Your D.518, 519 and 520. [1]

While the United States Note expressly excludes the Dominions, we
anticipate that, as in the case of the Lend-Lease Agreement, the
United States may present to the Dominions for concurrence any
agreement concluded with the United Kingdom respecting post-war
use and disposal of wartime installations. Therefore it appears
desirable that we should place before you certain views on this
subject as well as giving information on the Australian situation.

2. The basic principle which we have publicly declared in the
Australian - New Zealand Agreement [2], clause 16, is that
construction and use of installations in time of war in any
territory under the sovereignty or control of another power do not
in themselves afford any basis for territorial claims or right of
sovereignty. We gather that this is recognised by the United
States inasmuch as they advance no claims as of right but propose
the negotiation of an agreement to serve mutual interest.

3. Installations appear to be of two kinds, namely-
(a) installations provided solely by the United States effort; and
(b) installations provided within the Lend-Lease system.

Regarding (a), there has been a limited amount of construction on
Australian territory by American service personnel incorporating
war material from United States service stock, but we have no
record of the amount of such direct expenditure by the United
States army or navy. This direct United States expenditure is a
greater factor in works in New Guinea than on the Australian
mainland. With the exception of a few minor works including some
oil storage at Milne Bay and Port Moresby, the whole wartime
development of airfields and ports in New Guinea has been service
labour. The units employed have been both Australian and American
and the material has come either from Australian or American
stocks. A substantial part of the American material would have
been supplied from Australia as reverse Lend-Lease. There is no
clear line of demarcation in the employment of various works
units. Australian units have been employed in constructing
facilities which have subsequently been occupied by Americans and
vice versa. Some at least of the airfields have been developed
from pre-war civil aerodromes and Australian service
installations.

4. In the case of New Guinea the principle we are applying and
which we wish to preserve is that war expenditure by United States
in operational areas stands wholly apart from Lend-Lease or
reciprocal aid transactions. We cannot accept any position which
is likely to involve contribution by us to the direct expenditure
of the United States in prosecuting the war in operational areas.

There would be a derogation of this principle if we agreed that a
consideration in return for such U.S. expenditure had to be made
by us in the form of some future American right to a selected area
or a particular installation. By analogy, Australian or military
expenditure in the Middle East war was given as a contribution to
a mutual war effort and we demanded no consideration in return.

Moreover, the establishment of any other principle would accord a
disproportionate advantage to the United States owing to the
circumstance that the war has not necessitated the presence of
Allied troops in the United States.

5. Lend-Lease transactions are in a different category and the
future use and disposal of Lend-Lease installations are governed
by an existing agreement. It is not clear, however, whether the
United States regards installations constructed by way of reverse
Lend-Lease as coming within the scope of the proposed discussions
and information on this point would be appreciated. If the whole
of Lend-Lease and reciprocal aid transactions are to be considered
as coming within the field of discussion regarding post-war use
and disposal it could well be argued that production facilities
and pilot-training facilities built in the United States with
Lend-Lease funds must also be covered in any agreement reached.

6. In Australian territories there is very little direct U.S.

Lend-Lease expenditure in any installations. The extent of works
provided as reciprocal aid is considerable embracing aerodromes,
oil installations, camps, warehouses and hospitals. Construction
has been mainly with Australian labour and materials with a
relatively minor Lend-Lease component.

7. The United States Note appeared to suggest that either Article
V or Article VII of the Mutual Aid Agreement might be applied to
installations as determined by the parties. Our view is that
Articles V, VI and VII must be read in conjunction. The obligation
under Article V is specific but does not operate until 'the end of
the present emergency'. Article VII is more general in character
and so long as hostilities continue and the final determination is
thereby deferred, we interpret our commitment under this Article
as being limited to an undertaking to enter into conversations on
the best means of attaining certain social and economic objectives
set out in the Article. Except insofar as it is embraced by these
objectives the question of the use and disposal of particular
Lend-Lease installations does not arise until the final
determination is made. We object to any attempt to reach a
separate agreement regarding American expenditures at any
particular point or in respect of the disposal of any selected
group of installations before the time arrives to make a general
settlement regarding the benefits to be provided to the United
States in return for aid furnished. We regard this principle as
vital. As you are aware a similar issue is at present being
contested by us in regard to the American contention that machine
tools already obtained under Lend-Lease may in certain cases be
treated differently from other Lend-Lease equipment and made the
subject of a separate transaction. (See our telegram 23 of 26th
January [3] and further information forwarded to Australia House.)
8. We also think that a broader and more fundamental contention
should be made. In the case of this country, reverse Lend-Lease
has involved far heavier burden upon our resources than has Lend-
Lease upon United States resources in relation to Australia. In
short, the reverse Lend-Lease assistance from us outweighs Lend-
Lease assistance to us. In these circumstances it does not seem
appropriate or just for the United States to take the Lend-Lease
Agreement too literally. We are not bound by the terms of a
Statute of the United States. We made a subsequent agreement to
the Lend-Lease Agreement and in any event we only accepted the
general principles of the Lend-Lease Agreement. [4] 9. On the
grounds given above we would object most strongly to entering into
a new agreement on lines similar to the exchange of notes between
the United States and Ethiopia. We consider that if the question
of post-war use and disposal of installations is to be discussed
before the end of the war, the discussions should take place as
part of the whole series of discussions for the betterment of
world-wide economic relations and not with a view to defining the
position of a single government in regard to the control and use
of installations in foreign territory.

10. Additional information regarding the position in regard to
installations in Australian territory will be forwarded in a later
telegrarn. [5]