78 Mr S. M. Bruce, High Commissioner in the United Kingdom, to Mr John Curtin, Prime Minister Designate

Cablegram 5779 LONDON, 4 October 1941, 6.30 p.m.

Received 5 October 1941 I hesitate to worry you almost before you are in the saddle [1], but I feel that I should send you something of a background to the proposed agreement dealt with in Dominions Office telegrams 591 [2] and 592 [3], particularly as you will see from these telegrams that it is proposed to take action early next week.

While conversations referred to in paragraph 2 of Dominions Office telegram 591 were initiated for the purpose of dealing with Lease Lend, they have now widened out into something bigger, namely the whole question of Anglo-American post war economic co-operation.

These discussions showed that there are questions of major policy, including issue of Imperial preferences, that have to be faced.

These questions also emerged in drafting the fourth of the eight points in the Atlantic Charter-and were got over by inserting 'with due respect for their existing obligations'-and at a meeting of Allied Governments September 24th (see No. 50 [4]).

The position now is that decision as to the Empire's post war economic policy must be taken in the near future. This raises definite issues whether the United Kingdom post war policy is to be one of bi-lateral arrangement, using her bargaining powers to the maximum, aided by such devices as exchange control, or a policy of multilateral agreements with the greatest possible elimination of Trade discrimination.

While the United Kingdom['s changed] [5] position due to her war effort and the realisation of a large proportion of her overseas investments might point to the necessity of the former policy, it is being increasingly recognized that such a policy would:

a. be disadvantageous to the economic interests of the United Kingdom and b. be fatal to the realisation of the principles set out in the Atlantic Charter.

The reason for (a) is that the U.S.A. will emerge from the war so strong financially and economically that a fight with her based upon bilateral bargaining could hardly be successful particularly as the U.S.A. would probably be able to organise a Pan-American bloc.

The reasons for (b) are because:

1. Political co-operation could hardly be maintained side by side with bitter economic warfare.

2. The realisation of Roosevelt's freedom from want and improved labour standards, economic advancement and social security, referred to in the fifth point of the Atlantic Charter, could be brought about only by British Empire-American co-operation based on achieving the objectives in our own country, and in co- operation to assist other countries to follow this line. Another reason from the point of view of countries with undeveloped resources, such as Australia, is that only under a policy of expanding world trade could they hope to find a market for products of their increasing primary and secondary industries.

My own impression is that responsible opinion here and in the United States realises the need for broad visioned and generous [economic cooperation between the British Empire] and U.S.A. and progressively a practical basis upon which it can be given effect will be thrashed out.

The above will give you some background, but I suggest you should see a letter and two memoranda [6] I sent to Menzies on July.

18th, and also a letter I wrote to Fadden on September 25th [7] as soon as it arrives.

With regard to the immediate issues raised by Dominions Office telegrams, the following is the position: for political reasons in the United States, the President is most anxious that an agreement down the lines of draft contained in Dominions Office telegram 592 should be arrived at at an early date.

In order to meet this wish of the President, and yet not to prejudge Imperial preference and bilateral possibilities, the United Kingdom Government has put forward the proposed redraft of Article VII which is intended to avoid committing the United Kingdom Government until it has had an opportunity to fully consider the great issues involved and consulting the Dominions with regard to them.

As you will have no opportunity of dealing with this matter before the United Kingdom Government has to make a further move with the U.S.A., I suggest you might telegraph in reply to Dominions Office cable 591 saying that you would have no objection to the redraft of Article VII, but that you consider it essential that there should be early consultation between the United Kingdom and Dominions Governments on all issues involved, particularly in view of the conversations contemplated by the final sentence of the redraft of Article VII. [8]

1 The decision of the two Independent members of the House of Representatives to transfer their support to the Australian Labor Party led to the defeat of A. W. Fadden's budget proposals on 3 October. Fadden resigned as Prime Minister the same day and Curtin was commissioned to form a new A.L.P. administration which took office on 7 October. Dr H. V. Evatt became Minister for External Affairs and Attorney-General.

2 Dispatched 30 September. On file AA: A989, 43/735/50/1. It reported that Anglo-American discussions had taken place on the nature of the 'consideration' due to the U.S. Govt in return for the granting of Lend-Lease aid to the British Empire. President Roosevelt had 'agreed that we should be given a measure of protection at once by exclusion of anything in the nature of war debts or delivery either of cash or of goods which had a merely economic significance', but had 'asked in return that we should enter into some commitment as to the character of our postwar international economic policy'. This commitment was to be embodied in a preliminary agreement, Article VII of which would 'provide against discrimination in either the United States of America or the United Kingdom against importation of any produce originating in the other country'. The U.K. Govt feared that to accept Article VII as drafted would prejudge its right to maintain an Imperial protection system and proposed to suggest a less specific formula providing for 'joint and agreed action by the United States and the United Kingdom, each working within the limits of their governing economic conditions, directed to securing as part of a general plan the progressive attainment of balanced international economies, the avoidance of harmful discriminations, and generally [the] economic objectives set forth in the joint declaration made by the President of the United States of America and the Prime Minister of the United Kingdom [Winston Churchill] on 12th August, 1941.

3 Dispatched 30 September. On file AA: A1608, N41/1/1. It transmitted the full text of the draft agreement prepared by the U.S. Govt.

4 Dispatched 24 September. On file AA:A1608, C23/3/2, i. It reported that a meeting of Allied govts in London had unanimously approved the Atlantic Charter.

5 Words in square brackets have been inserted from Bruce's copy on file AA; M100, October 1941.

6 The letter has not been found. Copies of the memoranda, which were submitted on 11 August to the U.K. War Cabinet committee on post-war external economic problems and AngloAmerican co- operation, are on file AA:A103, 1941.

7 On file AA:A989, 43/735/245, vi.

8 On 8 October Curtin dispatched a message to the U.K. Dominions Secretary, Lord Cranborne, in the terms suggested by Bruce. See cablegram 658 (AA:A3196, 1941, 0.15805).

[AA:A3195, 1941, 1-19889]