1. In a large bowl, stir together the flour, confectioners’ sugar, baking powder, and salt. Cut in the butter, continue until the mixture forms pea sized lumps. Add ice water, 1 tablespoon at a time; tossing the mixture with a fork until dough comes together. Divide dough into 2 pieces, cover and refrigerate for at least one hour.
2. In a small saucepan, combine the caramels and milk over a low heat, stirring constantly. Stir in the coconut, remove from the heat, and allow to cool.
3. Preheat oven to 400 degrees. Grease cookie sheets.
4. On a lightly floured surface, roll out dough to 1/8inch thickness. Cut out circles with a 3 inch round cookie cutter. Beat the egg and 1 tablespoon of water together in a cup. Moisten the edge of the cookie round with the egg mixture, and place ½ teaspoon of the caramel mixture in the center. Fold the circle over in half and press the edges with a fork to seal.
5. Place the cookies onto the prepared baking sheet and brush the tops with the egg mixture. With a knife cut three slits across the top of each cookie. Bake 15-20 minutes, until golden brown. Remove cookies to wire racks. Store in room temperature.
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