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296 Note by Durie on Cabinet Submissions Nos. 409 and 416

Canberra, 29 June 1955

CONFIDENTIAL

Australian Participation in Colombo Plan

(Separate submissions by the Minister for External Affairs and the Treasurer)

The Colombo Plan has been in operation since 1951. Australian participation has involved the following financial commitments:—

Contributions Offered Funds Committed Spent
Economic
Development
�31.25m. �26m. �12m.
Technical
Assistance
�3.5m. �3.3m.
(includes some
forward plans)
�1.25m.

The contribution towards economic development runs up to 1956–57 and that for technical [aid]3 up to 1955–56. It is expected that these contributions will be fully committed by July, 1956. There is to be a meeting of the Colombo Plan Ministers in Singapore in October and discussion will include—'Future of the Colombo Plan'. Mr. Casey wants to be able to announce an extension of Australia's commitments beyond 1957. He asks for approval for a further contribution of �17.8m. for the three years to July, 1960, with actual expenditure going perhaps two years beyond that. He also raises three other points—

1. the need for some sort of trust fund arrangement for Colombo Plan advances so that unspent funds do not lapse at the end of each year;

2. that goods which are eligible for commercial export should be similarly available as gifts under the Colombo Plan;

3. where goods are subject to International Bank obligations we should be just as willing to consult with the Bank on Colombo Plan gifts as we would be for commercial exports.

The Minister points out that the last two points arise from a disagreement between his Department and Treasury over a proposal to permit Colombo Plan export of trucks. The Minister does not put the Treasury argument very forcefully but the Treasurer has followed Mr. Casey's submission with one of his own setting out in detail his attitude on these matters and putting forward some doubts as to Australia's ability to make a really worthwhile contribution to basic equipment under the Colombo Plan.

TO TAKE EACH POINT IN TURN:

Extended Colombo Plan contribution

The External Affairs proposal involves an extension on the present basis [of contributions] but with an increased rate of expenditure. In 1954/55 we have spent �3.5m. and the new proposal is for �5.7m. to be spent each year' over an extended period. The relative proportions to be devoted to economic development and technical assistance are to be as at present. The Treasurer issues a warning that Australia's capacity to provide basic equipment is strictly limited and seems to suggest a scaling-down of our contribution. He points out that originally an interdepartmental committee was intended to supervise the programme but has not functioned and he suggests that it be re-constituted. He does not deny our ability to make some contribution of equipment.

Continued participation in the Colombo Plan has to be considered not only in the light of supply difficulties at this end but also in recognition of the continuing demand for this type of assistance from the recipient countries. Australia took a leading part in setting up the Colombo Plan and as long as there is a demand for its services among the recipients, and other countries are willing to continue their contributions, Australia will have to be associated with it. As recently as April the Government, in the Prime Minister's foreign policy speech, expressed its desire to carry on the Colombo Plan. On the basis that Mr. Casey's proposal will [merely] extend the present rate of commitment it should be supported but efforts could be made to build up a technical assistance programme at the expense of economic development in which we are lagging anyway. This field would be more profitable to both parties and avoids the problem of procurement. Consideration might also be given to making better use of the opportunity to publicise Australia in the gifts that are made. The actual rate of expenditure will still have to be determined by the availability of supplies in Australia and by budgetary considerations.

Budgetary procedure

External Affairs want to depart from the normal procedure and set up some sort of trust fund to enable unspent provisions to be carried forward. The Treasurer has put up clearly the argument in favour of the present general system of annual budgetary provision. It cannot be said that this limitation has held the programme back for, in fact, there have been difficulties in providing the items requested rather than in finding funds to purchase them.

Procurement policy

The difficult question here is that to what extent goods in short supply or containing a significant import content should be provided for export under the Colombo Plan. Mr. Casey says he follows the general rules governing commercial transactions as administered by the Department of Trade and Customs. He has not given details. The Treasurer has outlined the policy he considers we ought to follow in dealing with goods in short supply such as steel, ordinary imports and imports under International Bank loans or goods comparable with imports under International Bank loans. Mr. Casey wants to treat Colombo Plan exports on the same basis as commercial exports. This is the basic difference with the Treasurer who insists that a distinction must be made because commercial exports earn foreign exchange while Colombo Plan gifts involve a loss of foreign exchange. This point is dealt with more fully in the International Bank section below.

The objection to the Treasurer's reasoning is that the Government has, in the wider context, committed itself to give away a certain amount of foreign exchange and it cannot expect the recipient countries to take only goods which are surplus to domestic requirements. The essence of the Colombo Plan is sacrifice on the part of the donor to give benefit to the receiver.

Cabinet could accept the general proposal that Colombo Plan exports need to be examined more critically than commercial exports and it could re-establish the interdepartmental committee for that purpose but it should also recognise that some exports of scarce goods or goods with a large import component may be necessary under the Colombo Plan. The problem is to keep these within reasonable limits.

International Bank aspects

There are special considerations affecting goods containing components imported under International Bank loans or goods similar to these. These are highlighted in the dispute over Colombo Plan trucks. Mr. Casey, in expanding his argument about treating Colombo Plan goods on a commercial basis, claims that Australia should be prepared to consult with the International Bank on Colombo Plan exports as well as on commercial exports. There is an understanding with the Bank to consult with them before approval is given to export goods of this nature. The Treasurer concedes the need to consult the Bank where commercial export is intended but refuses to do so for Colombo Plan exports. The general objection that these are a direct drain on foreign exchange is the reason for his opposition.

As to trucks, the Treasurer says that the most recent International Bank loan provides for commercial trucks of all sizes in recognition of a case put by Australia that we have an urgent need for commercial transport vehicles in general. The International Bank could accuse us of acting in bad faith if we permitted exports of any types of truck, not necessarily only the types to be provided by the Bank. The Treasurer would be prepared to put up a case to the Bank where commercial export of trucks was proposed. He would not do so for Colombo Plan exports. He is not prepared to risk any prejudice to our good relations with the Bank.

However, the Government is committed to Colombo Plan aid which involves a loss of foreign exchange and the export of some goods in short supply. In the final analysis it does not matter for balance of payments purposes whether trucks or some other form of basic equipment are requested. The point is to keep such gifts within reasonable limits in relation to the supply position in Australia and to the total demand made by the recipient country. However, it is important to maintain our good relations with the Bank but not to the extent of surrendering our right to independent action.

If Cabinet can be satisfied that there is a real need for trucks in the recipient countries, and this is not brought out in the External Affairs submission, it should be prepared to authorise consultation with the International Bank for export of some trucks under the Colombo Plan. The present proposal is for 300 trucks to be supplied over a period as compared with a total annual production of 14,000.

TO SUM UP:

(a) The Government should endorse the extension of the Colombo Plan commitment for a further three years.

(b) There should be no departure from the present system of annual appropriation of funds for Colombo Plan purposes.

(c) Colombo Plan procurement policy should be generally more restrictive than for commercial exports but there should be recognition of the desirability of allowing some exports of goods in short supply or containing a high import content.

(d) If there is an urgent demand for trucks in the recipient countries Cabinet should be prepared to allow some exports under the Colombo Plan provided the allocation is reasonable.

(e) The interdepartmental committee should be re-constituted for the purposes of (c) and (d).

[NAA: A4940, C353]

1 Document 293.

2 Document 294.

3 Words in square brackets added by hand.

Last Updated: 10 January 2017

Category: International relations

Topic: History