454 Mr D. Acheson, U.S. Assistant Secretary of State, to Mr R. G. Menzies, Prime Minister (in Los Angeles)

Letter WASHINGTON, 14 May 1941

CONFIDENTIAL

I was very pleased to have the opportunity on May 12 to discuss with you the desirability of utilizing the present favorable situation for placing our commercial relations on a more permanently satisfactory basis.

I feel strongly that every effort should now be made to work out a mutually beneficial plan which, in addition to contributing to the solution of certain wartime economic problems, would also help to stabilize conditions after the war and avoid the extremes to which proponents of excessive national self-sufficiency, and perhaps of discriminatory policies, may attempt to go. In this connection I mentioned to you the possibility of negotiating a trade agreement.

In compliance with your request, I shall briefly outline the possible general scope of such an agreement and some suggestions regarding procedure.

Cooperation between the Governments of the United States, the United Kingdom and Canada made possible the negotiation of the mutually satisfactory agreements signed on November 17, 1938, involving, among other things, the modification of certain tariff preferences accorded by Canada to the United Kingdom and certain tariff preferences accorded by the United Kingdom to Canada. We envisage a similar approach at this time. An agreement between the United States and Australia would naturally require schedules of concessions by both parties. The Government of Australia doubtless would be interested in the possibility of obtaining reductions in United States duties on Australia's important export products. My Government would be interested in obtaining reductions in the margins of tariff preferences accorded by Australia to certain products of various parts of the British Empire, and the reduction of the absolute level of the Australian tariff on a few products such as lumber. While it is realized that Australia has made commitments to other British Governments to maintain various margins of preference, it is believed that the United Kingdom Government, for example, might be willing to waive its preferences in Australia to the extent of making possible a satisfactory United States-Australian trade agreement, if Australia likewise agreed to such reductions of preferences accorded its products in the United Kingdom market as would make possible a satisfactory supplementary trade agreement between the United States and the United Kingdom.

In negotiating trade agreements during wartime, account must of course be taken of wartime conditions and the uncertainty regarding the post-war economic situation. However, provision can be made for various contingencies by incorporating suitable 'escape' clauses in an agreement. For example, under the 'wartime escape clause' in the United States-United Kingdom agreement, the United Kingdom has introduced temporary import restrictions on American products included in the agreement without contravening the terms of the agreement. Any United States-Australian agreement would of course contain a similar clause. As another example, some provision would probably have to be made to permit action necessary in order to meet foreign-exchange emergencies. Possibly the best way to provide for the adjustment of the agreement to changing conditions would be to set up for the purpose a mixed commission on which both governments would be represented.

Preliminary study in the State Department suggests that a basis might be found for the negotiation of a significant trade agreement between our two countries. I believe that the most satisfactory way of verifying this and of making progress toward possible negotiations is for both parties to get together in confidential exploratory conversations and examine together the detailed facts involved. Formal exchanges of views between the two Governments, in the absence of such conversations, probably would be so general that they would not be very helpful. In contrast, a joint factual examination might well result in a fairly simple solution of problems which in the abstract appear to be extremely complex. While informal exploratory talks would naturally have to be on an ad referendum basis so as to insure that the highest quarters in both Governments are in agreement with the possible content of an agreement, I feel certain that both our Governments would be in a better position to judge the situation after exploratory talks had reduced the generalities into comparatively definite terms.

It is therefore suggested that you designate officials of your Government to explore the possibilities of a trade agreement with American officials at Washington. It must be emphasized that such exploratory conversations would have to be highly confidential. It would be extremely unfortunate for there to be any intimation that our Governments are even considering the possibility of a trade agreement, until there is the maximum possible assurance that negotiations for such an agreement would be promptly and successfully concluded. I should also mention that United States trade-agreement procedure requires that public notice be given of intention to negotiate and that an opportunity be given to all interested parties to express their views in writing and at public hearings prior to the undertaking of any definitive negotiations or any definite commitments.

On a previous occasion when similar exploratory discussions of a highly confidential character were undertaken, they were handled for your Government by the Australian Trade Commissioner, Mr.

Macgregor, who was already here and whose frequent visits to the Department could easily be accounted for on other grounds. If, however, you consider it preferable to send representatives from Australia, it is suggested that the mission should have some other stated purpose so as to minimize publicity.

In view of the scope of the Empire preferences and their relation to a possible United States-Australian agreement, it seems obvious that such an agreement could be considerably more comprehensive if the United States negotiated simultaneously with other British Empire Governments, such as the Governments of the United Kingdom, New Zealand and the Union of South Africa. However, there appears to be no reason on this account for delaying confidential exploratory talks between representatives of our two Governments.

In fact, concrete progress in United States-Australian exploratory conversations would tend to expedite and facilitate possible simultaneous negotiations with other British countries. You know, of course, that confidential discussions regarding the possibility of a supplementary trade agreement between the United States and the United Kingdom have been in progress for some time.

In closing, I should like to emphasize again my concern regarding the basically unsatisfactory state of commercial relations between the United States and Australia and my conviction that the present uniquely favorable conditions for rectifying the situation should not be allowed to pass without the most serious efforts being made to reach an understanding. It would have been most unfortunate if the acrimony engendered by the state of virtual 'trade war' between our countries during 1936 and 1937 had not subsided prior to the outbreak of the present war.

I wish to express my pleasure at having had the opportunity of meeting you and discussing questions of mutual interest. Mr. Hull [1] has requested that I take this opportunity to reiterate his, as well as my own, best personal wishes.

DEAN ACHESON

1 U.S. Secretary of State.

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