When you are conveying my message to United Kingdom Government
regarding wool [1], desire you also discuss our position vis-a-vis
Japan.

The Japanese Consul-General [2] intimated early in September that
his Government desired that 300,000 bales of Australian wool,
comprising 2,000,000 bales merino and 100,000 bales crossbred, be
made available for purchase by Japan during period ending June
1940. Recently Consul-General has advised that any reduction in
quantity of crossbred made available would result in corresponding
reduction in quantity of merino which Japan would buy. The ratio
of two to one would be preserved.

Japan formerly bought merino almost exclusively but in recent
years has purchased both merino and crossbred. The ratio of two
merino to one crossbred appears to us to be not unreasonable, and
is in keeping with purchases of recent years.

Two questions now arise. First, the quantities of merino and
crossbred to be made available now and from time to time to Japan
and the prices to be charged for it. Second, the manner in which
the negotiations are to be conducted.

In regard to the first question, we would like to be able to meet
the Japanese request as to quantities of merino and crossbred
respectively. We are ready to discuss forthwith with the United
Kingdom Government question of prices and other conditions under
which wool will be sold to Japan.

The second question involves issues which may have very great
diplomatic significance and which may go far beyond any commercial
transaction on wool. These issues are of such importance that in
my opinion they should not be left solely to the British, Wool
Committee. Indeed you might point out that there is a great
political interest here in our Japanese-Australian relations,
which are possibly more urgently regarded in Australia than in the
United Kingdom. The following principles should, in our opinion,
govern the negotiations with Japan.

It is suggested that-
(1) Japanese applications for wool should be dealt with by the
Australian authorities who should negotiate with Japanese without
any ostensible restrictions. We desire to be in a position to deal
with the Japanese in a manner which will enable us, as far as
possible, to form correct estimate of their real attitude and
requirements, but at the same time we would act only in
consultation with the British Government or in accordance with
their expressed wishes.

(2) There would be no departure from principles agreed upon with
the United Kingdom Government. Should new issues arise in the
negotiations, not covered by previous consultation with the United
Kingdom Government, we would immediately again refer to the United
Kingdom.

(3) Can we assume that the terms as to price and other conditions
would be more or less in line with the United Kingdom sales to
other neutral countries.

In reference to the point mentioned in your telegram of 14th
September [3] we would not wish that the contract with the United
Kingdom should contain a formal provision in regard to Japan
because of possible embarrassment with other countries.

(4) Does United Kingdom Government agree that we should force
Japanese position as to guarantee regarding resale of wool and
manufactured products to Germany and Soviet Russia. We would be
glad to have United Kingdom Government views.

(5) Summed up we think the public impression should be in accord
with the fact that the British Government has purchased the dip
but that we should be able to negotiate with Japanese Consul-
General as if the terms to Japan were for Australia to decide.

Trust you will be able to arrange for the United Kingdom
authorities to give this immediate attention.

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