Letter from James J. McElligott to Seán Moynihan (Dublin) enclosing a
memorandum on trade relations with Britain

I am directed by the Minister for Finance to transmit herewith fourteen copies of a Memorandum on Trade relations with Great Britain, which has been signed by the Secretary of each of the following Departments; Finance, Agriculture, External Affairs and Industry and Commerce. The Minister will be glad if numbered copies of this Memorandum are circulated, marked 'Strictly Confidential', to Ministers only and the matter placed on the agenda for the next meeting of the Executive Council.

MEMORANDUM
on
TRADE RELATIONS WITH GREAT BRITAIN

The approaching termination of the existing Coal-Cattle Pact with Great Britain and the question of the arrangements to apply in the coming year afford an opportunity for presenting a brief review of certain factors relevant thereto. The present concern of the United Kingdom about its food supplies in time of war - as shown by, amongst other things, the setting up of a special department in the Board of Trade to deal with the matter - makes the moment opportune. In addition, our co-operation in the trans-Atlantic air project and the Commonwealth 'all-up' mails scheme might induce a more favourable attitude towards the Saorstát viewpoint.

2. It is unnecessary to review in detail the various measures adopted by both sides in the dispute to safeguard their interests. The net result of those measures to date, in their financial aspects are summarised in the following Table:

3. The estimate shown above for yield from Special Duties in Great Britain in 1936/37 is that given by the Chancellor of the Exchequer in his Budget statement in April last. In view of the trend of Saorstát exports of cattle to Great Britain in the present year, it seems probable that that estimate will be exceeded by a considerable sum which may be as great as £500,000 or even £750,000 according to the type of cattle which have already been exported or may be exported in the coming months. The stage is, therefore, not very far off when, if existing relations remain unchanged, Great Britain will have recovered from the Saorstát the full amount of the alleged default. In the current year the Saorstát may pay, in the form of the Customs duties, from £700,000 to £1,000,000 more than the sum in dispute in respect of that period.

4. From time to time it has been suggested that the incidence of the British penal duties must fall, to a large extent at any rate, on the consumer in that country rather than on the producer in this country. Prior to 1932 the Saorstát and British indices of wholesale agricultural prices moved in unison. Since that date the fall of Saorstát prices has been much steeper than the British, being last year 37% below the 1929 level as compared with a fall of only 24% in Great Britain, notwithstanding the artificially raised price level of certain commodities here in recent years, e.g. wheat. In the light of this and other considerations it is incontestable that the duties are being borne in the Saorstát. In any event the duties were imposed by the British, and with their alternative sources of supply of all agricultural imports they are scarcely likely to allow any duty to remain at a level which would place its incidence on their own people.

5. This conclusion is supported by the effect of the agreement of February last in prices for livestock in the Saorstát, and it is clear that the removal of the British duties, even on the basis of our present quotas, would raise the level of wholesale prices of agricultural produce here. (This increase would not necessarily mean an increase in the cost of living.) The income of the farming community would be raised and result in increased employment of agricultural labourers and would allow of the payment of higher wages in the industry. The recent preliminary report on the 1936 Census indicates that there was within the intercensal period a net migration of approximately 39,000 persons from rural areas to Dublin City and to Great Britain. If this trend is to be stopped it is thought it will be essential to take advantage of every opportunity to improve the position of agriculture. A wider market for the products of industrial undertakings would be created, resulting in increased production, leading in turn to increased employment in these industries, thus creating an additional market at home for agricultural produce.

6. The settlement of the present dispute would have favourable reactions on National credit. Borrowing operations to finance Housing, Public Works and other useful schemes would be put through much more readily and at lower interest rates. The restoration of public confidence in the country would tend to attract 'double residents' whose assessment to taxation would benefit the Exchequer apart altogether from the expenditure they would incur and the employment they would give in their Saorstát establishment.

7. The limited trade agreement made in February last with the British Government expires at the end of the present calendar year. The value of the agreement to the Saorstát is estimated at £1,530,000 in respect of cattle alone for the period March-October, 1936, as compared with the corresponding period in 1934; while it is estimated that there is an increase of £234,000 in respect of other categories of exports on which the British special duties were reduced in February last. The total value to the Saorstát for this period may therefore be put at £1,764,000. The net value of the agreement to the United Kingdom during the same period is £1,212,000 in respect of coal as compared with the corresponding period in 1934 and it is estimated that under the other heads of the arrangement the United Kingdom gained additional trade to the extent of £46,000, making a total of £1,258,000.

8. A sustained attempt has been made during the past four years to find alternative markets for our agricultural products. These attempts have not succeeded except to a limited extent and the prospects of expansion are not hopeful. The following figures which represent the exports of our principal agricultural products during the 12 months ending 30th September, 1936, speak for themselves:-

The total value of our exports of these items to 'other countries' during the twelve months in question is £964,000, or roughly one-half of the additional trade secured for the Saorstát during the eight months March-October, 1936, by the agreement with Great Britain. The aggregate value of all domestic exports to 'other countries' during the year-ended 30th September, 1936, was £1,841,000 as compared with £19,790,000 to Great Britain and Northern Ireland. The adverse trade balance, which was £20,630,000 in the period of twelve months ending on 31st October, 1934, fell to £17,775,000 for the following year and £16,918,000 for the year ending 31st October, 1936.

9. An important consideration to be borne in mind is that there is no element of permanence in markets for cattle, butter, eggs, etc. in Continental countries. Such facilities as we are given in those countries at present are not only strictly limited, but also extremely precarious. It is absolutely certain that there is no prospect of securing within any period of time that can at present be foreseen any real alternative to the British market for our agricultural exports. A feature which has an important bearing on the question is the present disturbed political situation in Europe. If the position should further deteriorate our Continental markets would almost certainly disappear.

10. A table is attached showing the percentage distribution by country of origin of the imports into the United Kingdom for 1924 and for each year since 1931.¹ It will be seen that the proportion of United Kingdom imports represented by products consigned from the Saorstát has fallen from 4.24 per cent in 1931 to 2.47 per cent in 1935. During the same period the percentage from Canada has increased from 3.81 to 7.40, Australia from 5.31 to 7.17, New Zealand 4.39 to 5.04, South Africa 1.52 to 1.81, India 4.26 to 5.43, other Commonwealth countries 5.20 to 8.31. If it had been possible to secure for the Saorstát in 1932 concessions similar to those accorded to other Commonwealth countries, it is reasonable to assume that our exports to the United Kingdom would have benefited from such measures at least as much as any other part of the Commonwealth.

11. If it is thought inadvisable to attempt to settle the dispute and a more limited objective becomes our aim, the main concessions to be sought by us are:-

(1) The abolition of the 'Ottawa Duties'.

(2) Adjustment of quotas and duties (on a scale to be proposed by the Department of Agriculture) for Saorstát agricultural products imported into the United Kingdom.

12. As a quid pro quo, in the event of a wider settlement, the Saorstát can if necessary give the United Kingdom (or all Commonwealth countries) preferential rates of duty on a considerable volume of our imports without injuring any Saorstát interest; the only interest that would be injured by such a course is that of countries who take relatively very much less of our exports than the United Kingdom does. A possible alternative would be to provide for a special rate of duty, or some other form of restriction, on goods produced or manufactured in countries whose purchases of Saorstát goods fall below a specified percentage of their exports to this country; it should be stated here that such a course would involve the establishment of a three-tier tariff and would require very careful examination before it could be definitely recommended. The abolition of the Saorstát Emergency duties will almost certainly be demanded by the British in return for any concession to us in the way of further reduction of duties or increase of quotas. It is assumed that the existing arrangement regarding coal can be continued if it should be required by the British Government in return for the continuance of existing concessions to the Saorstát.

13. An order for plant and equipment for the new oil refinery will be placed within the next few months; the value of the order will probably be somewhere between £1 million and £11/2 million. It is not yet certain whether the promoters will wish to place the order in Germany or in Great Britain; but a decision by the Saorstát Government to bring pressure to bear on the promoters of the refinery scheme to place the order with a British firm, subject, of course, to a satisfactory quid pro quo, would undoubtedly be a useful factor in negotiations regarding concessions for our agricultural products.

(Signed) J.J. McElligott,

Secretary, Department of Finance.

D. Twomey,

Secretary, Department of Agriculture.

J.P. Walshe,

Secretary, Department of External Affairs

Seán Leydon,

Secretary, Department of Industry and Commerce.