Place flour, powdered sugar, baking powder and salt in large bowl; stir to combine.
Cut butter into flour mixture with pastry blender or 2 knives until mixture forms pea-sized pieces.
Add ice water; 1 tablespoon at a time; toss with fork until mixture holds together.
Divide dough in half; cover and refrigerate 30 minutes or until firm.
Meanwhile, melt caramels and milk in medium saucepan over low heat, stirring constantly; stir in coconut.
Remove from heat; cool.
Working with 1 portion at a time, roll out dough on lightly floured surface to 1/8 inch thickness.
Cut dough with 3-inch round cookie cutter.
Reroll trimmings and cut out more cookies.Preheat oven to 400°F.
Grease cookie sheets; set aside.
Beat egg and 1 tablespoon water in cup.
Place 1/2 teaspoon caramel mixture in center of each dough round.
Moisten edge of dough round with egg mixture.
Fold dough in half; press edges firmly to seal in filling.
Press edge with fork.
Place cookies on prepared cookie sheets; brush with egg mixture.
Cut 3 slashes across top of each cookie with tip of utility knife.
Bake 15 to 20 minutes or until golden brown.
Remove cookies to wire racks; cool completely.
Store tightly covered at room temperature.