While it is of course clear that the decision as to what shall or
shall not be included within the scope of Lend Lease rests
ultimately with the United States Government we have been most
anxious to secure that if changes are made it shall only be after
opportunity for full discussion. As you are aware the United
States Authorities have confronted us in recent months with a
number of unilateral 'decisions' to some of which we felt bound to
take strong objection. We regard it as essential that this method
of procedure should cease and that the matter should proceed on
the basis of full and frank prior discussion.

At the same time it is clear to us that modifications in the scope
of Lend Lease must be expected from time to time. We have been
conscious that certain items might be regarded as marginal and as
such might not continue indefinitely within the scope of Lend
Lease.

Our efforts therefore have been directed primarily to adoption of
procedure which would ensure prior notification and discussion
whenever changes were desired by the United States and thus give
us opportunity of resisting such part of the decisions as we found
intrinsically unreasonable without necessarily opposing American
action in toto.

2. The latest American approach when early this month a general
list of proposals was presented to His Majesty's Ambassador for
consideration and discussion was therefore a considerable advance
in the right direction and as such welcomed by us. [1] We have to
recognise however that this procedure involves our expressing
agreement with proposals which we find reasonable as a corollary
to expressing our dissent from those which we find unreasonable.

We should hope that by dealing with matters in this way we shall
strengthen our position to resist any inherently unreasonable
proposals that the United States Authorities may contemplate and
shall also build up a better atmosphere in which to settle
outstanding problems.

3. It seems to us that items covered by the note can be divided
into three categories-
(A) items included in list communicated to us in October, e.g
capital goods.

(B) Additional items which we can accept without further question,
e.g. Iceland fish and Caribbean sugar and molasses.

(C) Miscellaneous items including [some], e.g. agricultural
machinery and tobacco for the Forces, which we feel bound to
resist.

4. As regards (A) as explained above our objection to the October
proposals was primarily against the manner and time of
presentation. We could not hold that in principle the inclusion of
all classes of capital goods on Lend Lease could continue
indefinitely. Now, therefore, that we have established the
principle of prior consultation and that the details of the
proposals have been examined and worked out we feel that, for
reasons given in my telegram No. 23, we shall be wise to accept
this item.

As regards (B) we have long realised that Iceland fish, Caribbean
sugar and molasses would be excluded sooner or later and, in
present circumstances, we consider it right to accept the proposed
exclusion now.

As regards (C) the position is that each item will be considered
separately and that we shall endeavour in discussion to secure
deletion from list of those we regard as unreasonable. [If] in
spite of this, United States Authorities were to insist on
retention of any given item, this would of course represent a
unilateral decision.

5. We hope that you will share our view that having regard to the
way in which negotiations in Washington have developed the best
course will be to deal with individual items as they arise on the
basis outlined above. In view, however, of your telegram [2] we
have asked our representatives in Washington in authorising them
as in paragraph 5 of my telegram No. 23 to make it clear that we
cannot of course speak for the Empire as a whole and that there
may be special considerations affecting individual members which
may have to be taken into account.

6. Our preliminary comments on particular categories of goods
listed by the United States Authorities are given in my
immediately succeeding telegram. [3]

7. We much regret shortness of time for this exchange of views but
we had understood that full background was already available to
you from Washington where our representatives in these
negotiations have thoughout been in close touch with Dominion
Missions. We are considering how machinery for co-ordination of
views on these and kindred matters could be improved, bearing in
mind that Washington must inevitably be the centre of discussions,
and would welcome any suggestions from your standpoint.