Since subject of future control of Pacific bases was first under consideration situation has altered in following respects:
(a) With United States firmly established in former Japanese Mandates and with every prospect of international agreement to deprive Japan of other island possessions, importance of regional defence arrangement covering South Pacific can be said to have diminished.
(b) You will recall that we were afraid earlier that United States and United Kingdom might be contemplating bargain involving United States support on question of Anglo-Egyptian Treaty and on use of facilities in Iceland and Azores, in return for United Kingdom grant of sovereignty over certain Pacific Islands. Possibility of any arrangement so prejudicial to our interests has now disappeared.
(c) Formerly sweeping United States demands for sovereignty have now moderated.
2. It would seem to me, therefore, that we can now agree in general with United Kingdom counter proposals to the United States, in which the New Zealand Government concurs. It is to our advantage to retain United States interest even on a commercial basis in Canton and Christmas Islands, particularly if we can secure right to use facilities in Samoa and provided our civil aviation rights are fully safeguarded.
3. In this connection we should be taking up with United Kingdom question of our increasingly important interests in South East Asia, and in particular in the area immediately north of the line Cocos-Christmas-Timor. We have not yet raised with the United Kingdom Government the question of our security interests in British territories in this area. You may feel that the present is not an opportune time and that we should await better relations with the Dutch in order to come to some form of understanding with them regarding Dutch Timor and Dutch New Guinea, but we might mention to the United Kingdom Government, in informing them of our concurrence in their proposed reply to the United States, that in the near future we wish to take up with them similar questions involving the South East Asia area.