264 Mr R.G. Menzies, Prime Minister, to Mr S.M. Bruce, High Commissioner in London

Cablegram unnumbered 5 October 1939,

SECRET

Please convey the following formally from me to United Kingdom Government.

The negotiations between His Majesty's Government in the United Kingdom and His Majesty's Government in Australia have now resulted in an agreement upon, I believe, all the principal conditions of the arrangement under which the former Government will acquire Australian wool. [1] I suggest that the respective Wool Committees of the two countries might now be put into direct communication in reference to any matters that may remain outstanding.

The Australian Committee will, in the meantime, proceed at once with the appraisement of wool and the carrying out of the Scheme.

At this stage it seems opportune to recapitulate the terms agreed upon, making clear our understanding of them.

1. His Majesty's Government in the United Kingdom will purchase all wool produced in Australia during the period of the arrangement except wool required for the purpose of woollen manufacture in Australia.

2. The period of the arrangement will be the duration of the war and one full wool year afterwards; that is twelve months ending 30th June.

3. The price shall be 10 3/4d sterling per lb. of greasy wool as in the warehouse at the port of shipment and there shall be added an amount not exceeding three farthings per pound to cover all expenses from warehouse to fo.b.

4. Though prima facie the price of 10 3/4d per lb. of greasy wool shall operate over the whole period, nevertheless in May of each year the two Governments will exchange views on the question of price for the next year, and enter into its reconsideration in the light of changes in economic and other conditions and having regard to the possibility of war expenditure and other circumstances substantially affecting the Australian cost of wool production.

5. His Majesty's Government in the United Kingdom will make payments on account of purchase price of each clip as wool is appraised. The Australian Central Wool Committee will advise the United Kingdom Wool Committee of the appraisements made and thereupon His Majesty's Government in the United Kingdom will place to the credit of the Australian Central Wool Committee the sterling equivalent of the amount of the appraised prices subject to the adjustment at the close of the year of any deficiency in, or excess over, the flat rate price of 10 3/4d per lb.

6. The acquisition of the wool from the growers and other owners and the handling of the wool to f.o.b. will be the responsibility of His Majesty's Government in Australia exclusively.

7. His Majesty's Government in the United Kingdom will divide equally with His Majesty's Government in Australia any profit arising from the sale by, or on account of, the former Government of wool not required for naval, military, or other Governmental purposes or during the war for civilian purposes in the United Kingdom. For the purpose of ascertaining such profit, separate and distinct accounts of Australian wool shall be kept.

You will notice that in number 1 only wool required for woollen manufacture in Australia is excepted. This is because it is proposed that carbonising, scouring, and topmaking shall be done on commission, the wool treated remaining that of the Government.

It is necessary, however, that these Australian industries should be supplied to capacity, whether the wool treated is ultimately used in local woollen manufacture and therefore falls under the exception, or is dealt with on account of His Majesty's Government in the United Kingdom as part of its purchase. Normally topmaking for export as well as for domestic consumption is carried on here and to keep topmakers fully at work it may be necessary to make tops for export but such transactions would be on account of His Majesty's Government in the United Kingdom.

I suggest that this matter may safely be left in the hands of the respective Committees.

If you agree that the foregoing expresses the terms of the arrangement I should be glad if you would confirm and authorise public statement as there is some criticism in Australia at our apparent delay. (ends) In conveying the above from me to the United Kingdom Government please advise them that it is subject to the assumption that the price arrived at as a result of New Zealand negotiations will be properly related to the price for Australian wool.

There is one other matter on which it is perhaps desirable to be clear at this juncture.

There are in Australia a number of wool buying houses of neutral countries who have operated in the various centres for long periods. Their staffs consist partly of Australians and partly neutrals. Subject to consultation with British Government and in accordance with its directions we desire to be in a position to deal directly with the representatives of friendly neutrals and to allow them some official recognition in the matter of wools allotted to them. We shall of course take care that no neutral representative shall be in a position to gain confidential information of any sort and their activities will be confined to wool allocated by the Australian Government with the approval of the Government of the United Kingdom.

Where applications for the purchase of wool on neutral account are made to the Australian Government we desire that subject to consultation with the United Kingdom Government we should be able to negotiate through the channels best suited to ensure continuity of Australian wool trade and conservation of Australian interests.

Sales would of course be made on account of the United Kingdom and at prices and under conditions agreed upon with the United Kingdom Wool Control, and generally the desires of the United Kingdom Government would be carried out.

Before conveying above please await separate telegram [2] regarding Japan.

1 For further information on this arrangement see S.J. Budin, War Economy 1939-1942 (Canberra, 1955), pp. 60-6.

2 Document 265.

[FA: AP96]