Your T.E.6 [1], Quantitative Restrictions.

1. Our first reaction is that United Kingdom redraft is, with one
important exception, satisfactory as to principles but requires
considerable textual study.

2. Main defect is that it does not seek to define with sufficient
precis[ion] the criteria according to which countries may impose
or maintain restrictions. We attach importance to the inclusion of
definite criteria as a means of limiting discretionary power of
I.T.O., upon protest by other countries, to free them from their
obligations under the Charter and we have attempted precise
definition of such a criteria in paragraph 3(f) of our redraft of
Article 20.

3. To help us in further discussion on this general question we
should like to know what the United Kingdom had in mind by the
item 'Special Credits' in paragraph 3(a) of their redraft.

4. We recognise difficulty of securing criteria which would be
universally applicable but consider solution should be pursued as
vital to acceptance of any formula by countries placed as
ourselves.

5. Proposal in paragraph 6 of redraft under which I.T.O. may
specify a release from obligations under the Charter should be
very fully discussed, particularly if it proves impossible to
limit this power by inclusion of definite criteria. It might be as
well to provide for discussions between the parties before the
'due interval'. An opportunity should be given to the member
country applying import restrictions to offer some concession, if
it should desire to do so, before the rather drastic step of
cancelling obligations is considered.

6. We are glad to note that United Kingdom also proposes to make
provision for separate membership of I.M.F. and I.T.O. which we
regard as important.

7. We also welcome proposal in paragraph 7 to discuss with members
and other international organisations other measures to correct an
adverse balance of payments and to bring pressure on countries
with a favourable balance of payments. This might be developed and
possibility of sanctions against countries with favourable
balances considered. Suggest also proposal might be redrafted to
cover case of one member country and the I.T.O. desiring, for
example, to discuss with Monetary Fund an exchange rate alteration
as an alternative to continuation of import restrictions.

8. We suggest that agreement should be sought as far as possible
on principles listed in paragraph 6 of document entitled
'Australia's Interest in Balance of Payments Control' [2] as
background to discussion of draft texts and as safeguard against
possible confusion in such discussion.

9. Would be glad of early advice of outcome of today's
discussions. [3]

10. Bank concurs in foregoing.