505 Critchley to McIntyre

Letter THE HAGUE, 14 October 1949

Attached is a copy of the Working Paper referred to in my C.23 [1] of today.

Developments of this week have already been dealt with by telegram.

ATTACHMENT

DRAFT WORKING PAPER

DRAFT PROPOSALS TO ASSIST IN AN EARLY SETTLEMENT OF THE MAIN ISSUES OF THE ROUND TABLE CONFERENCE

This paper is submitted with two important considerations regarding U.N.C.I. participation in the Round Table Conference in mind. In the first place the Commission has up to the present scrupulously avoided any suggestion of interference and has only made proposals to the parties at their specific request. This is in keeping with the fact that the Conference is not under U.N.C.I.

auspices and with the obvious advantages to be derived from a settlement achieved on the initiative of the parties themselves.

In the second place, however, the Commission has a responsibility to the Security Council to take the initiative to prevent a failure of the Conference. In view of the developments in recent weeks the Commission must consider whether it would not be timely to take such positive action now.

The members of the various delegations have been in the Netherlands for two months, and seven weeks have passed since the opening of the Round Table Conference. Although progress has been made towards reaching agreement on the Statute of the Union, all other basic issues of the Conference are still undecided.

Since the participants in the Round Table Conference undertook in Batavia to strive for the completion of the Conference within two months, it is clear that the Conference is behind schedule. Far from making up time, the Round Table Conference appears to be slowing down. Certain basic difficulties particularly with regard to economic and financial problems and the status of New Guinea have clearly emerged.

On the other hand, while the Round Table Conference has been slowing down, the work and progress of the United Nations General Assembly has been accelerating. The Indonesian Question may shortly be debated in the Assembly and there is a possibility that the Commission might be called on by the Security Council to report on the progress of the Round Table Conference in order to facilitate the debate.

Republicans have also publicly stressed that it will be necessary for the leaders of their delegation to return to Indonesia at the end of October. The slow progress of the Conference and the approach of the end of two months' discussion without tangible results create grave dangers to the success of the Conference. The present slow progress cannot but weaken the position of the delegations respectively in Indonesia and Holland. In Indonesia in particular an explosive situation exists. Further delays will undoubtedly imperil the cease-hostilities agreement and a peaceful solution of the Indonesian question.

In this difficult situation the Commission has a responsibility within its own terms of reference as laid down by the Security Council on the 28th January, 1949. [2] So far it has taken no positive action in the Round Table Conference but has given the participants every opportunity and encouragement to come to an amicable agreement. In view of their failure so far to approach such an agreement and in view of the pressing urgency of a solution there is a need for an initiative from the Commission.

Such an initiative can now be taken without fear of any justified accusation that the U.N.C.I. is interfering in the Conference.

Indeed, if such action is not taken, the Commission could justifiably be associated with any breakdown in the discussions whether it originated in the Netherlands or in Indonesia.

There are two possible ways in which the Commission might take the initiative:-

(a) It could call a conference of the parties under U.N.C.I.

auspices.

(b) It could make proposals in the form of an oral note to the parties or in a Working Paper to the Steering Committee of the Conference.

Of these two possibilities the latter is preferable at this stage, although in presenting an oral note or a Working Paper the U.N.C.I. could remind the parties that it might have to take an initiative outside of the Conference, should the outstanding difficulties continue.

In view of the time factor, immediate proposals by the Commission should be narrowed to seeking a solution of the basic problems.

Such problems might be considered to include:-

(a) The status of New Guinea (b) The Indonesian debts (c) National and most favoured nation treatment.

There are still other problems of a political and military nature which will have to be solved before the Conference can be successfully completed. It might be necessary for the Commission to consider these problems at a later and more appropriate time.

It is therefore suggested that the Commission should now endeavour to formulate views on the major points at issue on the foregoing subjects as the basis for an oral note or Working Paper to be presented to the parties through the Steering Committee of the Conference.

The attached draft contains a number of tentative suggestions for overcoming the main difficulties. No attempt has been made to elaborate these suggestions since it is felt that this should depend upon discussion within the Commission. The proposals are therefore submitted as a basis for discussion.

A. NEW GUINEA The Indonesian and Netherlands delegations have already taken strong and diametrically opposed positions regarding the future status of Dutch New Guinea-positions from which it may be very difficult for prestige and political reasons to retreat. The Commission must therefore consider compromise or face-saving solutions which might help to prevent this issue leading to a breakdown of the Conference.

Two suggestions might be made:

1. An international trusteeship under either the Netherlands or Indonesia or the United Nations as administering authority.

2. A postponement of the issue.

It is unlikely that the delegations would readily agree to either of these suggestions, but perhaps the latter would be the most practicable way of avoiding long and fruitless dispute and in any event may come to the fore by force of circumstances. With such a compromise the Statute of the transfer of sovereignty could specifically exclude New Guinea with the proviso that its status would be the subject of further negotiations to be conducted within a specified time. This proposal would have the advantage that discussions over the status of New Guinea could eventually be held in an atmosphere in which political problems might not be so important and in which the real problems of administration and development could be given special consideration.

It might be argued that such a postponement would favour the Netherlands in so far as sovereignty and responsibility would for the time being continue to rest with the Netherlands. On the other hand there may be other issues, particularly of an economic and financial nature which may have to be negotiated after the transfer of sovereignty and in these cases it might equally be argued that postponement would favour the Indonesians.

B. INDONESIAN DEBT The obvious compromises to the opposing positions of the Netherlands and Indonesian delegations are:-

1. Agreement on an arbitrary figure for the external debt of Indonesia.

2. Agreement to leave the issue to a debt-commission which would negotiate the figure of the debt and arrangements for servicing after the transfer of sovereignty and with the assistance of an independent tribunal.

1. A compromise figure:

Any figure proposed would necessarily be arbitrary. A compromise satisfactory to the Netherlands might be a reduction of an estimated external debt of 3.3 billion Netherlands guilders to approximately 2 billion Netherlands guilders. A compromise satisfactory to the Indonesians would be a reduction of the external debt by 2.9 billion Netherlands guilders leaving a balance of 400 million Netherlands guilders. A middle course would be to write off all external debts since 1942 leaving only the consolidated debt due to the Netherlands since before the war of 900 million Netherlands guilders or perhaps to add to this the 400 million Netherlands guilders of foreign debt guaranteed by the Netherlands. It would be necessary for Indonesia to accept the internal debt although it is possible that the servicing of this debt after consolidation may involve considerable transfers to the Netherlands.

Consideration of Indonesia's capacity to pay and the political situation in Indonesia favours a low figure. Consideration of public opinion and the political situation in the Netherlands favours a high figure. Any proposal by the Commission, would, in view of its arbitrary nature, be tentative. It would also be necessary in view of Indonesia's economic difficulties to suggest provisions which would relieve Indonesia of financial obligations in the first years after the transfer of sovereignty.

2. A debt-commission:

This is a more logical alternative which would have the advantage of avoiding highly emotional discussions at a difficult time politically and of enabling the real economic issues of the debt to be considered carefully. On the basis of agreed principles the debt- commission would assess the external indebtedness of Indonesia to the Netherlands and work out an arrangement for servicing the debt. It would be necessary for both parties to agree to commit themselves in advance to accept the findings of the commission or the arbitration of an independent tribunal such as might be sponsored by the International Bank.

C. NATIONAL AND MOST FAVOURED NATION TREATMENT The following draft proposals might provide a reasonable compromise:-

1. With the exception of such measures as are necessary for economic development and security in the national interests, the nationals of one member whether natural persons or corporate bodies present within or carrying on business in the territory of the other member shall be accorded by such other member legal status and rights and obligations including liability to taxation no less favourable than those accorded to its own nationals. The right to acquire ownership of land need not, however, be granted under this principle.

2. Without prejudice to the provisions contained in the foregoing paragraph there shall be no discrimination between the citizens of both members in respect of:

a) residence and travel b) trade, business and profession c) private property d) labour e) education.

3. Without prejudice to the provisions contained in paragraph 1, the nationals of one member whether natural persons or corporate bodies shall receive in the territories of the other member equal treatment to that of the subjects of third countries.

4. The foregoing agreement shall extend for a period of 15 years and be renewable by mutual agreement thereafter.

5. The Government of the R.I.S. shall honour for their full term contracts and agreements entered into with non-Indonesians by the Government of Indonesia prior to the inauguration of the R.I.S.

and shall restore to non-Indonesian owners physical assets located within the territory of the R.I.S., which have not yet been returned to such owners. Where in the national interest or for other reason existing property and contractual rights and franchises cannot be recognized full indemnification shall be made by the Government of the R.I.S. Nothing in the foregoing shall protect the property rights of ex-enemy nationals.

1 Document 509. Cablegram C23 was not dispatched until 16 October.

2 See Document 168.

[AA : A1838, 403/3/1/1, xxv]