The main factors underlying my previous advice that it would be wise to defer a decision on membership of the International Monetary Fund were- (1) the conviction that the International Monetary Fund and the I.T.O. agreement were closely inter-related and indeed formed two parts of a single plan;
(2) the main issue involved in membership of the International Monetary Fund was the sacrifice of certain freedom of action in relation to the right to alter the exchange rate. Our capacity to accept this limitation in return for the benefits of the Fund was dependent upon the degree of freedom which would be left to us under the International Trade Organisation to deal with balance of payments difficulties by quantitative regulation of imports;
(3) that delay in reaching a decision involved no loss to Australia and might strengthen our bargaining position both in relation to the International Monetary Fund and the I.T.O.
I offer the following comments in the light of the prospective outcome of the present discussions.  To some extent these must be based on our judgment of how far certain revised draft proposals now before the Committees will be accepted by the United States.
(1) The discussions here have confirmed the unity of the Monetary Fund and the Trade Organisation proposals. At all stages in the discussion the status of the Fund in matters relating to the balance of payments has been fully recognised, and it is clear that the intention is for the Trade Organisation to accept the judgment and authority of the Fund in all such matters. A possible outcome, therefore, of a decision to enter the Trade Organisation without being a member of the Monetary Fund might be that we would find ourselves accepting by implication the obligations under the Fund and the authority of the Fund's organisation without participating in its benefits.
I am still of the opinion, therefore, that the completely logical procedure would be to delay a decision on joining the Monetary Fund until we could make a decision on both issues at once, particularly as it seems practically certain that we will receive little, if any, support on the Preparatory Committee for separate membership. However, while this would be logical, I am not certain that it would be wise. So far we have been able to defer a decision on the International Monetary Fund without cost, and, indeed, with advantage to ourselves. Unless we join now, we will lose the advantage of certainty as to the terms on which we would enter the Fund, and apparently the prospect of appointing an Executive Director, and thus being able to influence the activities of the Fund. In view of the fact that the United Kingdom is at least as likely to be exposed to balance of payments problems as Australia, that the domestic, social and economic policies of the two Governments are similar, and that there is increasing recognition of the importance of full employment and other domestic policies affecting international demand, there does seem to be an opportunity to establish practices and policies in the operation of the Fund more favourable to our point of view than might otherwise have been possible. If we do not join now, a decision should be left until the completion of the work of the Preparatory Committee probably about August next year;
(2) While it is still not certain, it appears likely that the provisions enabling the application of quantitative restrictions for safeguarding the balance of payments will be reasonably satisfactory, although less completely so than we would have liked. For instance, it seems probable that a country will be free to impose quantitative restrictions on its own initiative to protect the balance of payments, although it seems likely that prior consultation will be required where practicable. In relation to the establishment of objective criteria, the best that seems likely is a provision that an individual country may, by agreement with the Organisation, establish objective criteria in advance to cover its own situation. Despite these deficiencies, however, I am inclined to feel that the balance of payments provisions will on the whole be sufficiently elastic for us to be able to accept membership of the Fund;
(3) Our experience here confirms the view that delay in becoming a member of the Fund has strengthened our bargaining position, and I believe that this advantage would continue, although I doubt whether we can press it much further, and whether we would not be paying an unduly high price for that bargaining advantage by abstaining from membership any longer.
Briefly, my view is that the real decision facing us is whether we will be parties to the general structure for international economic collaboration, and I believe that a decision to join the Fund would imply a general favourable decision, although, of course, we are not finally committed and, if the trade discussions proved unacceptable, we could withdraw from the Fund, although this might not be politically easy.
In considering the general position it seems to me the outstanding considerations are:-
(1) In the future the United Kingdom must be a more limited market, possibly contracting and faced with the necessity of being hard bargainers. It would be unwise to build economic plans based on the hope of expansion of the United Kingdom market;
(2) At the same time we have a very great interest in the maintenance of United Kingdom prosperity and capacity to buy;
(3) The most likely sources of expanding markets for Australia appear to be, in the short run, the United States if high levels of employment are maintained and tariffs on basic foodstuffs and raw materials are reduced, and, in the longer run, the rapidly industrialising Eastern countries, particularly India;
(4) We cannot hope to maintain in its present form the Imperial preferential system. Britain and Canada are pledged to its progressive elimination in return for reductions in the United States tariff and clearly have no intention of seeking to retain it.
At the present time the United Kingdom view is that their best chance of expanding their export income, and so their capacity to import, lies in international agreements directed towards full employment and reduction of import duties and other trade barriers, and they are pledged to test this view fully in practice. In the circumstances I think our interests in United Kingdom prosperity are sufficiently important for us to be prepared to give such a system a trial, although we should press for industrial development in under-developed areas as an additional major aim. I think this conclusion is valid even if we doubt whether U.K. can in fact achieve the expansion in export income for which they are hoping.
I believe there are good short-term prospects for Australian primary products such as meat, wool, butter, etc. on the United States market which will provide a basis for expansion in these industries, and I feel confident that if we take full advantage of the opportunities, Indian industrialisation can be a major factor in Australian prosperity for many years.
There will, no doubt, be features in the general structure of the international arrangements, e.g. modification of preference for certain primary industries, reductions of tariffs, which will present some difficulties. These, however, can probably be kept within reasonable limits and the capacity of our industries to stand a reduction in such protection is probably better now than ever before.
Generally, I suggest that you recommend to Cabinet- (1) that we accept membership of the International Monetary Fund, recognising that this implies probable participation in the I.T.O.;
(2) that the United Kingdom and other interested parties should be informed that we are still of the opinion that the Fund and the I.T.O. are so closely integrated that we would have preferred to delay joining the Fund until the discussions relating to trade and employment were completed, but that since December has been fixed as the latest date for joining on the original terms, we have made the decision now, but we may wish to review the matter when the trade and employment discussions are complete.
In view of the fact that it has been stated that our reasons for deferring a decision to join was the need to have a clearer understanding of the I.T.O. proposals insofar as they affect action to protect the balance of payments, it would, in my opinion, be advisable to defer any announcement of a decision until after the conclusion of the talks here this week.