London, 5 June 1967
Australia and the EEC
I am up against two points of difficulty with other Government Departments over the line we are to take with the Australians in our round of official talks which start tomorrow and the Ministerial talks with Mr Holt next week. I have now had the chance to obtain the views of the Secretary of State on both points, but one of them at any rate is likely to come up at the next meeting of the EUR(S) Committee1 which you attend.
Fall-back position in our talks with Australia
As you will know I take the view that there is quite a possibility that Australia may cut up very rough when she hears that we take the view that it will be impossible for us to secure for her any special arrangements extending beyond the transitional period for our entry into EEC. I have, therefore, proposed that if the Australians do make a big row and if they get widespread support in the British press and Parliament (as Malta did) on the ground that we are letting down our truest friends, we ought to be ready with some fall-back propositions designed to calm their wrath. I therefore suggested at the end of a draft brief for Ministers now being processed through EURO the inclusion of the following three possibilities (which were the only ones I could think of that might have any chance of Whitehall acceptance);
- (a) We might reconsider our line upon international commodity agreements to see whether there is any way by which, without impairing our prospects in the negotiations with the Six, we could go some way to meet Australia.
- (b) We might undertake to re-examine the possibility of persuading the Six to agree to longer transitional periods for some of the items of particular interest to Australia.
- (c) We might undertake to permit next year the resumption of normal direct investment in Australia which, according to our High Commissioner in Canberra, would go a long way to take the heat out of the Australian reaction on common market issues.2
As I expected, these suggestions met with a rough reception from all other Departments.
First the Treasury rejected (c) in toto. They disputed our High Commissioner’s view that a concession over investment would take much heat out of the Australian reaction; they said it would almost certainly create difficulties with the Six; they even saw prolongation of the restrictions on the flow of capital to Australia as being a factor which might help us with the Six. They would only concede that it ought to have been possible to resume direct investment in Australia before the date at which we actually enter EEC. They ended by reserving the Chancellor’s position. On this one I do not think it worth arguing any further in Whitehall.
As to (a) and (b), the rest of Whitehall would not mind our mentioning them provided that they were diluted and even then they would want to set out the objections to them[…]
I explained this situation to the Secretary of State and asked him whether he would prefer me to stand my ground at the present time so that the issue could come up clearly for Ministerial consideration or whether I should bow to the majority view. He preferred me to continue to fight my corner at the moment, so I shall do so.
[ matter omitted ]
1 Britain’s negotiating position in 1967 was developed through the work of three committees. EUR(M) was the Ministerial Committee on the Approach to Europe, set up to oversee the negotiations and chaired by Foreign Secretary George Brown. Supporting this committee at the official level was EUR(S): the Official Steering Committee on the Approach to Europe, chaired by Cabinet Secretary Burke Trend. EUR(S) in turn supervised EUR(O), the committee of officials working on Britain’s ‘conditions’ of membership.
2 This referred to the system of ‘voluntary’ controls on British investment in Australia that had been introduced in 1966. The idea was initially mooted in terms of a harsher regime of exchange restrictions during the 1966 Sterling crisis, as a response to the vexing problem of controlling outward capital flows, particularly to Australia, where the minerals boom was attracting a lot of interest. The strain on the UK balance of payments, according to the British Government, was such that even Australia’s large Sterling reserves were insufficient as a counterweight. As Chancellor, Callaghan was given the green light by Cabinet to sound Australia out on the idea of controlled restrictions in July 1966. This sparked a volley of protest from Australian Treasurer McMahon. Prime Minister Holt weighed in too, appealing directly to Wilson: ‘A course of action which would not fail to weaken our prospects of development must, in our judgement, react unfavourably on the United Kingdom also.’ McMahon was blunter, variously complaining about the ‘final tolling of the bell for the Sterling Area’ and asserting that Callaghan’s proposal would be tantamount to ‘Australia’s ejection from the Sterling Area’ and would ‘sever the last substantial link which has held the Sterling Area together’. In the light of this hostile reaction Callaghan backed down, but he managed to secure from the Australians agreement on a much watered-down version of ‘voluntary restrictions’ which was still in place in 1967. Holt sent Wilson a thank-you note referring, among other things, to ‘the abiding British interest in Australia’s economic and defence capacity and the role we play in this part of the world’ and the importance of ‘the presence in our communities of British executives … [which] helps towards keeping our relationship both warm and strong’. Nonetheless the system of voluntary restrictions remained an irritant, not least because their very existence raised the spectre of enforced restrictions, which in itself acted as a potential brake on overseas investment. See UKNA: PREM 13/829, Holt to Wilson, 21 April 1966; Callaghan to Wilson, 25 April 1966; McMahon to Callaghan, 21 April 1966; Holt to Wilson, 9 May 1966.
[UKNA: FCO 20/47]