat or meat. I
pointed out the misleading effect of lumping large categories of
commodities together by illustrating the position in regard to
meat. I said that, at the present time, the export of mutton and
lamb from New Zealand required no assistance from Great Britain
but that New Zealand, Australia and South Africa would all be
greatly benefited if some action could be taken to assist the
marketing of beef. I then pointed out that if any bulk purchase
schemes were to be really brought forward, some form of guarantee
from the Treasury would be essential. I also made the suggestion
that Great Britain in order to find a method of reciprocity (to be
incorporated in a Trade Treaty) might, in so far as she was
politically unable to put up tariff preferences, promise a money
contribution to the marketing of the Dominion's goods in question;

the money to be used in such a way as might be deemed most
expedient to assure to the Dominion goods privileged access to the
British market.

Chamberlain thought this was a happy idea but I went on to say
that its feasibility and importance would depend to, a very great
extent upon whether Great Britain felt it necessary to apply Most-
Favoured-Nation terms to all parts of the Empire.

Chamberlain said that he thought that that would be essential on
any new tariff preferences that might become possible but that, if
the idea of a money contribution was established, it would be well
worth considering whether that could be made with one Dominion as
the result of a Trade Treaty rather than with the whole of the
overseas Empire.

Finally Chamberlain assured me that he was going to devote himself
to a very considerable extent in the autumn to the consideration
of these problems. He hoped to form a really sound Committee and I
suggested that on that Committee he should get Hilton Young [9],
Walter Elliot [10] and Ormsby-Gore. [11] He agreed but said that
he was not aware that Hilton Young was particularly interested in
the Empire. I assured him that he was and he said that he was very
glad to know it. He said that he hoped to ask me to meet his
Committee once or twice during the autumn and that, when the
Imperial Conference did take place, his Committee could
unofficially meet you and other Dominion Prime Ministers.

Yours sincerely,
F. L. MCDOUGALL