Cablegram unnumbered CANBERRA, 23 October 1945
MOST SECRET IMMEDIATE PERSONAL
1. With reference to the Anglo-American negotiations now proceeding in Washington, I should like to supplement by a personal message to you my Government’s telegram No. 352 [1] of today’s date which has been sent in reply to Dominions Office telegram D.1909. [2]
2. I am deeply conscious of the external financial problems of the United Kingdom and I hope the Washington talks will result in financial aid on a basis acceptable to you. I realise that without satisfactory financial arrangements the United Kingdom may have to make prolonged use of exchange control, limitation of dollar imports and other restrictive measures which will hinder the improvement of standards of living not only in the United Kingdom but also in all countries of the sterling area.
3. It seems to me, therefore, that there are two undeniable justifications for financial aid to the United Kingdom:-
(a) The exhaustion for purposes of waging war on behalf of the Allies of her external financial resources prior to Lend-Lease, and (b) With external assistance the United Kingdom will contribute substantially to the restoration of world trade and the United States herself will benefit materially as a consequence.
4. My examination of D.1909 and other advices relating to those talks makes me feel, however, that the United States negotiators are adopting pressure tactics and in particular using the question of financial aid to force conditions on the preference issue, involving the Dominions, before commercial talks are opened up on a governmental plane. I appreciate the desire of the United States negotiators to be in a position for political reasons to reassure Congress on the preference issue but this question is subject to equally strong political feelings in Australia and no doubt in other Empire countries.
5. The Australian Government is fully prepared to join in commercial policy negotiations with the sincere desire to contribute to their success, but it can only do so on the basis of making concessions in return for equivalent reciprocal concessions on the part of other countries, particularly the United States, which will enable trade, employment and living standards in Australia to be maintained and improved. I envisage difficulties, however, in obtaining from the United States those concessions which will make it possible for Australia to reduce tariffs and preferences along the lines desired by the United States Government and, after careful consideration of all the circumstances including the fact that Australia is not represented in either the financial aid talks or the commercial policy talks, I am unwilling that Australia at this stage should commit itself on the question of Imperial preference.
6. My examination of developments in the Washington negotiations also makes me feel that the United States negotiators do not sufficiently appreciate the justifications for financial aid which I have mentioned above particularly (b). Nor do they appear to recognise sufficiently that substantial tariff concessions by the United States in return for concessions by other countries are an essential part of any programme aimed at the expansion of world trade and employment in default of which the balance of payments problem with the United States is unlikely to be solved without continuing financial aid.
7. Accordingly I feel that the sterling area should surrender its currency and trade defences only in return for fully equivalent action on the part of the United States. The danger is that if we accept United States conditions at this stage we should have made commitments in anticipation of action by the United States which may not be taken.
8. In conclusion I would add that I am deeply conscious of the close community of interests which exists between members of the sterling area in these matters and if, in the last resort, the present negotiations in Washington result in financial and commercial proposals which, although they would mitigate immediate difficulties, merely postpone the main issues you may prefer to make a new approach to the balance of payments problem with the United States. I appreciate that the alternative of working out a solution primarily within the sterling area without assistance from the United States involves the hard way, particularly for the United Kingdom, and serious consideration would have to be given to the difficulties before reaching a decision. If, however, the negotiations with the United States do not offer a satisfactory solution of the problem I feel sure you could rely on the Australian Government co-operating with the United Kingdom and the rest of the sterling area in seeking a solution and Australia would accept the disabilities that would follow a reduction in dollar imports. If the Americans were made to appreciate the possibilities of this alternative and their responsibility for it they might be disposed to take a more generous view of their responsibilities in the financial and commercial policy fields.
_
1 On file AA : A1066, ER45/1/5.
2 See Document 316, note 3.
_
[AA : A3196, 1945, FOLDER, OUTWARDS MOST SECRET, 0.27140/41/35/36]