Your 576 of 18th July, FAR EAST [1]:

Our views on this question remain generally as set out in my
telegram of 27th June to Secretary of State. [2] From the cables
we have received it is now clear that United States will continue
to adopt a purely negative policy; will not co-operate with us in
any general settlement, and will be resentful if we mediate in war
between China and Japan at expense of China. Although we were led
to expect Burma Road Agreement would be received with
understanding and sympathy by United States, statement of Hull [3]
about unwarranted interference with trade was unexpected.

Further, we do not yet know attitude of new Japanese Cabinet to
the Agreement of 17th July, but it is reported Konoye [4] issued
statement that new Cabinet have agreed on policy of strengthening
ties with Germany and Italy. In view of the circumstances in which
the old Government was forced out of office, and the composition
of the new Government, it seems doubtful whether anything less
than a militant policy will now satisfy the extremists.

It is recognised that the statement by the Prime Minister [5] in
the House of Commons and the conversations between Craigie [6] and
Arita [7] Committed Great Britain to an attempt to utilize the
period of three months under the Burma Road Agreement to
investigate the whole position with a view to arriving at a
genuine all-round settlement.

We realize the value of achieving a general settlement which will
ensure peaceful relations between the British Commonwealth and
Japan whilst we are prosecuting the war, and will promote the
economic betterment of the respective countries.

As we visualise it, however, the exploratory conversations for
such an agreement may in themselves prove a source of
embarrassment to the British Government.

The three original demands having been more or less disposed of,
Great Britain may be compelled to discuss new issues which, as is
customary in Japanese diplomacy, will probably be announced
beforehand.

While recognising the obligation to discuss the terms of a wide
settlement, our opinion, however, is that there is little hope of
promoting any general or lasting settlement with Japan while the
European position is as at present.

We make the following observations-
(a) Any weakness in bargaining would be regarded as evidence of
weakness with consequences of further awkward demands;

(b) The termination of the Sino-Japanese war, unless part of a
really satisfactory general settlement, would simply leave Japan
free to take full advantage of new opportunities occasioned by any
set back in the European war;

(c) Time runs in our favour and the next three months are
particularly important.

There seem to be two alternative policies. There is the one
suggested in your paragraph 5 of enlisting support of Soviet
Russia and U.S.A. for maximum assistance to China. This is the
other extreme to a policy of appeasement, and in the case of
Russia would appear to be not only difficult but dangerous.

The second alternative is playing for time in discussions for a
general settlement while following a policy of working in as close
co-operation as obtainable with the U.S.A., informing them in
advance of our position and proposals to meet any new issue,
giving way only under force majeure on questions which are not
absolutely vital. At the discretion of the United Kingdom, Russia
might also be consulted. It is a policy which at least keeps Japan
at war with China and enables us to play for that necessary three
months to demonstrate we are able to withstand the attack of
Germany.

This policy should enlist the encouragement and, it is hoped, the
more positive support of America after their elections. The recent
agreement is a definite contribution to this policy. It has not
been repudiated by the new Japanese Government, and the onus
should be left on Japan to denounce it or make suggestions for its
execution or modification.

In sustaining this policy in the face of further awkward demands
which can be anticipated, each issue raised will need careful
consideration as to whether it is one about which Great Britain
can be conciliatory or whether it is one of vital importance
necessitating a firm attitude with a full recognition of all that
is consequently involved. It would be fatal to bluff all the time,
or take an irrevocable stand on any non-vital issue.

Assuming the information we received from the Acting Government
Commissioner, Japan [8], and repeated to Foreign Office in 1219 of
14th July is correct, to the effect that the amalgamated southern
interests will seek to obtain concessions and leases, and that
incidents are to be created where possible, it is to be
anticipated that the Commonwealth Government will be faced with
similar problems and difficulties, and will have to adopt a
corresponding policy.

We desire the abovementioned views to be submitted to the United
Kingdom Government, and we would ask that we be consulted on any
new issue raised by Japan seriously affecting Empire interest
before discussions on it are entered into. Further, that while we
appreciate the desirability of promoting a general settlement, we
cannot but be disturbed by the attitude of the United Kingdom
Government towards some of the specific questions, such as dealing
with Japan regarding wool, which help to achieve that end. [9]

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