CANADIAN MUTUAL AID

Introduction
1. In May, 1943, Canada passed a Mutual Aid Act providing for a
gift of 1,000 million dollars of war supplies to be allocated to
the United Nations.

Australia has been invited to participate [1] and decisions of the
Government are required as to-
(i) Whether we should participate.

(ii) Whether the proposed procedures are acceptable.

Background
2. Last year Canada provided a gift of 1,000 million dollars to
the United Kingdom, which Government had already used up its
resources of Canadian dollars. This gift relieved the Canadian
dollar shortage of the whole sterling area but the budgetary
relief was confined to the United Kingdom. Dr. Evatt on his recent
visit to London, however, obtained a special concession for
Australia of �7m.

3. The new gift is for allocation to all United Nations, and
Canada desires to deal direct with each member of the sterling
area, i.e. Australia, New Zealand, etc.

4. When ample Canadian dollars were available to the sterling area
our purchases were for cash. With the exhaustion of those dollars,
Canada was faced with the alternatives of a stoppage of supplies
or a free gift to maintain her war production. [2] U.S. Lend-Lease
has also caused some diversion of trade that previously went to
Canada and Canada is no doubt anxious to regain and maintain her
trade connections.

5. The present gift will be a further valuable contribution of war
supplies by Canada but one should not lose sight of the fact that
it has undoubtedly been influenced to some extent by a desire to
maintain production and preserve commercial connection with a view
to post-war trade.

Question of Participation by Australia
6. Briefly the scheme provides for the supply to Australia of war
materials and goods without cash payment for approved requirements
in excess of dollars available from Australian exports.

7. Our 'balance of payments' with Canada last year was-

1942-43
�m.

Imports, etc... 20.5
Exports, etc... 2.5

Deficiency 18.0 (Rough estimate)

This deficiency was met by Australia buying dollars from the
sterling pool.

8. War supplies required from Canada in the current year are
estimated at �22m. If these were all approved by Canada, Australia
would obtain close on �20m. without cash payment and our Budget
and London Funds would be relieved to that extent.

9. Australia therefore stands to benefit financially but we must
not overlook the post-war commercial aspect of the scheme and we
should not make a decision to participate unless we are satisfied
there will be no embarrassing conditions. In this connection it
should be remembered that the acceptance of mutual aid may result
in our feeling some moral obligation to Canada in the post-war
period. On the other hand if we do not join in the scheme we would
almost inevitably be cut off from Canadian supplies which are
essential to us.

10. Statements by the Canadian Finance Minister indicate that in
certain cases Canada would wish to receive the benefit of such
reciprocal arrangements as may be practicable and we have learnt
that the proposed agreement on 'General Principles' would provide
that 'such reciprocal aid shall be provided by Australia as may be
decided upon by common agreement'.

11. We have asked for further information on this point, but it is
not expected that we will be faced with any direct commitment
which would be embarrassing.

12. On balance I feel that, provided we are not asked to accept
embarrassing direct commitments, we should agree to the principle
of participation and I recommend accordingly.

Agreements
13. If we join in the scheme, it will be necessary to enter into
three agreements relating respectively to-
(i) General principles.

(ii) Transfer of existing Commonwealth Government contracts to the
Canadian Government.

(iii) Banking and financial procedures.

General Principles
14. So far we have received only a list of points which the
Canadians
propose to incorporate in this agreement. Copy of the list is
attached (Appendix A).

15. Point 7 'Reciprocal Aid' has already been referred to. Point 4
requires some alteration to permit of transfers within the South-
West Pacific Area and departmental views have already been
forwarded to the High Commissioner, Ottawa. [3]

16. It is recommended that the Government authorise the conclusion
of an agreement on 'General Principles' on the lines proposed by
the
Canadians subject to such modifications as may be required by the
Treasurer and the Minister for Trade and Customs.

Transfer of Contracts
17. Canada has asked that existing Commonwealth Government
contracts with Canadian nationals be transferred to the Canadian
Government (Department of Munitions and Supply) as from 1st
September, 1943. [4]

18. Apparently it is intended that once the Mutual Aid Scheme
becomes operative the Canadian Government will become virtually
the sole authority negotiating contracts with Canadian producers
of war supplies. The purpose of this centralization, of which the
proposed transfer of existing contracts is one aspect, is-
(a) to facilitate the transfer of existing contracts to Mutual Aid
if they are approved as eligible;

(b) to enable the Canadian authorities to exercise closer
supervision over contracts;

(c) to simplify procurement procedures.

19. It should be noted that Canada could take over contracts
without reference to Australia, but it prefers to do it by
Agreement and the draft agreement set out in Appendix B [5] has
been submitted by the Canadian authorities.

20. The Minister for Trade and Customs has had this examined and
recommends we authorise the Australian High Commissioner in Ottawa
to sign the Agreement subject to satisfactory assurances being
obtained that deliveries to Australia will not be prejudiced and
that goods under the contracts will not be diverted to other
countries without first obtaining the concurrence of Commonwealth
Government. I concur in this recommendation subject to the draft
being approved by the Attorney-General.

Financial and Banking Procedure
21. The proposals under this heading are technical and somewhat
complex and we are seeking clarification on a number of points.

22. Briefly, the scheme is to make available to Canada the dollars
arising from our exports. These will be placed in a special
account under Canadian ownership and will be used by the Canadians
to make cash payments for war supplies requisitioned by Australia.

Our requirements in excess of the amounts available in this
special account will, if eligible, be paid for by Canada out of
its 'Mutual Aid' funds.

23. It will be necessary for all orders which will be paid for out
of 'Mutual Aid' funds or the special account to be placed as
Government orders.

24. Import licences to private persons for small amounts and in
certain other cases will continue as at present and will be
settled as an ordinary Banking transaction through the 'Sterling
Area' dollar pool which will still continue to operate.

25. The proposals have been the subject of close examination by
the British Treasury, Commonwealth Treasury, Commonwealth Bank and
Department of Import Procurement [6], and I recommend that I be
given authority to approve of procedures in this connection. [7]

J. B. CHIFLEY