101 Mr L. R. Macgregor, Government Trade Commissioner in North America, to Department of Trade and Customs
Cablegram General 524 NEW YORK, 5 November 1941, 3.58 a.m.
1. Replying your 3890.  Following are recommendations:-
They are submitted in four parts, namely, Policy and Procedure Changes Paragraphs 2 to 12, Administration Paragraphs 13 to 15, Personnel Paragraph 16, General Comments Paragraph 17.
2. PART 1. Policy and Procedure Changes These are the major considerations of importance in Australian national interests. For some time we have been seriously concerned respecting delay in obtaining supplies in America of many items urgently required by Australian departments and continued delays in furnishing ...  which will unquestionably seriously prejudice the war effort. As at October 25th, 575 requisitions have been submitted under Lend Lease. Of this number contracts have been placed by the several American Procurement Departments for 156 items. It is frequently 3 months after the receipt of instructions from Australia before an order for goods is placed by the American department concerned after which a further period elapses before the goods are delivered. Only a handful of material has been obtained by us under Lend Lease apart from tobacco and cotton. Notwithstanding all our difficulties we are probably further ahead proportionately than all other countries in obtaining supplies here. Successive proposals recently transmitted to you approach the matter superficially. The uncertainty as regards eligibility under Lend Lease or availability for cash of many categories of goods must be annoying and confusing to the Commonwealth Departments concerned.
3. On outbreak of war at inception of purchasing of supplies in this country and at instance of United States President  all Allied Governments coordinated procurement of supplies through one channel. With passing of Lend Lease Act we were requested to continue such co-ordination under Lend Lease system. This meant that goods desired by Dominions from United States under Lend Lease have been requisitioned through one of seven British Missions to the requisite American Government Department of which there are five concerned with procurement of supplies. Present theory of Lend Lease is that goods are lent-leased by United States Government to the United Kingdom Government which in turn with approval of United States Authorities transfers specified goods to Australia. While Menzies  here, it was considered whether an independent line could not be taken by Australia. The advice of the American Authorities upon consultation with them was that all British units should continue to collaborate as regards their requirements and present a united front to American agencies. On our recommendation Menzies approved this course.  At same time Menzies' attention was drawn to position of Canada in keeping free of Lend Lease and in making its own direct arrangement with the United States. Copies of cablegrams which had been despatched by me on the subject were brought under his notice.  It was suggested that on his return to Australia he should inquire into feasibility of Australia following a separate plan on Canadian pattern. After Menzies' return he telegraphed stating impossible take course similar to Canada and authorizing continuance of existing Lend Lease practice. 
4. it was also mentioned to Menzies when here that an agreement had been prepared in draft form as between United States and United Kingdom covering Lend Lease transactions between the two countries the finalization of which agreement had been postponed.
it is still unfinalized. It is intended that when the agreement between United States and United Kingdom be concluded there would be a separate agreement between United Kingdom and Australia. One difficulty in any such agreement concerns the provision in Lend Lease Act for the President to determine the consideration to be attached to Lend Lease goods. There are two views among American officials, one being that the aid should be without stint and that any consideration should be purely theoretical the actual consideration being the contribution to the saving of democracy.
Minority groups either take a bargaining and materialistic view or are genuinely concerned lest American domestic and political considerations arising from over-generosity raise isolationist storm which would imperil aid. As taxes rise there is an increasing degree of scrutiny of Lend Lease expenditure by congressional sub-committees and consequently a more minute examination by officials of objects of expenditure. Vacillation in American attitude to successive Lend Lease requisitions is due largely to fact that each requisition is considered from standpoint of American domestic and political implications.
5. My view is that we should continue here our existing day to day efforts to expedite the procurement of supplies of categories of minor importance, reserving major items temporarily in suspense pending determination new policy on part of Commonwealth Government. Concurrently, however, with this continued effort I believe time has arrived when Commonwealth Government should review its Lend Lease policy in the light of developments since Menzies' visit. As we were requested, we have given a fair trial to the plan of coming in under the wing of United Kingdom. One course would be to take view that pending clarification of probable outcome of proposed agreement between United States and United Kingdom you could decide to carry on as at present on principle of goods being lent-leased by United States to United Kingdom and in turn transferred to us. With finality upon proposed United States-United Kingdom agreement before us we would be in a better position to determine our course. An alternative course would be the following. A month ago the American authorities modified the view they took when Menzies here. Early October they discussed with British Supply Council possibility of making a separate Lend Lease agreement directly as between United States and each Dominion. No Australian representative was present at these discussions which I submit ought to have been the case. This is not the only such instance.
6. There are admittedly pros and cons on questions posed in paragraph 5. In event of a direct arrangement being made between United States and Australia principal advantage would be that we would have direct access to all American Authorities. On other hand some risk would attach to approach to American Authorities for a direct agreement as such an agreement might lead to requests for something approaching a barter of commodities. The barter idea was raised with me in March last by senior American official. I immediately pointed out firstly, that our major export commodities had been sold to United Kingdom for duration and any portion sold in United States provided dollars for dollar sterling pool. Direct exclusion of any proportion by us for United States would merely diminish accruals of dollars to pool and to that extent defeat basic idea of Lend Lease to save dollars. Question has been raised several times since but has been promptly squashed. In event of amendment of Neutrality Act the acceptance of a credit by us to cover adverse exchange balance might be proposed by American Government. This principle might obtrude in any direct Lend Lease agreement. My belief however is that a direct Lend Lease agreement could be negotiated with United States which would not be harsh and I have no hesitation in urging that we initiate the necessary soundings immediately.
7. In April last Congress appropriated seven thousand million dollars and last week six thousand million dollars for Lend Lease which latter it is expected will be exhausted by February. It is improbable that we shall secure more than 250 million dollars worth of goods out of this amount. From monetary standpoint therefore Australia is small in Lend Lease. On other hand as before stated some goods we require are of character so vital in relation to war effort as not to be capable of measurement by comparative money values. While British Missions through whom we have worked have been most co-operative we tend to be overshadowed. This reinforces my opinion that we should take risk of seeking a direct arrangement.
8. If endeavours for a direct agreement with United States were approved by you the following would be some features. Approach would be to highest American Authority and should be by means of a complete outline of our case in relation to magnitude of our war effort and our strategic position. There should be submitted a detailed statement of difficulties experienced in obtaining goods with a dated listing of all our requisitions and progress on each.
The approach should be a reasoned one supported by facts and figures and should denote an understanding appreciation of stupendous task of American Departments in getting themselves equipped to handle vast and unprecedented volume of business. Our attitude should be sympathetic and appreciative not critical or exasperated. It should nevertheless be insistent in advocacy of Australian viewpoint and interests. We should place special emphasis on consistent policy civilian supplies from standpoints public morale, sound administration and budgetary aspects. As well as showing past record under Lend Lease we would submit constructive plan for future. This would include a list of goods we estimated that we will require for next twelve months and subdivided into six and three month periods. American Authorities at present prefer the short distance examination in part because of probable exhaustion by next February of last week's new financial appropriations. But we should give estimate both short distance and long distance. In some instances securing of goods by us has been delayed because United Kingdom Government had exhausted available monies. I cite the example of tobacco. See my memorandum to Import Procurement on that subject.  I am now afraid we shall never fully obtain balance of tobacco requisition which was originally approved. With a separate agreement between us and United States we should ask for an earmarking of certain appropriations for Australia. We should seek an immediate ruling on each item in complete list which we would submit as to whether eligible or ineligible under Lend Lease or as to what proportion of any one item may be eligible. Case for each item should be argued. A first refusal should never be accepted as has unfortunately hitherto been the case in some instances. There should be provision for appeal from junior officials on both sides to a higher joint United States-Australia Tribunal. Last week British Supply Council made an arrangement for Stettinius, President's delegate, and Taylor, Assistant to Chairman of British Supply Council, to jointly look over any doubtful items of value over one hundred thousand dollars. I do not regard this as a satisfactory arrangement for Australia. We are big enough to take stand on our own. Do not let us forget Canadian attitude.
9. Thus in line of approach which I advocate in our negotiation of a direct agreement the objective would be a total picture of availability and of money value of eligible and non-eligible items. As regards dollar value of goods not eligible you would either decide to do without or if essential to war effort British and American Authorities would be asked concur in advance in utilization by us progressively of block amount of monies in question from dollar sterling pool. This line of approach has been considered frequently in past but we have always been told by British Authorities that we must proceed step by step with establishment of precedents on specific cases. Experience shows that precedents are ever changing. We have been told by British representatives that American officials will not state a clear cut policy. In my opinion time has arrived for us to press to utmost with highest American Authorities for a stable policy covering our entire requirements. In this connection observe distasteful procedure noted in paragraph 4 of final draft pamphlet  sent by me to Australian Departments and how derogatory of autonomy. This procedure crept into routine through administrative inexperience on part of those handling it. Joint clearing committee referred to in pamphlet has never functioned properly and procedure has resolved itself into an Australian official here seeking approval of a British Treasury official for expenditures on goods which an Australian Authority has determined as being necessary. I admit that in long run we might be better off by method of building up precedents rather than determination upon a complete list. But we would know where we stand which would be worth while. You should note however that we might fail to get the Americans to face up to a determination on a complete list. On basis of negotiation of a direct agreement we should try.
10. There are five American Procuring Departments namely, Army, Navy, Treasury Procurement, Maritime Commission, Agricultural Department. In addition Division of Defence Aid Reports constitutes Lend Lease Administration. Office of Production Management is important in priorities. We should ask for an American liaison officer exclusively handling Australian problems to be detailed in each of these seven Departments. There is precedent for this in the State Department in which separately designated officers have for many years dealt with problems of each country with which United States has relations. Minter of American Legation, Canberra, can explain this system to your advisers. Another important point is that we should ask that when a contract has been made by an American Procuring Department with an American supplying firm we might be permitted access to that firm. British Authorities have frequently sought this privilege and it has always been a most delicate point with Americans. We might be turned down on this request also, but there is just a chance we might succeed where the British have failed in getting privilege either immediately or later.
11. The question whether a direct arrangement would place us under economic dominance of United States should be considered. With the vast Lend Lease appropriations already made and new appropriations which will have to be obtained as shown in paragraph 7 Australian use of Lend Lease will be proportionately small. If Lend Lease is ultimately going to result in economic dominance a lot of other countries besides Australia will be economically dominated and dominance would be so widespread as to be negative. In any event in differentiating between eligible and non-eligible items a greater or less utilization does not affect the principle. We would be just as liable to be economically dominated by using 150 million dollars Lend Lease per annum as by using 300 million.
Further we are little less likely to be economically dominated by accepting goods without an agreement with United States than if we had such an agreement.
12. I conceive that British Authorities would discourage our having a direct arrangement with United States on Lend Lease.
While view of British Authorities should certainly be considered a clear statement of advantages which they see in present arrangement as against a more direct plan should be given by them.
As mentioned earlier we have before us the precedent of Canada, admittedly not a perfect one. It may be argued on behalf of United Kingdom that a continuance of coordinated approach to United States is necessary and this view can be considered. Situation has now developed however under which United States Authorities are doing their own co-ordinating. If we had a direct arrangement we could register our requisitions with the British Supply Council to present total picture but proceed upon them independently. We may find British Government have overshadowing arguments against direct arrangement. Obstacles may be encountered with Americans.
At present I believe direct approach worth trying.