41 Prime Minister's Department to Mr S. M. Bruce, High Commissioner in London
Cablegram unnumbered 5 February 1940 SECRET,
The Central Wool Committee has received from Essendon  cabled instructions to the effect that it is quite impossible to agree [to] any sales of crossbred wool to Japan. We consider that if this instruction were carried out it would involve an obvious breach of faith and would constitute a serious menace to friendly relations with Japan. Moreover it would have a disastrous effect on the Japanese market for Australian wool not only as affecting the present clip but future clips.
On 13th September we advised you by cablegram  of strong representations from Consul-General of Japan  for 300,000 bales Australian wool to be made available for purchase by Japan during period ending 30th June, 1940. In that cablegram we stated our wish that United Kingdom Government should realize the delicate situation which might be caused between Australia and Japan in the matter of wool requirements.
You replied on 14th September  stating you had discussed Japanese representations with the United Kingdom Government and that Government entirely agreed desirability of meeting Japanese request in interests of good relations and subject to proper guarantees.
You made references to the fact that there would be no difficulty concerning sale of merino but United Kingdom Government would be reluctant to agree any substantial parcel crossbred being supplied to Japan as their information was Japanese purchases in the past almost exclusively merino. It was further stated that negotiations with Japan should not indicate large requirements immediately available but that proportionate quantities would be allocated each two or three months.
On 5th October a further cablegram was sent to you  regarding the Japanese position, drawing attention to the Japanese Government's desire for 300,000 bales Australian wool comprising 200,000 merino and 100,000 crossbred and stating Consul-General had advised any reduction in quantity of crossbred made available would result in corresponding reduction in quantity of merino which Japan would purchase.
In other words, the ratio of 2 to 1 would be preserved. We stated that the ratio of 2 to 1 was in keeping with Japanese purchases of recent years and added we would like to be able to meet Japanese request as to quantities of merino and crossbred respectively.
Your reply dated 12th October  was to effect that no objection to such sales provided re-export either directly or indirectly to Germany was safeguarded and stating that long term contracts should not be entered into, also that you were pressing for 100,000 bales crossbred.
After protracted negotiations between Japanese Consul-General and Chairman of Central Wool Committee , the Consul-General furnished on behalf of the Japanese Government to the Chairman of the Central Wool Committee an undertaking that wool imported into Japan from Australia would not be re-exported from Japan for importation into any country at present or which might become engaged in war against United Kingdom and/or Australia.
Undertaking also applied to woollen manufactures to be made from wool imported from Australia.
The undertaking clearly stated the desire of the Japanese Government to purchase 300,000 bales of Australian wool of which 200,000 bales would be merino and 100,000 crossbred for period ending 30th June 1940, and clearly indicated that the ratio of 1 to 2 between crossbred and merino would be maintained.
You will therefore understand that the allocation of one bale of crossbred for every two bales of merino is a sine qua non of Japanese purchases. The Central Wool Committee in its negotiations with the Japanese Consul-General and with Japanese woolbuying houses has stipulated throughout that quantities could be made available only in monthly allocations not exceeding 25,000 bales.
This has been accepted by Japan and first monthly quota of 25,000 bales has been shipped.
Japanese merchants have now lodged with Central Wool Committee details of types required by them for 25,000 bales shipment February or early March. This order includes, as did the January order, one-third crossbred. Instructions from Essendon too late as Central Wool Committee has already accepted February order and also indicated availability 25,000 bales each March, April.
Should Japanese buyers, through their Consul-General, be advised no further crossbred available, we consider Japanese Government would be justified in taking up position that we have not kept faith.
You will realize that throughout negotiations with Japan have been most delicate and have required exceedingly careful handling. We are exceedingly anxious that the good relations which we have now established with Japan on wool matters should continue.
Please take this matter up with Ministry of Supply and stress not only importance of good relations but the necessity for the continuance of purchase of Australian wool by Japan. Cessation of sales to Japan which is inevitable if no crossbreds available would have disastrous effect on Australian wool market and is viewed most seriously by the Government of the Commonwealth.
We consider it imperative that no departure should be made from the spirit of the negotiations which have been carried out with representatives of the Japanese Government.
Please treat this matter as one of great urgency.