The United States authority recently reopened the question of bases in the Pacific and informed the United Kingdom Ambassador, Washington, of the basis on which they are prepared to recommend a settlement to War and Navy Departments. This is as follows.
(a) United Kingdom Government to surrender their share of Condominium over Canton and Enderbury and cede Christmas to the United States Government.
(b) The United States Government to waive all further claims to other islands where sovereignty is in dispute including Funafuti.
(c) The United States Government to drop any request for further bases or military rights in the Pacific territories controlled by the United Kingdom. In other words demands were made a year ago and will not be renewed and no further requests of this nature will be made.
(d) The United States Government to give clear title to the United Kingdom on all remaining immovable installations in the United Kingdom territories in the South Pacific (other than Canton, Enderbury and Christmas).
2. As they stand these proposals are unacceptable since they involve a cession of territory and do not touch on the larger issue of regional security in the Pacific of which you expressed yourself strongly in favour last year. 
3. However, informal discussions with the State Department which took place previous to formulation of the latest United States proposals showed that the State Department were prepared to settle outstanding territorial questions in the Pacific and also the question of bases on their merits and without the injection of extraneous issues. The State Department also indicated that they were 'probably' prepared to grant us some degree of reciprocal facilities in areas under their control in particular in American Samoa and in Canton Island if the settlement they suggested for Canton Island Base were accepted. Further, no reason was given to suppose that the United States would not be prepared to grant as indicated by Mr. Byrnes to Mr. Bevin in Paris last year  full civil and military aviation facilities in bases granted to them in territory under United Kingdom control. On the other hand, there is also no reason to suppose that United States would not expect us to live up to the assurance given by Mr. Bevin to Mr. Byrnes in Paris last year that some special provision would be made as regards Tarawa to commemorate the part played by United States Marines in the capture of the Island.
4. Careful consideration has been given to the problem here and it is considered that the best way to deal with the United States proposals would be (a) To tell State Department quite frankly that we could not entertain any idea of territorial cession in Pacific and- (b) In order to meet the main United States desiderata (those in Christmas Island and Canton Island) to offer in Christmas Island a 99 year lease of the area in which their present base is situated (which they are now converting into a permanent base) with a small surrounding strip for development. This strip should be kept as small as possible in order not to interfere with the colonizing possibilities in the Island.
(c) As regards Canton Island, to offer prolongation of the existing 50 years condominium to 99 years, the base area to be specified and defined in such a way as not to affect British Commonwealth Air interests or plans for allocation of remaining parts of the island for planting and for the development of native quarters.
(d) To agree that in both cases the bases should be exclusively United States bases. In addition a stipulation to be included in any agreement reached laying obligation on United States activity to maintain the base in question.
(e) In the existing bases in Christmas and Canton and in both Islands the United Kingdom and other members of the British Commonwealth to have equal rights to the use of the bases including full civil and military aviation rights at all times;
these to cover the contingency of war in which British Commonwealth countries were involved and the United States was neutral and vice versa. As regards civil aviation rights for third countries, first two freedoms  to be granted to members of I.C.A.O.  who have accepted air transit agreement and accord similar privileges to us in their territories. Other freedoms to be granted by the sovereign power i.e. The United Kingdom in Christmas Island and the United Kingdom and United States jointly in Canton Island.
(f) In addition to civil and military aviation rights requested in Christmas and Canton, the United Kingdom and other members of the British Commonwealth to be accorded the right to base facilities in American Samoa, should these at any time be considered necessary, and access to air staging facilities in the Philippines.
(g) The United States to abandon their claim to an exclusive base in Funafuti and to the cession of that Island and any other of the disputed island[s].
(h) In the event of the facilities such as auxiliary defences being desired by the United States on any of the island[s] on which joint bases were requested, negotiations to be carried forward from the stage reached in Washington Technical Talks in March 1946. 
(i) An endeavour to be made to get the United States to incorporate in any form of agreement wording to the effect that security of the area is to be covered by the foregoing points which is a matter of concern to the United States.
(j) As regards Tarawa the United States to be offered a grant of 2 acres of land for establishment of a memorial and cemetery to United States Marines. If the United States ask for an increased area the United Kingdom would be prepared to examine this in consultation with the High Commissioner. Sovereignty over the area of land to remain with the United Kingdom.
5. We are aware that the scheme suggested above falls short in various respects of regional defence arrangements which you favour. However, as stated our aim is to prevail upon the United States to agree to inclusion in any agreement of a phrase expressing United States concern with defence of the South Western Pacific area not in a negative sense as originally proposed in November 1945 which would enable them to withdraw if it suited them, but in a positive sense in order to enable them to be brought in. If we can achieve this aim and also obtain an undertaking from them actively to maintain the bases in question, we shall not only involve them in Commonwealth Defence arrangements and secure their acceptance of certain obligations in return for the rights granted, but we shall also open the way to discussions at a convenient moment on regional defence. Moreover, we are turning down outright the idea of territorial cession and are requesting very far reaching civil and military aviation rights in exclusive bases in question and we therefore feel that in this case the grant of such bases is justified especially as there will be no question of their being developed by the United States to the detriment of Commonwealth aviation and to the exclusive benefit of their own. There is finally the consideration that achievement by the United States of their immediate security objectives in Japanese mandated islands and the recent reduction in the service budget allocations coupled with the absence of any threat to United States interests from the southern Pacific may correspondingly reduce United States interest in the South Western Pacific. We should then be on worse ground for negotiating a settlement of the vexed problem of territorial claims in Pacific.
6. We therefore hope that you will find it possible to agree to the proposed line of action. We should be grateful if we could be informed of your views as soon as possible.