Chapter CXLII: The Low, Low Price of an Imperial Conference.
Chapter CXLII: The Low, Low Price of an Imperial Conference.
Traditionally Whitehall had a sense of mild dread about Imperial Conferences, as they tended to lead to a new set of demands from the Dominions and more compromises by their lords and masters in Westminster. The Second British Empire Economic Conference was one of the rare exceptions to this rule. While not exactly looking forward to it, the civil service believed that for once it would be their Dominion counterparts forced to make hard decisions and uncomfortable compromises. Prompted by the growing imbalances in Empire Free Trade the conference had the unenviable task of trying to keep the benefits of the current arrangement while removing the undesirable features. It was the considered opinion of the Board of Trade that while this outcome was eminently achievable, the policies that would be required would not be popular in the Dominion capitals. As it was the Dominions that had pushed for the conference, and had rejected the option of a Royal Commission to kick the issue into the long grass, there was a belief that they did not quite understand what they were asking for. While this paternal air, which doubtless often crossed over into patronising superiority, was not an attractive feature of the London civil service, events at the conference would prove it was, for once, not unjustified.
The fundamental problem was that Imperial Preference was trying to be two incompatible things at the same time. Those involved wanted utterly friction free trade between the members, whilst having the freedom to set their own 'external' tariffs and custom duties. The former was considered non-negotiable by all involved, it was a bedrock of Empire and something so fundamental that it was never even discussed and certainly not something that could be changed. The latter was at least in part the result of a very British feature of taxation policy that had been exported to the Empire; the desire to rely on indirect taxes (like customs and excise) and not raise the direct taxes (like income tax) that voters actually noticed. Indeed the children had taken the parent's lessons to an extreme and indirect taxes amounted to 75% to 80% of the total revenue of the Dominion governments. As we have also seen in the previous chapters tariffs and trade barriers were seen as vital tools to protect politically important industries, even if they weren't used to do so (or wouldn't work if they were used) no politician is ever keen to give up any power. As discussed in Chapter XCV the problems with this arrangement are entirely predictable; to bypass a high tariff in one country it was only necessary to ensure the item entered the Imperial Preference area through a low tariff member, once inside it could be moved around tariff-free to it's intended destination. While this problem had been identified at the first Imperial Economic Conference in Ottawa, it had been felt that given the large distances, the cost of shipping and the broadly similar tariffs rates it would not be a serious issue. To an extent this was correct as it still wasn't a serious economic issue but it had become a political issue due to a few high profile cases. More seriously shipping rates had become drastically cheaper as the diesel powered motor vessel started to displace the steam ship and the steady stream of reforms, tweaks and bilateral trade treaties were opening up far larger tariff differentials across the Empire that could be exploited.
The MV Delius, a refrigerated cargo liner in service with the Lamport & Holt shipping line and working the Liverpool-Buenos Aries route. Completed around the same time as the Imperial Conference began, she was symbolic of the newer generation of ships entering service and causing so many problems. The MV stood for Motor Vessel and she was powered by a pair of large six cylinder diesel engines in place of the more traditional steam turbine or reciprocating triple expansion engine. While marginally more expensive to construct than those types, a motor vessel was dramatically less expensive to run as it required fewer crew and was more fuel efficient. While their introduction into wide-scale service had been delayed by the shipbuilding lull of the Depression as trade recovered so did shipbuilding. To the annoyance of the shipping lines the far lower running costs of the MVs did not equate to larger profits, but instead lower shipping rates, these lower rates then opened up new opportunities for traders to profitably exploit the loopholes in Empire Free Trade. As was so often the way a government policy for one area was causing problems in another; the ship scrappage scheme was accelerating this trend by speeding up the replacement of old triple expansion ships with more modern MVs.
With the problem identified discussion turned to a solution, which was naturally where the arguments began. Trade theory did have an answer to the conundrum of different external tariffs while maintain internal free trade, the concept of Rules of Origin. The principle was simple enough to state, to benefit from free trade within the Empire the product had to be demonstrably produced within the Empire, however the practical problems with this 'simple idea' soon mounted up. Consider a simple steel bar, if it was made in a Scottish furnace with British coal, South African and Australian alloy metals, but Swedish iron ore, did that count as an Empire product? Was the measurement of allowable 'non-Empire' content by cost or volume? Did you consider the volume of the raw ore or the amount of material in the final product? Did the coal count towards the total? Certainly you could not make steel without it but there was precious little in the final product. Take these questions and apply them to a more complicated product, such as a lorry with hundreds of suppliers and thousands of components, and the scale of the problem should be clear. More seriously for those at the Conference this approach would impact on intra-Empire trade, forcing firms to jump through bureaucratic hoops to 'prove' their products were indeed eligible to be shipped tariff-free within the Empire. Essentially if it did not inconvenience exporters then the rules would be impossible to enforce and so ineffective. Thus this approach was soon ruled out and the conference was forced to turn to the other option, the one the Board of Trade civil servants had predicted would cause considerable consternation.
The other solution was to eliminate the opportunities to exploit the system by harmonising tariffs. There were a range of ways to do this, from full blown Customs Union though to just keeping tariffs within a certain range so there were no large differentials to exploit. While this seemed harmless enough the implications were far reaching, as we have seen the income from tariffs was significant for all the governments at the Conference so any changes would require budgets to be re-balanced. Trade policy was to a large extent also foreign policy and while few in the Dominions wished to deviate from the main thrust of British policy they had become accustomed to a degree of latitude. All of the Dominions had negotiated their own trade deals, from small bi-lateral affairs through to the sprawling mess of the Southern African Customs Union, and these would all have to be co-ordinated and perhaps re-negotiated. Those in favour of the scheme pointed out that improved co-ordination would have significant advantages beyond just closing loop-holes in the existing system of Empire Free Trade. The example given was Japan, which had deliberately been adopting a policy of 'picking off' the Dominions one at a time, in the early 30s she had forced trade concessions from Canada and was now working on Australia. While Australia had responded tit-for-tat with tariffs on key Japanese trade items, her big problem was a lack of Imperial co-ordination. To ramp up pressure Japanese importers had started substituting Australian wool for woolen imports from South Africa, the UK and New Zealand. If the rest of the Empire would agree not to co-operate with such efforts the Australian negotiating position would be immeasurably enhanced and Canberra could get a far more favourable treaty. The Australian delegation was quick to realise that the 'price' of this support would be far less latitude in the negotiations, or in the case of a full Imperial Customs Union, having to negotiate as part of the Empire and not on their own account.
The new Chelsea Bridge over the River Thames under construction in the spring of 1937. A true product of Empire it was built from Newfoundland iron ore, South African chromium, Rhodesian copper, Douglas Fir from British Columbia and asphalt from Trinidad, in addition to Cornish granite and Yorkshire coal. While this made it a wonderful photo opportunity for the Conference attendees, the bridge would be officially opened by half a dozen Prime Ministers simultaneously, it was also a symbol of the economic challenges of Empire. The structure could have been constructed with Swedish iron ore, Turkish chromium, Chilean copper, pine from the Baltic and Iraqi asphalt. For a variety of reasons, from commercial to strategic, trade with those nations was also important and had to be maintained, not least because there were many products where the Empire alone could not supply the required quantities.
This in the end was the crux of the matter, the political dimension of the change. The budgetary impacts could be managed and the foreign policy concerns were in practice minimal, but symbolically it would be hugely significant; the Dominions returning a power to the Empire. Indeed, given Britain's disproportionate economic and industrial weight and the massive advantage the City of London's financial firepower gave, it would be returning power mostly to London. As the dilemma was assessed as unsolvable, or at least not solvable in a palatable manner, the solution was a traditional bodged compromise. The attendees agreed to close the largest loop holes to solve the immediate problems and to setup an Imperial Trade Council to "co-ordinate" tariffs with an aim to harmonising them at some unspecified point in the future. The Council was also to review and advise on the Imperial consequences of tariffs and treaties and all parties agreed to consult with the Council before signing new deals or significantly revising duties. Quite what would happen if the advice of the Council was ignored was left unsaid, though in practice it was unlikely to matter; Britain and the Dominions were to have a single representative each and all decisions were to be unanimous, a perfect recipe for ensuring nothing actually got decided (and for provoking yet another mild row about quite what Rhodesia was). Yet from this unpromising start something significant would develop. The Council would need a permanent staff, to carry out the reviews and assess what the impacts of any trade treaty would be, there was also a need for a secretariat to support the representatives, or that at least was the firm opinion of the Whitehall Civil Servants that ended up dominating the body. As noted above there were foreign policy and defence implications in any trade deal, so the Council developed links with the Committee of Imperial Defence, a body already being roused from it's slumber by the challenges of the Wellington Project. While the Council would continue to mostly fail at it's main task of harmonising tariffs and reviewing trade treaties, or rather that would happen despite what the council did not because of it, it soon became the default clearing house for a wide range of Imperial matters as it had the staff and Dominion representatives who actually turned up and paid attention. So much so that by the time it finally dropped the 'Trade' from it's title in the early 1940s that was more a long delayed recognition of reality than an ambitious power grab.
With the precedent of policy fudges before them, it is perhaps hardly surprising that the other major decision facing the conference was also fudged. Though it is perhaps unfair to say the decision faced the conference when it in fact only really faced one attendee; Canada. The gold standard had been good for Canada, with her currency effectively pegged to both the US Dollar and Sterling (as both were tied to gold) and with close ties to the US economy and a full member of the Sterling Area Ottawa believed it had the best of both worlds. The early 30s had seen that advantageous position shattered, as the Smoot-Hawley tariffs closed off the US and Britain had begun Imperial Preference in reaction. The British decision depart the gold standard and devalue was another blow and one that forced a decision, while the rest of the Empire had followed London the Canadians had not. While Canada had left the Gold Standard, no longer was the Canadian dollar exchangeable or officially backed by bullion, she had not devalued. The intervening years had not been kind, the continued failure of the US to devalue or offer any meaningful talks on trade and tariffs had hurt the economy badly. It was noted that while the US State Department was very keen for other people to drop their tariffs, but silent on what measures the US would take to lower her own. While Canadian Prime Minister Mackenzie King remained keen on free trade, and trade with America specifically, by the summer of 1937 he had been forced to concede this was unlikely to happen. The persistent failure of the US to reciprocate Canadian approaches, or even to consider their interests, had finally worn him down, hence his acquiescence to the Imperial Trade Council. This also explains why he had finally given in to the steady lobbying from business, the opposition parties and the banks to stop waiting for the US to devalue and get it over and done with. Thus during the conference the devaluation of the Canadian Dollar was announced, it would drop 20% compared to it's Gold Standard value and be stabilised at it's old level with Sterling. In this endeavour the Bank of Canada would receive the full support of the Bank of England and the British Treasury, not to mention it's own healthy gold reserves. After a degree of turbulence this stabilisation was achieved and the benefits began to flow into the Canadian economy, alongside the angry telegrams from the US government. In light of the events of the Autumn the devaluation is often somewhat overlooked, it was to an extent over-taken by developments elsewhere. Yet it remains worthy of note as one of the first clear, if reluctant, steps towards London and away from Washington that Canada took. That it was Prime Minister Mackenzie King that took it makes it all the more noteworthy.
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Notes:
Australian-Japanese trade and relations were complex at best and there was a surprising lack of Imperial co-ordination on these things. I am to an extent glossing over some of the issues, it was sensitive and the Imperial Trade Council (or something similar) was perhaps not the most likely outcome even after all the changes in Butterfly. But it was possible so I'm going with it.
There absolutely was a need for something to be doing Imperial co-ordination, it was noted at the time, but nothing much happened. The Dominion Office was notionally responsible, but tended to mostly worry about Ireland and get dragged into Colonial matters like Palestine. The Committee for Imperial Defence had notionally Dominion representatives on it, but they mostly never turned up because they didn't really care about defence (that was Britain's job). Trade and tariffs however, they do care about so will turn up, something which is made easier by Imperial Airways pulling their finger out on the air route to Australia. My reasoning is that natural Whitehall empire building will kick in and the Council will attract power and jobs on the strength of actually being a meaningful link between London and the Dominions.
The Wellington Project is of course the plans to build the Vickers Wellington in Australia and Canada and adapt it to use the Rolls Royce Merlins that Australia is building for it's Hurricanes (which probably need a moniker. If Canada is building Snow Hurricanes then Australia must have xxxx Hurricanes). In any event this means the RAAF and RCAF liaison officers are being kept busy poking the Air Ministry, Vickers and Rolls-Royce about progress, while those parties keep referring them back to the Committee on Imperial Defence just to be left alone.
I've glossed over much of Canada's economic adventures (like the fact the Bank of Canada was only founded in 1935,the really close relationships between the new Bank and the Bank of England and the ongoing gold earmarking schemes) but they are not really relevant. What is relevant is that in OTL Canada stayed pegged to the dollar, but here the US still has not devalued and it is hurting. So after a change in President has not changed things even the arch US-ophile Mackenzie King had had to admit reality, hence devaluing down to match Sterling and trying to co-ordinate trade with London and not Washington. OTL of course the mildly deranged Cordell Hull was at the US State Department preaching free trade (for everyone else, not the US obviously) and his crazy theory that if only Hitler could get slightly better trade terms he would become a peaceful and normal politician.
To answer the questions no-one asked. Ireland was invited but didn't turn up, because Dev loved hacking at his nose to spite his face. Hence London looks reasonable to the other Dominions for making the effort, but no-one has to actually think about Ireland. Rhodesia did get invited, even to the OTL 1937 Imperial Conference, because it's status is wilfully weird and doubtless will remain so.
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