The Australian Minister for External Affairs (Pearce) to the American Consul General at Sydney (Moffat)15

Sir: The Government of the Commonwealth has given full consideration to the representations of your Government as set out by [Page 758] you in your written communication of the 29th May,16 and handed to me personally on the 1st instant.

At the outset of my reply I should like to clear up one most unfortunate misapprehension which exists in the mind of your Government. In the speech in which the new licensing measure was introduced to Parliament there was neither word nor inference calculated to indicate that the Government of the Commonwealth was under the impression “that there exists on the part of the Government and the people of the United States an unsympathetic feeling born of indifference towards Australia’s present difficulties.”

Such a thought has never occurred to the Government of the Commonwealth. In this regard, I would draw your attention to the Prime Minister’s letter to Mr. Cordell Hull, dated 6th May, 1936.17

We have observed with anxiety the development of Australia’s adverse trade balance with the United States, but we have not associated it with any unfriendly thought in the mind of your Government or people. In principle we accept this continuing adverse balance as an outstanding example of the disequilibrium in the trade of two countries of a kind with which we have long been familiar. I would add that it was with very real regret that the Government of the Commonwealth felt itself compelled to place a limited number of imports under the operations of the new licensing system.

The Government of the Commonwealth is in principle in agreement with the views as to the rehabilitation of international trade as expressed by the Government of the United States, but in the exceptional circumstances in which we find ourselves with respect to finance and trade we find it difficult, if not impossible, to put those principles fully into immediate effect. Nevertheless, I would point out that the present Government, commencing in the depth of the depression, has reduced the tariff level upon more items than probably any other Government in the world. Over some four years the Government has persistently revised its tariff downward.

I mention this as evidence of the deep reluctance with which we entered upon the present licensing system. Our position may be summed up in a few sentences: We are at the same time a heavy debtor nation (as is common with most young countries in the development stage) and a heavy surplus producer of a wide range of primary produce. We are obliged therefore to arrange our overseas trade so that it will not only pay for our imports, but also provide us with a balance to the extent of at least £26,000,000 sterling to meet our annual interest and sinking fund commitments. Needless to say, the prestige of our overseas credit takes first place in our national [Page 759] policy. The Government of the Commonwealth of Australia has invariably and promptly met its overseas obligations—and is determined to continue to do so—but with foreign markets progressively and in some cases decisively closing against us, as they have been very generally in recent years, the maintenance of the essential overseas balance of payments presents some difficulties for the future to which we cannot be indifferent.

In short, our position is that we are obliged to confine our imports to a total that, after allowance for the value of our exports, enables us to meet the service of our oversea debt.

After prolonged investigation and consideration of these difficulties we were forced to conclude that any efforts we might make to keep the overseas financial position completely sound must be frustrated if we permitted a few great and rapidly growing adverse trade balances to continue uncurtailed.

In addition to this vital financial phase of our problem there is the fact that if Australia is to make healthy national progress, and build sufficient strength to ensure its safety against all emergencies, we must as a first step further increase primary production. This can only be achieved by further exports. To obtain further exports we must take more imports from actual and potential buyers of our commodities. In some limited measure at least we must endeavour to control some part of our import trade from countries which, owing to circumstances, are unable to increase their purchases from the Commonwealth.

The Government of the Commonwealth would point out that in the application of the licensing system it is not proposed to cut deeply into the total Australian import from any particular country. Measured by the present flow of trade, your country, even under the licensing system, will enjoy a favourable trade balance with Australia of many million pounds sterling per annum. I submit that this cannot be taken as in any sense harsh action against the United States. We have found it necessary to restrict the import of motor car chassis from the Dominion of Canada equally with those from the United States, and in the development of the manufacture of chassis within Australia which has been decided upon, we shall within a very few years be cutting across the import of chassis from the United Kingdom.

With respect to your Government’s reference to potential benefits to Australia arising out of the application of most-favoured-nation treatment in its treaty making, I would point out that these benefits, so far as the Commonwealth is concerned, are more theoretical than real, and have not contributed to an amelioration of our economic difficulties. It appears to the Government of the Commonwealth that so long as the Government of the United States bases its trade [Page 760] agreement policy on the principle that in its bilateral trade negotiations with individual countries concessions are made only on those commodities which are supplied mainly by each treaty country, and at the same time is loth to enter into negotiations with Australia, the Government of the Commonwealth can hope for no real alleviation from the heavy duties which are imposed in the United States against the commodities which Australia exports.

As evidence that Australia does not and never has subscribed to the principle of bilateral trade balances, we would direct your attention to the trade balance existing between the United States and the Commonwealth in the years immediately prior to 1929. You will find that over the five years ending with our financial year 1929/30, the Australian adverse merchandise balance with the United States was £29,000,000 sterling per annum. For the ten years ended 1934/35 our average adverse merchandise balance was £18,000,000 sterling per annum.

It is appropriate also to mention that the annual service of our dollar loans entails remittances of over £3 millions sterling.

The Commonwealth Government of today contains a number of members of the Government in power during those years, but we then took no steps whatever towards adjustment. The simple fact is that we have been most unwillingly forced into the present action by abnormal trading conditions, and especially by the rapidly progressive exclusion of our exports, as I have already said, by many countries, and not least by the United States. Within the past few months your Government, in our view, has imposed discriminatory dumping duties upon Australian butter and has raised duties against tallow. Moreover, obstacles have been placed in the way of the importation of barley malt. In our view it matters little whether exclusion is brought about by licensing, quotas, or prohibitive duties. The effect is the same, and we in particular have been sufferers.

Under all the circumstances we hope that, while the Government of the United States may not be able to look with approval upon the introduction of the licensing system which we have been obliged to adopt, your Administration will appreciate that the limited curtailment which we have imposed upon imports has been imperative in our national interest, and that the step would not have been taken except after the most profound consideration. We greatly trust that this policy will in no way impair the exceptionally cordial relationship which has always existed between the Governments and the peoples of our two countries.

I should be obliged if this communication could be regarded as completely confidential as between our two Governments.

I am [etc.]

R. G. Casey

For the Minister for External Affairs
  1. Transmitted to the Department by the Consul General at Sydney in his despatch No. 223, June 8; received July 2.
  2. See telegram of May 27, 5 p.m., to the Consul General at Sydney, p. 753.
  3. See telegram of May 7, 6 p.m., from the Consul General at Sydney, p. 749.