Trusteeship Agreement-Nauru.

1. In view of undertaking given by Australian Government with
concurrence of United Kingdom and New Zealand Governments at
United Nations Assembly last January [2], to negotiate an
'appropriate trusteeship agreement' bringing Nauru under
international trusteeship system, suggest following points be
brought to Minister's attention and his views sought.

2. The mandate to administer Nauru was conferred on 'His Britannic
Majesty'. Responsibility for administration was vested in Great
Britain, Australia and New Zealand. An agreement entered into by
these Governments in July, 1919 provided that administration of
island should be vested in an Administrator and that the first
Administrator be appointed for five years by the Australian
Government and thereafter as decided by the three Governments. All
administrators have been appointed by us after consultation with
United Kingdom and New Zealand. Neither United Kingdom nor New
Zealand have expressed any view as to the desirability of
preparing the Trusteeship agreement in time for the forthcoming
General Assembly meeting. Presumably it will be necessary for
Australia as the administering Power to take the initiative and
prepare an agreement, either now or later, if Minister considers
it undesirable to attempt to submit to the next General Assembly.

3. The agreement so drafted would follow the lines of the draft
for New Guinea now under consideration by the Minister. It may be
possible to reach agreement with United Kingdom and New Zealand
Governments and consult informally United States and France in
time to submit the agreement to the General Assembly provided a
quick understanding can be reached on the application of Article
76(d) of the Charter. Article 76(d) prescribes equal treatment in
social, economic and commercial matters for all members of the
United Nations and their nationals, without prejudice to the
attainment of the objective of the trusteeship system, the
fundamental objective being the promotion of the political,
economic, social and educational advancement of the inhabitants of
the trust territory.

4. In the case of Nauru the problem arises in this way-
(a) the three Governments in 1919 purchased from the Pacific
Phosphate Company (British registered) the exclusive right to
exploit phosphate deposits on Nauru and Ocean Island (British
possession). A German company had previously sold its exclusive
rights to the British Company. The Governments vested their
interests in the deposits in three Commissioners whose functions
are limited to business connected with phosphate deposits, the
Administrator alone being charged with all matters pertaining to
the government of the island.

(b) a royalty (per ton) is paid on phosphates. 11/2d. per ton is
devoted to welfare of Nauruan natives as a whole. At least 71/2d.

per ton is paid to or held in trust for individual 'Nauruan
Landowners' on whose property the phosphates are worked, resulting
in practically all Nauruans receiving income from the development
of phosphate resources.

(c) Expenses of the Administration have been met entirely through
an additional royalty on sale of phosphates.

(d) In addition to making the payments mentioned in (b) and (c)
the Commission's operations have resulted in general trading
profits which, after providing for reserves, capital and sinking
fund redemptions etc., have been available to the partner
Governments.

(e) Output of phosphates is reserved in first instance for
Australia, New Zealand and the United Kingdom to extent of their
requirements at selling prices based on overall production costs.

Any phosphate not required by the three Governments may be sold by
Commission at best prices obtainable.

(f) The question of the propriety of the mandatory's developing
the territory's only resource for its own profit was raised in the
Permanent Mandates Commission of the League of Nations. The
mandatory pointed out-
(i) that exploitation of phosphates in Nauru had always been a
monopoly and that phosphate commissioners were merely business
executives subject to control in labour recruiting and other
matters by the Administrator;

(ii) open door had not been required in C Mandated areas except
insofar as it could be a necessary means of promoting the
interests of the natives.

5. Although the 'equal treatment' in economic and commercial
matters referred to in the Charter is subject to the general
obligation to promote the advancement of the inhabitants, it may
be difficult to maintain successfully that the exclusive right of
exploitation and distribution of phosphates in Nauru can be
justified solely on the ground that it is necessary in the
interests of the Nauruan natives.

6. Possible courses of action might be-
(a) To face the problem squarely by including a provision in the
agreement sanctioning the continuance of the present exclusive
exploitation of phosphates on ground-
(i) of long established usage;

(ii) continuing benefits to natives (of which evidence could be
adduced);

(iii) Impracticability of discontinuing present arrangement.

Assurances could possibly be given, if such an article was
queried, that (assuming discontinuance of existing controls over
world phosphate distribution) in event of legitimate and grave
need for phosphates in countries other than the United Kingdom,
Australia and New Zealand the three Governments would be fully
prepared to consider possibility of allocating supplies from
Nauru. It could be indicated that an agreement on any other basis
would be unsatisfactory to the Mandatory and unlikely to be
concluded. Bailey and Halligan [3] whom we have consulted favour
this course, including suggested assurances.

(b) To omit any reference in the agreement to the exploitation of
phosphates leaving the matter to be raised either by states
consulted or by the General Assembly or later the Trusteeship
Council, and to defend the position, once the matter has been
raised, on the grounds expressed in (a)(i), (ii) and (iii).

7. Question of statement to Parliament also requires
consideration. If such a statement were made it would scarcely be
possible to deal with matters affecting the application of Article
76(d) to the exclusive development of phosphate without prior
discussion with United Kingdom and New Zealand. The supply of
phosphate in greater quantities is, of course, a very important
matter to Australian primary industry at present time. In any
event, questions might be raised in this connection in the House
which might make more difficult our efforts to reach a
satisfactory settlement with other States consulted and also
General Assembly.

8. Bailey and Halligan concur generally in this cable. Bailey
feels that it is undesirable to proceed with submission to next
General Assembly. We are already facilitating process of creating
Trusteeship Council by negotiating New Guinea agreement. He also
considers that Trusteeship Council, when created, may be more
desirable body to negotiate with on Nauru than next General
Assembly. Trusteeship Council must consist of 'specially
qualified' persons (Article 86 of Charter). In all the
circumstances, Minister may prefer not to proceed with submission
of agreement for approval of General Assembly, but merely to
indicate that agreement will be presented for consideration in due
course in accordance with declaration made in London in January
1946.

9. Suggest that Minister may wish to discuss matter with United
Kingdom and New Zealand representatives. Earliest advice of his
views would be appreciated.