H.—3o.

duties oil foreign dairy-produce and to impose duties on Empire dairy-produce, and to apply the proceeds towards subsidizing the British producer. By this means the British consumer will be able to buy cheaply, and the British producer will be protected. On the other hand, the Government may take the view that its trade relations with Empire and foreign countries cannot be maintained on a sound basis if those countries are allowed to make themselves bankrupt in an endeavour to sell, for an indefinite period, increasing quantities of their produce in the United Kingdom market at a heavy loss. In so far as debtor countries' are concerned, it is necessary to conserve their ability to pay interest and accumulate sinking funds in respect of their loans, and the United Kingdom, as a creditor country, is vitally interested m this respect. Further, the Government of the United Kingdom may seek to place British farmers on a sounder economic basis, without their having to rely on the indefinite continuance of subsidies. It is therefore not improbable that the Government of the United Kingdom will impose a limit 011 imports of dairy-produce, with or without the levying of differential duties, and will, in fixing quotas within that limit, have regard to the relative claims of Empire and foreign countries. 69. Special Trade Relations of New Zealand with United Kingdom : In so far as New Zealand is concerned, it may be claimed that she is, for climatic and other reasons, best fitted for the economic production of butter and cheese of the highest quality, and that most of the land now used for dairying cannot profitably be diverted to other purposes. The Dominion's export trade in dairy-produce has been built up in reliance on the markets of the United Kingdom being always open to it, and the loan-moneys borrowed from the United Kingdom have been borrowed in the faith that interest and principal payments would be made from the proceeds of the sales of our primary products therein. Apart altogether from the wider aspects of loyalty to the Empire, New Zealand has consistently given a greater measure of her trade to the United Kingdom than has any other Dominion, and has maintained the lowest scale of tariffs against the products of the United Kingdom. In fact, it is not exaggerating the position to say that New Zealand is economically almost a part of the United Kingdom, for she imports more largely per capita than any other country from the United Kingdom, exports almost exclusively to the United Kingdom, makes the fullest possible use of British-owned ships for her trading requirements, and pays to British shipowners over £8,000,000 a year m freight charges on goods shipped to and from the United Kingdom. 70. The Principle of "Preference for Preference" within the Empire : It has been said that there can be no discrimination within the Empire, but we think statement, in the bald form in which it is usually made, is misleading and ambiguous. We agree, as a broad statement of principle, that New Zealand cannot claim any arbitrary discrimination m her favour ; but should not the principle of non-discrimination be based on equality of reciprocity ? There can be no injustice in giving to other Empire countries equal preference to that accorded to !New Zealand, provided they accord to the United Kingdom the same preference as New Zealand does. Equally, there is no injustice in according to New Zealand preference for preference. In this connection, we have not endeavoured to counter the British milk-marketing subsidy by subsidizing our producers, and consequently we cannot be fairly charged with using the United Kingdom market as a dumping-ground for our surplus produce. In addition to any scheme of differential treatment as between Empire and foreign countries that may be adopted by the United Kingdom Government, we may fairly claim that an equitable scheme of differential treatment of Empire countries should be devised, which would give preference, as to both quotas and import duties (if the latter be imposed), to those dominions that maintain low tarifls against goods exported from the United Kingdom and do not dump their produce in the United Kingdom under the shelter of subsidies. 71. Probability of Continued Low Prices : In the early stages of what is termed " the depression," it was commonly thought that the general fall in prices was of a temporary nature, and that the depression period would be short. In fact, it is still held by many people that " something " is just round the corner, and that the unexpected thing will happen, which will once again send prices of primary products to a remunerative level. The general acceptance of this doctrine has resulted in the adoption of temporary expedients to meet an anticipated temporary crisis. It is still argued that importing continental countries will soon grow tired of paying high retail prices for butter and cheese, and will be forced by their own consumers to remove quotas and prohibitory duties, and thus open their markets to foreign produce, even though their action will reduce the prices of dairy-products at present enjoyed by their own farmers. It is still argued that Governments at present subsidizing the production and marketing of dairy-products wiU be forced through economic stress to discontinue this form of assistance, and that their countries will then no longer be serious factors in the British supply position. There are still some who look to droughts to reduce the production of competitive exporting countries, and others again have in mind the possibility of wars as a means of again establishing an artificial position of supply and demand. Again, hopes are held that the recovery of trade in Great Britain will be reflected in such an increase in the purchasmgpower of the workers as will enable the increasing supplies to be cleared at substantially higher prices. In the face of the actual position as it exists, and in the absence of any indication of a change from the general policy of national economic self-sufficiency, it appears to the Commission that the grounds for these views and hopes are shadowy and unsubstantial. 72. Advisability of Quota Discussions : For this reason, and because of the still less favourable outlook in so far as dairy-produce prices are concerned, we are of the opinion that the possibility of quota restrictions as a means of relief to

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