The Netherlands Delegation acting on detailed instructions from
The Hague has submitted a letter to the Committee [1] dealing with
the direct talks between the Netherlands Ministers and Dr. Hatta.

On the basis of the letter and the earlier report from the
Republican Delegation [2], which was received by the Committee on
December 9th, the Committee of Good Offices yesterday, December
12th, telegraphed its own report to the Security Council at Paris
[3], attaching the reports of the parties (Annex I). [Only
Netherlands report is attached. Repn. Report was included with
previous letter]. [4]

2. The Netherlands reply was even stronger than expected. Both the
U.K. and the U.S. ambassadors at The Hague had presented strong
notes to the Netherlands, so strong indeed that according to the
British Consul-General in Batavia, the notes had to be modified
before the Dutch would accept them. I also understand that the
Dutch have promised the British and the Americans that they would
not close the door on a settlement with the Republic. In these
circumstances it might have been anticipated that the Dutch reply
would be to the effect that they were grievously disappointed at
the result of the direct talks, that they would be forced by the
pressure of the federalists to proceed with the early formation of
an interim federal government but that they would continue to do
their utmost to help the Committee of Good Offices to find a
settlement of the dispute. Instead they have slammed with a bang
every possible door and politically it will now be difficult for
the Netherlands to retract from the firm stand against the
Republic.

3. Our report to the Security Council is as strong as a unanimous
report could be. It shows clearly that the Netherlands are
categorically opposed to any negotiation and that the breakdown of
the talks constitutes a threat to the peace. Although the
technical words of the U.N. Charter are not used the report coming
from an agency of the Council should justify the Council
recommending terms of settlement. No recommendations to the
Security Council are included in the report and it has also been
impossible to obtain agreement on anything resembling too closely
a judgment on the policy of the parties. At the same time the
report should make it easy for individual Council members both to
pass judgment and make recommendations and I should be greatly
surprised if the U.S. representative does not take a much stronger
line than he has taken hitherto in the Indonesian debates. I also
believe it would be useful if some of the members of the Council
indicated without commitment their concern about the restrictions
on their economic relations with the Republic. Certainly some
economic relief for the Republic is long overdue and any pressures
which can achieve this should be applied.

4. As I have indicated in my telegrams [5] I believe it should be
possible for the Security Council to pass a resolution calling on
the Netherlands to refrain for the time being from the formation
of an interim federal government without the Republic and calling
on the parties to resume formal negotiations on the basis of the
American plan. [6] These recommendations are unlikely to be heeded
by the Dutch but they should at least make further military action
against the Republic more difficult.

5. You will note that the Netherlands case depends upon evoking a
section of Article 1 of the six additional principles [7] but
meanwhile ignoring the remainder of the Article and the remaining
Articles of the Renville Agreement. [8] It is also clear that the
Dutch have deliberately stalled negotiations with the Republic and
indeed have refused formal negotiations for six months while they
have accomplished a series of faits accomplis.

6. As the report states the continuation of the present policy
will lead to considerable disorder in Indonesia and in my opinion
will culminate in Dutch military action against the Republic. My
guess is that there will be a series of incidents in the
demilitarized zones and I fear that these may be instigated by the
Dutch as justification for military advances into Republican
territory. It is not unlikely that the Netherlands will seek to
deal with the Republic piece-meal rather than endeavour to digest
all Republican areas into their federal system at once. In this
regard the wording of the
Netherlands letter of December 11 is worth noting-'the possibility
of the incorporation of Republican held areas in the federal
system must remain open.' P.S.

Cochran, who flew to Djokjakarta this morning, returned this
evening with a personal letter from Hatta, which I am attaching
[most confidentially] as Annex 2. [9] The letter which was
obviously drafted by the U.S. Delegation is extremely conciliatory
in tone. It attempts to clarify the misunderstandings upon which
Hatta considers the Netherlands letter of December 11 has been
based and to re-open the door so rudely slammed by the Dutch on
the possibility of further negotiations.

2. The most important points in the letter are:-

(a) its effective answer to the Dutch charge that the Republic
does not recognize Netherlands sovereignty in the interim period
as laid down by the Renville Principles.

(b) the position taken in paragraphs 9 and 10 regarding the High
Representative's emergency powers. Hatta agrees that, subject to
the establishment of definite standards to govern his decision,
the High Representative shall be the ultimate judge of the
necessity for the exercise of these powers and that he shall have
authority to employ Netherlands forces as supplementary forces,
'to the extent required for the protection of the public peace and
security'.

3. The letter will doubtless be used by the Americans in an
attempt to bring about the resumption of negotiations. As the
Netherlands have stated their opposition to further negotiations
so definitely and publicly, this may be difficult. In any case
negotiations can result in a settlement only if the Netherlands
can be induced to agree to practical limitations on the exercise
of their sovereignty.