495 Mr J. B. Brigden, Financial Counsellor at the Legation in Washington, to Department of External Affairs

Cablegram 765 WASHINGTON, 21 May 1942, 2.13 a.m.

MOST SECRET

Following from Brigden for Treasury.

1. Your telegram SW.43. [1] Have seen Phillips [2] on your questions. Your general views will be acceptable here. We know of no authority here in support of Wasserman's [3] views which were entirely personal.

For Your information the President [4] on 1st May told his press conference that the State Department is in full charge of foreign relations and added that some persons in other parts of the Government had not realized this. He was not referring to the lend-lease administration which does not purport to conduct negotiations such as ours. State Department has been conferring with other branches of U.S. administration and is almost ready to resume discussions with us.

2. We do not advise and U.K. would not readily accept view that Australian reciprocal lend-lease should be off-set against U.S.

assistance to whole Empire. Nor does State Dept. seek any such principle. Empire countries are expected to arrange equitably amongst themselves, and U.S. will consider any assistance that may be necessary.

No new arrangements appear to have been made to assist the U.K.

dollar position. Phillips hopes that something will come out of the present discussions. See our 671 of May 4th para. 4. [5] U.K.

has been asking that pre-lend-lease aircraft contracts should be transferred to lend-lease with no results to date. Dollar deficit has not been increased as expected from loss of rubber and tin but impossible at present to estimate ahead.

3. Both U.S. and U.K. recognize that R.L.L. proposals may result in greater per capita contributions from Australia than lend-lease requires from U.S. and that consequential adjustments may become necessary. In the meantime U.S. quite expect reasonable restrictions on Australian R.L.L.

4. We strongly endorse your view that U.S. administrative expenses such as offices and staff should be paid for by U.S. It is wise policy here not to include these items under lend-lease. Accepted principle is that each country pays its own administration. We suggest also that all expenses incidental to civil administration at least should be paid for including transport and communications but probably not rail transport. There will be border-line cases and we propose that all should be decided in Australia. This means by Australia after consultation with U.S. officers.

5. Your para. 5 (3).

Expenditures above Australian standards may be difficult to distinguish and U.S. would probably prefer object to be gained by approximate classifications of supplies to be either in or out. We shall endeavour to have these matters left to your discretion in administration but would be glad to know more details.

6. We are assuming that all goods the subject of personal expenditures by U.S. forces will be outside R.L.L., e.g., canteen supplies and the like.

7. Your para.7.State Department and therefore U.S. Government do not press for supplies for U.S. forces outside Australia to be under R.L.L. Phillips supports exclusion of all exports but no rigid rule prevails. U.K., like Australia, has supplies of various stores under R.L.L. Suggest you decide each case as it arises but do not accept general liability or make serious precedents. Local U.S. representatives should not be concerned provided they get goods.

8. Foreign exchange elements in R.L.L. goods. Again please do not attach undue importance to opinions of local U.S. representatives not permanent officers nor familiar with U.S. policy.

Our dollar expenditures should be reimbursed on some agreed assessment. Possibly your sales of lend-lease tobacco to U.S.

forces through canteens or private traders might be assessed as off-setting dollar credits, but in any event U.S. will be willing to provide dollars against dollars which we have spent on goods supplied under R.L.L.

If desired we shall ask U.S. to provide U.S. dollars also against Canadian dollars rationally spent.

9. Sterling area components should probably not be separated from our R.L.L. and should not be paid for by U.S. Phillips agrees but does not concede our right to claim on sterling. This aspect is part of our problem with U.K. for subsequent discussion.

10. Capital Works. Your para. 11. Position in the U.K. is confused. At early stage U.K. actually provided dollars to pay U.S. workmen in the U.K. Later U.S. provided both dollars and sterling. Now U.K. is providing all the local labour and material but U.S. also supplies material and equipment. U.K. suggests that this continue.

U.K. is more concerned about works in Middle East and colonies, and in these special areas inclines to your view that where works are specifically for U.S., U.S. should carry costs, but position is not clear. In the U.K. and Dominions, U.K. regards all as joint works for which local expenditures should be provided wholly under R.L.L. No payments already made are to be refunded.

11. Your view in para. 12 conforms with the U.K. view.

In general the magnitude of Australian prospective R.L.L.

justifies limits we have proposed, which we think more practicable than the alternative limitation. Please see also our telegram on shipping.

12. Have advised Phillips on revised estimates of overseas balances. He asks whether U.K. has made claims for all war expenditure, but we presume this is being discussed by Dr. Evatt [6] in London.

1 Document 492.

2 U.K. Treasury representative in the United States.

3 Chief of U.S. Lend Lease Mission in Australia.

4 Franklin D. Roosevelt.

5 Document 480.

6 Minister for External Affairs.

[AA:A981, USA 181, i]