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.