121 Keane to Chifley

Cablegram unnumbered WASHINGTON, 8 March 1946, 11.43 p.m.

PERSONAL SECRET

Since arrival in Washington [1] I have met and discussed the Australian position with President Truman, Dean Acheson, Will Clayton, Assistant Secretaries of State, Collado, Economic Chief to Clayton, Harry White, Assistant Secretary of Treasury, Schwellenbach, Secretary of Labour, judge Patterson, Secretary of War, Under Secretaries of Navy Kenney and Sullivan, and Secretary of Agriculture Clinton Anderson. I have still to see Secretary of State Byrnes and Thomas McCabe and a few others.

From the President down I find the warmest and friendliest feelings towards Australia and keen disposition to maintain the closest possible relationship with Australia.

The principal subjects I have discussed with them have been Lend Lease settlement, commercial policy and Bretton Woods. Most of the people referred to have introduced the subject of food supply to Europe and to India.

Lend Lease Settlement As reported to you on the telephone I am not at all worried about our position on Lend Lease settlement. [2] Moore reported to me that he was satisfied with the trend of the negotiations he had been conducting and my discussions here confirm his view. My own opinion is that we should be able to attain our objective of a washout. Everyone I have spoken to recognises and ha[s] generously praised the overall Australian war effort and the contribution made by Australia to United States Forces. Most of them have given me assurances that there should be no difficulty in arriving at a mutually satisfactory agreement and President Truman has stressed to me on three occasions that if any difficulty arises I am to carry the case to him.

In the Working Committees Moore reported that United States officials are acting on the defensive and appear quite worried about the United States position. There [is] infinite detail in sorting out the whole negotiation and in the interminable costing of individual items. It may be quite a few weeks before they have reached t[he] stage where they have a clear picture. Moore is in a better position than United States officials to appraise the overall position at this stage and considers that until the picture clears with them they will be in no position to make any significant demands upon us. I am working closely with Moore on these detailed negotiations.

Commercial Discussions These will be delayed for several months and it is obvious that my original plan to complete Lend Lease negotiations and then engage in commercial policy discussions cannot be proceeded with and that I will have to return to Australia after Lend Lease negotiations [are] completed.

The delay on the British loan [3] appears to make it inevitable that at some stage United States Government will have to postpone discussions on account of November elections. The Senate Committee is still investigating the loan and after this is completed it will have to go to the House of Representatives Committee for similar examination which is expected to be even more exacting than the Senate Committee investigation. After this it would need to pass both Houses. The present expectation is that it should be approved by the end of May but it is possible that it may run into June. The Americans would require three months after the loan is approved before they could get down to business on trade discussion. [4] This would land them into the middle of the election campaign. Already they have their outriders out on the elections. It would be unwise for Australia to attempt to enter into negotiations before the November elections are held as the administration would be too afraid of losing the wool producing States if the wool duties were an issue in the negotiations prior to the elections. The United States predicament is not dissimilar to our own [5] and there would be a mutuality of interest in postponing our negotiations with both the United Kingdom and the United States until after November. Some of the above-mentioned persons have raised with me the desirability of postponement until November and having regard to our own position I have given encouragement to their point of view. I did so feeling certain that you would agree with this.

In discussions with Clayton and Acheson I raised the question of Australian wool and was informed that although it was an extremely difficult item they were resolved to see that something was done and that it was the policy of the Administration to assist us in this matter. This is very significant and having regard to their elections I would ask you to keep this secret.

In discussions with Clinton Anderson, Secretary of Agriculture, I again raised the question of wool duties. He referred to the great stockpile of American wool in this country and stated he had submitted a plan to the United Kingdom Government whereby it would be liquidated within 18 months. It would involve prohibition on importation into the United States of the coarser type wool for a short period and greater importation of finer types. He further stated that the United Kingdom Government stated the plan was unacceptable and wanted [6] cartel to control the disposal of wool which he stated would never have any hope of being accepted by the United States. He said there would be great opportunity for Australian wool in this country. He stated that their sheep population had fallen from 540 [7] million to 38 million and under his proposed plan it would have been certain that a number of the uneconomic wool producing areas in the United States of America would have gone out of production with a fall in sheep population to 30 million but that failure of the United Kingdom to adopt his plan would indicate that they might have to continue to bolster up these uneconomic areas with probable gain in sheep population. He also claimed that he had put forward the plan solely with a view to assisting in disposing of world surplus of wool and referred to the fact that their returned soldiers found it impossible to obtain suitings to make clothes.

He agreed that it would be in the Australian interest to defer consideration of wool duties until after the November elections and assured me that they were in any case prepared to do something substantial on wool in the way of assisting an Australian trade negotiation. I will be seeing him again at a later stage.

I would appreciate your views on the possibility of deferment.

I appreciate that this might involve consultation with Attlee on your part but in view of our own election I consider it would be worthwhile for you to sound him out. In my opinion, Truman and his Administration have agreed to number of major problems on their hands of high political significance which will in any case make them wary without the added distraction of a detailed negotiation with 14 separate countries on a wide range of products which would cause all round political anxieties within both the Administration and the Democratic Party. If the United States Administration ask for deferment as I feel they will at or about the time the loan goes through, then it would be foolish for Australia to have landed herself into Empire discussions in London before our own election. In my opinion we would be putting ourselves into the cart for no purpose whatsoever.

Incidentally I understand all Union leaders will be testifying before the Senate Committee supporting British loan.

Bretton Woods I found profound regret prevalent here especially among those showing the greatest friendliness toward Australia that we had not taken a decision to join. I was informed that Australian representatives at the Bretton Woods Conference had made such outstanding contributions to the whole plan that they had been hoping that Australia would join and obtain an Executive Directorship. From the way they spoke they would have supported an Australian appointment to the Board. I mentioned the objections which had been taken, namely- (1) The charge that it was return to the gold standard.

(2) That it would prevent betterment of working conditions and development of social services and welfare schemes, -and (3) That Russia had not joined.

I was informed that the wrapping up of Bretton Woods was important from the point of view of the United States and it was admitted that some of the wording gave the appearance of pandering to the gold standard but that in substance it was not so. The Treasury Department here in particular were anxious not to do too great a violence to that additional thought. on the other hand the United Kingdom Government had claimed that Bretton Woods had put an end to the gold standard for all time.

As regards the second point, it was pointed out to me that it was the Australian Delegation to Bretton Woods that was instrumental in having special provision made in Section 5 of Article 4 of the Articles of Agreement whereby no objection should be taken to a proposed change in the currency of a country because of the domestic, social or political policies of the member proposing the change. They also referred to the trends concerning working conditions in this country and the establishment of a 40 hour working week.

With reference to Russia's non-participation confidentially I was shown the letter received from the Russian Embassy in Washington wherein it was stated that Russia would be an observer at the Savannah Conference. [8] It was not known there whether Russia's attitude towards Bretton Woods was due to the trouble which Russia was creating generally or to any particular dislike of Bretton Woods itself. in discussions with Hie [9] and Collado who were present at Bretton Woods Conference it was stated by them that Russia showed every sign of being keen on the whole proposal. The Department of State representatives rather felt that if Russia does not participate it will be due to her general pattern and attitude towards world affairs and her non-participation would be based on her uncooperative attitude.

Collado in particular could not see how we could become a member of Bretton Woods as no provision existed in the agreement for admitting members who deferred joining at the time of the Savannah Conference until another meeting was held which might be twelve months hence, unless ways and means could be found at the Conference to make special provision. He stated that the only countries that would not be joining in membership at Savannah would be Liberia, Haiti, Russia and Australia.

I discussed this aspect with Melville before he left for Savannah and he stated that he would endeavour to obtain a deferment of membership date for a period of six months.

1 Keane reached Washington in February to lead negotiations on the settlement of Lend-Lease.

2 Despite Australian hopes for a 'washout', or cancellation of all obligations arising from Lend-Lease and Reciprocal Aid, U.S.

officials had proposed a 'book keeping approach', and requested inventory of goods supplied under Lend-Lease and not consumed or destroyed. Australian officials complied reluctantly (see Volume VIII, Documents 349 and 364) and in January submitted a summary inventory of goods totalling US$148 million. Both sides maintained their initial stand, however, while disputes continued over precise methods of accounting.

3 A loan to the United Kingdom of US$ 3.75 billion for reconstruction was approved by Congress on 13 July and the Financial Agreement signed on 15 July.

4 i.e. the bilateral commodity negotiations proposed as a preliminary to the Trade and Employment Conference. See Volume VIII, Document 444.

5 A federal election was to be held in Australia on 28 September.

6 A sign here indicates 'mutilated'.

7 A sign here indicates 'mutilated'.

8 See Document 115, note 2.

9 Sic. Presumably a reference to Harry White.

[AA:A3195, 1946, 1.6084/3/6109/5]