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

Cablegram 652 LONDON, 13 November 1939

FOR PRIME MINISTER MOST SECRET

In reply to your telegram of 14th November [1] do not think this would conflict in any way. Will confirm tomorrow. [2] In connection with this you will be interested in the following:

(a) 'It is understood from a reliable but very secret source that Mitsui Trading Company has been endeavouring without success to purchase wheat on credit terms from the United States and that, although Japanese negotiations for the purchase of wheat in the Argentine are likely to be more successful, considerations of shipping necessitate that the amount taken from the latter source should be kept down to a minimum.

Apparently the Company's agent in Sydney informed the Japanese Government that 200,000 tons of wheat could be obtained from Australia on two years' credit terms but later that terms were half payment in cash and half at one year's credit. At first the Japanese thought of taking only 100,000 tons on one year's credit terms, but they now desire to obtain 200,000 tons and Mitsui Trading Company agent in Sydney has been instructed to endeavour to obtain one and one half year's credit. He has been advised that the Japanese Government will on no account agree to any suggestion for the deposit of bonds with Australian banks or for a Government guarantee. Negotiations must be on the basis of a guarantee by the Yokohama Specie Bank only.

A desire is expressed for arrangement of a system of "barter" or extra exports" of Japanese goods or for a "clearing system" for imports of wheat, the latter to be combined, if possible, with wool purchases, although it is not considered essential to press this now.' (b) 'It has been learnt from a reliable but entirely secret source that the Japanese Government do not agree to half payment in cash for certain wheat purchases which they had proposed to make in Australia. If the Commonwealth Government insist on some cash payment, the Japanese Government will endeavour to have the amount of cash reduced and terms for the remainder extended. The suggestion now to be made is that one quarter should be payable in cash, and arrangements made for two years' credit to be extended in respect of the remaining three quarters.'

BRUCE

1 Document 356.

2 Bruce confirmed the U.K. Government's approval in cablegram 655, 14 November 1939, not printed (on file AA: A981, Far East 31, i).

[AA: A981, FAR EAST 31, i]