CANADIAN MUTUAL AID
Introduction 1. In May, 1943, Canada passed a Mutual Aid Act providing for a gift of 1,000 million dollars of war supplies to be allocated to the United Nations.
Australia has been invited to participate  and decisions of the Government are required as to- (i) Whether we should participate.
(ii) Whether the proposed procedures are acceptable.
Background 2. Last year Canada provided a gift of 1,000 million dollars to the United Kingdom, which Government had already used up its resources of Canadian dollars. This gift relieved the Canadian dollar shortage of the whole sterling area but the budgetary relief was confined to the United Kingdom. Dr. Evatt on his recent visit to London, however, obtained a special concession for Australia of �7m.
3. The new gift is for allocation to all United Nations, and Canada desires to deal direct with each member of the sterling area, i.e. Australia, New Zealand, etc.
4. When ample Canadian dollars were available to the sterling area our purchases were for cash. With the exhaustion of those dollars, Canada was faced with the alternatives of a stoppage of supplies or a free gift to maintain her war production.  U.S. Lend-Lease has also caused some diversion of trade that previously went to Canada and Canada is no doubt anxious to regain and maintain her trade connections.
5. The present gift will be a further valuable contribution of war supplies by Canada but one should not lose sight of the fact that it has undoubtedly been influenced to some extent by a desire to maintain production and preserve commercial connection with a view to post-war trade.
Question of Participation by Australia 6. Briefly the scheme provides for the supply to Australia of war materials and goods without cash payment for approved requirements in excess of dollars available from Australian exports.
7. Our 'balance of payments' with Canada last year was-
Imports, etc... 20.5 Exports, etc... 2.5
Deficiency 18.0 (Rough estimate)
This deficiency was met by Australia buying dollars from the sterling pool.
8. War supplies required from Canada in the current year are estimated at �22m. If these were all approved by Canada, Australia would obtain close on �20m. without cash payment and our Budget and London Funds would be relieved to that extent.
9. Australia therefore stands to benefit financially but we must not overlook the post-war commercial aspect of the scheme and we should not make a decision to participate unless we are satisfied there will be no embarrassing conditions. In this connection it should be remembered that the acceptance of mutual aid may result in our feeling some moral obligation to Canada in the post-war period. On the other hand if we do not join in the scheme we would almost inevitably be cut off from Canadian supplies which are essential to us.
10. Statements by the Canadian Finance Minister indicate that in certain cases Canada would wish to receive the benefit of such reciprocal arrangements as may be practicable and we have learnt that the proposed agreement on 'General Principles' would provide that 'such reciprocal aid shall be provided by Australia as may be decided upon by common agreement'.
11. We have asked for further information on this point, but it is not expected that we will be faced with any direct commitment which would be embarrassing.
12. On balance I feel that, provided we are not asked to accept embarrassing direct commitments, we should agree to the principle of participation and I recommend accordingly.
Agreements 13. If we join in the scheme, it will be necessary to enter into three agreements relating respectively to- (i) General principles.
(ii) Transfer of existing Commonwealth Government contracts to the Canadian Government.
(iii) Banking and financial procedures.
General Principles 14. So far we have received only a list of points which the Canadians propose to incorporate in this agreement. Copy of the list is attached (Appendix A).
15. Point 7 'Reciprocal Aid' has already been referred to. Point 4 requires some alteration to permit of transfers within the South- West Pacific Area and departmental views have already been forwarded to the High Commissioner, Ottawa. 
16. It is recommended that the Government authorise the conclusion of an agreement on 'General Principles' on the lines proposed by the Canadians subject to such modifications as may be required by the Treasurer and the Minister for Trade and Customs.
Transfer of Contracts 17. Canada has asked that existing Commonwealth Government contracts with Canadian nationals be transferred to the Canadian Government (Department of Munitions and Supply) as from 1st September, 1943. 
18. Apparently it is intended that once the Mutual Aid Scheme becomes operative the Canadian Government will become virtually the sole authority negotiating contracts with Canadian producers of war supplies. The purpose of this centralization, of which the proposed transfer of existing contracts is one aspect, is- (a) to facilitate the transfer of existing contracts to Mutual Aid if they are approved as eligible;
(b) to enable the Canadian authorities to exercise closer supervision over contracts;
(c) to simplify procurement procedures.
19. It should be noted that Canada could take over contracts without reference to Australia, but it prefers to do it by Agreement and the draft agreement set out in Appendix B  has been submitted by the Canadian authorities.
20. The Minister for Trade and Customs has had this examined and recommends we authorise the Australian High Commissioner in Ottawa to sign the Agreement subject to satisfactory assurances being obtained that deliveries to Australia will not be prejudiced and that goods under the contracts will not be diverted to other countries without first obtaining the concurrence of Commonwealth Government. I concur in this recommendation subject to the draft being approved by the Attorney-General.
Financial and Banking Procedure 21. The proposals under this heading are technical and somewhat complex and we are seeking clarification on a number of points.
22. Briefly, the scheme is to make available to Canada the dollars arising from our exports. These will be placed in a special account under Canadian ownership and will be used by the Canadians to make cash payments for war supplies requisitioned by Australia.
Our requirements in excess of the amounts available in this special account will, if eligible, be paid for by Canada out of its 'Mutual Aid' funds.
23. It will be necessary for all orders which will be paid for out of 'Mutual Aid' funds or the special account to be placed as Government orders.
24. Import licences to private persons for small amounts and in certain other cases will continue as at present and will be settled as an ordinary Banking transaction through the 'Sterling Area' dollar pool which will still continue to operate.
25. The proposals have been the subject of close examination by the British Treasury, Commonwealth Treasury, Commonwealth Bank and Department of Import Procurement , and I recommend that I be given authority to approve of procedures in this connection. 
J. B. CHIFLEY