251 Lord Cranborne, U.K. Secretary of State for Dominion Affairs, to Commonwealth Government

Cablegram 29 LONDON, 19 January 1941, 12.05 a.m.

SECRET

(1) His Majesty's Government in the United Kingdom have had under consideration the recommendations of the Eastern Group Conference at Delhi, and in particular the scope and methods of operation of the arrangements proposed.

We should be glad to receive as soon as possible any observations which His Majesty's Governments in the Commonwealth of Australia, New Zealand and South Africa may wish to make in the light of the following statement of views which we have ourselves reached on the Conference's recommendations.

Provision office (2) The proposed establishment of a central Provision Office and local provision offices is acceptable to the United Kingdom Government. We concur in the recommendation of the conference that the central Provision Office should be under the control of an officer of the Imperial General Staff, and have selected Major- General W. C. Holden to the post.

(3) As regards the local provision offices, we feel that it would be advisable, for reasons of administrative convenience, that the areas covered by the offices should conform with the areas of military commands. We accordingly propose that the local arrangements recommended by the conference should be modified as follows:-

(a) Middle East Provision Office, comprising Sudan, Egypt, Palestine, Syria, Kenya, Uganda, Tanganyika, Northern Rhodesia and Nyasaland.

(b) Indian Provision Office comprising Iraq and India.

(c) Singapore Provision Office, including Burma, Malaya and Hong Kong;

(d) Australia, Internal Provision Office;

(e) New Zealand, Internal Provision Office;

(f) [Union of South Africa] [1], Internal Provision Office.

We hope that these modifications will be acceptable to the other Governments concerned. The question of arrangements to be made in respect of Southern Rhodesia if the above arrangement is accepted is being taken up with the Southern Rhodesian Government.

Eastern Group Supply Council (4) The Governments of the United Kingdom, Commonwealth of Australia, New Zealand, Union of South Africa, India, Burma and Southern Rhodesia have already indicated their acceptance in principle of the proposal that an Eastern Group Supply Council should be set up, and Sir Archibald Carter has been appointed as Chairman.

(5) As regards the character and functions of the Council, the United Kingdom Government would suggest that the Council should proceed on the following lines:

On receipt by the Council of demands from the Central Provision Office, the primary function of the Council will be to allocate them among the participating Governments who will thereupon take the responsibility of meeting them either by purchase from contractors or from their own Government factories. The Council will either pass on to London or refer back to the country of origin any part of the demands received by it which cannot be met from the resources of the Eastern countries.

(6) The Delhi Conference proposed that the Council should have power to purchase and hold stocks. This would, however, appear to be necessary to provide only for the case of small supply offices such as Hong Kong, and we feel that to establish the Council as a buying and holding authority except to this small extent would not serve any necessary or useful purpose and would only result in overlapping and undue elaboration of machinery.

It would seem that all essential purposes will be served with a minimum [of] complication and machinery if the Council, having accepted the responsibility of meeting the demands preferred upon it by the Central Provision Office and having allocated these demands among the various suppliers, is put in a position not actually to place contracts on its own account but to authorise the supplying Governments to do so by means of their own supply organisations and to enter, on behalf of the authority from which the demand originates, into the necessary financial commitments with the Government to which the demand has been allocated.

Subject to supervision of the Council, the supplying Government(s) would then be responsible for production and delivery until supplies were delivered to their destination and would recover the cost of supply including any necessary storage from the Government on behalf of which the financial commitment was made by the Council (which for [the most] part of course would be the Government of the United Kingdom).

Final liability would be settled in accordance with the terms of the financial arrangements existing between the Governments concerned.

It will be appreciated that the main purpose of the arrangement proposed-the purpose to which all details must be [subordinated]- is strategic necessity, and that allowance must therefore be made for the possibility that at any time operational needs may have to override delivery arrangements [previously contracted for].

The extent of supply operations (7) Primarily the Council would be responsible for such (classes] of military supplies as are dealt with by the Ministry of Supply in the United Kingdom. It would, however, merely lead to delays if demands for supplies which can at present only be met from the United Kingdom, the United States or Canada were to be preferred on the Council, and the United Kingdom Government therefore propose that the Council should not attempt to deal with all classes of military supplies, but only with those which are wholly or substantially available from the resources of the countries represented upon it.

We consider that it would be appropriate and sufficient to define its field by exclusion of a limited list of supplies which must be obtained wholly or for the most part from elsewhere. To ensure this point, the list would be communicated to the Local Provision authorities.

(8) In addition, the Council should deal with such other classes of supply as may be specified (such as instruments, medical supplies, etc. if it is thought desirable that any or all of these should be added) but not petroleum and coal.

In the case of the Royal Navy and Royal Air Force, it would deal with such orders as may be placed upon it by the appropriate Departments. It should not be directly responsible for raw materials but should have at its disposal information to see the general position relating to the main raw materials required for military supply purposes.

Finance (9) The financial powers to be granted to the Council will require careful definition. Detailed consideration is being given to this sphere and our views will be communicated to the Dominion Governments as soon as possible. We would, however, propose that the Council should not, at all events for the present, be given authority to incur capital commitments without reference to His Majesty's Government in the United Kingdom and the Empire Governments concerned.

Civil Functions (10) It was suggested by the Delhi Conference that the Council should have certain functions outside the sphere of military provisions and relating to civil economic problems. It seems to us that in principle at any rate this suggestion might involve the Council in work which would be a serious addition to its primary responsibility and for which it would have no particular qualifications.

We suggest therefore that the Council should deal with civil economic problems only in so far as they arise in connection with and are incidental to those of military supply.

Shipping (11) We concur in the recommendations of the Delhi Conference that the Council should be authorised to keep itself informed of the shipping position and to make representations to the Ministry of Shipping.

General (12) The United Kingdom Government have also had under consideration the closely related questions of general policy to govern the operations of the Council and of the recommendations of the Delhi Conference for the expansion of capacity for certain classes of armaments and munitions in the Eastern Group countries.

(13) The Conference recognised that the possibility of securing the new production recommended depended on the provision of plant, generators, machine tools and skilled personnel from sources in the United Kingdom and North America.

The United Kingdom Government will be ready to examine carefully such specific proposals for development of production as and when they are elaborated. We feel, however, that we should indicate forthwith the gravity of the questions which will arise under this obligation.

It will of course be generally recognised that the expansion [of] capacity within the Eastern Group countries must be considered with due regard to interference or delay in the meeting elsewhere of strategic vital requirements which the allocation of plant, machine tools and skilled personnel to establishments in the East would involve.

Extensive as are the resources of the Eastern Group countries for most general and miscellaneous supplies required for military purposes, and to a limited extent for armaments and munitions, the main war effort of the Empire must, so far as concerns most of the more important and vital armaments and munitions, depend principally on the production capacity of this country and North America.

To attempt development to any great extent of the capacity of the Eastern Group countries for supplies of this class would involve the transfer of a substantial part of the limited resources of plant, machine tools and skilled personnel available in the United Kingdom, the United States and Canada.

Any such transfer would involve some delay in production while it was being effected, and in the case of transfer on a large scale this delay might amount to as much as six months.

It may well prove that some at any rate of the recommendations of the Delhi Conference for improved capacity for certain classes of armaments and munitions could not be put into effect without a transference of production resources, which would conflict with the vital requirements in the near future of the war effort as a whole.

(14) The proper objective of the Eastern Group Supply Council would thus seem to be to ensure the maximum co-operation and co- ordination of the Eastern Group countries with a view to meeting to the fullest extent from the resources in that area the needs of the forces in the Near, Middle and Far East in all of those stores for which capacity is available or can be provided at a reasonably early date and with due regard to the production programme elsewhere.

So long as the present conditions governing shipping and risks to shipping and location of our Forces do not fundamentally change, all British and Allied Forces in Africa, except West Africa, in Asia and in Australia and New Zealand and their defence areas should, as far as possible, be supplied from the coordinated resources of these territories.

But this general conception should be subject to the following provisos- (a) [New] sources of supply should not be developed if production is not expected to begin before a given date, to be laid down, but subject to alteration from time to time.

(b) It may not be possible, at any rate for the present, to contemplate schemes which require more than a limited transfer of skilled personnel or of plant and machine tools from either the United Kingdom, United States or Canada.

(c) Orders are not to be placed if the cost is so very much higher as to outweigh advantages in relation to shipping or saving of dollar expenditure.

(15) The United Kingdom Government are impressed with the essential importance of establishing at the earliest possible date the organisation proposed by the Delhi Conference, subject to the modifications now suggested.

We are therefore arranging for Carter and Holden to travel to India by air, and it is hoped that they will be able to leave this country on or about the 26th January.

We hope that the Commonwealth, New Zealand and Union Governments will be prepared to appoint their representatives on the Council at once so that they may join with Carter in India as soon as possible.

In order that the organisation may be set in motion without delay, the United Kingdom Government would be glad to have a very early expression of the views of the Governments of the Commonwealth, New Zealand and Union on the proposals set out in this telegram.

1 See Document 295, note 2. Other words in square brackets have been inserted from the London file copy in PRO:DO 114/112.

[AA:A3195, 1941, 1.0927]