32 Prime Minister's Department to High Commissioner's Office, London

Cablegram unnumbered 23 July 1940,

CONFIDENTIAL

Your telegram 19th July Wool for Japan. [1] We are anxious to co- operate as fully as possible with United Kingdom regarding exchange control, and are continuing our contacts with them on that subject.

We are, however, very strongly averse from involving the wool export to Japan in the general exchange question, and must urge United Kingdom Government to agree to treat them separately.

The hold up of Australian wool may lead Japan to look elsewhere for supplies to an increasing extent. Other supplies of wool are available. If we lose Japan as a customer for wool, in addition to facing other post-war difficulties of that commodity, the wool purchase scheme, while relieving Australia of anxiety during the war, may produce serious long term disadvantages.

We recognise that United Kingdom Government have purchased our wool, and that it is theirs to dispose of [2], but we ask them to recognise the importance to us of having as many outlets as possible during the war. The European outlets are closed. The only possible markets of any size remaining are Japan and United States. We must try to keep both of them.

It should be kept in mind that wool exports to Japan are an important source of income to the sterling area. The loss of this income would increase the balance in favour of Japan, which would be the subject of any payments agreement. Even from United Kingdom point of view there seems no more reason to hold up wool than to prohibit other exports to Japan during the negotiations. From our point of view it may be seriously damaging.

For above reasons we wish you urgently to repeat representations for renewal of wool shipments to Japan.

1 On file AA: A981, Trade 68, iv. It reported that the U.K. Govt would permit the June wool allocation to Japan to proceed provided that the option of making payments in yen was deleted.

2 In November 1939 the Commonwealth Govt agreed that for the duration of the war and one year afterwards it would sell to the U.K. Govt the entire Australian wool clip, apart from wool required for domestic woollen manufacture. See Documents on Australian Foreign Policy 1937-49, vol. 11, Document 264.

[AA: A981, TRADE 68,iv]