Peace Treaty with Italy.

Concerning Italian-Yugoslav frontier following is additional
commentary to outline given in my telegram 292 [1] (part 3):

1. On ethnic grounds and in the light of other general
considerations stated in telegram under reference the greater part
of Venezia Giulia should go to Yugoslavia. Present 'Morgan Line'
(see Dominions Office telegrams D.925 of 28th May [2] and D.1603
paragraph 2D.IV [3]) is in no sense a just ethnic frontier but was
adopted on grounds of expediency and for strictly temporary
military government purposes. It would merely complicate the
ethnic problem and do further injustice to Yugoslavia if it or
some slight modification of it were favoured as final frontier.

2. Apart from the ethnic problem the real issue is economic. Local
trade from the Julian Region comes westward from the Julian Alps
and the mountains of north-eastern Istria to the markets and ports
of Gorizia and Trieste and other coastal towns. From the viewpoint
of international trade Trieste is the most convenient and
important outlet for a large part of the Danubian lands. During
the period between the two world wars when Trieste was severed
from the economic hinterland the importance of the port
appreciably diminished (in 1913 the trade figure for Trieste port
was 3.44 million tons. Only in 1929 with 3.11 million tons and in
1937 with 3.17 million tons did the trade approach the 1913
figure). Under proper administration and with close ties with the
Balkan countries Trieste should again become a port of
considerable importance and might offer valuable opportunities for
Australian trade.

3. In regard to Trieste city as distinct from its Yugoslav-
populated hinterland we have little to add to the United Kingdom
proposals except that a joint Italian Yugoslav authority for day-
to-day administration (Possibly an elective council) might be
considered. Such an authority might be supervised by an
International Commission drawing upon the experience, with
suitable modifications, of the Tangier Convention.