My dear Prime Minister,

PREFERENCES AND THE IMPERIAL CONFERENCE

The 12,000 miles distance between London and Australia becomes
painfully emphasized when one considers the different reactions in
Australia and in London on Philip Snowden's [1] speech. Here his
remark about the sweeping away of food duties was taken merely as
a pious aspiration but in Australia, South Africa and Canada it
has been taken at its face value and has apparently caused the
greatest concern. [2]

There can be no doubt that your telegram [3] has had a profoundly
disquieting effect upon members of the Government. I was amused to
hear from Duckham [4], Ernest Clark [5] and Malcolm [6] that, in
an interview which they had on Monday with Lord Passfield [7] and
Graham [8], the President of the Board of Trade, Graham was
anxious to explain that Snowden's words must be regarded as an
expression of his own intense free trade faith, while Passfield
airily remarked that to talk about abolishing the food taxes and
to induce the House of Commons to provide the necessary finance to
make that possible were two very different things.

Following your cable to Casey [9] about my receiving a copy of
your telegram to the Dominions Office, I got Casey to show me a
copy, although I have not yet heard from the Dominions Office
about the cable. May I say at once that I unreservedly agree with
both the manner and the matter of your cable and should like also
to say that I do not think it could have been more effectively
expressed. I very much hope that the Labour Government will give
you some assurance that they do not propose to interfere with the
preferences which are of value to Australia until after discussion
of the whole Imperial economic problem at the Imperial Economic
and Imperial Conferences.

I have now ascertained what would be the cost to the Exchequer of
the abolition of the sugar and dried fruit taxes. The complete
abolition of the sugar tax would involve a loss of revenue of
20,000,000. If, alternatively, the duty was reduced from the
present margin of preference and Empire sugar was admitted free so
as to maintain the monetary value of preference, such action would
cost the Exchequer approximately 14,000,000.

In regard to the dried fruit duties, their repeal would cost half-
a-million pounds.

The repeal of the wine duties-which is not, I think, even
contemplated-would cost between 4,000,000 and 5,000,000.

While on the subject of preferences, I should mention that
the'Times' asked me to write them something about the subject and
I have sent them about a column article which has not yet been
published but of which I enclose a typescript copy. You will
perhaps be interested to see that I have been able to trace the
dried fruit duties back to 1709 and to show that it is probable
that the British Treasury has been in receipt of revenue from the
taxation of dried fruits ever since the time of Elizabeth. I have
also brought out the point that there was a 50% preference on
dried fruits from 1817 to 1853 and that the people who abolished
the preference had also despaired of the Empire. I think that
these two pieces of information ought to prove of very
considerable value in discouraging any malign intentions on
Snowden's part.

With regard to your cable No. 18 of the 16th July to Casey in
reply to his No. 30 from me [10], I quite understand that you will
wish to await further developments before deciding as to whether
there should be an Imperial Economic Conference in addition to the
Imperial Conference, but the point I am keenest about is that if
there should be an Imperial Economic Conference, it must be
attended by Prime Ministers. I feel quite sure that no one else
will have sufficient authority to deal with the British Government
in the firm way that may be necessary. I would also point out that
the interest in Empire economic affairs has become so keen in
Great Britain as a result, first, of the steady educational
publicity of the Empire Marketing Board and then latterly by the
interest aroused here by the reactions of the Dominions to the
proposed American Tariff, that an Imperial Economic Conference
held in London will, on this occasion, create the most
extraordinary interest and it seems also obvious that such a
Conference will give you the opportunity of your whole career. It
seems almost certain that you would be the great figure of the
Conference and that you might be able to achieve many of the
objectives for which we have been working so long.

EMPIRE FREE TRADE

Beaverbrook [11] and his various journals continue to make Empire
free trade the dominating feature of each issue. Day after day the
subject is brought up with streaming head lines and statements
made by comparatively insignificant people are given tremendous
publicity, provided they are in favour of the idea.

On Sunday last the 'Sunday Express' published an article by
Melchett [12], of which I enclose a copy. There is, of course, a
great deal to be said for a movement towards freer Empire trade
through mergers and Empire cartels. This is really the same idea
as the one which I developed some eighteen months ago in my
memorandum on the 'Rationalisation of Industries on an Empire
basis'. I am enclosing a copy of Garvin's [13] general comments on
the position from last Sunday's 'Observer'. I am also incidentally
enclosing a copy of the 'New York Herald Tribune' which contains a
most interesting article by Dr. Julius Klein [14] on the
importance of the Colonies to European Countries and particularly
to Great Britain.

ECONOMIC MISSION

Yesterday a meeting was held attended by the members of the
Mission, except Hugo Hirst [15], who again has gout, and by Oscar
Thompson [16] and Colonel Manning [17], to discuss the memorandum
prepared by Gepp [18] as a result of discussions with Oscar
Thompson. The main point that arose was what action ought to be
taken in order to get an amendment to the 34 million Agreement
[19] so as to make money under the Agreement available for the
application of the ascertained results of science to the primary
industries of Australia.

After some discussion in which Oscar Thompson and members of the
Mission all stated that they felt sure that any request received
from Australia for assistance along these lines would be
sympathetically regarded by the new Government, I made the point
that this, in my opinion, was not enough. I said that if piecemeal
requests arrived from Australia for various types of assistance,
the impression which was already fairly definitely held at the
Treasury that Australia was rather grasping would be confirmed.

Although the idea was completely unsound, having regard to the
balances of preference and other factors as between Great Britain
and Australia, yet an unsatisfactory atmosphere would almost
inevitably arise. I therefore suggested that some action should be
taken whereby the British Government should notify the
Commonwealth Government that the submission of schemes of
cooperation in the practical attack of improving the general
productive efficiency of primary industries would be warmly
welcomed and that the suggestion should further be made that
Australia should consider the preparation of a scheme under the 34
million Agreement. I urged that if the initiative came from Great
Britain, the psychological effect would be much better than
through piecemeal requests from our side.

After some discussion, there was unanimous agreement on this point
of view and it was decided that Oscar Thompson should raise the
matter with the Overseas Settlement Department [20], assured of
the strong support and backing of the Economic Mission in doing
so.

MR. AMERY [21]

One of the consequences of Amery's speech on Safeguarding and
Imperial Preference to the Amendment of the Address in Reply has
been that suggestions are very current that he should retire from
the Front Opposition Bench and take a seat in the Back Benches if
he really intends to raise the banner of full blooded protection.

I had a request from Amery to go and see him and on Monday we
spent an hour on the terrace of the House of Commons. Amery said
that he particularly wanted to get my general point of view on his
speech.

I told him that I thought that the line which he had taken in
appealing to the less doctrinaire members of the Labour Party to
cooperate in practical schemes for industry in Great Britain and
for Empire Development was extremely sound but I went on to say
that I thought he had made a serious mistake, from an Empire point
of view, in stressing full blooded protection and preference as
the only possible solution. I said that I thought that if he
nailed the protectionist flag to the mast and insisted on sailing
under that and no other colours, he would put back the clock of
Imperial economic cooperation for at least five years.

Amery asked me why I felt so convinced that he would not be able
to secure adequate support in the country to make the adoption of
his plans feasible.

It was obvious that I could not reply that I did not think he had
a sufficient personality to put it over but I was able to give him
a reply which, I am convinced, he found effective. I said that if
he nailed the flag to the mast, he would be supported by the most
unintelligent members of the Conservative Party.

Amery looked a little crestfallen when I said this but after some
thought he was reluctantly forced to agree. He went on to say that
the trouble was that the younger and more intelligent
Conservatives had all been brought up in an atmosphere in which
free trade philosophy had been dominant and that he recognised
that it would take a very great deal of time and work to convince
them that the central basis of their economic thought was unsound.

I very strongly urged him to adopt a somewhat different platform.

I told him that I was convinced that if he and Neville Chamberlain
[22] conjointly declared that now that all Parties had definitely
accepted Imperial economic cooperation as the National policy, the
problem before practical people was to find the right solution of
each separate marketing problem as and when it arose; that he
could go on to say that he personally believed that the tariff
method was the simplest and the easiest but even on the tariff
method, there was no need to consider a general tariff on
foodstuffs and raw materials in order to give preference because,
at the present time, some of the foodstuffs and raw materials
produced by the Dominions were not in need of preferential
assistance. On the other hand there were a number of commodities
being produced in the Dominions in which the entrenched position
of the foreign competitor was so strong that some form of direct
assistance was essential if the Dominions were to be successful in
marketing those products in the United Kingdom. He should then
appeal for a spirit of cooperation in dealing with the marketing
problems of these special commodities and suggest that, on the one
hand, those with a strong tendency towards free trade should not
irrevocably bar fiscal methods of solution where that solution was
the most practical, the simplest and the best but that he and his
friend, on the other hand, were quite prepared sympathetically to
examine any alternative to preference, such as, for instance, a
bulk purchase system based not on State trading but on British
Government support to an amalgamation of all traders, provided
those traders would make long term contracts to the Dominions for
their products.

At the end of our talk, Amery said that he thought that I was
right in regard to the Empire Development side of the problem. He
was, however, still inclined to think that it would be possible in
a really strenuous campaign to carry the electors so far as
industrial protection where a home industry was concerned.

I replied that on that subject I did not profess to be able to
form any sound opinion but that I felt that I ought to beg him not
to confound, in the public mind, the question of the protection of
local manufacturing industries with the wider and more important
question of Empire economic cooperation and development.

EMPIRE MARKETING BOARD

Yesterday the first meeting of the Empire Marketing Board under
the new Government occurred and I must say that the general
attitude of Passfield, Drummond Shiels [23], the new Chairman of
the Research Grants Committee, and William Lunn [24], the new
Chairman of the Publicity Committee, was very satisfactory.

Apart from the routine business, I raised an important point. I
referred to the statement of the House that the Government
intended to give the Empire Marketing Board a statutory basis. I
asked the Chairman [25] whether he would explain what he meant and
added that if he had only meant that the Government will ask
Parliament for a permanent and statutory backing to the grant of
1,000,000 per annum for the E.M.B. that would be extremely
satisfactory but if, as one imagined might be the case, the
underlying idea was to lay down rigidly the terms of reference to
the Board and thus to subject the Board to a larger degree of
Treasury control, I urged that any such action should be postponed
until after the Prime Ministers of the Empire had had an
opportunity of discussing the work and scope of the Board at the
next Imperial Conference.

Passfield, in reply, said, firstly, that he really thought that
Mr. Thomas had not quite clearly understood what he himself meant
when he talked about a statutory basis for the Board and,
secondly, promised to give the closest consideration to the
suggestion that any delimitation of the Board's activities ought
to await a discussion at the Imperial Conference.

I am sure that you will realise that, with the economic situation
following up in the way it has done in the last fortnight, and
also with the Imperial Economic Committee now working very hard to
complete its important report on Pig Products and also with the
Empire Marketing Board again in full swing, my time has been
extremely fully occupied. For the last fortnight I have been
working until early hours every day and under these circumstances
it has been quite impossible for me to complete the report on the
work of the Imperial Economic Committee and the Empire Marketing
Board, which I had hoped to forward to you as soon as the
Government's position in regard to the E.M.B. was clear.

I should like to make this letter fuller but that is impossible at
the present moment.

Yours sincerely,
F. L. MCDOUGALL