Your D.518, 519 and 520. 
While the United States Note expressly excludes the Dominions, we anticipate that, as in the case of the Lend-Lease Agreement, the United States may present to the Dominions for concurrence any agreement concluded with the United Kingdom respecting post-war use and disposal of wartime installations. Therefore it appears desirable that we should place before you certain views on this subject as well as giving information on the Australian situation.
2. The basic principle which we have publicly declared in the Australian - New Zealand Agreement , clause 16, is that construction and use of installations in time of war in any territory under the sovereignty or control of another power do not in themselves afford any basis for territorial claims or right of sovereignty. We gather that this is recognised by the United States inasmuch as they advance no claims as of right but propose the negotiation of an agreement to serve mutual interest.
3. Installations appear to be of two kinds, namely- (a) installations provided solely by the United States effort; and (b) installations provided within the Lend-Lease system.
Regarding (a), there has been a limited amount of construction on Australian territory by American service personnel incorporating war material from United States service stock, but we have no record of the amount of such direct expenditure by the United States army or navy. This direct United States expenditure is a greater factor in works in New Guinea than on the Australian mainland. With the exception of a few minor works including some oil storage at Milne Bay and Port Moresby, the whole wartime development of airfields and ports in New Guinea has been service labour. The units employed have been both Australian and American and the material has come either from Australian or American stocks. A substantial part of the American material would have been supplied from Australia as reverse Lend-Lease. There is no clear line of demarcation in the employment of various works units. Australian units have been employed in constructing facilities which have subsequently been occupied by Americans and vice versa. Some at least of the airfields have been developed from pre-war civil aerodromes and Australian service installations.
4. In the case of New Guinea the principle we are applying and which we wish to preserve is that war expenditure by United States in operational areas stands wholly apart from Lend-Lease or reciprocal aid transactions. We cannot accept any position which is likely to involve contribution by us to the direct expenditure of the United States in prosecuting the war in operational areas.
There would be a derogation of this principle if we agreed that a consideration in return for such U.S. expenditure had to be made by us in the form of some future American right to a selected area or a particular installation. By analogy, Australian or military expenditure in the Middle East war was given as a contribution to a mutual war effort and we demanded no consideration in return.
Moreover, the establishment of any other principle would accord a disproportionate advantage to the United States owing to the circumstance that the war has not necessitated the presence of Allied troops in the United States.
5. Lend-Lease transactions are in a different category and the future use and disposal of Lend-Lease installations are governed by an existing agreement. It is not clear, however, whether the United States regards installations constructed by way of reverse Lend-Lease as coming within the scope of the proposed discussions and information on this point would be appreciated. If the whole of Lend-Lease and reciprocal aid transactions are to be considered as coming within the field of discussion regarding post-war use and disposal it could well be argued that production facilities and pilot-training facilities built in the United States with Lend-Lease funds must also be covered in any agreement reached.
6. In Australian territories there is very little direct U.S.
Lend-Lease expenditure in any installations. The extent of works provided as reciprocal aid is considerable embracing aerodromes, oil installations, camps, warehouses and hospitals. Construction has been mainly with Australian labour and materials with a relatively minor Lend-Lease component.
7. The United States Note appeared to suggest that either Article V or Article VII of the Mutual Aid Agreement might be applied to installations as determined by the parties. Our view is that Articles V, VI and VII must be read in conjunction. The obligation under Article V is specific but does not operate until 'the end of the present emergency'. Article VII is more general in character and so long as hostilities continue and the final determination is thereby deferred, we interpret our commitment under this Article as being limited to an undertaking to enter into conversations on the best means of attaining certain social and economic objectives set out in the Article. Except insofar as it is embraced by these objectives the question of the use and disposal of particular Lend-Lease installations does not arise until the final determination is made. We object to any attempt to reach a separate agreement regarding American expenditures at any particular point or in respect of the disposal of any selected group of installations before the time arrives to make a general settlement regarding the benefits to be provided to the United States in return for aid furnished. We regard this principle as vital. As you are aware a similar issue is at present being contested by us in regard to the American contention that machine tools already obtained under Lend-Lease may in certain cases be treated differently from other Lend-Lease equipment and made the subject of a separate transaction. (See our telegram 23 of 26th January  and further information forwarded to Australia House.) 8. We also think that a broader and more fundamental contention should be made. In the case of this country, reverse Lend-Lease has involved far heavier burden upon our resources than has Lend- Lease upon United States resources in relation to Australia. In short, the reverse Lend-Lease assistance from us outweighs Lend- Lease assistance to us. In these circumstances it does not seem appropriate or just for the United States to take the Lend-Lease Agreement too literally. We are not bound by the terms of a Statute of the United States. We made a subsequent agreement to the Lend-Lease Agreement and in any event we only accepted the general principles of the Lend-Lease Agreement.  9. On the grounds given above we would object most strongly to entering into a new agreement on lines similar to the exchange of notes between the United States and Ethiopia. We consider that if the question of post-war use and disposal of installations is to be discussed before the end of the war, the discussions should take place as part of the whole series of discussions for the betterment of world-wide economic relations and not with a view to defining the position of a single government in regard to the control and use of installations in foreign territory.
10. Additional information regarding the position in regard to installations in Australian territory will be forwarded in a later telegrarn.