Lend Lease Stage II. United Kingdom Representatives invited
Australian and New Zealand Representatives to attend a further
meeting yesterday afternoon October 27th to discuss developments
since the meeting held on October 9th. [1]

Keynes said that the United Kingdom had presented its case to the
United States of America ten days ago. On the whole discussions
with the Americans had been satisfactory so far. There was no
reason to anticipate any difficulty regarding Munitions
requirements although detailed requirements had to be examined by
Service Representatives. The Australian and New Zealand
Representatives should get in touch at once with United States
Service Representatives. As regards Non-Munitions items it was
hoped that by 1st January [2] the United Kingdom would have
obtained reasonable freedom to export. Specific Non-Munitions
requirements were now being released one by one for consideration
by various expert Missions following upon a general consideration
by the [3] Committee.

It was now desirable for Dominion Representatives to be brought in
to discuss their [4] Non-Munitions requirements with the American
Representatives. It would be advisable for figures of Dominions
requirements to be given in some detail. A meeting had been
arranged for Tuesday October 31st of the United Kingdom and the
United States Top [5] Committee with Morgenthau [6] at which the
Australian and New Zealand Representatives should present their
cases emphasising their special situation during Stage II and
explaining their figures. United Kingdom would be presenting a
supplement of its own case in which certain corrections would be
made and some amplification given of particular items. Any
corrections and amplifications in Dominions requirements should be
presented at the same time.

Revised cases should be made available to the United Kingdom
Representatives late on Saturday October 28th and the whole
British Commonwealth case should be ready by Monday October 30th.

It was not necessary to deal further with petroleum and shipping
requirements as there was every reason to think that the United
Kingdom figures which included Dominion figures were likely to be
accepted.

In answer to a question Keynes said that it was quite possible
that the United States might raise the question of continuation of
reciprocal aid. American Service Representatives had already
raised the question of reaffirmation of the principle of Mutual
Aid and it was not clear how far this point might be pressed. It
was possible that they would ask whether Australia for instance
would be prepared to extend the geographical area of reciprocal
aid so that American forces operating North of Australia could
receive such aid. This precise point had not been raised but it
was desirable to give consideration to it in advance.

We made it clear to Keynes that when the reciprocal aid agreement
with the United States was entered into, Australia had insisted on
limitation of such aid to the Commonwealth and its territories [7]
and we expressed doubts as to whether the Commonwealth Government
would be prepared to give any undertaking at this stage that the
geographical area of reciprocal aid should be extended. A number
of factors would have to be considered. For instance Australia
during Stage II might wish to make supplies available to British
Forces in the Pacific; numbers of American troops in the Pacific
are likely to increase to such an extent that aid in a wider area
might become embarrassing; if Lend Lease supplies to Australia
were restricted severely Australia might be compelled to
reconsider her ability to maintain the existing level of
reciprocal aid.

We are preparing a further memorandum elaborating the Australian
case containing the latest figures and kind of breakdown suggested
by Keynes. The memorandum will also emphasise the special position
of Australia while the Pacific War continues and point out that
Australia is not likely to be in a position to obtain any
substantial relief by diversion from war to civilian effort [8]
when the European hostilities close. Need for continuance of a
substantial measure of Lend Lease in order to give us a reasonably
balanced economy will also be stressed. It will be argued that our
programme is designed to give us such a balanced position and that
it should be accepted on this basis without continual scaling down
on points fully eligible and civilian end use. Keynes agrees that
in existing circumstances we should press for grant of 100% of our
carefully considered requirements without deduction of some
percentage on the ground that this percentage is not eligible
because the goods are for civilian use. We will also stress the
importance of an improved procedure for implementation of
allocations to ensure that goods allocated are in fact obtained
from factory within a reasonable time.

We would appreciate urgent advice as to the attitude we should
adopt if we are asked for an undertaking to continue reciprocal
aid on any prescribed scale and if we are asked to extend the
geographical area of reciprocal aid. In the absence of
instructions to the contrary before Tuesday we will merely affirm
our understanding that reciprocal aid on the present basis will be
continued. The Reciprocal Aid Agreement provides for discussions
in common on questions of effective use of resources. We feel,
therefore, that we should not indicate any unwillingness to confer
if such questions are specifically and directly raised with us by
the United States Authorities. In this event we will go no further
without reference to, and further advice from you.