POST-WAR ECONOMIC TALKS, LONDON, OCTOBER-NOVEMBER 1942

I have the honour to submit the following report on my mission to
Great Britain to attend a series of Post-War Economic Talks
between representatives of the British Dominions and Indian
Governments.

I left Brisbane for London by air on 5th October, 1942, and
arrived in Washington on 10th October. I left Washington on 15th
and arrived in London on 21st October. The first formal meeting of
the Conference took place on 23rd October, and the talks continued
until the final meeting on 9th November. It was anticipated that
the Conference would go into recess for a few days about that
time, in order to enable a revised edition of the British paper on
'The International Regulation of Primary Products' to be prepared
for further discussion. This proved impossible, however, because
of the recall of the Canadian delegation and of the inability of
the British representatives to complete the revision in the time
available.

I found many difficulties in securing a return passage to the
United States, but finally left London on 26th November, arriving
in Ottawa on 30th November. I spent the next days in Ottawa
exchanging views with representatives of the Ministry of Finance
and of the Bank of Canada, and also spent some time in discussing
matters of mutual interest with representatives of the Ministry of
Labour and with the several Departments and other authorities
responsible for reconstruction planning in Canada.

I arrived back in Washington on 6th December, where I remained
until the 14th of that month. While in Washington, I took the
opportunity of discussing various problems associated with
reconstruction planning with officials of the United States
Government and with members of the Australian Legation in
Washington. Because of the protracted delay in securing passage
from London my time in Washington was very limited, and I was
unable to pursue my enquiries as far as I should have wished. I
left Washington on 14th December for Australia, but owing to
unexpected transport difficulties I did not arrive back in
Canberra until the 12th January, 1943.

The talks in London were conducted entirely at the 'official'
level, and there was no ministerial participation at any stage of
the discussions. The chair was taken at the initial meeting by Sir
Richard Hopkins, the permanent head of the Treasury, but at
subsequent meetings the position of Chairman was filled by Sir
Frederick Phillips, of the Treasury, who is now stationed more or
less permanently in Washington.

[A full list of delegates attending the conference has been
omitted.]

The formal discussions at the Conference dealt with four main
topics, namely-
(1) Proposals for an International Clearing Union.

(2) International Regulation of Primary Products.

(3) International Commercial Policy.

(4) Post-war Relief and Rehabilitation.

The proceedings took the form, in the case of the first two
subjects, of a close examination and revision of documents
submitted to the Conference as a basis for discussion by the
British representatives. The intention appeared to be to arrive at
agreed statements of proposals which might be submitted to the
United States Government by the British Government as a basis for
preliminary discussion between those two Governments, in such form
that the British Government would have some reasonable ground for
hoping that their proposals would secure the general support of
the Dominions and Indian Governments at the appropriate time. [1]
On occasions, it appeared that we were being invited to assist in
the revision and even the editing of the papers under discussion,
while at other times a suggestion appeared to be in the air that
the British representatives retained full freedom to make such
modifications in the proposals as they might subsequently deem
fit. Despite the lack of clarity on this point, the Dominion
representatives went to some lengths in revising the documents,
whilst avoiding any suggestion that they were responsible for
their final form. Papers were not circulated in connection with
the third and fourth subjects on the agenda, the proceedings
taking the form of round-table discussions.

(1) Proposals for an International Clearing Union
A paper embodying the original British proposals was circulated to
the Conference, and a summary was cabled by me to Canberra
immediately it became available. [2] A copy of the full text was
also forwarded by air mail [3], and has already received some
examination by the Government's advisers. [4] This document was
subsequently amended and a revised copy was circulated to
Dominions representatives at the conclusion of the talks. A copy
of this document is attached hereto (marked 'A'). [5]

The document itself describes briefly and succinctly the essential
nature of the proposals, and there seems no need to summarise them
in this report. The cables forwarded by me through the High
Commissioner [6] give a full account of the course of the
discussions on detailed aspects of the proposals, and indicate the
nature of the amendments made in conference.

The Conference was concerned, on the one hand, with a
consideration of the technical aspects of the proposals and, on
the other, with the problem of moulding them into the form
considered most likely to improve their chances of acceptance by
the United States Government. From the latter point of view, the
presence of Canadians at the Conference table was of considerable
advantage, as the close economic relations between the Canadian
and United States Governments placed the Canadian delegates in a
special position to advise on likely United States reactions. To
some extent, I felt that the Canadians were inclined to lean a
little too heavily in the direction of concessions to supposed
American opinion, but my subsequent discussions in the United
States convinced me that American opinion was likely to be a most
critical factor.

Shortly after the talks concluded, Sir Frederick Phillips returned
to Washington and submitted a copy of the final document to the
United States Government. By the time I arrived in Washington it
had received preliminary examination by Treasury and State
Department officials, and certain questions had been submitted to
and answered by the British Government. No indication, however,
had been given at this stage of the official American view. Sir
Frederick Phillips was inclined to hope for the best, but I myself
encountered some scepticism in certain quarters as to the
political practicability of the proposals.

One of the difficulties appears to be that a good deal of work has
been put into an alternative set of proposals by the advisers of
the United States Treasury, who have produced the outlines of an
American plan covering much the same general ground, but differing
quite considerably in approach. Naturally the Treasury is inclined
to prefer an American document as the basis for inter-governmental
discussions.

I was informed that the draft of the American proposals was not
available at this stage for communication to other Governments, as
it had not yet proceeded very far beyond informal consideration by
Mr. Morgenthau. I was able, however, to secure access to what was
described as a very early and tentative draft of the proposals,
but which I suspect will be very close to any counter-proposals
which Mr. Morgenthau, at least, may wish to make. The United
States Treasury proposals are contained in a somewhat massive
memorandum, which has been reproduced in Canberra from a microfilm
copy. [7] A short summary of the proposals is attached hereto
(marked 'B').

I gathered-although there was a good deal of mystery-making about
it-that certain British Treasury officials had also had access to
this document [8], and were not particularly attracted by those
parts of it which purported to cover the same general field as the
proposed International Clearing Union. Whether proposals along
these lines will in fact be made by the United States Government
is not yet clear, as I was informed on fairly good authority that
the Vice-President 'thought they did not go far enough'. I was
unable to ascertain in what direction. It seems clear, however,
that the author of the Treasury proposals, while fairly close to
Mr. Morgenthau, is not particularly influential outside the
Treasury. It is possible that, in the present American set-up, the
views of the State Department may in the long run be more
important. Officials of the State Department were less willing to
discuss the merits of the British proposals with me than was the
author of the Treasury proposals, but on the whole I felt that the
nature of their criticisms disclosed a more sympathetic approach.

The most serious criticism advanced was that the British proposals
were too 'unrealistic'-meaning, I gathered, that it was felt that
it would be exceedingly difficult to get Congress to accept them.

Put in its crudest form, the critics hold that the British plan is
simply one which would confer on other countries an unlimited
right to purchase United States goods with their own local
currencies. They do not seem to be greatly impressed by the
safeguards provided in the plan, whether in the form of maximum
overdrafts or subjection to some measure of financial and economic
discipline when overdrafts exceed the limits laid down. It is also
felt in some quarters that the voting strength provided for in the
plan would be unduly unfavourable to the United States, even after
taking into account certain modifications made in the document
during the London discussions. The proposal for charging interest
on credit balances was considered to be impossible politically,
and quite ineffective as a means of forcing creditor countries to
take substantial action to rectify their balance of payments
position. These views, while generally expressed, seem to be held
more firmly in the Treasury than in the State Department, which I
feel has a far more open mind on this subject.

The United States Treasury plan involves the creation of two
bodies, closely linked but separate in constitution. One would be
called a 'United Nations Stabilisation Fund' and the other a 'Bank
for Reconstruction and Development of the United and Associated
Nations'. The Stabilisation Fund is designed to perform very much
the same functions as the International Clearing Union, while the
Bank for Reconstruction and Development would fill a need which is
not referred to specifically in the British proposals, but which
is quite consistent with them. The most useful approach from our
point of view appears to be to press the British proposals in
regard to the International Clearing Union as strongly as
possible, while supporting that part of the (probable) American
proposals providing for a Bank of Reconstruction and Development.

A ready welcome to the latter might help to cure the United States
Treasury of any infatuation with its own scheme for an Exchange
Stabilisation Fund, and would have the added advantage of allowing
the Americans to take the initiative in designing a long-term
lending institution to which they would necessarily be the largest
contributors of capital. At the same time, there are certain
subsidiary proposals in the outline of the plan for a
Stabilisation Fund which would be well worthy of adoption in any
revised draft of the International Clearing Union proposals. In
particular, there is a scheme for dealing with the 'unfreezing' of
blocked funds which is particularly ingenious and helpful.

While the American proposals for a Stabilisation Fund can be
described as 'generous' they proceed on very much more orthodox
lines than the British proposals. One of the more important
weaknesses of the American scheme is the fact that capital would
have to be subscribed by all the participants, and a certain
proportion of the capital would have to be put up in the form of
gold. Naturally the United States would be the greatest subscriber
to any scheme of this kind and, even with what might be regarded
as generous concessions in the matter of control, the United
States would still remain the dominant partner. With South
American voting strength added, other countries and even the
British Empire as a unit would find it difficult to exercise much
control over the operations of the Fund. Another unpalatable
feature of the proposals is the exalted position given to gold
which, under the British proposals, takes a much more subordinate
place. Even more important is the fact that the American plan
lacks the psychological advantages of the British plan in
assisting towards an understanding of the fact that persistent
credit balances on current international accounts are equally if
not more reprehensible economically than persistent debit
balances. The American plan also involves an even greater
sacrifice of economic sovereignty by participating Governments
than is contemplated under the British proposals, which probably
go as far, but no farther, than most Governments could be induced
to accept. It would appear, for example, that a country's rate of
exchange would be much more under the control of the Stabilisation
Fund than would be the case under the International Clearing
Union, while the American plan involves rather wide restrictions
on a country's freedom in regard to 'monetary or general price
measures or policies'. The voting strength would come more from
the gold-holding countries than under a scheme which based voting
strength on the volume of foreign trade. Moreover, the maximum
advantage in ready access to international funds, without the
special permission of the governing board, would be only double
the amount of gold that a country contributed initially, and this
might have little relation to that country's real need for short-
term international finance. It is also difficult to appreciate
what is to happen if and when the Stabilisation Fund runs out of
creditor-country currencies, which it could quite conceivably do.

Presumably recourse would then be had to a new international
agreement. There are other technical details which would require
very close consideration, but as the American plan is only a
preliminary and unofficial draft, deliberately prepared to provoke
discussion in American circles, it would be unfair to criticise it
too strongly as a definite proposal.

The proposed Bank for Reconstruction and Development is much more
satisfactory, and appears to be conceived on fairly sound and
generous lines. It would be concerned chiefly with long-term
lending for international reconstruction and development, which
will have to be financed in very large measure by the United
States and a few other creditor countries. From this point of
view, there is a lot to be said for encouraging the Americans to
prepare the document to serve as a basis for international
discussions on this subject, and I have reason to believe that the
British officials would give an American plan along these lines a
very ready welcome. Certain criticisms might be made of particular
aspects of the plan, such as the proposal to issue notes against
obligations of member Governments with a 50% gold reserve, the
purpose of which is not quite obvious, but it is too early yet to
consider technical questions of this kind.

The document in its present form, however, should receive the
close scrutiny of the Government's financial advisers, so that
Australia may be prepared for subsequent discussions.

Just before leaving Washington, I was informed by Sir Frederick
Phillips that he was pressing the State Department for an official
indication of the American Government's views on the International
Clearing Union proposals, and that he expected a fairly early
reply. The British have invited the Americans to discuss the
matter either in London or Washington, but Sir Frederick inclined
to the view that the discussions would probably take place in
Washington. This was in the middle of December, and the position
may have been further clarified since then. [9] I found it
exceedingly difficult to get, either from British or American
sources, any firm opinion as to the procedure likely to be
followed in advancing the matter, or the time at which further
discussions would take place. A good deal of confusion has been
introduced by the American practice of signing up other countries
under the Lend-Lease Agreement, Article VII of which commits the
United States and the other participating Government to the same
sort of conversations as were originally envisaged between the
United States and Great Britain. It appeared to me that the State
Department was far from clear on the actual procedure it would
desire to adopt. I gained the impression, however, that on this
subject the United States would not be averse to having the
Dominions keep fairly closely in touch with any conversations that
might ensue between the British and United States Governments.

(2) International Regulation of Primary Products
A formal paper on this subject was circulated by the British
representatives and discussed in detail. A summary of the paper
was cabled to Canberra as soon as it became available [10], and
the full text was forwarded by air mail. [11]

This paper was far less assured in tone than the paper on the
International Clearing Union, and it was admitted by the British
representatives that its preparation had involved some compromise
between the views of the several British Departments concerned in
this matter. There was also a somewhat sharper conflict between
British and Dominion views in this field. The course of the
discussion has already been fully reported in my cabled advices,
and no purpose would be served by reproducing them here. [12]

Towards the end of the detailed discussions, it was intended that
the British representatives would retire for a few days to rewrite
this paper in a form more in conformity with the views expressed
at the Conference table. Unfortunately this proved impossible in
the time available, and it was not until several weeks later that
a start was made on a revised draft. This had not been completed
by the time I left England, but I was able to secure a copy of the
revised edition which Lord Keynes had submitted for circulation to
the British representatives present at the talks. This draft had
still to go to the Hurst Official Committee [13] for formal
approval before submission to the Committee of Cabinet dealing
with these matters. The draft in my possession, therefore, is not
to be taken as final, although it is unlikely that any substantial
changes will be introduced. (Draft marked 'C'.)
I understand that the original paper did not get a particularly
fervent blessing from the Cabinet Committee, but it was claimed by
the Treasury representatives that there was a very fair chance of
the Cabinet Committee finally accepting a document revised along
the lines forecast at the talks.

At the time I left Washington, no approach had been made to the
United States Government on this subject, nor had any document
been submitted, even at the 'official' level. It was known in
American official circles that the British Government was
preparing proposals along these lines, and that some communication
could be expected within a reasonably short period. Any delay in
bringing this matter before the attention of the United States
Government is not very serious, as I gathered that American
preparations in this direction had not advanced very far. Most of
the agricultural economic experts of the United States Government
appear to be much more preoccupied with internal problems peculiar
to the war-time agricultural economy.

(3) International Commercial Policy
At the beginning of the Conference it seemed evident that the
British representatives were not anxious to enter into discussions
on International Commercial Policy. This seemed somewhat
surprising, as I left for London with the impression that the
talks were to revolve about the whole of the subjects associated
with Article VII of the Mutual Aid Agreement. As a result of some
accidental publicity which was given to my presence in London
[14], the British representatives assumed that the Australian
Government was very anxious to press questions of commercial
policy, and particularly of Empire preference, and finally
arranged for a round-table discussion to take place on these
subjects. I have already cabled the gist of the discussions in
some detail. [15]

The discussions were somewhat discursive, no very strong lead
being given by the British representatives, amongst whom Board of
Trade officials predominated in numbers. It soon became evident
that little serious thought had been given to this whole subject
by any of the British Departments, and that views generally
antagonistic to the relinquishment of Empire preference and to any
substantial reduction of British agricultural production after the
war were fairly firmly held in certain quarters, notably in the
Board of Trade and Ministry of Agriculture. A somewhat more
liberal attitude of mind prevailed in Treasury and War Cabinet
Secretariat circles, but even here it was felt that Great Britain
had so little to give, apart from the reduction or abolition of
Empire preference, that it would be wiser to allow the Americans
to bring the subject forward. In the latter quarters, it was felt
that concessions in regard to preference were about the only
strong bargaining counter available to the British Government, and
that any concessions should be sold as dearly as possible. Feeling
in the Board of Trade, Ministry of Agriculture and the Dominions
Office appeared to be, with some reservations, against selling
them at any price, unless there was no alternative.

The Canadian view, as expressed partly at the Conference and
partly in subsequent discussions which I had in Ottawa, is
generally favourable to a relaxation of Empire preference, which
is not regarded as a very serious matter for Canada. She would,
however, insist upon compensating tariff reductions from the
United States. The Canadian view is tinged with some fears that
Britain may be too slow to respond to American advances in this
field, thus perhaps giving an impression of reluctance to seek
wholeheartedly the objectives of Article VII. It was agreed,
however, that it would be tactically better to allow pressure to
come, at least in the first instance, from the American side.

There are some fears in Canada, also, that progress towards the
elimination of discrimination might result in a general raising
rather than a general lowering of tariff rates. The Canadian
Government would be very bitterly opposed to this.

South African opinion appears to be not unlike that of Canada, but
the South African representative may not have been speaking with
the full authority of his Government. The most notable point made
by the New Zealand representative was his appeal for the
continuance of bulk-purchasing arrangements which, while they
present many attractive features, may be somewhat difficult to
reconcile, unless very carefully supervised, with the non-
discrimination envisaged by Article VII and the proposals for the
International Regulation of Primary Products.

Two matters were raised either at the Conference or subsequently
which merit attention. The first is the procedure which could be
followed in the attempt to get any sort of general reduction in
excessive tariffs. Opinion was widely divided, but very uncertain,
on the practicability of pursuing a multilateral approach, while
there were grave doubts as to the possibility of encompassing
anything worthwhile within a reasonable time by the method of
independent bilateral negotiations. Informal opinion seemed to
incline towards a series of bilateral bargains arranged more or
less simultaneously between a group of countries all represented
at the same time and place. The protracted history of the
negotiations over the proposed Australian-United States Trade
Treaty at present under discussion appears to support those who
contend that all the parties, including those indirectly as well
as those directly concerned, should be brought together at the one
time and place.

The second matter concerns a method of defining the degree of
industrialisation and industrial diversification which countries
in a relatively early stage of development may desire to attain.

It was fairly generally agreed that countries were entitled to a
reasonable degree of industrialisation, according with their own
particular desires, but it was felt in some quarters that the
pursuit of an unspecified degree of industrialisation was
frequently liable to lead to an uneconomic and generally
undesirable extension into secondary production. It was suggested
that, if some reasonably satisfactory measure of the degree of
industrialisation could be devised, and countries in the
developmental stage were invited to specify in such terms the
objective at which they aimed, a lot of the ground for
misapprehension and suspicion would be removed, and agreement on
tariff matters would be considerably facilitated.

While I was in London, but after the talks had concluded, some
fears were expressed to me by cable [16] that the sentiments
appearing in a covering note [17] attached to the first draft of
the British paper on Primary Products were inconsistent with the
basic philosophy of Article VII. I subsequently took this matter
up with the economic advisers to the Treasury and with the
Chairman of the Conference, and am now able to confirm my cabled
advice [18] that the covering note is not necessarily to be taken
as indicative of the views of the British Government itself I
pointed out correctly in my cable that the covering note is to be
regarded rather as a hurriedly introduced safeguard inserted by
permanent officials, who knew that the Primary Products paper had
not at that stage been approved on behalf of the British Cabinet.

On my return to Washington, I formed the impression that American
opinion might be satisfied with something short of a complete
abolition of Empire preference. There is, in responsible circles,
a fair realisation of the difficulties which Great Britain and
some of the Dominions may have to face in regard to their post-war
balances of payments, and there appears to be no desire anywhere
to prejudice the return of Great Britain to a strong international
economic position. At the same time, there is a good deal of
emotional reaction against discriminations in international
dealings, and Empire preference is the one discrimination which
leaps to the American eye. In addition, some manufacturers and
exporters find Empire preference interfering with their particular
commercial interests. It is possible that, by some concessions in
particular directions, and some wide but no particularly
significant gestures, hostile American opinion could be placated
without interfering unduly with some of the more valuable intra-
Empire attachments that the preferential system has produced.

The return of the new Congress was responsible for a good deal of
speculation during my presence in Washington on the possibility of
a renewal of the Trade Agreements Act, which expires in 1943.

Opinion was very divided on this subject, but I gathered
confidentially from very reliable sources in the State Department
that a 'check-up' on the new members of Congress disclosed a
reasonable possibility of getting the Act renewed in a form which
would at least preserve the President's present powers. Some
weight was also given to the possibility of Willkie [19] splitting
the Republican Party if the pendulum should swing too far in the
direction of economic isolation.

(4) Post-war Relief and Rehabilitation Proposals
The only paper circulated by the British representatives on this
subject was the draft agreement which Sir Frederick Leith-Ross had
brought back from Washington a little earlier. The text of this
was cabled at the request of Canberra. [20] The proceedings
commenced with a historical summary of the position by Sir
Frederick Leith-Ross and progressed into a round-table discussion,
the gist of which was cabled to Canberra immediately. [21] As the
matter was being dealt with actively by the High Commissioner in
cables to the Prime Minister [22], and as the subject was placed
on our agenda merely to provide Dominion representatives with
background information, I was not called upon to take the
initiative in discussions with Canberra. At that stage the chief
question between Governments was the proposal to increase the
number of representatives on the Policy Committee from four to
seven. I understand that the Commonwealth Government later
accepted this proposal and that it has now been adopted. [23] When
I left England the Russian Government had still not indicated its
approval of the draft Agreement, but I learned that it had done so
by the time I reached Washington.

By this time ex-Governor Lehman had been appointed by the
President to take charge of American participation in the relief
and rehabilitation measures. I understand that at a meeting of the
Pacific War Council the President casually indicated that ex-
Governor Lehman was intended to become the Director-General of the
United Nations Relief and Rehabilitation Administration. I was
able to see his chief lieutenant, Mr. Appleby, until recently a
high official of the Department of Agriculture, but his
appointment was so recent that I was unable to get information of
any real value. I did learn, however, that the Soviet Government,
before giving its approval to the plan, had asked a number of
pertinent questions in regard to the control which de facto
Governments would exercise over the distribution of relief. The
United States was able to satisfy the Soviet Government on this
point, by agreeing that no activities would be undertaken without
the consent of the Government actually in control at the time. It
was pointed out, however, that this would obviously not apply in
any area where no Government was in effectual operation. I was
informed earlier in London, very confidentially, that the Soviet
Government entertained fears that relief might be used as an
instrument of economic imperialism and political manoeuvring by
the United States and possibly by other Governments, and that
these fears had been responsible for the Soviet Government's delay
in accepting the plan.

I gathered that work has been started in a preliminary way in the
United States on the important question of the actual supplies
which are likely to be available at the end of the war, rather
than on estimates of probable needs. On the latter question, a
considerable amount of work has, of course, already been done by
the Leith-Ross Post-war Requirements Bureau. [24]

ROLAND WILSON