364 Dunk to McFarlane

Cablegram 986 WASHINGTON, 4 November 1945, 8.26 p.m.

SECRET

Thanks for your 1599 and 1602. [1] I have written to Clayton outlining our views on inventory and settlement. [2] I thought it desirable as I am leaving Washington on Monday to set down something concrete so that there will be no misunderstanding through wrong interpretation of discussion on our views.

Moore and I had another meeting with F.E.A. and Department of State Officials on Saturday. In general they went over the same old ground. They pressed for inventory in all categories but insist that this is required only to have full information for Congress and not necessarily as a basis for settlement. We told them that we had already agreed to give them a civilian inventory for goods in 'pipeline' and main stores and for durable goods in Government control or possession. We objected in principle to inclusion of distributed trucks and tractors in the inventory and the furthest we could go would be to give them information of the numbers we had received and the distribution made, e.g., to Australian Army, U.S. Forces, Royal Navy, Civilian use. What calculations they might make on this information is their affair.

We wanted it to be clearly understood that we were not providing this information as inventory for settlement. There was a long discussion on military inventory and clearly the U.S. officials do not understand the difficulties in its presentation. They are prepared to accept our estimates and even our guesses and we told them that the Commonwealth Government, in presenting a document which on their own admission was for U.S. Congress, would not take the responsibility of furnishing guesses. It was up to U.S. to indicate items which they considered should be recorded as inventory and we would do our best to furnish information. We suggested that one way in which they could deal with small consumable items, e.g. spares, drugs, medical equipment, etc., would be to fix a period, say three or four months earlier than V- J day, and assume that everything supplied before that was consumed and everything after that in stock. Our attitude was firm, however, that we could not provide comprehensive inventory on a stocktaking basis and I would not commit the Government or advise them on such a course. It was left for them to make the next move. We pointed out the difficulties which their own people are experiencing in furnishing R.L.L. inventory. Actually on the figures given in your 1599 and assuming 20 million pounds for R.L.L. we should not be up for very much in settlement provided we can keep distributed trucks, etc. and military inventory out of the picture. Their attitude on this is quite an unknown factor, however, although they mention that when inventory is provided they will be prepared to discuss a broad and even generous settlement. We are not impressed by this as the people with whom we are discussing it may have little say in such discussion. For example, they could not indicate whether military items would be included in or excluded from the settlement and the figures in military inventory, aircraft in particular, will be very high. I saw Keynes to-day and he read my letter to Clayton. He said he was glad that we were taking a firm stand although their own situation on the items we were most concerned about did not justify them adopting the same attitude. Their own figures on 'pipe-line' food, oil, raw materials, etc. inventory produces a gross figure of about 700 million [3] and Keynes does not expect to conclude settlement under 300 to 400 million. He thinks that United States will require some settlement in their favour in all cases even if the figures might justify a write off. I said that we had been discussing machine tools before at about 8 million dollars purchase and that I thought we would agree to a token settlement up to about 10 million dollars to give us freedom of action but this has not been referred to in any way to us as they are just not in a situation to discuss settlement in any form. Eggleston advises that Keynes at the United Kingdom Embassy junta Meeting said that he both admired and envied the letter to Clayton, the 'envy' indicates how much they are tied down by background of financial aid. I will advise by further cable information on financial aid arising from my interview with Keynes. [4]

1 Both dispatched 31 October. On file AA : A1066, ER45/1/6.

Cablegram 1599 conveyed McFarlane's approval of the line taken by Dunk as reported in Document 349 and suggested further approaches that might be explored. Cablegram 1602 reported that an inventory would be prepared on the basis suggested by Dunk in paragraph 5 of Document 349. Both cablegrams gave estimates which (though somewhat different in composition) set the total value of goods involved at $US96 million.

2 The letter, dated 2 November, is on the file cited in note 1.

3 Figure corrected from the Washington copy on file AA : A3300, 45/346.

4 In fact U.K. and U.S. representatives reached agreement early in December without resort to the 'bookkeeping approach' for a final settlement of $US650 million (see Addison's cablegram D2196, dispatched 6 December, on file AA : A1067, ER46/2/3). Despite submission, in January 1946, of inventory of Lend-Lease goods in Australia on V.J. Day totalling $US148 million, negotiations between officials on accounting procedures continued for some months. Agreement was reached by Chifley and Acheson, on 9 May 1946, for a settlement of $US27 million.

[AA : A1066, ER45/1/6]