Your telegrams Numbers 23 and 24. 
1. We note that United States Foreign Economic Administration is pressing for your 'agreement' to their latest proposals particularly those affecting capital goods and off-shore purchases. We had understood from your telegram 399  that you were taking the line that the decision as to what shall or shall not be included within the scope of Lend Lease rests purely with the United States Government and that the question of 'agreement' by the Governments of the British Commonwealth does not therefore arise. We have adopted a similar line as indicated in our telegram 10 of 11th January.  We feel it is important to maintain this position and we therefore suggest for your consideration that the reply you give to the United States Foreign Economic Administration be worded in such a way as to avoid any possibility that it may be subsequently quoted as indicating that the scope of Lend Lease has been restricted by agreement with British Commonwealth Governments. We, for our part, feel we must adhere to the attitude outlined in our telegram 10.
2. Until we received your telegram No. 24 we had not seen the text of the note from the United States Secretary of State outlining the latest United States proposals for further restricting the scope of Lend Lease. These proposals go further than anything which we have so far had indicated to us and we have not yet had an opportunity to examine them in any detail. However, as you propose replying to the United States note [on] January 26th we offer the following preliminary comments on the various categories of goods listed by the United States authorities :
(a) Capital Goods 3. Your telegram 23 was mutilated in transmission and we are not entirely clear as to the nature of the latest United States proposals. We gather, however, that Foreign Economic Administration now wishes to apply the ruling excluding certain classes of capital goods from Lend Lease not only to orders placed after 15th November, 1943, but also to shipments after November 15th 1943 under already existing indents.  If this interpretation is correct we are, of course, in full agreement with your view that the proposal should be resisted and that Foreign Economic Administration should be induced if possible to limit the application of the ruling to requisitions filed after 15th November, 1943.
4. We do not know whether you are aware that so far as machine tools are concerned Foreign Economic Administration has already put forward a proposal which would have the effect of applying the capital goods ruling in certain instances to Lend Lease machine tools imported into Australia long before the 15th November ruling was promulgated. We have been notified that any Lend Lease machine tools which have been out of use for a period of 60 days are to be returned for retention in a Foreign Economic Administration inventory and that they will be released from this inventory for use on some other project only if payment is made in cash.
5. We have received from our representatives in Washington a list of the Kolesnikoff code  numbers which Foreign Economic Administration proposes should constitute the list of the ineligible capital goods  but we have not yet had sufficient time to examine it in detail. The inclusion of maintenance and repair parts, however, appears unwarranted as these are more in the nature of consumable stores than durable equipment. We note that agricultural machinery has been deferred for further consideration. We, of course, feel very strongly that we should not be called on to pay cash for the equipment we need from the United States to step up the production of food-stuffs for supply to the United States Forces under Reciprocal Aid.
6. We note that Foreign Economic Administration has stated that the listed capital goods will be regarded as ineligible for Lend Lease only if they are required for non-military purposes. A great deal, of course, depends on the definition of 'non-military purposes'. We have had a recent example of Foreign Economic Administration rejecting as ineligible for Lend Lease a requisition for sewing machines to be used by the Australian Army in forward areas for repairing parachutes.
7. We have been informed that any items included in the United States Army Supply Programme are not subject to the capital goods ruling and are eligible for Lend Lease. From our point of view, however, the division between the items in the United States Army Supply Programme and the items procured through Foreign Economic Administration is entirely arbitrary and we are more concerned with the use to which the goods are to be put in Australia than with the procuring agency in the United States.
8. However much we may disagree with particular Foreign Economic Administration rulings, we recognise that where the items are required for the exclusive use of Australia it is entirely a matter for the United States Government to determine whether or not supply should be granted on Lend Lease terms. However, where capital goods are required from the United States to undertake or step up production to meet the demands of the United States Forces under Reciprocal Aid, we feet that there should be no question as to Lend Lease eligibility. in those cases where the equipment is required wholly for the purpose of producing commodities for the United States Forces we would certainly not be willing to pay dollars for it. If Lend Lease supply were refused we should throw the responsibility for obtaining the necessary equipment on to the United States Army authorities.
(b) Off-Shore Purchases 9. Petroleum is the most important item in this category so far as we are concerned. We are at present studying the position arising from the recent United States decision to discontinue the supply of certain classes of petroleum products to Australia from the United States West Coast. We are being supplied to a limited extent from Talara and we shall in future be obliged to draw a very large part of our requirements from the Persian Gulf area.
Talara oil is being Lend Leased but we are informed that Bahrein oil is not regarded as being Lend Leasable. The financial implications of this change in the source of supply are serious from the Australian point of view particularly as we are supplying large quantities of petroleum products to the United States Forces under Reciprocal Aid. The question is one of first rate importance to us and as soon as we have completed our review of the position we propose taking the matter up with you through the Australian High Commissioner. We feel, however, that the case should not be prejudged at this stage by any message to the U.S. authorities indicating acceptance of their proposal to exclude all off-shore purchases from Lend Lease. We regard it as of the utmost importance to keep the way open for further negotiations on petroleum products.
(c) Civilian goods for the Middle East 10. This is, of course, of no direct interest to us and we offer no comment on it.
(d) Pulp and paper 11. We have recently adopted the policy of obtaining as much as possible of our requirements of pulp and paper from Canada but we will still have to obtain substantial quantities from the United States. So far as paper is concerned Government orders to meet the needs of Australian Departments and the Australian and American services in this area have practically preempted Australian domestic production. Our requirements from the United States for the second six months of 1943 were initially ruled ineligible for Lend Lease by Foreign Economic Administration but after we had made strong representations to them they agreed to reinstate our requisition. We would certainly wish to reserve the right to make further representations to Foreign Economic Administration for Lend Lease treatment of our future requirements of paper and pulp from the United States.
(e) Tobacco for the Armed Forces 12. We fully support your proposal to try to obtain an assurance that tobacco for the forces will continue to be supplied under Lend Lease.
(f) Other Controversial Items 13. We feel it is not possible to offer any useful comment until the various categories of goods and services mentioned under this heading are more clearly defined. We should be glad of any elucidation you can offer particularly in relation to the reference to the rental or charter of vessels. We should appreciate the earliest possible advice if there is any suggestion of excluding from Lend Lease freight charges on goods carried in U.S. vessels.
14. Whilst recognising the general desirability of dealing expeditiously with this matter we must point out that it is not possible to deal with such important questions in the time limit laid down by you in your telegram.