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

Cablegram 127 LONDON, 17 February 1940

MOST SECRET FOR THE PRIME MINISTER PERSONAL

Wool-economic warfare.

Discussion referred to in my telegram 10th February [1] now advancing. Although known here that Germany is trying to purchase wool through Japanese agencies we agreed that if wool supplied to Japan is restricted to the extent contemplated no serious danger of material quantities-if any-reaching Germany. Real point is possible reaction in the United States of America. Consideration here is not confined to United Kingdom's desire to limit exports of raw material to Japan because of danger of supplies thus indirectly reaching Germany, but includes attitude of the United States of America cutting off vital supplies from Japan as aggressor in the Sino-Japanese war at present expressed by moral embargo. Proposals now before Congress may result in imposition actual embargo.

In accordance with the United Kingdom Government's policy of co- operation with United States in Far East question supply of vital requirements to Japan has been subject of close private contacts between United Kingdom and United States resulting in some cases in agreed action practically to cut off supplies for time being pending fuller discussion policy to be adopted e.g. nickel, in which case Canada is co-operating.

In these circumstances United Kingdom most anxious to avoid getting off side with United States by entering into future commitments to meet Japan's requirements in respect to wool. [This and not the] [2] danger supplies filtering through to Germany is basis United Kingdom attitude.

This situation ... it ought to be difficult for [3] Australia in that on one side we have our individual political relations with Japan and future wellbeing of Australian wool industry to consider, on the other we have our paramount interest maintenance of closest co-operation with United States on all questions concerning Far East.

Between the two, our decision I assume must be in favour latter.

From practical standpoint our course seems clear, namely to mark time and wait on events.

We have now obtained United Kingdom assent to an arrangement with Japan till the end of April. United Kingdom and French representatives are leaving for United States this week to discuss contraband and other difficulties arising out of economic warfare and also, although nothing will be published on this point, even question of supplies to Japan and Russia. (See Dominions Office telegram 28 of 3rd February). [4] Their instructions will be to advocate, particularly as regards Japan, restriction of supplies to normal peacetime consumption rather than complete embargo which United States prefer. Discussion hitherto has related to metals but may be extended to other raw materials.

I am writing fully to Casey [5] giving him the whole position and he will be able to put our point of view during discussions in Washington.

By the time further negotiations have been undertaken with Japan position should be clarified if not resolved.

Required matter is being handled very privately through Purvis, head of Anglo-French Purchasing Board in the United States, and Morgenthau [6] as representing President [7], and not through State Department and Lothian [8], although he is kept fully informed, suggest I handle Casey.

Above most confidential and every care to preserve secrecy imperative.

BRUCE

1 Document 52.

2 Words in square brackets have been inserted from Bruce's file Copy on AA: M100, February 1940.

3 Bruce's copy read 'This situation creates a difficulty for . .

.' 4 In series FA: A3195, 1.798.

5 See Document 86.

6 Secretary to the U.S. Treasury.

7 Franklin D. Roosevelt.

8 U.K. Ambassador to the United States.

[AA: A981, TRADE 68, iii]