CHANGES IN U.S. SUPPLY POLICY AND GENERAL TRENDS
[matter omitted]

VIII Points of Conflict with FEA

24. It is being increasingly borne in upon us in Washington that
Australian relations are being strained at a number of points
which are more or less within the orbit of procurement problems.

While the question of relationships between the two countries is
outside the scope of procurement, it may be part of our
responsibility to indicate those instances in which procurement
problems may be giving rise to difficulties affecting the larger
sphere. Before enumerating some of the points at which
difficulties have arisen, however, there are several general
observations which should be made. In the first place, we feel
that difficulties which are being experienced by Australia are
also being experienced to a greater or lesser degree by everyone
else and that a certain amount of tension in relationships in
Washington is the general experience. A lot of the difficulty is
confined to the Washington situation itself and has to do in one
way or another with internal, local Washington situations. In the
second place, there is at least room for suspicion that
intimations of strained relations are being used as a convenient
weapon to improve the position of any one U.S. agency with respect
to the others. It is pertinent to observe that the responsibility
for any disagreements is certainly not one sided and that any
concern which is being felt should also be a mutual concern and
not a one sided concern. There are some Americans who take the
view that the United States is throwing away much of the goodwill
which it gained by Lend Lease by pursuing its present somewhat
difficult policy and by being unduly concerned with local
political considerations. However, for your guidance and
information we have attempted merely to list the points on which
we have been recently taxed by American authorities in procurement
discussions here.

25. It is generally admitted that Australia has one of the most
diligent and active missions in Washington and, as a result, we
have often found ourselves in the vanguard on the policy and
supply arguments which have arisen from time to time. By and large
it is probably fair to say that this attitude has been appreciated
by all concerned and in the dark days of the war when Australia
was in danger of imminent invasion every sympathy was extended to
Australia no matter how vigorously she pressed her claims. This
background, however, reinforces the necessity under the changed
conditions obtaining at present of adopting a more moderate view.

In recent negotiations with American authorities they have cited
to our disadvantage, the following points:

(a) Agents Commissions
As has been reported in separate communications [1], this whole
question is now coming to a head. Irrespective of the relative
merits of the case, the commercial community in the U.S. is being
adversely influenced. The Machine Tool Builders Association is one
of the most powerful organizations of its kind and it has recently
circularized some 200 American firms on this matter.

(b) Retroactive Decision on Eligibility of Textiles Authorities
have admitted it is quite probable that the merits of this case
may rest with Australia. Nevertheless, FEA contend that this would
have been an excellent case for Australia to have shown good faith
in co-operating with FEA in respect to an item which they felt to
be politically dangerous. As one FEA official said at the meeting
at which we appealed the case to Mr. Crowley [2], 'We had
sincerely hoped that Australia would co-operate with us in seeing
our point of view in this matter'. [3]

(c) Lend-Lease vs Reciprocal Aid
In a number of recent instances involving the reduction of Lend-
Lease aid to Australia it has been pointed out that such reduction
would involve corresponding reductions in the amount of Reciprocal
Aid which it is within Australia's power to make available. In
spite of every argument we have been able to adduce to the
contrary, FEA authorities continue to be annoyed by this argument
and to regard it as a threat.

(d) Overstatement of Requirements
While every sympathy has been shown for the vigour with which
Australian cases have been presented, FEA have been building up on
the other side a number of instances in which requirements have
been overstated. The two most important instances are trucks and
recently, paradoxically as it may seem, textiles.

(e) Petroleum
The whole question of petroleum is becoming an exceedingly grave
political issue in this country and here again FEA officials feel
aggrieved at the pressure which has been exerted upon them in
respect to off-shore purchases of oil under Lend-Lease. [4] of
course, the proof of the pudding is in the eating and it looks at
present as though we may win this particular argument.

Nevertheless some hard things have been said on both sides in the
process.

(f) Return to Commercial Practice
This matter has already been commented on above. [5] of course, in
this case there is involved the possibility of a cleavage of
opinion on a major issue as between the commercial practice of
Australia and the United States. It is quite beyond the scope of
this letter to comment on this issue but the repercussions do most
certainly extend into the procurement field and will do so
increasingly as this country presses toward the return to normal
commercial trade channels.

(g) Australian - New Zealand Pact [6]

This matter is again beyond the scope of this letter but
resentments arising from this Pact are not lacking from
procurement discussions.

(h) Canadian Mutual Aid Agreement
This controversy which surrounded the signing of this agreement
has also made itself felt in American procurement circles. [7]

(i) Reciprocal Aid on Raw Materials
Australia's unwillingness to participate in this agreement,
however justified, is also a matter which occasionally obtrudes in
procurement discussions [8]

(j) Industrial Autonomy
While every occasion has been seized to argue in defence of
Australian autonomy in regard to making her own industrial
decisions, we have never quite succeeded in scotching a prevalent
feeling in this country that postwar considerations do influence
these decisions.

(k) Move to Cut the Size of Australian Army
It is too early yet to say what the effect of all this will be,
but the original reaction in the American press this morning which
carried Army Minister Forde's statement [9] was very adverse and
there is no doubt that this will be used in connection with our
discussions on new Australian projects. We realize, of course,
that these reductions are entirely due to the necessity of getting
more manpower on the food production front to feed the U.S. Army
in the Southwest Pacific. Nevertheless, as you know, the
explanation never quite catches up with the original statement.

Conclusion
You may rest assured that we have done everything possible to
counteract any adverse criticisms which may have been levelled at
us in respect to any of the above issues. On the whole we are not
disposed to view the position with respect to any of them with
undue alarm. We have, however, felt it necessary as a matter of
information to place these facts on record before you. You will,
of course, be fully acquainted with the position on each item
separately from various despatches sent to you from time to time.

if, however, there is any further information or documentation
required, we will be glad to go into the matter more exhaustively
in reply to specific requests from you. This, of course, also
applies to the thumbnail sketches of the various American
instrumentalities. Further reports on any of these will be
forthcoming if required.

Should this letter reach you after Mr. Macgregor's departure, it
would be appreciated if you would hold the letter until he has had
a chance to see it on his return as there may be matters on which
he would prefer to take a different line. A copy will be held for
him and given to him immediately he returns to the country.,

E. R. JACOBSEN