Your 166 1st August [1], Lloyd has been accorded every facility
for full and frank exchange of views with both the Joint Planning
Staff and the British Chiefs of Staff. Discussions have also
proceeded direct with Admiral Mountbatten and his planning staff.

I have now received the following report from him of the results
to date. Report Begins:

First.

Proposed Theatre Re-Organisation-South West Pacific Area.

At Potsdam it was agreed in principle that portion of South West
Pacific Area should pass from United States to British Command as
soon as possible. The British Chiefs of Staff undertook to
investigate and report the earliest practicable date on which
transfer could be effected. It is now clear that there are major
difficulties associated with this proposal and a decision has been
taken to refer proposal back to the United States Chiefs of Staff.

This reference marshals respective difficulties of Australia,
Mountbatten and the British Chiefs of Staff and requests
consideration of modified counter-proposals. Our acute manpower
difficulties and our complete inability to accept further Military
commitments are now appreciated. Mountbatten is not yet in a
position to exercise effective command of or to allocate forces to
an area far removed from his present theatre at a time when all
his energies and resources are taken up with preparations for
operations against Malaya and Singapore and to the clearing up of
Burma. Provision of British Land Forces from sources outside South
East Asia Command to assume responsibility for the area between
South East Asia Command and the Western limits of Australian
Mandated New Guinea is not practicable solely clue to the complete
inability to provide shipping for their transportation and
subsequent maintenance. The counter proposals to Washington
involve postponement of the transfer of responsibility and seek
agreement for a gradual change. Effect could be given to this
conception along the following lines:-

Mountbatten could now make preparations for the Eastern extension
of his existing boundary by assuming responsibility for future
operational planning including planning for clandestine operations
and civil affairs. This would involve certain intelligence
personnel and records being made available to him now. The next
phase would be dependent on the successful development of
operations against Malaya when Mountbatten could assume
responsibility up to the Celebes including and providing necessary
reliefs for Australian troops in Borneo. The final stage of
assumption of the control up to the Western Boundary of Australian
Mandated Territory could then be planned. In the meantime the
preservation of the status quo follows but it has been made clear
to Washington that provided necessary shipping could be furnished
control of current operations in the area of the First Australian
Army could pass now to the Australian Command. The problem of
Rabaul is of course expressly reserved.

Second.

Australian Participation in Operations against Singapore.

Mountbatten is anxious to employ a small Australian Force if it
could arrive in the operational area in time. The force
contemplated is a paratroop battalion and two armoured regiments.

An examination has been directed of the feasibility of moving
either the whole force or alternatively the paratroop battalion
only before any approach is made to the Australian Government.

Third.

The British Commonwealth Force for Participation in Operations
against Japan.

Certain proposals of General MacArthur were tabled at Potsdam by
the United States Chiefs of Staff and have been closely studied
here for subsequent detailed examination at Manila in late August,
1945. These proposals include the following:

British participation to be limited to corps of three divisions,
one British, one Canadian and one Australian. The corps to be
available in the objective area about March 1946 and to be
employed initially as an assault reserve afloat. The corps to be
fought as an integral part of United States Army with the right to
detach Divisions to other United States Corps in emergency
circumstances. The Corps to be completely equipped and organised
as far as possible on American equipment and be maintained by
United States Administrative Organisations.

General British Policy will be conditioned by the view that having
offered a British Commonwealth Force to serve under United States
Company we should as far as possible comply with United States
requirements and General MacArthur's wishes. In particular it
seems certain that the British Division will be trained, equipped
and mounted from the United States together with the Canadian
Division. Of the three Divisions at present planned, two will be
assault mounted, the British and Australian Divisions. The
necessary assault shipping for the Australian Division will be
provided from forces now deployed in support of South East Asia
Command and its detachment to lift the Australian Division from
Brunei will be made as soon as the Straits of Malacca have been
opened and Singapore masked. This shipping will carry to Borneo
the Garrison Troops to relieve Australians in Borneo.

At Manila Staff talks, the British Representatives will be
instructed to press for the inclusion of a New Zealand Division in
the later stages of the operation.

The views of the Australian Government on command of the British
Commonwealth Force and the maintenance of machinery to ensure
adequate control over employment of Australian formations have
been stressed and you will be fully consulted on both issues.

Report Ends.