Your telegram 440 of 4th December. 
1. United Kingdom Government have given very careful consideration to the important matters you raise and they welcome the opportunity of commenting on general issues involved in regard to the future of Australian Import Licensing Policy. They particularly appreciate and are in full accord with the view expressed in your last paragraph as to the desirability of co- operation between our two countries so that a mutually beneficial solution of these problems may be found.
2. We are not, of course, in a position to comment on the detailed figures of the estimate of Australia's balance of payments in the period 1/7/1945 to 30/6/1947.  The only contribution we are able to make to your calculations on this point is a very tentative estimate of the future course of United Kingdom export prices. The disproportionate rise during the war in the price of manufactured goods as compared with the price of raw materials and food stuffs has, of course, been due in large measure to the diversion of industry to the production of munitions of war. in general, therefore, as industry is reconverted to civilian production it is reasonable to expect that the prices of manufactured goods will fall relative to the prices of primary products.
As regards price trends in the immediate future, it appears unlikely that prices of textile goods will fall over the next six months or even over the next year, but the Australian index of import prices of machinery should fall significantly for two reasons- (a) It is based on the price per ton and is now unduly inflated because of the very high proportion of spare parts included in United Kingdom exports to Australia; when the composition of the trade becomes more normal the greater proportion of complete machines will reduce the price per ton.
(b) As United Kingdom industry turns over from small-batch production to longer runs, economies in cost will be effected which will probably result in a trend to lower export prices.
3. If, on the basis of their estimates of their balance of payments position in the near future, the Commonwealth Government consider it necessary, in order to safeguard their overseas balances, to maintain their import licensing system over the next two years there are certain general observations we would wish to offer which we are sure will be common ground between us.
4. We feel that it is desirable that measures of import control which may be considered necessary in present circumstances should be framed and operated with due consideration of the provisions relating to quantitative trade restrictions in the proposals for consideration by an international conference on trade and employment, recently issued by the United States Government. The rules governing the use of such restrictions and, in particular, the conditions in which their use by members confronted with an adverse balance of payments should be permitted, are for discussion at the conference of drafting countries and we hope to have an opportunity of exchanging views on this subject at the preliminary discussions between the Commonwealth countries.  Quantitative restrictions have, in the past, been abused by many countries to the great detriment of the trade of Commonwealth countries and we are anxious to avoid anything which might prejudice the chances of obtaining general agreement on provision against such abuse in the future.
5. We note with appreciation your recognition of the importance to the United Kingdom of its own export trade and we hope that you will be prepared to consider representations in specific cases from the United Kingdom Government regarding the incidence of Australian import control on United Kingdom exporting industries and that arrangements can be made for frequent consultations between His Majesty's Senior Trade Commissioner and Australian officials about particular cases which may come to the notice of either party. Quantitative restrictions of imports imposed as an emergency measure for balance of payments reasons, even if framed on the most liberal lines, compatible with the necessary limitations of external expenditure, will cause difficulties to individual traders and we are sure you will agree that regard should be had in determining the individual incidence of such restrictions to their repercussions on exporting interests affected and to their effect on the flow of trade in the longer term, when the emergency has passed. We feel that these considerations are particularly important at the present moment when the normal trade connections between our two countries, which have been broken for the last six years, are being re-knit. In particular, complete prohibitions of the import of particular articles tend to cause inconvenience and protests to a large degree, sometimes quite out of proportion to the importance of the trade affected, and we hope that these may be avoided as far as possible. Even quite small concession on each individual trade would, in our experience, relieve the pressure to a quite disproportionate extent. Quantitative import control imposed for balance of payments reasons often has, of course, incidental protective effect and local industries may come to rely on it and to oppose its removal when there are no longer balance of payments reasons for continuing to use it. We in the United Kingdom have had to make it clear in a number of cases that the protection thus afforded is purely temporary and that there can be no expectation that it will be maintained for any long period. A general warning to the same effect was given by the Commonwealth Minister of Trade and Customs in 1941, when, at the time that imports from the sterling area were brought under control, he stated that the restrictions were not in any sense to be regarded as protective measures for Australian industries, and we assume that this still represents the policy of the Commonwealth Government.
6. As to our export policy, we are arranging with individual industries a broad allocation of their output between domestic requirements and the requirements of export. Over a very wide range of goods, exporters have already been freed from control and are free to choose which orders to fulfil first. Manufacturers can, of course, be relied upon to see to those markets, such as Australia, with which they have had strong connections and from which they are hoping for a large volume of orders in the future, are not neglected. We hope to improve our service of informati[on] about individual markets so that we can give guidance when requested. This policy does not, of course, apply to those goods, of which textiles are the most important, for which world supply is so inadequate that for a time war time quota arrangements for particular markets must continue.
7. As regards your specific queries in the telegram under reference- I. This has been dealt with in paragraph  above.
II. As to the availability of goods before 30/6/1947, the best estimates we can give at present are as follows:
(a) Machinery and Metal Manufacturers: the output potential of the United Kingdom engineering industry has been expanded by the war as regards capacity and equipment. As soon as reconversion is complete this will be reflected in the availability of machinery and other metal manufacturers for export and for the year ending mid 1947 it is expected that the availability of these goods for export will be substantially greater than the quantities exported in 1938/39.
(I) Cotton Yarn. It is uncertain how long country allocations of United Kingdom exports through the non-munitions committee of the Commonwealth Supply Council will be continued but, as you will be aware from discussions in the Committee, from now on there is to be in addition to the country allocations an export pool to which no market direction is attached. Supplies for Australia should, in general, continue at least at present rate with some increase in 1947. In particular made-up goods and household textiles should be somewhat freer supply but while the United Kingdom industry remains unbalanced because of the spinning bottleneck there may be difficulty in increasing export of yarn or thread.
(II) Wool supplies should, taking into account both basic allocations and 'open' exports, continue to be available at something over the present rate.
(III) For rayon yarn, special provision has been made for Australia and additional supplies may be derived from the open export pool. Output of the industry is likely to increase considerably and supplies should be available at, say, 20 per cent more than current levels.
III. Quotas. We should not wish to embark on a policy of imposing quotas on the exports of goods from this country to Australia in order to limit imports into Australia.  As explained in paragraph 6 above, our general policy is to free exporters as rapidly and completely as possible from restrictions and it would not be administratively possible to retain such restrictions for a specific market.