Canberra, undated
Confidential
Papua and New Guinea and the Asian Development Bank
This submission brings to your attention questions that have arisen affecting the eligibility of Papua/New Guinea to secure development loans from the Asian Development Bank in the event that the terms of Australia’s regional membership of E.C.A.F.E.2 are widened to include the Territory.
Background
2. In November, 1965, on a submission seeking authority for the introduction of legislation authorising Australian membership of the Asian Development Bank, Cabinet decided inter alia that the Territory of Papua/New Guinea should be eligible to receive loans from the Bank, but the means of securing such eligibility and the implications that would arise there from should be investigated at a later date.
3. In its report on the meeting of the Preparatory Committee of Officials, held in Bangkok in October/November, 1965, to draft the Bank’s Articles of Agreement, the Australian delegation noted that:
(a) the Territory was not, under the terms of the articles as then agreed, eligible to receive loans from the Bank;
(b) to render the Territory eligible for such loans Australia would have to either amend the terms of its membership of E.C.A.F.E. to cover Papua/New Guinea or seek Associate membership of the Territory.
4. At the Second Ministerial Conference on Asian Economic Cooperation, held in Manila from 29 November to 1 December, 1965, as Leader of the Australian delegation, you stated on 29 November:
‘Australia is not a fully developed country. Nevertheless, the Australian Government does not expect to receive Bank loans or assistance in respect of the mainland of Australia. In considering Australia’s approach to the Asian Development Bank proposal, including the amount of Australia’s subscription, we have had in mind however that the Territory of Papua and New Guinea, which is not at the moment economically viable and which is one of the least developed areas of the world in economic terms, would be eligible for Bank loans at some time in the future. Any requests which we might make for Bank assistance in respect of the Territory would not be made in the early years. We understand that the Articles as at present drafted would place no legal impediment in the way of the Bank making loans to the Territory of Papua and New Guinea provided the terms of Australian membership of E.C.A.F.E. are amended to make it clear that Australian membership covers not only “Continental Australia” (the present wording) but also the Territory of Papua and New Guinea’.
5. On 3rd December, 1965, you made a statement in similar though briefer terms to the Conference of Plenipotentiaries on the Asian Development Bank, held also in Manila from 2nd to 4th December, 1965. That statement concluded:‘…3 We understand that the Articles would place no legal obstacles in the way provided the terms of Australia’s membership of E.C.A.F.E. are amended appropriately’.
6. The report of the Australian delegation to the two Manila meetings referred to above, stated inter alia: ‘There was no dissent from this understanding and the Executive Secretary of E.C.A.F.E. indicated his assent’.
7. On 22 March, 1966, Cabinet decided, inter alia ‘that early steps should be taken to seek to put the Territory of Papua and New Guinea in the position where it would be eligible for aid from the Bank (it being indicated that eligibility of the Territory might best be achieved by extending the definition of Australia to include the Territory of Papua and New Guinea for the purposes of membership of E.C.A.F.E.) … ’.
8. Since then, as you know, consideration has been given to the manner and means by which an amendment to Australia’s terms of membership of E.C.A.F.E. should be sought, culminating in your approval to our sounding out the views of state members of E.C.A.F.E. on the Australian application being proceeded with at the forthcoming session of the Commission, to be held here next April.4
Views of member governments to date
9. Information received so far suggests that none of the governments approached by our missions overseas would oppose the application to amend Australia’s terms of membership to include Papua/New Guinea although the Malaysians have questioned our reasons for not proposing Associate membership for the Territory. We have received no advice as yet on the position that might be adopted by Cambodia; nor have approaches been made directly or indirectly to the U.S.S.R. (a non-regional member) or to Outer Mongolia (a regional member). Several other governments have given us only a tentative view at this stage, but it is not anticipated that any of these would raise serious difficulties if pressed to cooperate. Nonetheless, there could be some critical comment at the session on Australia’s policy position in relation to the Territory.
10. With regard to the handling of our application, should it be decided to proceed with it in the light of what is said below, the Special Assistant to the Executive Secretary of E.C.A.F.E., Mr. V.M. Bhatt, has suggested to the Embassy in Bangkok that the application might appropriately be raised initially and informally with Heads of Delegations in the early stages of the session, and in the event of there being no explicit dissent, it could be announced in Plenary by the Executive Secretary and thereupon adopted.
The Legal Position affecting Papua/New Guineas eligibility for A.D.B loans
11. Since its inauguration in November, 1966, the Asian Development Bank has acquired a high degree of autonomy over its operations. Its powers are laid down in the Articles of Agreement and major decisions are taken by the Board of Governors pursuant to those powers. For all effective purposes, it is entirely independent of E.C.A.F.E ..
12. At the Manila meetings referred to above, held to draft and settle the Articles of Agreement, it was generally understood, in so far as attention was directed to the question, that the Articles per did not empower the Bank to extend loans to the Territory of Papua/New Guinea. The geographical scope of the Bank’s operations was to be co-terminus with that of the E.C.A.F.E. region. It was the ‘understanding’ of the Australian delegation that if Papua/New Guinea were to be included subsequently within the region it would, ipso facto, become eligible for loans from the Bank Confirmation of this understanding was sought from other delegations, though none gave it explicitly. Indeed, it would appear that unless the Articles were to be read in the light of the records of the proceedings of these conferences, embodying as they do the Australian understanding to which no one dissented, the view that Papua/New Guinea would acquire eligibility simply in consequence of its inclusion in the geographical scope of the region would be difficult to sustain. A prima facie examination of the Articles does not support such an interpretation.
13. Whether or not it can be argued (and we believe it can be) that the Articles should be read in conjunction with the records of the proceedings, there nonetheless exists a clear doubt concerning the Territory’s eligibility to receive loans from the Bank upon a simple amendment of Australia’s terms of membership of E.C.A.F.E. to include the Territory within the region. This doubt, which was not apparent at the time of the earlier meetings, arises largely because the Bank since its inception has taken on an existence independent of the circumstances and informal understandings which surrounded its formation, and as time goes on it is likely to become increasingly difficult to obtain acceptance of the view that specific provisions of the Articles should be construed on the basis of or subject to the contents of extra&-legal documentation. Australia’s status as a member of the A.D.B., irrespective of its geographical coverage, is already regarded as being that of a developed member country, while the purpose of the Bank is, inter alia but essentially, ‘to contribute to the acceleration of the process of economic development of the developing member countries in the region, collectively and individually’ (underlining added).
14. As mentioned above, decisions affecting the legal powers of the Bank and on the construction of its Articles, are taken ultimately and finally by the Board of Governors on the basis of advice submitted by the Bank’s legal advisers. Although no precedents have been established within the A.D.B. for the view, the Board of Governors would not appear to be bound by such legal advice. Hence, any decision of the Board, as finally adopted, could blend both legal and political considerations relating to the particular question put to it for determination.
15. Being concerned with the implications for Australia’s relationship with E.C.A.F.E., and the position of Papua/New Guinea in this regard, should our application proceed but fail in its objective of securing the Territory’s eligibility for A.D.B. loans, this Department and the Department of the Treasury sought recently an opinion on the legal issue from the Attorney-General’s Department. On perusing the relevant documents, the Attorney-General’s Department confirmed our doubts, and undertook to let us have a considered opinion as quickly as possible. (Attorney-General’s Department has since confirmed their initial advice.) We have also obtained an opinion from the Australian Director of the A.D.B., Mr Garland,5 who on 29 January, advised that his informal discussions with the General Counsel of the Bank indicated that legal opinion in the Bank tended to the view that three steps would be required to qualify Papua/New Guinea for A.D.B. loans, namely:—
(i) extension of E.C.A.F.E.’s terms of reference (i.e. geographical coverage) to include Papua/New Guinea
(ii) acceptance of the Territory as an Associate member of E.C.A.F.E.
(iii) acceptance of the Territory as an Associate member of the A.D.B.
Assessment of implications
16. Whether or not our previous understanding regarding the eligibility of the Territory for A.D.B. loans on a simple amendment to Australia’s terms of membership of E.C.A.F.E. will ultimately prevail, we feel that given the independent status of the Bank we can no longer assume that it will. Consequently, the question arises as to whether we should proceed with the application to amend our terms of membership of E.C.A.F.E. in spite of these doubts, or adopt some alternative course of action. The sole purpose of the present application, as we understand it, is to render the Territory eligible to receive A.D.B. loans; it is not related to any consideration of the possible advantages that might accrue to the Territory from it being associated with E.C.A.F.E. in the broad or more general sense. In the situation that has now emerged, it would appear that the only certain way of securing the Territory’s eligibility for A.D.B. loans would be inter alia through Associate membership of E.C.A.F.E. This of course raises considerations relating to the longer term political and economic orientation of the Territory going beyond the limited objective now in hand. We understand that the Department of the Treasury maintains the view that the Territory’s eligibility for A.D.B. loans should be secured even if this should involve a change in the basis of our pending application before E.C.A.F.E. On the other hand, the Department of Territories has some reluctance in entertaining the alternative course (i.e. by way of Associate membership), on the ground that its overall implications for the Territory would exceed the limited objective of securing loans from the A.D.B. and exceed also present Government policy regarding the Territory’s future status. Because of the conflicting viewpoints apparent between the Department of the Treasury and the Department of Territories, and because basic policy questions affecting the future of the Territory have become involved, it is possible that you may now take the view that the matter should be referred back to Cabinet for further determination. In the meantime, pending Cabinet’s review of the position, we would consider that we should hold in abeyance any further action on our application for amending the terms of our membership of E.C.A.F.E .. Should you agree that the matter should be reconsidered by Cabinet, the further question arises as to whether this should be on the basis of a submission by yourself, or by the Treasurer; or whether a joint submission involving the Ministers of the three Departments directly concerned, including the Department of the Territories, might be envisaged. If the matter is to be resubmitted to Cabinet, we would appreciate guidance as to whether you would wish the question for consideration to be limited to a decision on proceeding with the current application or whether the wider question of Associate membership of E.C.A.F.E. for the Territory might be canvassed.
17. Alternative courses to those outlined above would be to seek immediately an authoritative and formal opinion from the A.D.B. at the level of the Board of Directors, on the question of the Territory’s eligibility should the proposed amendment to Australia’s terms of membership of E.C.A.F.E. be effected, and in the event of that opinion being positive, and obtained in time, proceeding as before with the application; or, deferring the application for another year (i.e. until after the Canberra session), and in the meantime seek an authoritative and binding opinion from the A.D. B. at the meeting of the Board of Governors next April.6 A relevant consideration affecting these latter courses is that the next meeting of E.C.A.F.E. in Australia could possibly offer the last opportunity we will have for some time for obtaining a sympathetic response on matters initiated by ourselves affecting the Territory’s status, though against this it may be difficult to obtain an authoritative opinion from the Bank within the time at our disposal.
18. On balance, we would favour the matter in all its aspects being referred back to Cabinet for determination so that inter-departmental differences of viewpoint may be resolved and the necessary preparations to facilitate the desired course of action undertaken before the 24th Session of E.C.A.F.E., which begins here on 17th April.
19. Departmentally, we would see advantages, both for ourselves and the Territory, if Papua and New Guinea were to acquire Associate membership of E.C.A.F.E. at this point of time. Indeed, so far as our position at the United Nations is concerned, there is a danger that an attempt to expand the territorial definition of Australia to include Papua and New Guinea could be misunderstood and give rise to suspicion of our motives and cast doubts on our declared intention of self-determination for the Territory.
20. The advantages of Associate membership to the Territory itself would be threefold, at least. In the first place, there would be the value of participation in E.C.A.F.E. activities themselves. E.C.A.F.E. is probably the most effective of the three United Nations regional economic commissions for developing areas. As well as managing several concrete regional projects, E.C.A.F.E. has (in addition to sponsoring the Asian Development Bank) set up the Asian Industrial Development Council and has carried out many studies of potential areas for regional economic cooperation, a number of which have produced fruitful results. The direct association of the Territory with E.C.A.F.E. should lead the Commission to take a sympathetic and constructive interest in the Territory’s economic problems.
21. Secondly, there would be advantage for Papuans and New Guineans in participating in the work of a responsible regional organisation. Few political or otherwise contentious matters arise at E.C.A.F.E. meetings, most of which are characterised by a keen desire among the delegates to participate in cooperative and mutually beneficial activity. If the Territory were to achieve independence—or any degree of political autonomy short of that—it would be desirable for its political leaders and senior officials to have sound training in responsible participation in international gatherings. E.C.A.F.E. meetings are well suited to this purpose. It would be useful for Australia to be able in future to deal with Papuan and New Guinean leaders who have gained experience in cooperative meetings as well as in the heavily political atmosphere of United Nations meetings which they have so far experienced. Their ability to negotiate well and reasonably will also affect their future international standing not only in political terms but also when they seek international aid.
22. Thirdly, meeting with E.C.A.F.E. members would give Papuans and New Guineans a useful basis for developing bilateral relations with Asian countries. At present Papuans’ and New Guineans’ views of Asia are dominated by their attitudes towards Indonesia which in tum have grown out of their attitudes towards the Indonesian administration of West Irian. It would seem most desirable that Papuans and New Guineans be brought into association with the Indonesian Government in other spheres, and more generally with other Asian Governments, so that their attitudes to Indonesia and the rest of Asia are developed from a wider and sounder basis.
Recommendations
23. It is recommended that you
(i) agree that further action relating to the application to amend Australia’s terms of membership to E.C.A.F.E. be deferred pending an early review of the question by Cabinet; and
(ii) approve our proceeding in consultation with the Department of the Treasury and the Department of Territories to draft a joint submission to Cabinet on the future relationships of the Territory of Papua/New Guinea with both E.C.A.F.E. and the Asian Development Bank, including the possibility of Associate membership of both organisations being sought for the Territory.7
[NAA: A 1838, 3004116/1]
1 K.C.O. Shann, First Assistant Secretary, Division 3, DEA.
2 The UN’s Economic Commission for Asia and the Far East.
3 Ellipsis and those following are in the original.
4 ECAFE’s 24th Session was due to be held in Canberra, 17–30 April 1968.
5 J.M. Garland.
6 The Board was scheduled to meet in early April.
7 Hasluck’s response is not indicated on this copy, and the original has not been found. However, a circular to posts (savingram 0.8165, 6 February 1968, NAA: A1838, 925/3/311 part 2) shows that the Minister accepted the recommendation, although the issue was not brought to Cabinet. A later submission to Hasluck’s successor, William McMahon, explained: ‘[In 1968] the Administrator came down in strong terms against the Territory joining ECAFE. In the implication that the Territory was to assume an increasingly separate international status he saw danger for international agreements relating to the Territory’s commodity trade. He was, further, unable to see any particular advantage in ECAFE membership. The Minister … (then Mr. Hasluck) generally was in support of the Administrator’s views … Further examination, especially by the Department of Trade & Industry, and in consultation with London concerning British experience with Hong Kong and Fiji (both associate members of ECAFE), tended to demonstrate that the Administrator’s fears were not well-grounded. Membership of ECAFE was seen as having no commercial repercussions; as for constitutional implications, associate membership had the effect of confirming the member’s constitutional ties with the responsible Metropolitan power … The Department of External Territories nevertheless remained hesitant in 1969 to move forward on the course of seeking associate membership of ECAFE for the Territory. This Department, influenced by the Territory’s attitude and having some doubts of our own about the wisdom of the step into ECAFE, initiated exploration of possible other courses—namely interpretation or amendment of the articles of Agreement of the Bank. However, backed by the legal view of Sir Kenneth Bailey [DEA’s Special Adviser on International Law], this led to a dead-end’ (submission by Shann, 19 February 1970, ibid.). The matter was revived in 1970.