438 Teppema to Chifley 
CANBERRA, 27 November 1947 1.
In the course of the last few months Notes have been exchanged which constitute a basis for the liquidation of the military supplies (except arms and ammunition) belonging to the Netherlands East Indies Government. 
2. Financial consequences of the projected sale of arms and ammunition of the Royal Netherlands Indies Army to the Australian Government will have to be considered by competent authorities on both sides. The relative negotiations, it is assumed, are not likely to affect the political relations between Australia and the Netherlands.
3. With the impending evacuation of the military loading personnel the consequences of the joint war operations will have come to an end. The Royal Netherlands Navy and the 19th Squadron left Australia several months ago, hence only very limited liquidation commissions will remain for some time principally to attend to routine financial matters still outstanding.
4. In view of the fact that various matters which have caused friction in the past have been eliminated, it is felt that the way has been cleared to make a renewed effort to restore the relations between Australia and the Netherlands to their prewar status.
5. The factor which has unfavourably influenced relations and which gave rise to a multitude of interrelated problems, often difficult of solution, has been the boycott of Netherlands Indies shipping. All efforts directed towards the better understanding which the Netherlands and Australia desire appear doomed to failure if the primary cause of the present unsatisfactory state of affairs is not resolutely attacked. No effective solution can be achieved in treating each irritating symptom incidentally even with mutual goodwill. It is necessary to remove the root of what after more than two years is developing into a chronic disease, which, if it remains unchecked, might conceivably lead to a deterioration of the position. The remedy which is clearly indicated is the lifting of the boycott in the immediate future.
6. In urging this course the following points are submitted:
(a) Public opinion in the Netherlands and Netherlands East Indies is perturbed by the antagonistic attitude of certain Trade Unions in Australia as manifested by the boycott. After the military police action of July 1947 and extension of the boycott public opinion inclined further to the view that Australia was not an unbiased nor unprejudiced observer of events.
When it is considered that public opinion in Australia, largely expressed by a conservative press (in the Netherlands a notable proportion is definitely 'Left') at the outset has been somewhat confused, both as to the issue involved and the actual situation, it is not surprising that misconceptions arise in many quarters identifying the attitude of certain Unions with the policy of the Australian Government. It is however a source of satisfaction that the real facts of the situation are gradually penetrating ever widening circles as is borne out by a fairer presentation of events by the Australian press.
In this connection it may be recalled that the Australian public has its attention focussed almost entirely on the conflict between the Netherlands Government and the Republican authorities in Djocjakarta. It should be borne in mind however that considerable parts of the Netherlands East Indies, the Republic[s] of East Indonesia and Borneo, are already functioning as autonomous states in full and loyal cooperation with the Netherlands Government with a view to taking their place in the Federated States of Indonesia.
Apart from this development nationalistic movements in other parts of the Netherlands East Indies are manifest, which seek on the one hand autonomy and self government and on the other definitely reject the exclusive domination by the Republic of Indonesia.
(b) The interest of Australia that an orderly state of affairs should exist in the territory of a near neighbour is appreciated because a state of anarchy and chaos has inevitable repercussions on the political and economic life of the South Pacific. The desire of Australia to contribute towards a restoration of normal conditions is being thwarted by the sanctions imposed by the Unions.
(c) Admittedly the Unions in question mean to extend to the Republic of Indonesia their help and support in what is termed the struggle for freedom and independence. This principle however has been conceded and adhered to by the Netherlands Government and would have been effected had the Republican Government been willing and able to cooperate with the Netherlands Government to execute the basic agreement of Cheribon. The boycott in reality only amounts to moral support of a cause the principle of which is no longer in dispute.
The situation really requires measures to reconstruct Indonesian economy with emphasis on the restoration of normal living conditions for the Indonesians. On examination of the civil supplies stored in Australia, it is apparent that precisely many of the goods required by the native population are those being held up. This is obvious from the joint appeal of May 1947 to the Australian Government from the Governments of the Netherlands East Indies and the Republic. 
(d) It needs no comment that the continuation of the boycott places a heavy financial burden on the Netherlands at a time when the foreign exchange position is extremely difficult. The storage, maintenance, administration etc. of the supplies involve expenditure of large amounts plus the upkeep of a relatively large civil personnel. The supplies were in the main purchased and paid for in 1945, hence the loss of interest and the risk of deterioration of the goods is very considerable.
(e) The Netherlands and Netherlands Indies Governments view with dismay a situation which bears the seeds of constant menace to good relations and impedes the flow of normal trade-considerations of genuine interest to both the Australian and the Netherlands Governments. In view of the mutual interests involved attention should be given to reports from the Netherlands East Indies showing that increasing quantities of products (i.e. oil, rubber, copra, tea, kapok, sisal, tin, quinine etc.) are becoming available for export. On practical grounds the lifting of the boycott would secure for Australia a share of these products, and at the same time, reopen the Netherlands East Indies market for foodstuffs and the many manufactured products which constituted a considerable proportion of the Australian export trade.
The time factor should not be neglected as trade which has been, and is, increasingly diverted to other channels will be difficult to re-establish if the shipping ban is to be continued.
(f) The present moment for action should be considered opportune because as stated above possible causes of friction and misunderstanding are being removed. Both Governments desire the restoration of relations of traditional friendship. Australia's membership on the Commission of Good Offices constitutes a position of neutrality, acknowledged by Australia but which does not appear compatible with the protracted boycott.
No gesture of goodwill could be more telling nor have greater effect than if the Australian Government were to use their influence for the termination of the shipping ban.