492 Department of External Affairs to Legation in Washington

Cablegram SW43 CANBERRA, 19 May 1942

IMMEDIATE SECRET

1. Reciprocal Lease Lend Negotiations-Our P.M.28 [1] Sections 2 and 3 and your despatches. [2]

2. It is clear from preliminary discussions that U.S.

representatives here expect all supplies and services which can be made available from or through Australian Government to be provided as reciprocal aid. We understand they intend all requisitions over 500 dollars to be made on or through Australian Government.

3. The U.S. Procurement Organization has given following summary as examples of items which they wish to obtain as Reciprocal Lend Lease:-

(a) All foodstuffs procured in Australia (except from the extra 6d. per man per day).

(b) All rentals for offices, quarters, storage and shop facilities, etc., requisitioned or constructed for them.

(c) All transportation and communication services rendered to them, whether owned and operated by the Commonwealth Government, a State or subsidiary Government or privately owned and operated.

(d) Such indirectly employed services as can appropriately be arranged for by or through the Australian Government, such as:-

(i) Stevedoring and other labour.

(ii) Maintenance and repair of mechanical transport.

(iii) Construction of Works, etc. etc.

(e) Any other materials, supplies, equipment and services which can be procured from or through the Australian Government.

4. The procedure urged by U.S. representatives here would place Reciprocal Lease Lend on a much broader basis than Lease Lend, e.g. supplies involving foreign exchange (see paragraph 8 below).

Further each Lend Lease requisition has to run the gauntlet of close examination. In informal discussions Wasserman [3] admits that the burden imposed may be heavy but states that Australia's contribution must be regarded as an offset against U.S. assistance to the Empire as a whole. He also stresses that U.S. will protect U.K. dollar position and that we should look to U.K. for protection of our sterling position. We would appreciate advice of arrangement to protect U.K. dollar balances also any general comments.

5. Our view is that:-

(1) Administrative costs such as office expenses, pay of office staffs, etc., which from point of convenience are best managed and paid by American organisation;

(2) Day to day supplies and services purchased by Americans on their own requisitions in open market;

(3) Expenditure for U.S. Forces which is above accepted Australian standards and which may embarrass us in dealing with our own people and our own Forces;

should be excluded from Reciprocal aid and we have conducted preliminary talks on that basis. No great difficulty is anticipated in obtaining local agreement to (1) and (2). Cases have arisen under (3), which have proved embarrassing to our own administration. They are in course of discussion between Australian and American General Staffs and we expect to arrive at satisfactory arrangement.

6. We feel following items require further consideration:-

(a) Supplies to U.S. Forces outside Australia.

(b) Supplies involving foreign exchange.

(c) Capital Works.

We are anxious to help in every possible way but feel full acceptance may place R.L.L. by Australia on broader basis than by U.K. As U.K. has suggested we might adopt similar principles and procedure to them and as recent developments indicate U.K. will be primarily responsible for safeguarding our sterling position we would like you to discuss with Phillips [4] and advise his views before decision is reached. The following information is presented on these items.

7. Supplies to U.S. Forces outside Australia. Typical example is New Caledonia. There is also possibility of future heavy commitments if large U.S. Forces are engaged in countries within our geographical area. We have noted Para.8 of your 671. [5] U.S.

representatives here desire these supplies to be provided as reciprocal aid and we feel it may be desirable to agree. As question of principle is involved we will be particularly glad to have advice from Phillips.

8. Supplies Involving Foreign Exchange. An example is purchase by U.S. Forces of 4,000 motor vehicles now in Australia costing 1 1/2 (all figures million pounds Australian) about half of cost being dollar exchange previously paid by Australia. U.S. representatives consider that as the goods are here no further exchange is involved and in any case U.K. will look after our exchange position. As request appears to be out of step with principle proposed by U.K. we desire further advice. Further we understand that U.S. will not provide under Lend Lease supplies involving them in foreign exchange. A case under current discussion by Macgregor [6], is timber from Canada.

9. Goods and components imported from non dollar sources appear more difficult, particularly if coming from within the sterling area. We would like to know U.K. attitude on this aspect.

10. We are examining problem of U.S. buying back goods originally supplied by them under Lease Lend but this aspect is unlikely to be important in Australia.

11. Capital Works. Programme necessitated by arrival of U.S.

Forces is very heavy and comprises significant part of aid given to U.S. Forces. Total programme approved to date is 23. About 6 is purely American including Tocumwal Aircraft Depot 2, balance is for joint U.S.-Australian use. At present all expenditure is being met from Australian funds. According to Dominions Office cable 7th May [7] U.K. in [its] own arrangement with U.S. proposes to keep capital works out of Lend Lease and Reciprocal Lend Lease, and suggests costs of such works should be borne by Government controlling their construction or maintenance, except that those supplies or services which it is convenient for the other Government to furnish would be free of charge. We gather that in U.K. itself some works are carried out by the U.S. and inference is that U.S. Government bears large proportion of costs actually incurred in U.K. If so position is different from that obtaining here where total expenditure on all these works is being met from Australian funds. Please advise further as to position in U.K.

12. It is our view that we should continue to pay cost of all capital works in Australia but emphasise they should be regarded and recorded as Reciprocal Lend Lease. Please advise views after consulting Phillips.

13. Glad if you will consult Phillips quickly and let us have his views on points raised above. Upon receipt of your advice we will obtain decisions of Government.

1 Document 457.

2 See file AA:A981, USA 182.

3 Chief of U.S. Lend Lease Mission in Australia.

4 U.K. Treasury representative in the United States.

5 Document 480.

6 Director-General of Australian War Supplies Procurement in the United States.

7 Cablegram 409 on file AA:A981, USA 202A.

[AA:A981, USA 181, i]