My Circular D. 123. [1]

As the immediate action open [to us] [2] to prevent acquisition by
Germany of deficient commodities via Asiatic Russia is of limited
scope, His Majesty's Government in the United Kingdom in
consultation with the French Government consider that further
endeavours should be made at once to overcome the practical
difficulties in the way of making any system of control completely
effective i.e. through some sort of understanding with Japan to
ensure her collaboration in the measures to be taken and some kind
of an understanding with the United States.

2. We should thus wish to open negotiations with Japan for an
understanding whereby she would undertake:

(a) to prevent commodities specified by us as being those most
needed by Germany for war purposes from
(1) leaving Japanese territory or territory either in or under
Japanese control for any Russian or German destination whether
directly consigned to either of those countries or sent via a
third state;

(2) being carried to any such destination on any Japanese
controlled form of transport by sea, land or air.

(b) To take measures to restrain Japanese traders etc. from taking
part in or facilitating transactions likely to lead to the
importation of these commodities either to Germany or Russia.

(c) To prevent the use of Japanese or Japanese controlled ports
for transshipment of such commodities destined for Germany or
Russia.

3. In return, it is thought that we should have to consent to
facilitate the acquisition by Japan of raw materials or other key
commodities which she requires from British or French sources up
to certain quantities which could be shown to be justified for her
domestic requirements, judged by her minimum imports during the
last five years less the amounts usually re-exported by her to
Germany and Russia.

4. With a view to the successful conduct of these negotiations it
is proposed that we should temporarily place somewhat severe
restrictions on exports to Japan of certain key commodities of
which she is known to stand most in need, explaining our action to
her on the grounds of military necessity and domestic needs.

During our negotiations, we should maintain contact with the
French Government whose negotiations, it is thought, should be
parallel but not joint. Our negotiations would be conducted in
London by the Minister of Economic Warfare in order that political
issues extraneous to the economic questions involved should not be
introduced.

5. Simultaneously, we should propose to make approaches
(a) to the Chinese Government with a view to arriving at an
understanding for the restriction of their exports to Russia under
the Sino-Soviet barter agreement and
(b) to the Netherlands Government with a view to limiting exports
of tin and rubber from the Netherlands East Indies to Vladivostock
or to Dairen.

6. With a view to arriving at some sort of complementary
understanding with the United States, we should propose to explain
to the administration what action is intended, the reasons for it
and why some measure of co-operation by the Japanese is essential
to this end. It would be made clear we have no intention of trying
to secure Japanese cooperation by any deflection from the line
which we have taken in regard to Japan's actions or intentions in
China. While the United States authorities may feel unable to go
beyond the maintenance of their present policy of moral embargo of
certain goods normally imported by aggressive nations [3], it is
hoped that they would be prepared to acquiesce in our negotiations
with Japan and, without withdrawing assistance to our cause which
their embargo policy might represent, to acquiesce in the limited
supply by us of certain key commodities to Japan for the special
objects described above and to refrain from making difficulties
over the interception of United States ships or cargoes bound for
Vladivostock or Dairen.

7. In view of the urgency of the matter, details of the scheme
outlined above have been communicated to His Majesty's Ambassadors
at Tokyo [4] and Washington [5] with a view to obtaining their
advice as to the probable reactions of the Japanese and United
States authorities respectively if it is decided to make official
approaches on these lines. As soon as the Ambassadors' views have
been received, they will of course be communicated to you at once.

Meanwhile His Majesty's Government in the United Kingdom would be
very grateful for an early expression of the preliminary views of
His Majesty's Government in the Commonwealth of Australia and for
information whether the Commonwealth Government would be prepared
to co-operate in the measures proposed in paragraph four above for
temporarily restricting the supply of key commodities to Japan in
so far as restrictions to the quantities mentioned have not
already been imposed. The principal commodities which we have in
mind in this connection would be ferro-alloys, non-ferrous metals,
scrap and pig iron, rubber, wool, jute and jute bags, asbestos,
mica and industrial diamonds.

We feel sure that the Commonwealth Government will appreciate the
importance of treating this subject as most secret and ensuring
that our intentions are in no way disclosed.