297 Macgregor to Division of Import Procurement

Memorandum DG787 (extracts) WASHINGTON, 22 September 1944




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5. Notwithstanding the domestic political implications in both countries upon questions of policy, procedure, mechanism and organisational form, it may be taken for granted that both the United States and Canadian Governments do in fact intend to continue to aid Allied countries by the provision of all necessary supplies to bring an end to the war in Europe and thereupon to step up to the highest degree of activity in the Pacific.

Following upon the recent Roosevelt-Churchill conference at Quebec, informal discussions have been taking place between key American and British officials regarding the policy to be pursued under the so-called Stage 2 of the war (end of the war in Europe and acceleration in the Pacific). An endeavour is being made to bring these informal talks to a head within the next few weeks. It is anticipated that Lord Keynes may visit Washington to participate in the talks. Although during the past five years there have been directions in which an independent line could have been taken by Australia, the Australian position as a member of the British Commonwealth and a part of the sterling area has in most cases made us a party to United States - United Kingdom understandings. Notwithstanding this, there have been some instances in which it has been necessary to take an independent line on behalf of Australia. The position taken by the United Kingdom in the matters immediately at issue, insofar as can be learned at the moment, appears broadly to be somewhat as follows:

(a) Provision of war material by both countries for the Pacific war should be maintained to the utmost extent necessary to terminate the war at the earliest possible moment and with a sharing of the production necessary. Cutbacks of production in both countries will be possible when the war ends in Europe.

(b) Under normal conditions the United Kingdom requires an active export trade in order to provide the funds to pay for imports of food and raw materials. Continued substantial production of war materials in Britain for the United Nations' war effort will retard conversion to peacetime manufacture and therefore render necessary continued imports of food and raw material from the United States under Lend Lease.

(c) Inasmuch as the United States has announced that upon the cessation of the war in Europe and the commencement upon Stage 2 (acceleration against Japan) production of war material will be reduced and the civilian economy stepped up, a similar partial reconversion to peacetime activity in Britain will be requisite.

The over-all degree of reduction in output of war materials in both countries has been tentatively accepted. A 40% reduction in the United States and a progressive increase from a cutback of 35% up to 50% has been mentioned with respect to the United Kingdom.

(d) In consideration of a continuance of Lend Lease, Reciprocal Lend Lease should be maintained to the extent practicable.

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7. Several further important points should be mentioned. The steps now being taken by the American authorities to prepare for decontrol over a wide field of production and allocation of materials and to prepare for a civilian economy equal in activity to the record year in American history (1939) pose questions as to how we shall assure a flow to Australia from America of essential materials to be secured in competition with a pent up American domestic purchasing power when it has been let loose. This question has been under advisement since decontrols were announced. In this regard during recent weeks additional emphasis has been placed upon the desire of both American and Canadian authorities to facilitate resumption of private enterprise in the latter stages of the war. [1] The implications of added pressure behind this policy and the probable effect upon continued Australian Governmental procurement of materials may obtrude in the discussions mentioned above. There have been suggestions that an acceleration of war effort in the Pacific may impose a strain on shipping tonnage and that space for Australia may be more difficult to secure in the near future. It has at various times during recent months been suggested in American instrumentalities that an American control of allocation of space in given ships in transit on the Pacific may require to be instituted. If shipping again became difficult, a microscopic examination of all categories of materials being shipped to Australia with regard to their essentiality might conceivably be established. Again, in the course of the discussions either in the immediate or in the long distance period ahead, some questions discussed at the Bretton Woods conference may arise. Matters pertaining to American, British and Dominion postwar trade policy may become important issues. It is felt that the endeavour will be to narrow the scope of the immediately projected talks in Washington to Lend Lease and Reciprocal Lend Lease supplies for war. Canadian supplies issues are likely to remain quiescent until the Canadian Federal election situation clarifies. These other issues are merely mentioned as indicative of the nature of the questions which may or may not remain inactive while plans are being evolved relative to the immediate question of the maintenance of war supplies.

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9. The American and Canadian authorities are completely sincere in their desire to prosecute the war in the utmost co-operation with all their Allies. In so doing, and especially in the supplies sphere, they have, however, been under the necessity of carefully measuring domestic political impulses. Since this is so, I have throughout contended that Australian Reciprocal Aid to the United States should similarly be predicated upon the assessment which the Australian Government makes as to Australian domestic interests. The matter of the provision by Australia of some raw materials for the United States under Reciprocal Aid which was previously refused by the Australian Government [2] may again be raised although I would question whether this is likely to become in any sense a live issue. In my opinion, adherence to the decision already taken by our Government is desirable. In the matter of Reciprocal Aid provided in Australia to American forces, I tendered certain advice in the course of a visit to Australia early in the present year. The advice was that no issue should be raised with the Americans in the matter of supplies to be provided in Australia under Reciprocal Aid. In the interests of Australian and United States relations everything practicable should be done to meet reasonable requirements. On the other hand, without any public announcement of a specified policy in this direction, I expressed the view that steps should be instituted to effectuate a diminishment of such Reciprocal Aid. It was pointed out. that the superabundance of supplies available in America and the, adequacy of the shipping available to American forces should render it practicable to limit calls by the American forces upon Australian production to a lesser volume and a smaller range of materials than had heretofore been the case. The volume and value of Reciprocal Aid granted by Australia to the American forces is appreciated by the American Government and is a factor which obtrudes in all questions relative to the provision of American produced supplies for Australia and irrespective of whether any question arises at political or administrative levels. My view, however, as expressed to Ministers when I was in Australia recently, still is to the effect that a studied reduction of the volume and value of Reciprocal Aid should be planned with a progressive diversion of labour, materials and output in a manner designed to benefit Australia's own civilian economy.

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1 See Macgregor's cablegram W8888, dispatched 10 September, on file AA:A5954, box 707.

2 See Documents on Australian Foreign Policy 1937-49, vol. VI, Document 303 and Document 321, note 2.

[AA:A571, L41/915A, V]