For Dunk from McFarlane.
Your 1026  and W.10269.  Lend Lease Stage 2.
1. Further to our 1700 , if United States authorities raise questions of Reciprocal Aid you should give due emphasis to our liberal and realistic implementation of present agreement. United States forces are operating in areas well beyond Australian territory and our practice has been to finance as Reciprocal Aid all supplies made available to those forces.
2. In considering the future application of the Reciprocal Aid Agreement two questions arise (a) the volume and categories of supplies which it will be possible for Australia physically to make available in the changed circumstances (b) the financing of those supplies.
3. With regard to (b) the Treasurer feels that, for the time being at any rate, we must continue to finance as Reciprocal Aid any supplies made available to the United States forces and although this will require Government consideration and decision I think we may assume the Government will adopt the Treasurer's view.
4. With regard therefore to (a) and (b) although we would be prepared to examine any further requests we could not contemplate giving 'assurance that Reciprocal Aid be continued at somewhere about the present magnitude'. (Your 1026.) Any definition of the area, magnitude and categories of our future Reciprocal Aid must take account of recent and projected developments such as (i) changes in location of United States forces and bases which because of shipping and other factors may make United States of America a more convenient source of supply, (ii) need for Australia to supply British or other Allied forces which may be based in or upon Australia, (iii) easing of restrictions on civilian production in other Allied countries, (iv) food surpluses in United States of America, (v) drought conditions in Australia, (vi) the exhaustion of stocks of civilian goods in the hands of the consumer and the merchant.
5. With regard to (iii) and (iv) persistent reports have been reaching us of trend in United States of America towards easing of restrictions on civilian production and also on food surpluses in United States of America. On latter see, for example, Director- General's Weekly News letter No. 16 of October 9th, paragraph 10.
 Further the United States Administration has announced a degree of reconversion to a peace-time economy at the end of the German war which will be quite impossible for Australia. It is difficult and perhaps dangerous for you to place much emphasis on this aspect in your discussions but in considering the future scope of our Reciprocal Aid we should have in mind the War Cabinet direction to provide for the essential needs of the civilian population 'on standards appropriate to the present stage of the war, and the civilian standards of the countries whose forces will be supplied from Australian sources' (5th July, 1944). 
6. Further in approving on 19th October  the manpower re- allocations advised in my 1699 , War Cabinet noted that it had not been
possible to make provision on the prescribed standard for the essential needs of the civilian population and War Cabinet decided that the further review to be made in December should be on the basis of the release from the Services at the earliest possible date of an additional 40,000 men. At the same time War Cabinet decided on measures to reduce progressively the supply of building materials to the United States forces and also that in the allocation to United States forces of food supplies in 1945 special attention should be given to the need to relieve the strain on Australian manpower by arranging for the United States forces to ship direct to forward bases larger supplies of canned and other processed food from United States of America. In the latter connection the serious drought conditions are of course intensifying the difficulties of food production.
7. On (ii) War Cabinet noted that the manpower re-allocation made no provision for British or other forces which may be based on Australia.
8. I would be glad to have your views on whether, if United States authorities in Washington do not raise question of our future Reciprocal Aid, we should ourselves initiate discussions.
9. My present feeling is that if discussions in Washington were purely on question of extension of area there would be no advantage and some disadvantages in our taking the initiative. It might be best for Australia to retain the present formal limitation and continue to determine the scope of our Reciprocal Aid on lines agreed between the Prime Minister and General MacArthur from time to time.