1. Replying your 3890. [1] Following are recommendations:-

They are submitted in four parts, namely, Policy and Procedure
Changes Paragraphs 2 to 12, Administration Paragraphs 13 to 15,
Personnel Paragraph 16, General Comments Paragraph 17.

2. PART 1. Policy and Procedure Changes
These are the major considerations of importance in Australian
national interests. For some time we have been seriously concerned
respecting delay in obtaining supplies in America of many items
urgently required by Australian departments and continued delays
in furnishing ... [2] which will unquestionably seriously
prejudice the war effort. As at October 25th, 575 requisitions
have been submitted under Lend Lease. Of this number contracts
have been placed by the several American Procurement Departments
for 156 items. It is frequently 3 months after the receipt of
instructions from Australia before an order for goods is placed by
the American department concerned after which a further period
elapses before the goods are delivered. Only a handful of material
has been obtained by us under Lend Lease apart from tobacco and
cotton. Notwithstanding all our difficulties we are probably
further ahead proportionately than all other countries in
obtaining supplies here. Successive proposals recently transmitted
to you approach the matter superficially. The uncertainty as
regards eligibility under Lend Lease or availability for cash of
many categories of goods must be annoying and confusing to the
Commonwealth Departments concerned.

3. On outbreak of war at inception of purchasing of supplies in
this country and at instance of United States President [3] all
Allied Governments coordinated procurement of supplies through one
channel. With passing of Lend Lease Act we were requested to
continue such co-ordination under Lend Lease system. This meant
that goods desired by Dominions from United States under Lend
Lease have been requisitioned through one of seven British
Missions to the requisite American Government Department of which
there are five concerned with procurement of supplies. Present
theory of Lend Lease is that goods are lent-leased by United
States Government to the United Kingdom Government which in turn
with approval of United States Authorities transfers specified
goods to Australia. While Menzies [4] here, it was considered
whether an independent line could not be taken by Australia. The
advice of the American Authorities upon consultation with them was
that all British units should continue to collaborate as regards
their requirements and present a united front to American
agencies. On our recommendation Menzies approved this course. [5]
At same time Menzies' attention was drawn to position of Canada in
keeping free of Lend Lease and in making its own direct
arrangement with the United States. Copies of cablegrams which had
been despatched by me on the subject were brought under his
notice. [6] It was suggested that on his return to Australia he
should inquire into feasibility of Australia following a separate
plan on Canadian pattern. After Menzies' return he telegraphed
stating impossible take course similar to Canada and authorizing
continuance of existing Lend Lease practice. [7]

4. it was also mentioned to Menzies when here that an agreement
had been prepared in draft form as between United States and
United Kingdom covering Lend Lease transactions between the two
countries the finalization of which agreement had been postponed.

it is still unfinalized. It is intended that when the agreement
between United States and United Kingdom be concluded there would
be a separate agreement between United Kingdom and Australia. One
difficulty in any such agreement concerns the provision in Lend
Lease Act for the President to determine the consideration to be
attached to Lend Lease goods. There are two views among American
officials, one being that the aid should be without stint and that
any consideration should be purely theoretical the actual
consideration being the contribution to the saving of democracy.

Minority groups either take a bargaining and materialistic view or
are genuinely concerned lest American domestic and political
considerations arising from over-generosity raise isolationist
storm which would imperil aid. As taxes rise there is an
increasing degree of scrutiny of Lend Lease expenditure by
congressional sub-committees and consequently a more minute
examination by officials of objects of expenditure. Vacillation in
American attitude to successive Lend Lease requisitions is due
largely to fact that each requisition is considered from
standpoint of American domestic and political implications.

5. My view is that we should continue here our existing day to day
efforts to expedite the procurement of supplies of categories of
minor importance, reserving major items temporarily in suspense
pending determination new policy on part of Commonwealth
Government. Concurrently, however, with this continued effort I
believe time has arrived when Commonwealth Government should
review its Lend Lease policy in the light of developments since
Menzies' visit. As we were requested, we have given a fair trial
to the plan of coming in under the wing of United Kingdom. One
course would be to take view that pending clarification of
probable outcome of proposed agreement between United States and
United Kingdom you could decide to carry on as at present on
principle of goods being lent-leased by United States to United
Kingdom and in turn transferred to us. With finality upon proposed
United States-United Kingdom agreement before us we would be in a
better position to determine our course. An alternative course
would be the following. A month ago the American authorities
modified the view they took when Menzies here. Early October they
discussed with British Supply Council possibility of making a
separate Lend Lease agreement directly as between United States
and each Dominion. No Australian representative was present at
these discussions which I submit ought to have been the case. This
is not the only such instance.

6. There are admittedly pros and cons on questions posed in
paragraph 5. In event of a direct arrangement being made between
United States and Australia principal advantage would be that we
would have direct access to all American Authorities. On other
hand some risk would attach to approach to American Authorities
for a direct agreement as such an agreement might lead to requests
for something approaching a barter of commodities. The barter idea
was raised with me in March last by senior American official. I
immediately pointed out firstly, that our major export commodities
had been sold to United Kingdom for duration and any portion sold
in United States provided dollars for dollar sterling pool. Direct
exclusion of any proportion by us for United States would merely
diminish accruals of dollars to pool and to that extent defeat
basic idea of Lend Lease to save dollars. Question has been raised
several times since but has been promptly squashed. In event of
amendment of Neutrality Act the acceptance of a credit by us to
cover adverse exchange balance might be proposed by American
Government. This principle might obtrude in any direct Lend Lease
agreement. My belief however is that a direct Lend Lease agreement
could be negotiated with United States which would not be harsh
and I have no hesitation in urging that we initiate the necessary
soundings immediately.

7. In April last Congress appropriated seven thousand million
dollars and last week six thousand million dollars for Lend Lease
which latter it is expected will be exhausted by February. It is
improbable that we shall secure more than 250 million dollars
worth of goods out of this amount. From monetary standpoint
therefore Australia is small in Lend Lease. On other hand as
before stated some goods we require are of character so vital in
relation to war effort as not to be capable of measurement by
comparative money values. While British Missions through whom we
have worked have been most co-operative we tend to be
overshadowed. This reinforces my opinion that we should take risk
of seeking a direct arrangement.

8. If endeavours for a direct agreement with United States were
approved by you the following would be some features. Approach
would be to highest American Authority and should be by means of a
complete outline of our case in relation to magnitude of our war
effort and our strategic position. There should be submitted a
detailed statement of difficulties experienced in obtaining goods
with a dated listing of all our requisitions and progress on each.

The approach should be a reasoned one supported by facts and
figures and should denote an understanding appreciation of
stupendous task of American Departments in getting themselves
equipped to handle vast and unprecedented volume of business. Our
attitude should be sympathetic and appreciative not critical or
exasperated. It should nevertheless be insistent in advocacy of
Australian viewpoint and interests. We should place special
emphasis on consistent policy civilian supplies from standpoints
public morale, sound administration and budgetary aspects. As well
as showing past record under Lend Lease we would submit
constructive plan for future. This would include a list of goods
we estimated that we will require for next twelve months and
subdivided into six and three month periods. American Authorities
at present prefer the short distance examination in part because
of probable exhaustion by next February of last week's new
financial appropriations. But we should give estimate both short
distance and long distance. In some instances securing of goods by
us has been delayed because United Kingdom Government had
exhausted available monies. I cite the example of tobacco. See my
memorandum to Import Procurement on that subject. [8] I am now
afraid we shall never fully obtain balance of tobacco requisition
which was originally approved. With a separate agreement between
us and United States we should ask for an earmarking of certain
appropriations for Australia. We should seek an immediate ruling
on each item in complete list which we would submit as to whether
eligible or ineligible under Lend Lease or as to what proportion
of any one item may be eligible. Case for each item should be
argued. A first refusal should never be accepted as has
unfortunately hitherto been the case in some instances. There
should be provision for appeal from junior officials on both sides
to a higher joint United States-Australia Tribunal. Last week
British Supply Council made an arrangement for Stettinius,
President's delegate, and Taylor, Assistant to Chairman of British
Supply Council, to jointly look over any doubtful items of value
over one hundred thousand dollars. I do not regard this as a
satisfactory arrangement for Australia. We are big enough to take
stand on our own. Do not let us forget Canadian attitude.

9. Thus in line of approach which I advocate in our negotiation of
a direct agreement the objective would be a total picture of
availability and of money value of eligible and non-eligible
items. As regards dollar value of goods not eligible you would
either decide to do without or if essential to war effort British
and American Authorities would be asked concur in advance in
utilization by us progressively of block amount of monies in
question from dollar sterling pool. This line of approach has been
considered frequently in past but we have always been told by
British Authorities that we must proceed step by step with
establishment of precedents on specific cases. Experience shows
that precedents are ever changing. We have been told by British
representatives that American officials will not state a clear cut
policy. In my opinion time has arrived for us to press to utmost
with highest American Authorities for a stable policy covering our
entire requirements. In this connection observe distasteful
procedure noted in paragraph 4 of final draft pamphlet [9] sent by
me to Australian Departments and how derogatory of autonomy. This
procedure crept into routine through administrative inexperience
on part of those handling it. Joint clearing committee referred to
in pamphlet has never functioned properly and procedure has
resolved itself into an Australian official here seeking approval
of a British Treasury official for expenditures on goods which an
Australian Authority has determined as being necessary. I admit
that in long run we might be better off by method of building up
precedents rather than determination upon a complete list. But we
would know where we stand which would be worth while. You should
note however that we might fail to get the Americans to face up to
a determination on a complete list. On basis of negotiation of a
direct agreement we should try.

10. There are five American Procuring Departments namely, Army,
Navy, Treasury Procurement, Maritime Commission, Agricultural
Department. In addition Division of Defence Aid Reports
constitutes Lend Lease Administration. Office of Production
Management is important in priorities. We should ask for an
American liaison officer exclusively handling Australian problems
to be detailed in each of these seven Departments. There is
precedent for this in the State Department in which separately
designated officers have for many years dealt with problems of
each country with which United States has relations. Minter of
American Legation, Canberra, can explain this system to your
advisers. Another important point is that we should ask that when
a contract has been made by an American Procuring Department with
an American supplying firm we might be permitted access to that
firm. British Authorities have frequently sought this privilege
and it has always been a most delicate point with Americans. We
might be turned down on this request also, but there is just a
chance we might succeed where the British have failed in getting
privilege either immediately or later.

11. The question whether a direct arrangement would place us under
economic dominance of United States should be considered. With the
vast Lend Lease appropriations already made and new appropriations
which will have to be obtained as shown in paragraph 7 Australian
use of Lend Lease will be proportionately small. If Lend Lease is
ultimately going to result in economic dominance a lot of other
countries besides Australia will be economically dominated and
dominance would be so widespread as to be negative. In any event
in differentiating between eligible and non-eligible items a
greater or less utilization does not affect the principle. We
would be just as liable to be economically dominated by using 150
million dollars Lend Lease per annum as by using 300 million.

Further we are little less likely to be economically dominated by
accepting goods without an agreement with United States than if we
had such an agreement.

12. I conceive that British Authorities would discourage our
having a direct arrangement with United States on Lend Lease.

While view of British Authorities should certainly be considered a
clear statement of advantages which they see in present
arrangement as against a more direct plan should be given by them.

As mentioned earlier we have before us the precedent of Canada,
admittedly not a perfect one. It may be argued on behalf of United
Kingdom that a continuance of coordinated approach to United
States is necessary and this view can be considered. Situation has
now developed however under which United States Authorities are
doing their own co-ordinating. If we had a direct arrangement we
could register our requisitions with the British Supply Council to
present total picture but proceed upon them independently. We may
find British Government have overshadowing arguments against
direct arrangement. Obstacles may be encountered with Americans.

At present I believe direct approach worth trying.

[matter omitted]

MACGREGOR