Following from Brigden for Treasury.

1. Your telegram SW.43. [1] Have seen Phillips [2] on your
questions. Your general views will be acceptable here. We know of
no authority here in support of Wasserman's [3] views which were
entirely personal.

For Your information the President [4] on 1st May told his press
conference that the State Department is in full charge of foreign
relations and added that some persons in other parts of the
Government had not realized this. He was not referring to the
lend-lease administration which does not purport to conduct
negotiations such as ours. State Department has been conferring
with other branches of U.S. administration and is almost ready to
resume discussions with us.

2. We do not advise and U.K. would not readily accept view that
Australian reciprocal lend-lease should be off-set against U.S.

assistance to whole Empire. Nor does State Dept. seek any such
principle. Empire countries are expected to arrange equitably
amongst themselves, and U.S. will consider any assistance that may
be necessary.

No new arrangements appear to have been made to assist the U.K.

dollar position. Phillips hopes that something will come out of
the present discussions. See our 671 of May 4th para. 4. [5] U.K.

has been asking that pre-lend-lease aircraft contracts should be
transferred to lend-lease with no results to date. Dollar deficit
has not been increased as expected from loss of rubber and tin but
impossible at present to estimate ahead.

3. Both U.S. and U.K. recognize that R.L.L. proposals may result
in greater per capita contributions from Australia than lend-lease
requires from U.S. and that consequential adjustments may become
necessary. In the meantime U.S. quite expect reasonable
restrictions on Australian R.L.L.

4. We strongly endorse your view that U.S. administrative expenses
such as offices and staff should be paid for by U.S. It is wise
policy here not to include these items under lend-lease. Accepted
principle is that each country pays its own administration. We
suggest also that all expenses incidental to civil administration
at least should be paid for including transport and communications
but probably not rail transport. There will be border-line cases
and we propose that all should be decided in Australia. This means
by Australia after consultation with U.S. officers.

5. Your para. 5 (3).

Expenditures above Australian standards may be difficult to
distinguish and U.S. would probably prefer object to be gained by
approximate classifications of supplies to be either in or out. We
shall endeavour to have these matters left to your discretion in
administration but would be glad to know more details.

6. We are assuming that all goods the subject of personal
expenditures by U.S. forces will be outside R.L.L., e.g., canteen
supplies and the like.

7. Your para.7.State Department and therefore U.S. Government do
not press for supplies for U.S. forces outside Australia to be
under R.L.L. Phillips supports exclusion of all exports but no
rigid rule prevails. U.K., like Australia, has supplies of various
stores under R.L.L. Suggest you decide each case as it arises but
do not accept general liability or make serious precedents. Local
U.S. representatives should not be concerned provided they get
goods.

8. Foreign exchange elements in R.L.L. goods. Again please do not
attach undue importance to opinions of local U.S. representatives
not permanent officers nor familiar with U.S. policy.

Our dollar expenditures should be reimbursed on some agreed
assessment. Possibly your sales of lend-lease tobacco to U.S.

forces through canteens or private traders might be assessed as
off-setting dollar credits, but in any event U.S. will be willing
to provide dollars against dollars which we have spent on goods
supplied under R.L.L.

If desired we shall ask U.S. to provide U.S. dollars also against
Canadian dollars rationally spent.

9. Sterling area components should probably not be separated from
our R.L.L. and should not be paid for by U.S. Phillips agrees but
does not concede our right to claim on sterling. This aspect is
part of our problem with U.K. for subsequent discussion.

10. Capital Works. Your para. 11. Position in the U.K. is
confused. At early stage U.K. actually provided dollars to pay
U.S. workmen in the U.K. Later U.S. provided both dollars and
sterling. Now U.K. is providing all the local labour and material
but U.S. also supplies material and equipment. U.K. suggests that
this continue.

U.K. is more concerned about works in Middle East and colonies,
and in these special areas inclines to your view that where works
are specifically for U.S., U.S. should carry costs, but position
is not clear. In the U.K. and Dominions, U.K. regards all as joint
works for which local expenditures should be provided wholly under
R.L.L. No payments already made are to be refunded.

11. Your view in para. 12 conforms with the U.K. view.

In general the magnitude of Australian prospective R.L.L.

justifies limits we have proposed, which we think more practicable
than the alternative limitation. Please see also our telegram on
shipping.

12. Have advised Phillips on revised estimates of overseas
balances. He asks whether U.K. has made claims for all war
expenditure, but we presume this is being discussed by Dr. Evatt
[6] in London.