108 Jacobsen to Moore

Memorandum DG658 (extract) WASHINGTON, 7 April 1944

SECRET

CHANGES IN U.S. SUPPLY POLICY AND GENERAL TRENDS [matter omitted]

VIII Points of Conflict with FEA

24. It is being increasingly borne in upon us in Washington that Australian relations are being strained at a number of points which are more or less within the orbit of procurement problems.

While the question of relationships between the two countries is outside the scope of procurement, it may be part of our responsibility to indicate those instances in which procurement problems may be giving rise to difficulties affecting the larger sphere. Before enumerating some of the points at which difficulties have arisen, however, there are several general observations which should be made. In the first place, we feel that difficulties which are being experienced by Australia are also being experienced to a greater or lesser degree by everyone else and that a certain amount of tension in relationships in Washington is the general experience. A lot of the difficulty is confined to the Washington situation itself and has to do in one way or another with internal, local Washington situations. In the second place, there is at least room for suspicion that intimations of strained relations are being used as a convenient weapon to improve the position of any one U.S. agency with respect to the others. It is pertinent to observe that the responsibility for any disagreements is certainly not one sided and that any concern which is being felt should also be a mutual concern and not a one sided concern. There are some Americans who take the view that the United States is throwing away much of the goodwill which it gained by Lend Lease by pursuing its present somewhat difficult policy and by being unduly concerned with local political considerations. However, for your guidance and information we have attempted merely to list the points on which we have been recently taxed by American authorities in procurement discussions here.

25. It is generally admitted that Australia has one of the most diligent and active missions in Washington and, as a result, we have often found ourselves in the vanguard on the policy and supply arguments which have arisen from time to time. By and large it is probably fair to say that this attitude has been appreciated by all concerned and in the dark days of the war when Australia was in danger of imminent invasion every sympathy was extended to Australia no matter how vigorously she pressed her claims. This background, however, reinforces the necessity under the changed conditions obtaining at present of adopting a more moderate view.

In recent negotiations with American authorities they have cited to our disadvantage, the following points:

(a) Agents Commissions As has been reported in separate communications [1], this whole question is now coming to a head. Irrespective of the relative merits of the case, the commercial community in the U.S. is being adversely influenced. The Machine Tool Builders Association is one of the most powerful organizations of its kind and it has recently circularized some 200 American firms on this matter.

(b) Retroactive Decision on Eligibility of Textiles Authorities have admitted it is quite probable that the merits of this case may rest with Australia. Nevertheless, FEA contend that this would have been an excellent case for Australia to have shown good faith in co-operating with FEA in respect to an item which they felt to be politically dangerous. As one FEA official said at the meeting at which we appealed the case to Mr. Crowley [2], 'We had sincerely hoped that Australia would co-operate with us in seeing our point of view in this matter'. [3]

(c) Lend-Lease vs Reciprocal Aid In a number of recent instances involving the reduction of Lend- Lease aid to Australia it has been pointed out that such reduction would involve corresponding reductions in the amount of Reciprocal Aid which it is within Australia's power to make available. In spite of every argument we have been able to adduce to the contrary, FEA authorities continue to be annoyed by this argument and to regard it as a threat.

(d) Overstatement of Requirements While every sympathy has been shown for the vigour with which Australian cases have been presented, FEA have been building up on the other side a number of instances in which requirements have been overstated. The two most important instances are trucks and recently, paradoxically as it may seem, textiles.

(e) Petroleum The whole question of petroleum is becoming an exceedingly grave political issue in this country and here again FEA officials feel aggrieved at the pressure which has been exerted upon them in respect to off-shore purchases of oil under Lend-Lease. [4] of course, the proof of the pudding is in the eating and it looks at present as though we may win this particular argument.

Nevertheless some hard things have been said on both sides in the process.

(f) Return to Commercial Practice This matter has already been commented on above. [5] of course, in this case there is involved the possibility of a cleavage of opinion on a major issue as between the commercial practice of Australia and the United States. It is quite beyond the scope of this letter to comment on this issue but the repercussions do most certainly extend into the procurement field and will do so increasingly as this country presses toward the return to normal commercial trade channels.

(g) Australian - New Zealand Pact [6]

This matter is again beyond the scope of this letter but resentments arising from this Pact are not lacking from procurement discussions.

(h) Canadian Mutual Aid Agreement This controversy which surrounded the signing of this agreement has also made itself felt in American procurement circles. [7]

(i) Reciprocal Aid on Raw Materials Australia's unwillingness to participate in this agreement, however justified, is also a matter which occasionally obtrudes in procurement discussions [8]

(j) Industrial Autonomy While every occasion has been seized to argue in defence of Australian autonomy in regard to making her own industrial decisions, we have never quite succeeded in scotching a prevalent feeling in this country that postwar considerations do influence these decisions.

(k) Move to Cut the Size of Australian Army It is too early yet to say what the effect of all this will be, but the original reaction in the American press this morning which carried Army Minister Forde's statement [9] was very adverse and there is no doubt that this will be used in connection with our discussions on new Australian projects. We realize, of course, that these reductions are entirely due to the necessity of getting more manpower on the food production front to feed the U.S. Army in the Southwest Pacific. Nevertheless, as you know, the explanation never quite catches up with the original statement.

Conclusion You may rest assured that we have done everything possible to counteract any adverse criticisms which may have been levelled at us in respect to any of the above issues. On the whole we are not disposed to view the position with respect to any of them with undue alarm. We have, however, felt it necessary as a matter of information to place these facts on record before you. You will, of course, be fully acquainted with the position on each item separately from various despatches sent to you from time to time.

if, however, there is any further information or documentation required, we will be glad to go into the matter more exhaustively in reply to specific requests from you. This, of course, also applies to the thumbnail sketches of the various American instrumentalities. Further reports on any of these will be forthcoming if required.

Should this letter reach you after Mr. Macgregor's departure, it would be appreciated if you would hold the letter until he has had a chance to see it on his return as there may be matters on which he would prefer to take a different line. A copy will be held for him and given to him immediately he returns to the country.,

E. R. JACOBSEN

1 Not located.

2 Administrator, Foreign Economic Administration.

3 See cablegram W2962, dispatched 17 March. On file AA:A571, L41/915A, iv.

4 See Document 33, paragraph 9.

5 In paragraphs 20 and 22, which are not published.

6 Document 26.

7 See Document 46.

8 See Documents on Australian Foreign Policy 1937-49, vol. VI, Documents 303, 321 and note 2 thereto.

9 On 8 April Forde stated that the size of the Army was being reduced by over 90 000 000 personnel in 12 months (Digest of Decisions and Announcements, vol. 80, p. 17) by means of restricted intake and accelerated releases to overcome an acute shortage of rural labour, the latter initially approved by War Cabinet on 1 October 1943. See AA:A2673, vol. 13, minute 3065 and Documents on Australian Foreign Policy 1937-49, vol. VI, Document 293. The statement was reported on 9 April in the New York Times and on 10 April the Washington Post noted that the report had shocked senators on the Military Committee Presumably Jacobsen's report was compiled over several days.

[AA:A571, L41/915A, iv]