E.—3

20

from the Imperial Government one sixpence in consideration of New Zealand relieving New South "Wales from making a money payment towards the cost of the service. The £20,000 which we proposed should be asked from the Imperial Government is the sum which it was understood the Imperial Government entertained the idea of giving last year, when an arrangement between Victoria and New Zealand was being considered. It is the amount which the Conference named as a subsidy ; and it is an amount which we are of opinion will be, at least in great part, covered by the postages which the Imperial Government receive. In the course of time those postages will no doubt amount to much more than £20,000. New Zealand, in effect, proposed to bear so much of the cost of the service as it would not be proper to ask the Imperial Government to bear. We have not concealed from you that, in undertaking that New Zealand should be liable for £30,000 a year, we trusted to the postages from other Colonies to recoup us to some extent, nor have we concealed from you our belief that the offer we made was a very liberal one. Still further, since you have raised the question, we admit that we think it is a very proper feeling on your part to prefer that New South Wales should contribute towards the subsidy, instead of leaving New Zealand to bear the whole risk. We shall be quite prepared to deal with you on that basis, and we recognize the spirit of independence which has led you to indicate it. C. When you incline to blame New Zealand for offering to relieve you of any pecuniary risk in connection with the service, you must forget that New Zealand has had to carry on the service, unaided by either Colonial or Imperial contributions. For nearly two years New Zealand has carried the mails for New South Wales without any payment whatever. She has carried all the mails despatched from Great Britain by the route, without receiving even the postages; and therefore, as a simple matter of business, if we are not able to obtain better terms, it suits us that New South Wales should withdraw her opposition, in which case we would give her the proposed service in return for the postages, and would expect to receive a subsidy from the Imperial Government. We do not ask New South Wales to enter into any alliance for the purpose of obtaining improperly a subsidy from the Imperial Government. If New South Wales had for two years made the payments which New Zealand has made, and performed the Californian Service for all the Colonies and Great Britain, without receiving in consideration anything but abuse of the service, she would fail to see anything improper in the offer which has been made. 7. We are sorry to find, from the fifth paragraph of your letter, that you allow your feelings as to what you consider the adverse attitude assumed by the representatives of New Zealand in the late Conference to influence your decision on this question. We cannot enter at length upon the questions relating to the Conference, but we must say that the course we took was forced upon us by New South Wales. Had New South Wales been ready to co-opcrale with us upon the question of the Californian service, we should certainly —even at the risk of some injury to the postal services required by New Zealand—have been averse to doing anything which New South Wales might have considered injurious to her interests. But you must not suppose that in the course which we did take we overlooked the interests of New Zealand, or were in any way influenced by a spirit of retaliation. The Suez Service is of use to the southern part of New Zealand, but it is of use only in connection with a Melbourne Service. In short, for the purposes of the Suez Service, the interests of New Zealand are intimately identified with those of Victoria. The conditions to which the Conference agreed respecting the Suez Service exactly suit New Zealand. They give to that Colony the use of the main line, and provide for a branch service at the least possible cost and with the least possible risk. Had we taken a course which might have forced Victoria to secede from the Suez Service, it is probable that New Zealand would not have been able to use the line at all. Therefore, whether or not you consider the results of the Conference in relation to the Suez Service to be satisfactory to New South Wales, you must bear in mind that, as far as New Zealand is concerned, those results are entirely satisfactory. What Mr. Vogel meant you to understand at the interview to which you refer was, that had we been able to make satisfactory arrangements with New South Wales in connection with the Californian Service, we should have been willing to forego some advantages in connection with the Suez Service, to the extent of not interfering about the terminus question. But, as we could not come to any understanding with New South Wales respecting the Californian Service, we took the course with respect to the Suez Service most suited to New Zealand's wants. As to forcing New South Wales to become a party to the New Zealand contract, such a course did not present itself to our minds. We found ourselves compelled to act independently of, and without concert with, New South Wales, and so we took our own course as to the Suez Service ; and we offered to New South Wales terms as to the Californian Service which we considered, unless slie were otherwise bound, she could not fail to accept, and1 which we still do not understand why she has refused. Had New South Wales been disposed to enter with New Zealand upon the discussion of the question on its merits, we do not pretend that we should have made an offer of so liberal a nature as that which we did make. Indeed, we plainly had to make such an offer as we thought would disarm the opposition of New South Wales. We did not dream, as you imply we did, of exercising any coercion. 8. We share with you the feelings of regret expressed in the sixth paragraph of your letter, that you are unable to see your way, in the present circumstances, to co-operate with New Zealand in organizing an efficient service to San Francisco. We recognize the cordial manner in which New South Wales joined with New Zealand in maintaining the unfortunate Panama Service ; and we have pleasure in expressing, on behalf of our Colony, our acknowledgments of your own personal exertions in that matter. We should be glad that the misunderstanding which you now set up should be at once ended ; find we think that if you would divest the subject of extraneous considerations, you might still see your way to co-operate with us. New Zealand is at present under engagement for a service which, though it has hitherto been conducted imperfectly, we have every reason to think can be made most efficient; and we ask your co-operation for the purpose of establishing its efficiency. We are willing to agree that if the service cannot be made efficient it should be abandoned. But, as at present advised, we believe that in the course of a very few days the service will receive an immense subsidy from the American