With reference to Secretary of State for Dominion Affairs telegram
Circular D540 [2] and guarantees given in White Paper of 10th
September, 1941 [3], before replying officially we desire you to
submit to United Kingdom Authorities our observations and proposed
assurances for their comment.

Paragraph 1. Commonwealth Government subscribes.

Export policy. Place of exports in Australian economy is so
different from that in United Kingdom that assurances given by
United Kingdom in Dominions Office Circular 541 will require some
modification before Commonwealth Government would be in a position
to express concurrence.

Australian exports consist predominantly of foodstuffs and raw
materials. The resources devoted to their production in Australia
are not readily transferable to war production and such transfers
on a substantial scale could not be effected without serious
economic and social dislocation apart from the deterioration of
the productive organisation which will presumably be fully
required in the post-war period. Lease-Lend materials sent to
Australia must sometimes be used for export-particularly as
containers. The necessity to change the character of our
foodstuffs owing to scarcity of refrigerated shipping has led to
the utilization of increased quantities of materials for
containers, such as tin plate and timber. The usual source of
supply of tin plate is no longer available. However domestic
consumption and export for direct war purposes of the materials in
question shall be at least equal to the amounts received under
Lease-Lend.

We have however undertaken to supply United Kingdom, Empire and
allied governments with a wide range of munitions, equipment,
clothing and general military stores. These are however directly
related to war and United States authorities would presumably
regard them as being covered by exception in paragraph 2(1)(a).

Interruption of European source of supply has made Netherlands
East Indies, Pacific Islands, Malaya, South Africa and India rely
on Australian sources of supply. This special responsibility may
involve Australian exporters entering new field although not at
expense of United States exporters. Amounts of United States
materials involved likely however to be negligible and more than
likely would be covered by exception paragraph 2A(2) of statement
of policy below.

We suggest the following statement covering Australian export
policy based upon United Kingdom declaration in White Paper could
if necessary be given. We would however prefer a simpler form of
undertaking.

1. The maintenance of Australian exports is essential-
(a) For supply of vital requirements particularly of foodstuffs,
raw materials and war equipment to Empire and allied countries.

(b) For acquisition of Foreign Exchange both in sterling and in
dollars to pay for essential imports and to meet overseas costs of
war.

(c) To maintain in effective working condition our basic primary
industries.

2. His Majesty's Government in Australia has adopted the policy
summarised below-begins.

(A) No materials of a type the use of which is being restricted in
the United States on grounds of short supply and of which we
obtain supplies from the United States either by payment or on
lease lend terms will be used in exports with the exception of the
following special cases-
(1) Material which is needed overseas in connection with supplies
essential to the war effort for ourselves and our allies and which
cannot be obtained from the United States.

(2) Small quantities of such materials needed as minor though
essential components of exports which otherwise are composed of
materials not in short supply in the United States.

(3) Repair parts for British machinery and plant now in use, and
machinery and plant needed to complete installations now under
construction, so long as they have already been contracted for.

(2) [4] Materials similar to those being provided to Australia
under Lease-Lend which are not in short supply in the United
States will not be used for export other than for direct war
purposes in quantities greater than those which we ourselves
produce or buy from any source or to enable Australian exporters
to enter new markets at expense of United States exporters.

Steps will be taken to refuse licences for import from United
States of America for goods in short supply in that country except
for domestic consumption and exports for direct war purposes.

Licences to export (except to Empire and Allied Territories) such
goods which do not come within the exceptions referred to in (a),
(b) and (c) above will be refused also. Ends.

Lease-Lend Distribution. We find it difficult to concur fully and
in detail in United Kingdom assurances in this matter.

Goods to be obtained under Lease-Lend fall into the following
broad classes:-

(a) Goods in final form for the Services.

(b) Materials and equipment for the production of war goods in
Government factories.

(c) Materials and equipment for the production of war goods by
private contractors.

(d) Materials and equipment for the production of essential civil
goods required for prosecution of war effort.

(e) Essential civil goods ready for consumption required for
prosecution of war effort.

Goods in the first two classes present no distribution
difficulties. The other three classes, however, must pass through
non-government hands.

With probably a few exceptions, it is not practicable to set up
special governmental organisations to distribute these goods. It
would be costly and since most of the goods require further
processing they would still have to be handled in privately owned
factories. For the Government to set up its own organisations to
do work now being effectively performed by private enterprise
would cause diversion of manpower from war purposes.

The Government proposes therefore to base its distribution upon
the following principles:-Begins-
(a) Durable equipment will wherever possible be retained as
Government property being leased to users at rates appropriate to
commercial values and to the form of contract with the user.

(b) Materials necessary for the production of war goods will be
issued to contractors and charge made at commercial rates subject
to the form of contract with the user.

(c) Materials for production in dependent defence industries and
for essential civil goods will be sold to manufacturers at
commercial rates. Commonwealth Government will control prices at
which products are sold to ensure that the remuneration will be no
more than a fair return for services rendered in production and
distribution.

(d) Essential civil goods ready for consumption are likely to be
negligible in quantity but if necessary the Government would sell
them to the normal distributors at commercial prices subject to
prices to the public being controlled by the Commonwealth
Government.

(e) Proceeds of sales referred to in foregoing subparagraphs above
would be set off against the cost of war goods to the Government
and would not appear in any published accounts. We suggest
therefore the following statement to which we could adhere with
certainty that we could enforce it.

The general principle followed in this matter is that remuneration
received by distributors, whatever the method of distribution, is
controlled and will be no more than a fair return for the services
rendered in the work of distribution. The arrangements rigorously
exclude any opportunity for a speculative profit by private
interests from dealing in leased lent goods. Wherever possible the
Commonwealth Government will retain title to durable goods. In
other cases goods will in general (but subject to the concurrence
of the United States authorities for each commodity) be
distributed through the existing channels. The profits or
commissions earned from this distribution will be subject to
control by the Commonwealth Government. There will be no
discrimination against United States firms. Ends.

We believe that the chief purpose of the White Paper from United
States point of view is to provide an effective counter to critics
of the use which is being made of Lease-Lend goods by the
recipient countries. We recognise that if the United Kingdom
Government were obliged to inform the United States authorities
that the various Dominions had adhered to the terms of the White
Paper only with certain reservations much of the political value
of the adherence might be lost. We suggest therefore that if the
United Kingdom authorities agree that our attitude is consistent
with the principles of the White Paper, the formula suggested in
Dominions Office telegram 702 [5] for communicating the required
assurance to the United States Authorities be amended to read
'adhere to the principles [6] of the memorandum regarding re-
export and distribution to which the United Kingdom Government
have subscribed'.