144 Critchley to Department of External Affairs

Cablegram K119 BATAVIA, 23 May 1948, 8.30 p.m.

SECRET

Your telegram 125. [1]

DUTCH SEA RESTRICTIONS

Answers to your respective queries are set out below.

A.1. EXTENT OF BLOCKADE

Pre-war restrictions According to the Navigation Act of 1936 only specific ports can be used by ships with overseas flags. Only one such port (Padang, Dutch-controlled) is on the West Coast of Sumatra, and, although there are a number in Republican Territory, only one, Tuban, is in Republican Middle Java. Consequently these regulations severely hamper the Republican trade of Middle Java and West Sumatra.

Post-war Restrictions (1) Emergency regulations of January 29th, 1947.

Under these regulations the Dutch insist that all ships moving between Republican areas (e.g. between Bantam and Sumatra) and between Republican and foreign territories, must call at specified Dutch-controlled ports. At these ports the ships are examined for contraband:-

(a) estate products (b) military stores (c) industrial equipment (either imports or exports unless licensed) which could be looted property from estates.

There is evidence that these regulations are policed and military stores interpreted so as to kill Republican trade.

(2) 'Police Action' restrictions.

At the time of police action the Dutch extended the January 29th regulations so as to give the Navy full control of all ship movements in the Archipelago.

By the regulations of Admiral Pinke large areas, particularly those around the coasts controlled by the Republic, were closed to ships. Agreement (which tends to strengthen Dutch control) has been reached to permit as from May 1st, movements of ships between Bantam and Batavia and between Tuban and Sourabaya.

(3) Barter Trade.

Provisionally until the political settlement the Republic is allowed to trade on a barter basis. In practice, however, trade is controlled by the Dutch who insist on the right of valuing barter goods at Dutch-controlled ports and are in a position to delay shipping.

(4) Foreign Exchange.

Since March 1st, 1948, the Netherlands control of foreign exchange transactions provides for a strict control of all trade, other than barter trade, with the Archipelago.

(5) K.P.M. Monopoly.

In addition to restrictions, K.P.M., backed by the Government, has such influence with various shipping conferences abroad that it is a breach of conference regulations for any ship to accept cargo from an outport with transhipment at a main port, other than that carried by the K.P.M. An agreement is, therefore, necessary to permit cargoes to be moved by Republican vessels on a through Bill of Lading for transhipment at Dutch and other ports.

2. Dutch justification based on sovereignty of the Netherlands [2]; responsibility for the protection of foreign property and particularly interests of estates.

3. Trade in native produce.

Theoretically barter trade is permitted, but all the foregoing restrictions critically affect this trade in practice.

B. LIMITATION ON FISHING The Dutch deny this, but in practice off shore activities of proas [3] have been interfered with by the Dutch Naval Forces, especially in areas closed to shipping.

C. REPUBLIC ECONOMIC DISABILITIES HATTA has indicated that restrictions on trade with foreign countries are most important of these negotiations.

1. Dutch blockade has been discussed informally in technical sub- committees.

Republic has pressed for- (1) Import of reconstruction goods and inducement goods.

(2) Right to barter with native produce and preference to control foreign exchange earned from the export of native produce from Republican territories.

(3) Freedom of movement of Republican ships or other ships under Republican flags. (The Republic is prepared to accept joint control of Republican ports to prevent trade in contraband, or, if this is not immediately possible, the continuation, for the time being, of the Dutch control of ports, providing that Republican observers are appointed at these ports).

2. Republican views regarding 1(1) set out in Committee document S.A.C.10 CONF.2C.3 W23. [4] This paper is being discussed by sub-committee Six of the Economic and Financial Committee.

3. On 1 (2) and 1 (3) detailed discussions are taking place in sub-committee Four. Preliminary agreement has been reached which Republican Delegation optimistically considers meets most of its points but it does not permit the Republic to earn foreign exchange. However, the Netherlands have made this agreement subject to assent of Royal Netherlands Navy which has established a number of conditions. The most burdensome of these are- (1) The Navy can only accept infringements of the Navigation Act, 1936, as a transitional measure and has set a time limit of two months as from May 1st. (The Republic is pressing for an extension of the two months' period which they say is inadequate to move native produce held in ports on the West Coast of Sumatra.) (2) In the case of the violation of any regulations the Commander of the Netherlands East Indies Navy reserves the right to revoke partially or wholly the said facilities granted.

(3) The facilities suggested can only be subject of discussions when, and as soon as, satisfactory settlement regarding aviation has been obtained. (The Dutch argue that Republic should use Dutch controlled airports as a check against import or export of contraband. The Republican Government at this stage is not prepared to accept this as the issue is [bound up] [5] with political discussions on sovereignty). This last condition is now holding up the agreement.

Development of Republican Ports Attempts are being made but this is a long-term matter and Republican efforts are being hindered by present Dutch restrictions.

I have read your telegram No. 131 [6] with interest. Would it be possible to raise the subject of the Dutch blockade at the meeting of E.C.A.F.E. at Ootacamund?

1 Document 132.

2 A symbol here denotes mutilated characters but without explanation.

3 Swift Malay sailing boats built with the leeside flat and balanced by single outriggers.

4 Dated 20 April, this Working Paper argued for a provisional agreement in the Truce period, based on Article 6 of the Truce Agreement (see Document 22) and Article 5 of the Political Principles of the Renville Agreement (see Document 23). The Republic desired, under this provisional agreement, to barter native-export products for urgently needed imports such as machinery, food-stuffs, textiles and medicines.

5 Words in square brackets inserted from a copy on file AA:A4357/2, 48/254, iii.

6 Dispatched on 20 May, it conveyed the text of Document 136.

[AA:A1838, 401/4/4/1, v]