Cablegram unnumbered 5 October 1939,
MOST SECRET
When you are conveying my message to United Kingdom Government regarding wool [1], desire you also discuss our position vis-a-vis Japan.
The Japanese Consul-General [2] intimated early in September that his Government desired that 300,000 bales of Australian wool, comprising 2,000,000 bales merino and 100,000 bales crossbred, be made available for purchase by Japan during period ending June 1940. Recently Consul-General has advised that any reduction in quantity of crossbred made available would result in corresponding reduction in quantity of merino which Japan would buy. The ratio of two to one would be preserved.
Japan formerly bought merino almost exclusively but in recent years has purchased both merino and crossbred. The ratio of two merino to one crossbred appears to us to be not unreasonable, and is in keeping with purchases of recent years.
Two questions now arise. First, the quantities of merino and crossbred to be made available now and from time to time to Japan and the prices to be charged for it. Second, the manner in which the negotiations are to be conducted.
In regard to the first question, we would like to be able to meet the Japanese request as to quantities of merino and crossbred respectively. We are ready to discuss forthwith with the United Kingdom Government question of prices and other conditions under which wool will be sold to Japan.
The second question involves issues which may have very great diplomatic significance and which may go far beyond any commercial transaction on wool. These issues are of such importance that in my opinion they should not be left solely to the British, Wool Committee. Indeed you might point out that there is a great political interest here in our Japanese-Australian relations, which are possibly more urgently regarded in Australia than in the United Kingdom. The following principles should, in our opinion, govern the negotiations with Japan.
It is suggested that- (1) Japanese applications for wool should be dealt with by the Australian authorities who should negotiate with Japanese without any ostensible restrictions. We desire to be in a position to deal with the Japanese in a manner which will enable us, as far as possible, to form correct estimate of their real attitude and requirements, but at the same time we would act only in consultation with the British Government or in accordance with their expressed wishes.
(2) There would be no departure from principles agreed upon with the United Kingdom Government. Should new issues arise in the negotiations, not covered by previous consultation with the United Kingdom Government, we would immediately again refer to the United Kingdom.
(3) Can we assume that the terms as to price and other conditions would be more or less in line with the United Kingdom sales to other neutral countries.
In reference to the point mentioned in your telegram of 14th September [3] we would not wish that the contract with the United Kingdom should contain a formal provision in regard to Japan because of possible embarrassment with other countries.
(4) Does United Kingdom Government agree that we should force Japanese position as to guarantee regarding resale of wool and manufactured products to Germany and Soviet Russia. We would be glad to have United Kingdom Government views.
(5) Summed up we think the public impression should be in accord with the fact that the British Government has purchased the dip but that we should be able to negotiate with Japanese Consul- General as if the terms to Japan were for Australia to decide.
Trust you will be able to arrange for the United Kingdom authorities to give this immediate attention.
MENZIES
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1 Document 264.
2 Masatoshi Akiyama.
3 Document 226.
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[AA: A1608, L37/1/5]