The Netherlands Delegation acting on detailed instructions from The Hague has submitted a letter to the Committee  dealing with the direct talks between the Netherlands Ministers and Dr. Hatta.
On the basis of the letter and the earlier report from the Republican Delegation , which was received by the Committee on December 9th, the Committee of Good Offices yesterday, December 12th, telegraphed its own report to the Security Council at Paris , attaching the reports of the parties (Annex I). [Only Netherlands report is attached. Repn. Report was included with previous letter]. 
2. The Netherlands reply was even stronger than expected. Both the U.K. and the U.S. ambassadors at The Hague had presented strong notes to the Netherlands, so strong indeed that according to the British Consul-General in Batavia, the notes had to be modified before the Dutch would accept them. I also understand that the Dutch have promised the British and the Americans that they would not close the door on a settlement with the Republic. In these circumstances it might have been anticipated that the Dutch reply would be to the effect that they were grievously disappointed at the result of the direct talks, that they would be forced by the pressure of the federalists to proceed with the early formation of an interim federal government but that they would continue to do their utmost to help the Committee of Good Offices to find a settlement of the dispute. Instead they have slammed with a bang every possible door and politically it will now be difficult for the Netherlands to retract from the firm stand against the Republic.
3. Our report to the Security Council is as strong as a unanimous report could be. It shows clearly that the Netherlands are categorically opposed to any negotiation and that the breakdown of the talks constitutes a threat to the peace. Although the technical words of the U.N. Charter are not used the report coming from an agency of the Council should justify the Council recommending terms of settlement. No recommendations to the Security Council are included in the report and it has also been impossible to obtain agreement on anything resembling too closely a judgment on the policy of the parties. At the same time the report should make it easy for individual Council members both to pass judgment and make recommendations and I should be greatly surprised if the U.S. representative does not take a much stronger line than he has taken hitherto in the Indonesian debates. I also believe it would be useful if some of the members of the Council indicated without commitment their concern about the restrictions on their economic relations with the Republic. Certainly some economic relief for the Republic is long overdue and any pressures which can achieve this should be applied.
4. As I have indicated in my telegrams  I believe it should be possible for the Security Council to pass a resolution calling on the Netherlands to refrain for the time being from the formation of an interim federal government without the Republic and calling on the parties to resume formal negotiations on the basis of the American plan.  These recommendations are unlikely to be heeded by the Dutch but they should at least make further military action against the Republic more difficult.
5. You will note that the Netherlands case depends upon evoking a section of Article 1 of the six additional principles  but meanwhile ignoring the remainder of the Article and the remaining Articles of the Renville Agreement.  It is also clear that the Dutch have deliberately stalled negotiations with the Republic and indeed have refused formal negotiations for six months while they have accomplished a series of faits accomplis.
6. As the report states the continuation of the present policy will lead to considerable disorder in Indonesia and in my opinion will culminate in Dutch military action against the Republic. My guess is that there will be a series of incidents in the demilitarized zones and I fear that these may be instigated by the Dutch as justification for military advances into Republican territory. It is not unlikely that the Netherlands will seek to deal with the Republic piece-meal rather than endeavour to digest all Republican areas into their federal system at once. In this regard the wording of the Netherlands letter of December 11 is worth noting-'the possibility of the incorporation of Republican held areas in the federal system must remain open.' P.S.
Cochran, who flew to Djokjakarta this morning, returned this evening with a personal letter from Hatta, which I am attaching [most confidentially] as Annex 2.  The letter which was obviously drafted by the U.S. Delegation is extremely conciliatory in tone. It attempts to clarify the misunderstandings upon which Hatta considers the Netherlands letter of December 11 has been based and to re-open the door so rudely slammed by the Dutch on the possibility of further negotiations.
2. The most important points in the letter are:-
(a) its effective answer to the Dutch charge that the Republic does not recognize Netherlands sovereignty in the interim period as laid down by the Renville Principles.
(b) the position taken in paragraphs 9 and 10 regarding the High Representative's emergency powers. Hatta agrees that, subject to the establishment of definite standards to govern his decision, the High Representative shall be the ultimate judge of the necessity for the exercise of these powers and that he shall have authority to employ Netherlands forces as supplementary forces, 'to the extent required for the protection of the public peace and security'.
3. The letter will doubtless be used by the Americans in an attempt to bring about the resumption of negotiations. As the Netherlands have stated their opposition to further negotiations so definitely and publicly, this may be difficult. In any case negotiations can result in a settlement only if the Netherlands can be induced to agree to practical limitations on the exercise of their sovereignty.