THE FUTURE OF U.S. LEND LEASE AND CANADIAN MUTUAL AID

DOMESTIC POLITICAL IMPONDERABLES

ESTIMATES OF QUANTITIES OF GOODS REQUIRED BY AUSTRALIA URGENTLY
SOUGHT

[matter omitted]

5. Notwithstanding the domestic political implications in both
countries upon questions of policy, procedure, mechanism and
organisational form, it may be taken for granted that both the
United States and Canadian Governments do in fact intend to
continue to aid Allied countries by the provision of all necessary
supplies to bring an end to the war in Europe and thereupon to
step up to the highest degree of activity in the Pacific.

Following upon the recent Roosevelt-Churchill conference at
Quebec, informal discussions have been taking place between key
American and British officials regarding the policy to be pursued
under the so-called Stage 2 of the war (end of the war in Europe
and acceleration in the Pacific). An endeavour is being made to
bring these informal talks to a head within the next few weeks. It
is anticipated that Lord Keynes may visit Washington to
participate in the talks. Although during the past five years
there have been directions in which an independent line could have
been taken by Australia, the Australian position as a member of
the British Commonwealth and a part of the sterling area has in
most cases made us a party to United States - United Kingdom
understandings. Notwithstanding this, there have been some
instances in which it has been necessary to take an independent
line on behalf of Australia. The position taken by the United
Kingdom in the matters immediately at issue, insofar as can be
learned at the moment, appears broadly to be somewhat as follows:

(a) Provision of war material by both countries for the Pacific
war should be maintained to the utmost extent necessary to
terminate the war at the earliest possible moment and with a
sharing of the production necessary. Cutbacks of production in
both countries will be possible when the war ends in Europe.

(b) Under normal conditions the United Kingdom requires an active
export trade in order to provide the funds to pay for imports of
food and raw materials. Continued substantial production of war
materials in Britain for the United Nations' war effort will
retard conversion to peacetime manufacture and therefore render
necessary continued imports of food and raw material from the
United States under Lend Lease.

(c) Inasmuch as the United States has announced that upon the
cessation of the war in Europe and the commencement upon Stage 2
(acceleration against Japan) production of war material will be
reduced and the civilian economy stepped up, a similar partial
reconversion to peacetime activity in Britain will be requisite.

The over-all degree of reduction in output of war materials in
both countries has been tentatively accepted. A 40% reduction in
the United States and a progressive increase from a cutback of 35%
up to 50% has been mentioned with respect to the United Kingdom.

(d) In consideration of a continuance of Lend Lease, Reciprocal
Lend Lease should be maintained to the extent practicable.

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7. Several further important points should be mentioned. The steps
now being taken by the American authorities to prepare for
decontrol over a wide field of production and allocation of
materials and to prepare for a civilian economy equal in activity
to the record year in American history (1939) pose questions as to
how we shall assure a flow to Australia from America of essential
materials to be secured in competition with a pent up American
domestic purchasing power when it has been let loose. This
question has been under advisement since decontrols were
announced. In this regard during recent weeks additional emphasis
has been placed upon the desire of both American and Canadian
authorities to facilitate resumption of private enterprise in the
latter stages of the war. [1] The implications of added pressure
behind this policy and the probable effect upon continued
Australian Governmental procurement of materials may obtrude in
the discussions mentioned above. There have been suggestions that
an acceleration of war effort in the Pacific may impose a strain
on shipping tonnage and that space for Australia may be more
difficult to secure in the near future. It has at various times
during recent months been suggested in American instrumentalities
that an American control of allocation of space in given ships in
transit on the Pacific may require to be instituted. If shipping
again became difficult, a microscopic examination of all
categories of materials being shipped to Australia with regard to
their essentiality might conceivably be established. Again, in the
course of the discussions either in the immediate or in the long
distance period ahead, some questions discussed at the Bretton
Woods conference may arise. Matters pertaining to American,
British and Dominion postwar trade policy may become important
issues. It is felt that the endeavour will be to narrow the scope
of the immediately projected talks in Washington to Lend Lease and
Reciprocal Lend Lease supplies for war. Canadian supplies issues
are likely to remain quiescent until the Canadian Federal election
situation clarifies. These other issues are merely mentioned as
indicative of the nature of the questions which may or may not
remain inactive while plans are being evolved relative to the
immediate question of the maintenance of war supplies.

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9. The American and Canadian authorities are completely sincere in
their desire to prosecute the war in the utmost co-operation with
all their Allies. In so doing, and especially in the supplies
sphere, they have, however, been under the necessity of carefully
measuring domestic political impulses. Since this is so, I have
throughout contended that Australian Reciprocal Aid to the United
States should similarly be predicated upon the assessment which
the Australian Government makes as to Australian domestic
interests. The matter of the provision by Australia of some raw
materials for the United States under Reciprocal Aid which was
previously refused by the Australian Government [2] may again be
raised although I would question whether this is likely to become
in any sense a live issue. In my opinion, adherence to the
decision already taken by our Government is desirable. In the
matter of Reciprocal Aid provided in Australia to American forces,
I tendered certain advice in the course of a visit to Australia
early in the present year. The advice was that no issue should be
raised with the Americans in the matter of supplies to be provided
in Australia under Reciprocal Aid. In the interests of Australian
and United States relations everything practicable should be done
to meet reasonable requirements. On the other hand, without any
public announcement of a specified policy in this direction, I
expressed the view that steps should be instituted to effectuate a
diminishment of such Reciprocal Aid. It was pointed out. that the
superabundance of supplies available in America and the, adequacy
of the shipping available to American forces should render it
practicable to limit calls by the American forces upon Australian
production to a lesser volume and a smaller range of materials
than had heretofore been the case. The volume and value of
Reciprocal Aid granted by Australia to the American forces is
appreciated by the American Government and is a factor which
obtrudes in all questions relative to the provision of American
produced supplies for Australia and irrespective of whether any
question arises at political or administrative levels. My view,
however, as expressed to Ministers when I was in Australia
recently, still is to the effect that a studied reduction of the
volume and value of Reciprocal Aid should be planned with a
progressive diversion of labour, materials and output in a manner
designed to benefit Australia's own civilian economy.

[matter omitted]

L. R. MACGREGOR