(1) His Majesty's Government in the United Kingdom have had under
consideration the recommendations of the Eastern Group Conference
at Delhi, and in particular the scope and methods of operation of
the arrangements proposed.

We should be glad to receive as soon as possible any observations
which His Majesty's Governments in the Commonwealth of Australia,
New Zealand and South Africa may wish to make in the light of the
following statement of views which we have ourselves reached on
the Conference's recommendations.

Provision office
(2) The proposed establishment of a central Provision Office and
local provision offices is acceptable to the United Kingdom
Government. We concur in the recommendation of the conference that
the central Provision Office should be under the control of an
officer of the Imperial General Staff, and have selected Major-
General W. C. Holden to the post.

(3) As regards the local provision offices, we feel that it would
be advisable, for reasons of administrative convenience, that the
areas covered by the offices should conform with the areas of
military commands. We accordingly propose that the local
arrangements recommended by the conference should be modified as
follows:-

(a) Middle East Provision Office, comprising Sudan, Egypt,
Palestine, Syria, Kenya, Uganda, Tanganyika, Northern Rhodesia and
Nyasaland.

(b) Indian Provision Office comprising Iraq and India.

(c) Singapore Provision Office, including Burma, Malaya and Hong
Kong;

(d) Australia, Internal Provision Office;

(e) New Zealand, Internal Provision Office;

(f) [Union of South Africa] [1], Internal Provision Office.

We hope that these modifications will be acceptable to the other
Governments concerned. The question of arrangements to be made in
respect of Southern Rhodesia if the above arrangement is accepted
is being taken up with the Southern Rhodesian Government.

Eastern Group Supply Council
(4) The Governments of the United Kingdom, Commonwealth of
Australia, New Zealand, Union of South Africa, India, Burma and
Southern Rhodesia have already indicated their acceptance in
principle of the proposal that an Eastern Group Supply Council
should be set up, and Sir Archibald Carter has been appointed as
Chairman.

(5) As regards the character and functions of the Council, the
United Kingdom Government would suggest that the Council should
proceed on the following lines:

On receipt by the Council of demands from the Central Provision
Office, the primary function of the Council will be to allocate
them among the participating Governments who will thereupon take
the responsibility of meeting them either by purchase from
contractors or from their own Government factories. The Council
will either pass on to London or refer back to the country of
origin any part of the demands received by it which cannot be met
from the resources of the Eastern countries.

(6) The Delhi Conference proposed that the Council should have
power to purchase and hold stocks. This would, however, appear to
be necessary to provide only for the case of small supply offices
such as Hong Kong, and we feel that to establish the Council as a
buying and holding authority except to this small extent would not
serve any necessary or useful purpose and would only result in
overlapping and undue elaboration of machinery.

It would seem that all essential purposes will be served with a
minimum [of] complication and machinery if the Council, having
accepted the responsibility of meeting the demands preferred upon
it by the Central Provision Office and having allocated these
demands among the various suppliers, is put in a position not
actually to place contracts on its own account but to authorise
the supplying Governments to do so by means of their own supply
organisations and to enter, on behalf of the authority from which
the demand originates, into the necessary financial commitments
with the Government to which the demand has been allocated.

Subject to supervision of the Council, the supplying Government(s)
would then be responsible for production and delivery until
supplies were delivered to their destination and would recover the
cost of supply including any necessary storage from the Government
on behalf of which the financial commitment was made by the
Council (which for [the most] part of course would be the
Government of the United Kingdom).

Final liability would be settled in accordance with the terms of
the financial arrangements existing between the Governments
concerned.

It will be appreciated that the main purpose of the arrangement
proposed-the purpose to which all details must be [subordinated]-
is strategic necessity, and that allowance must therefore be made
for the possibility that at any time operational needs may have to
override delivery arrangements [previously contracted for].

The extent of supply operations
(7) Primarily the Council would be responsible for such (classes]
of military supplies as are dealt with by the Ministry of Supply
in the United Kingdom. It would, however, merely lead to delays if
demands for supplies which can at present only be met from the
United Kingdom, the United States or Canada were to be preferred
on the Council, and the United Kingdom Government therefore
propose that the Council should not attempt to deal with all
classes of military supplies, but only with those which are wholly
or substantially available from the resources of the countries
represented upon it.

We consider that it would be appropriate and sufficient to define
its field by exclusion of a limited list of supplies which must be
obtained wholly or for the most part from elsewhere. To ensure
this point, the list would be communicated to the Local Provision
authorities.

(8) In addition, the Council should deal with such other classes
of supply as may be specified (such as instruments, medical
supplies, etc. if it is thought desirable that any or all of these
should be added) but not petroleum and coal.

In the case of the Royal Navy and Royal Air Force, it would deal
with such orders as may be placed upon it by the appropriate
Departments. It should not be directly responsible for raw
materials but should have at its disposal information to see the
general position relating to the main raw materials required for
military supply purposes.

Finance
(9) The financial powers to be granted to the Council will require
careful definition. Detailed consideration is being given to this
sphere and our views will be communicated to the Dominion
Governments as soon as possible. We would, however, propose that
the Council should not, at all events for the present, be given
authority to incur capital commitments without reference to His
Majesty's Government in the United Kingdom and the Empire
Governments concerned.

Civil Functions
(10) It was suggested by the Delhi Conference that the Council
should have certain functions outside the sphere of military
provisions and relating to civil economic problems. It seems to us
that in principle at any rate this suggestion might involve the
Council in work which would be a serious addition to its primary
responsibility and for which it would have no particular
qualifications.

We suggest therefore that the Council should deal with civil
economic problems only in so far as they arise in connection with
and are incidental to those of military supply.

Shipping
(11) We concur in the recommendations of the Delhi Conference that
the Council should be authorised to keep itself informed of the
shipping position and to make representations to the Ministry of
Shipping.

General
(12) The United Kingdom Government have also had under
consideration the closely related questions of general policy to
govern the operations of the Council and of the recommendations of
the Delhi Conference for the expansion of capacity for certain
classes of armaments and munitions in the Eastern Group countries.

(13) The Conference recognised that the possibility of securing
the new production recommended depended on the provision of plant,
generators, machine tools and skilled personnel from sources in
the United Kingdom and North America.

The United Kingdom Government will be ready to examine carefully
such specific proposals for development of production as and when
they are elaborated. We feel, however, that we should indicate
forthwith the gravity of the questions which will arise under this
obligation.

It will of course be generally recognised that the expansion [of]
capacity within the Eastern Group countries must be considered
with due regard to interference or delay in the meeting elsewhere
of strategic vital requirements which the allocation of plant,
machine tools and skilled personnel to establishments in the East
would involve.

Extensive as are the resources of the Eastern Group countries for
most general and miscellaneous supplies required for military
purposes, and to a limited extent for armaments and munitions, the
main war effort of the Empire must, so far as concerns most of the
more important and vital armaments and munitions, depend
principally on the production capacity of this country and North
America.

To attempt development to any great extent of the capacity of the
Eastern Group countries for supplies of this class would involve
the transfer of a substantial part of the limited resources of
plant, machine tools and skilled personnel available in the United
Kingdom, the United States and Canada.

Any such transfer would involve some delay in production while it
was being effected, and in the case of transfer on a large scale
this delay might amount to as much as six months.

It may well prove that some at any rate of the recommendations of
the Delhi Conference for improved capacity for certain classes of
armaments and munitions could not be put into effect without a
transference of production resources, which would conflict with
the vital requirements in the near future of the war effort as a
whole.

(14) The proper objective of the Eastern Group Supply Council
would thus seem to be to ensure the maximum co-operation and co-
ordination of the Eastern Group countries with a view to meeting
to the fullest extent from the resources in that area the needs of
the forces in the Near, Middle and Far East in all of those stores
for which capacity is available or can be provided at a reasonably
early date and with due regard to the production programme
elsewhere.

So long as the present conditions governing shipping and risks to
shipping and location of our Forces do not fundamentally change,
all British and Allied Forces in Africa, except West Africa, in
Asia and in Australia and New Zealand and their defence areas
should, as far as possible, be supplied from the coordinated
resources of these territories.

But this general conception should be subject to the following
provisos-
(a) [New] sources of supply should not be developed if production
is not expected to begin before a given date, to be laid down, but
subject to alteration from time to time.

(b) It may not be possible, at any rate for the present, to
contemplate schemes which require more than a limited transfer of
skilled personnel or of plant and machine tools from either the
United Kingdom, United States or Canada.

(c) Orders are not to be placed if the cost is so very much higher
as to outweigh advantages in relation to shipping or saving of
dollar expenditure.

(15) The United Kingdom Government are impressed with the
essential importance of establishing at the earliest possible date
the organisation proposed by the Delhi Conference, subject to the
modifications now suggested.

We are therefore arranging for Carter and Holden to travel to
India by air, and it is hoped that they will be able to leave this
country on or about the 26th January.

We hope that the Commonwealth, New Zealand and Union Governments
will be prepared to appoint their representatives on the Council
at once so that they may join with Carter in India as soon as
possible.

In order that the organisation may be set in motion without delay,
the United Kingdom Government would be glad to have a very early
expression of the views of the Governments of the Commonwealth,
New Zealand and Union on the proposals set out in this telegram.