My dear Prime Minister,
Yesterday I attended a lunch given by the British Empire Producers' Organization to Jan Hofmeyr just before his departure for South Africa. You are, of course, aware that Hofmeyr, who, until recently, was Administrator of the Transvaal, is regarded as one of the coming men in South Africa. He is only 36 and has had a very brilliant career, having been a Rhodes Scholar, held a University post and then taken on administrative work. There has been great speculation as to whether he would support the South African Party or the Nationalists. So far he has not made any definite declaration and, apparently, is not standing for the South African Parliament in the coming Election. 
Hofmeyr's speech was excellent and there are two points to which I would particularly draw your attention. He stated that people in this country were apt to stress the importance of the bonds of sentiment which knitted the Empire together. While he would say nothing to detract from the importance of such bonds, he pointed out that the preponderating proportion of the whites in South Africa were not of British race and had only of recent years looked upon the British Empire as a symbol of conquest. Under these circumstances it was but natural that the ties of sentiment were not as strong in South Africa as in some of the other Dominions. For this very reason he felt that it is of the utmost importance to develop as rapidly as possible inter-Empire economic cooperation in order that the ties of sentiment might be reinforced by ties of mutual economic self-interest, especially in those parts of the Empire where the tie of sentiment was weakest.
He went on to say that for this very reason he deplored the clauses in the German-South African Treaty  which might possibly weaken the doctrine of Imperial Preference.
At a later stage he suggested the possibility of reciprocal trade treaties between Great Britain and the Dominions. He did not go at all carefully into that point but merely stressed that the fact that Imperial preference at the present time was subject to the vicissitudes of the British political situation, lent an element of political instability which was thoroughly undesirable.
With this view one cannot, of course, agree but when one comes to consider reciprocal Trade Treaties, all sorts of difficulties appear to me to arise. I have written to you about this before but I should particularly like to know more of what is in your mind on the subject.
I have received several interesting letters from Simpson  for which I am grateful, but I very much hope that you will let me have, as soon as possible, a full expression of what you have in mind on this subject. I feel perfectly certain that if reciprocal Trade Treaties between Great Britain and the Dominions come into operation, Great Britain will instinctively desire to incorporate an inter-Empire Most-Favoured-Nation Clause in any concessions that she makes to any one Dominion. As far as I can see, this would decrease bargaining power.
Another very difficult problem is to discover what would be the basis on which a Dominion-say Australia-would start negotiations with Great Britain for a Trade Treaty. Would she start from the status quo and throw the whole of her existing preferences in and then bargain on the basis of further concessions to Great Britain in return for preferences given by the Mother Country, or would she negotiate on the basis that, failing concessions, she would withdraw some of the preferences which already exist. 
TRADE WITH RUSSIA
I have received an amusing telegram from Major Elliot , who is, at the present moment, fighting his seat at Kelvingrove, Glasgow.
I stated that the Channel Islands buy more from us than Russia, this challenged by Sir D. M. Stevenson from Whittaker. Please wire figures.
Elliot must have based his assertion on a conversation that he had had with me and I experienced a little anxiety until I had looked up the figures. Then I found that I was able to send a reply in the following terms:
Board of Trade official figures show in 1928 British exports to Channel Islands three and a half millions to Russia two and three quarter millions. In 1927 Russia led by one million.
It is certainly amusing to think that it is possible to cite British export trade to the Channel Islands as having been more important, in 1928, than her trade to Russia.
Yours sincerely, F. L. MCDOUGALL