Your telegrams of 22nd January No. 19 and 24th January No. 20
Disposal of Australian wool. [1]

I am much concerned at the dissatisfaction which exists in
Australia on this question and have been engaged in a series of
discussions with Mr. Bruce, who has also represented to me Mr.

Menzies' views on various aspects of the matter. [2] It appears
that the sense of dissatisfaction which prevails in Australia is
due to a misunderstanding of the position, and I am hopeful that
this may be remedied by a full explanation of our policy, the
considerations on which it is based and the methods by which it is
put into effect. I should be glad, therefore, if you would seek an
opportunity of seeing the Prime Minister and discussing the matter
with him on the following lines:-

(a) We have learnt with much regret both from Mr. Bruce and
yourself that the action hitherto taken as regards the disposal of
wool from Australia to neutrals, and especially to Japan, has been
the cause of dissatisfaction to Mr. Menzies himself and to
Australian wool interests. We have had the advantage of discussing
the matter fully with Mr. Bruce on several occasions recently, and
it is dear that there is a widespread belief that the United
Kingdom Wool Control constitutes an obstacle to the proper
appreciation of Australian trading interests and to the orderly
disposal of wool from Australia to Japan and other neutral
countries. It is suggested that the Japanese in particular would
be justified in taking up the position that the responsible
authorities have failed to keep faith with them, more especially
in regard to the supply of a proportion of crossbred wool, and
that an impression is gaining ground that the United Kingdom
authorities are indifferent to the problem of the Far East and to
Australia's vital concern in the maintenance of friendly relations
with Japan.

(b) At Mr. Bruce's request a very full meeting was held at the
Dominions Office on the 30th January, at Which I presided and
representatives were present of all the Departments concerned;

these included Lord Essendon [3], while Mr. Bruce was accompanied
by Dr. Clunies-Ross. [4] This meeting enabled Mr. Bruce to make a
full statement of the various heads under which misgivings and
complaints had arisen in Australia. A valuable discussion followed
in the course of which it became apparent that steps must at once
be taken to remove certain misunderstandings by providing fuller
information to the authorities and interests concerned in
Australia.

(c) In the first place, it is necessary to remove the
misunderstanding on the part of the Chairman of the Central Wool
Committee in Australia [5], which is apparently shared by the
Prime Minister himself, as to the general arrangements for the
disposal from Australia of wool not required here. This work is
undertaken on behalf of the Ministry of Supply by Lord Essendon
and his staff in London. They are in dose touch with the United
Kingdom Wool Control on technical matters. Such questions,
however, as the policy to be adopted in regard to sales from
Australia to Japan and other neutrals of wool which the Committee
in Australia may have been told is not required for this or other
Empire countries or for our Allies in the war do not fall within
the purview of the Wool Control at Bradford or of Lord Essendon,
who have no responsibility for decisions reached upon them. These
decisions are reached by the United Kingdom Ministers concerned on
the basis of important political considerations which have been
explained to Bruce and are being reported by him in a separate
telegram to Menzies. [6] The major consideration at present is not
the risk of re-export to Germany but the importance of avoiding
advance commitments in the supply of raw materials to Japan which
might prejudice the understanding which we hope to reach with the
United States on the denial of vital commodities to Germany (see
my Most Secret No. 28 of the 3rd February to the Commonwealth
Government). [7] Any impression that either the Control or the
textile interests of the United Kingdom are endeavouring to secure
any advantage over Australian interests is quite unfounded.

(d) The disposal of the balance available when the above
requirements have been met is a task which has been entrusted to
Lord Essendon by the Ministry of Supply. Lord Essendon's
operations, however, are of course governed by considerations
which may be advanced by the Secretary of State for Foreign
Affairs or the Minister of Economic Warfare, and there is
consultation, where necessary, with other Departments including
the Dominions Office. In accordance with this procedure, it has
been possible to determine and to relegate to Lord Essendon for
disposal a proportion of the Australian merino clip available
after Australia's own requirements and those of the United
Kingdom, the Dominions, India and France have been met. This
amounts approximately to one million bales. In respect of this
quantity, Departments here have made no reservations except on
grounds of economic warfare. Apart from this, Essendon is
disposing of Australian merino wool freely to neutrals and is
taking advantage of every opportunity which offers.

(e) The position in relation to Japan has been under review at
frequent intervals. When it was examined in discussion with Mr.

Bruce on the 13th September last it was explained to him, and by
him, we understand, to the Commonwealth Government, that as a
matter of tactics we should propose to make allocations to Japan
on a monthly basis and for a few months only in advance. [8]

(f) (The foregoing relates to merino wool only, and a separate
telegram is being sent to you on the basis of your discussion with
the Prime Minister in regard to Australian crossbred.) [9]

(g) As regards price, it is fully realised that this should not be
allowed to become an obstacle to disposal, and the United Kingdom
authorities share the Commonwealth Government's view that a price
policy which, by diminishing sales, led to the accumulation of an
embarrassing surplus of stocks or encouraged the use of
substitutes would be damaging alike to Australian interests, the
woollen interests in the United Kingdom and to the United Kingdom
Government, which has to bear any losses. The basis upon which the
price of wool was fixed was decided after full consideration of
all the circumstances by the Ministries concerned. The price of
issue to manufacturers in this country is calculated just to cover
the cost to the Wool Control. The export price to neutrals from
Australia has been fixed on a basis such as to secure parity
between manufacturers in neutral countries, such as the United
States, and Japan, and manufacturers in the United Kingdom. With
the price which we are paying to Australia and the increased costs
of bringing wool here, it is not possible to fix the export price
at a lower level. Suggestions have been made from time to time
that it would facilitate sales to neutrals if prices could be
fixed for a considerable period ahead. This is not, of course, a
normal practice in peace time, and it is not possible in present
circumstances.