Reciprocal Lease Lend.

Prior to receipt of your telegram [1] we had closely examined
methods of procedure and reached conclusions conveyed to you in my
telegram of 7th inst. [2] Have examined matter further in the
light of your telegram and wish to make the following points:-

1. It is essential to the success of the negotiations from our
point of view that arrangements cover the protection of our
exchange position.

2. No agreement covering lease lend should be signed which does
not cover this aspect of the question unless the necessary
protection is simultaneously provided in a separate agreement or
memorandum of understanding.

3. Any agreement or understanding protecting our exchange position
must include United Kingdom as our exchange problem is primarily a
sterling problem.

4. We see no need to re-open the Mutual Aid Agreement. In our view
present negotiations should be concerned with immediate issues-the
nature and extent of aid to be given by the parties and the
protection of our exchange position. We have accepted the
principles of the Mutual Aid Agreement and nothing can be gained
from re-opening the long term issues involved.

5. We suggest that negotiations might acceptably result in one of
the following arrangements-
(a) A triangular agreement between United States of America,
United Kingdom, and Australia (referring to February Mutual Aid
Agreement) providing for reverse lease lend and the protection of
Australian exchange position.

(b) Two agreements-
First between United States and Australia (referring to Mutual Aid
Agreement) and covering the nature and extent of direct and
reverse lease lend between the parties.

Second, a triangular agreement or memo. of understanding
protecting Australian exchange position.

I should be glad if you would examine position and advise further.