For the past week we have been in continuous discussion with United States negotiators and [...]  Mr. Brown  leader of United States Delegation we have reached stage where matter must be submitted to Government.
Briefly, United States prepared offer in addition to offers already received  full 50% on beef, approximately a doubling of butter quota and its concentration in Southern Hemisphere season and a few improvements on minor items but require reduction to 11 1/2% on canned fruit in United Kingdom and to 2 cents on raisins in Canada. Their requirements on protective tariff present little difficulty. Details follow.
OUR REQUESTS ON UNITED STATES In addition to their responses already reported they now advise as follows.
Beef and veal, they meet our request of 3 cents. Butter, will confine quota to Southern Hemisphere season November to February or March thus limiting concession to ourselves and New Zealand and [...] will increase quota to figure to be negotiated with New Zealand. (A lot of discussion took place on the quota. They mentioned between 25 and 30,000 tons, we urged 50,000 our forecast would be around 40,000.) Eucalyptol and tennis racquets, they meet our request. Apples, 10% March and April and possibly May. Tallow declined on grounds Argentine principal supplier. Tungsten possible improvement of three cents only. Moutons they will improve their offer.
UNITED STATES REQUESTS ON AUSTRALIA Preferences We have resisted strongly on preferences. It is very clear indeed not only from their dealings with us but with United Kingdom (as our advices to you will have indicated) that they set more store by securing substantial cuts [...] preferences than in any other phase of the tariff revision which is involved in all the negotiations. They have retreated gradually and [...]
Proposals to eliminate all preferences on canned and dried fruits and subsequently for severe cuts, all of which we told them flatly were impossible. They have now said they must ask us put following to our Government.
Raisins in Canada 2 cents as against our concurrence in 1 cent.
Canned apricots, peaches and pears in United Kingdom 25% reduction in the margin (with offer of quarter per cent ad val[orem] ourway) that is eleven and half percent ad val against the twelve and half we concurred in. As an offset to the 2 cents in Canada they agree to the raising of the United Kingdom proposed rate of 8/6d on raisins, and to our making no reduction at all in prunes in Canada. They stipulated however, that they held [to] elimination of prunes in United Kingdom (in a last effort to relieve pressure on raisins in both United Kingdom and Canada we had put in elimination of prunes in both United Kingdom and Canada).
Canned Fruit Salad United Kingdom claim that of the Commonwealth countries they have greatest interest in this item (they make it up and can it from imported fruits). They have told United States they will agree to elimination.
COMMENTS Canned Fruits We did not admit validity of [...] on canned fruits for 25% reduction in United Kingdom and used all the arguments against it.
We did, when they finally retired from higher demands, find some difficulty in rebutting their constant reference to their 25% cut on wool and greater cuts on other agricultural items. Though we realise difficulty of the item on the Government, we would under all circumstances recommend that we meet their proposal.
Raisins We continued to resist this proposal until we were repeating our case over and over again. In course of final argument it became evident that this item is critical to United States. Winthrop Brown emphasised strong attitude of their Agriculture Department which felt Canada as natural United States market from which they had their producers completely driven out by the preference which has a very high ad val incidence. He said that he had a heavy struggle with his trade agreements committee in whittling away their demands on raisins and canned fruits preferences and he now felt that he had reached the limit, and from what we know of the men on this committee we believe this is so. Our main arguments were of course that [...] only down 25% there was no case for a reduction of a margin in such an important preference beyond 25% and that overall picture, that is the concessions in the United States tariff balanced against concessions in our tariff, plus reductions in preference margins we had already conceded, did not warrant any advance beyond 25% cut in the 4 cents. As against this they pointed out that the rate is a very high one (in years before the war 4 cents represented about 70% ad val and on present prices it is nearly 50%), that about 20% only in margin will be given up in best market (United Kingdom) against a 25% that might reasonably be claimed and that a 50% reduction on Canada would be less harmful to industry than a substantially lesser reduction in United Kingdom. In this connection it is a fact that in arriving at prices in Canada we have not availed ourselves of full 4 cents duty and could retain completely our present position of having practically all the market with a duty of 3 cents.
We have argued strongly the special difficulties of this request.
We have emphasised that fact that the industry grew up under preference, that it was established after the United States had closed her markets to us on wool, meat and butter and that the industries were concentrated and local. We have also emphasised the political factors involved. We have sought also to substitute offers on our tariff which might have been easier.
Brown has given evidence of genuine desire to help and we are satisfied that he has done his best with other Departmental officials. It is clear however that they regard it of greatest importance both in relation to our own agreement and in relation to Commonwealth preference question as whole. They are convinced that their claim is reasonable and we are satisfied that nothing more can be done.
Our own view would be that with raisins in Canada at three cents and the wool, beef and butter offers in their present form, the balance would have been in our favour but with raisins at two cents the balance swings in favour of United States. It is possible, however, that major developments in our trade in meat and butter with United States in the future may fully justify agreement but on present indications we would, from point of view of trade agreement alone, consider we were being asked pay too much.
In your T261 you advised that elimination of margins on canned fruit salad should not be concurred in. As stated here United Kingdom have taken view that this preference is predominantly theirs to [...] and we understand they are putting this view to South Africa the country whose interests [...] may be stated to come after United Kingdom. It seems to us we have not strong case for resisting proposal to eliminate and would recommend we make no protests.
We have gone over list of preferences to Colonies affected, and are of view that there is nothing in it to give us concern, and that therefore we might advise our acquiescence.
Canned fruit in New Zealand New Zealand representative now advises that his Government will not reduce Australian rate on peaches and in consequence he says he does not think they can agree to margin of 20%. He says he thinks America will agree to either a 12 1/2% Margin on apricots, pears and peaches or 10% on apricots and pears and 15% on peaches and pears which we prefer. Please confirm that Minister prefers former as indicated T261. For reasons given in ITO[...] we think latter more valuable to us though there is probably not much in it. We have to handle this a little gingerly with New Zealand as in their case the preference margins are not bound. They have shown every disposition to consult us however.
GENERAL CONSIDERATIONS Briefly if we accept United States offers we can gain- (A) In relation to wool security against possible increase in duties, lower starting point for subsequent negotiations and some improvement in long term prospects.
(B) Access to United States market for our major export foodstuffs, lamb, beef and butter.
(C) Some possibilities of trade expansion on number of minor items.
For these benefits we would be paying somewhat more than we had hoped particularly in respect to raisins, and we judge rather more than the benefits we can make use of in short run are likely to be worth. At same time, (A) our concessions in Australian protective tariff look greater than they are in fact. We are fairly confident that no significant loss of trade is involved for the Australian industries concerned. (B) sacrifices in relation to preferences leave substantial protection remaining and should be within capacity of industries.
Furthermore we must take into account settlement between United States and the Commonwealth as whole. Following points are relevant- (A) United Kingdom needs a settlement. Cripps informed Coombs on Friday that United Kingdom was most anxious for settlement. Their rejection of the United States offer was based on conviction that politically in present state of United Kingdom sentiment [...] they could not go further. Furthermore he thought it likely that United States would in fact settle for less to avoid breakdown.
(B) We might be prepared go little beyond an exact balance to help United Kingdom in overall preference position. Canadian leader has advised that his Government is going considerably beyond what they intended for this reason. For general political as well as economic reasons it would appear worth some sacrifice to bring to satisfactory conclusion present difficulty and at times bitter negotiations between United States and Commonwealth countries.
(C) Recent improvements in United States offers on rubber and tin are of general sterling area value, these with wool are major dollar earners for sterling area as whole. In view of general shortage of dollars these improvements are of value to us also.
(D) We are being asked to live within our dollar income. While whole of our food surpluses are directed to Britain they may both impose serious limitations on essential imports and force us into undesirable dependence on United Kingdom manufactured goods and capital equipment. Agreement does make possible substantial increase in dollar earnings by sterling areas as a whole and by ourselves to extent that production can be increased or it proves practicable to divert exports from United Kingdom. Even if we do not avail ourselves of these opportunities because of United Kingdom need for food, it strengthens our case for an adequate share of available dollars.
From long term point of view access to United States market for Australian major exports may be of critical importance even if we can make only limited use of it for time being.
CONCLUSION As mentioned above we feel that the raisin requirement means that from purely tariff agreement point of view we are being asked pay too much for benefits in sight although long term developments might fully justify the exchange. Taking into account general considerations above however, particularly desirability of an amicable United States Commonwealth settlement possible benefit to dollar position and above all long term importance of an alternative market for Australian major export industries we feel we should recommend that Government should authorise us to conclude negotiations on this basis. We are unanimous in this conclusion.