CAB129-33 — Page 198

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16. Economic.-From the point of view of Commonwealth trade, whether in relation to the goods preferences or to the treatment of Commonwealth nationals, enterprises and interests in India, each the three hypotheses dis- cussed in this paper is relatively disadvantageous compared with the present position under which India still owes allegiance to the Crown. The first, how- ever, is the least disadvantageous of the three. Its relative merit is due (i) to the general consideration that, while India remains in the Commonwealth, the atmosphere should be more favourable for the maintenance of special relations of a preferential character than if she were outside it and, more particularly, (ii) to the effect of most-favoured-nation clauses in commercial treaties with foreign countries. As regards the latter point, the position is, shortly, that the preferential treatment of persons and enterprises, and to a great extent the goods preferences, would only be fully safe from challenge before the International Court by foreign countries possessing most-favoured-nation treaty rights if the link with the Crown remained in some form. There is a reasonable chance that such challenges could be successfully withstood, on common sense and practical grounds rather than on legal grounds, under the first hypothesis (i.e., if India remained a member of the Commonwealth)-though, as is shown in the following paragraph, India may have less interest than the United Kingdom in resisting such challenges if they were made. But it is very unlikely that an adequate defence could be put forward under the second hypothesis and it certainly could not under

the third.

The preferences fall into two classes-

(a) trade preferences on goods;

(b) special treatment of persons and companies.

A challenge might affect one or the other, or both a successful challenge on either would in all probability react equally on the other. Once a successful challenge were made by any country on either the trade preferences or the special treatment of nationals, it would probably be necessary to drop all the preferential arrangements with India. (The preferences between the United Kingdom and other members of the Commonwealth would, of course, continue unaffected.) The estimate given below of the value of both these forms of preference and of the effects of their loss is necessarily limited to the United Kingdom, but other Commonwealth countries may suffer similar disadvantages.

17. It is not easy to appraise quantitatively the benefit to the United Kingdom of the trade preferences with India, though they were undeniably of great assistance in the slump period of the 1930's and probably still have considerable value. Moreover, it seems probable that the trade preferences which India gives to the United Kingdom are relatively of greater benefit than those which the United Kingdom gives to India.

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The preferential treatment which (usually combined with duty-free entry) India enjoys in the United Kingdom covers a variety of products (tea, jute goods, leather, &c.) amounting to about 70 per cent. of the United Kingdom's total imports from her (over £96 millions in 1948: the United Kingdom takes over 20 per cent. of India's total exports to the world). India does not regard this treatment as entirely valueless in the long run, especially on items like jute- goods or carpets which the United Kingdom might ultimately want to protect from Indian competition. But she imagines that under present conditions most of her exports would be substantially unaffected by the removal of preference. As a primary producer, she doubts whether any country would wish to restrict her exports to any significant degree; and she has long felt that the United Kingdom gets much more relative advantage from preferences in India than India gets from preferences in the United Kingdom. It is, therefore, conceivable that United Kingdom preferences in India will gradually disappear over the next few years, whatever the constitutional relationship may be. (They would no doubt disappear at once if the United Kingdom withdrew her preferences to India.) About 30 per cent. of the United Kingdom's total exports to India (which were valued at some £96 millions in 1948, or about 6 per cent. of the United Kingdom's total exports to the world) enjoy preference. The most important items are cotton piece-goods, cycles, motor vehicles, various chemical preparations, electrical apparatus, parts, &c. Their value is difficult to assess in the present situation since they are afforded a measure of defence against foreign competi- tion by quantitative import restrictions on goods from hard-currency countries