1. Your cablegram 319.  We have been considering the President's proposals in the light of your cablegram and several cablegrams from Sir Earle Page  and a communication received by me from the President stating that he is in general agreement with our proposals regarding organisation and command of the Australian area except as to some details concerning relationship to the combined chiefs of staff and as to boundaries.  In view of the various observations which have been expressed on the composition of the higher machinery, its functions, location and the procedure to be followed, we consider it necessary to summarise our understanding of the position as follows together with any necessary comments:-
(1) Division of world war theatre. This is to be divided into the following three areas-(a) the Atlantic under joint British and American responsibility; (b) the Indian, Middle East and Mediterranean areas under British responsibility; (c) the Pacific including China under United States operational responsibility.
The question of the relationship between operational responsibility in the Pacific area to the inter-Governmental body is referred to later.
As already stated the President in his message to me considers some detailed adjustments are necessary in boundaries. The significance of the First Sea Lord's  point in paragraph 12 of Dominions Office cablegram 319 relative to the boundary between the Indian and Pacific areas as it affects the North West and Western coasts of Australia is not clear in view of advice from Page that the Pacific War Council agreed to our suggestion  that the proposed line of division should not run to latitude 5 degrees south to Onslow as proposed but on reaching longitude 110 degrees east should run due south along that meridian.
Subject to the foregoing we agree in principle with the President's proposals for the division of the world theatre into the three areas mentioned.
The Australian Chiefs of Staff consider that on tactical and strategical grounds China should be within the Middle area rather than the Pacific because the only lines of communication with China that are or are likely to be open are through the Middle area and the bases for aircraft operating in China must be sited within the Indian command. Also attacks against the Japs in or from China must form part of combined operations on the part of the forces located in the Middle area.
(2) Pacific War Council, London. It is noted that you suggest that the President should have a representative on the Pacific Council in London and we fully agree with this proposal.
The functions of the Pacific Council in London are described in cablegram No. 319 as discussion of the whole state of the war against Japan and the communication of its opinions from time to time to the similar body in the United States. This appears satisfactory subject to the later observations on the Pacific Council in Washington.
(3) Pacific War Council Washington. The summary of the President's telegram refers to the setting up in Washington of an advisory body on operational matters consisting of members of Australia, New Zealand, Netherlands East Indies and China under the chairmanship of an American. We have from the first made it clear that it is imperative that the Commonwealth Government should have a voice in the higher direction of the war in the Pacific theatre particularly as the whole of our forces are being placed under the operational control of the Supreme Commander.
On 21st January we asked that a Pacific War Council be established at Washington comprising representatives of the Governments of the United Kingdom, U.S.A., Australia, China, Netherlands and New Zealand and proposed that this body should be a council of action for the higher direction of the war in the Pacific.  In our proposals of 4th March we stated that the Council should be responsible for the higher policy of the war in the Anzac area and should deal with questions of policy and the provision of forces and supplies.  It is observed in paragraph 10 of Dominions Office cablegram No. 319 that reference is made to 'the advisory bodies which will have to be consulted on larger issues'. We would not be content with an advisory body on operational matters in Washington.
(4) Machinery for strategical and operational control. The Chiefs of Staff Committee is the Technical Advisory Body to the Pacific War Council in London and liaison exists between it and the Australian Service Advisers in London.
We are in agreement with the President's proposal that the United States should assume operational responsibility for the Pacific area. As suggested in our proposals of 4th March we desire to establish in Washington a staff comprising a naval and army and an air force officer who would act as the technical advisers to the Australian Government representative on the Pacific War Council and who for the purpose of Anzac strategy should be associated with the American Chiefs of Staff as the joint body for advice to the Pacific War Council on the larger issue.
Agreement has already been reached on the appointment of the Supreme Commander in the Anzac area. The directive suggested by us is complete to the higher machinery and the appointment of the Supreme Commander. The Australian Chiefs of Staff consider that the Supreme Commander should be located in Australia because he must be in close touch with the bulk of the forces under his orders especially with those in the forward area in order to judge the capacity and effectiveness of these forces who are undertaking both offensive and defensive operations.
Instead of the local command in Australia and in New Zealand being under an Australian and New Zealander respectively as proposed by the President we prefer that our proposal of 4th March should be adopted and an Army and an Air Commander appointed for each of the following.
(a) Australia its territories and New Caledonia.
(b) New Zealand, Fiji and all the islands for which New Zealand is responsible.
General Brett of the United States army has already been appointed to command the Allied Air Forces in Australia. In regard to the grand strategy relating to operations in the three areas it is understood that advice on this would be the responsibility of the combined chiefs of staff in Washington and in London.
(5) It is understood that the joint committees on shipping and raw materials and on munitions will continue to function on their present basis.