LONDON

The substance of your 1517 [1] on Japanese negotiations conveyed
to the Board of Trade today. Yesterday before 1517 received I
wrote you airmail saying that Percival [2] had hoped it might be
possible for the announcement of the terms of the agreement to be
deferred until after the Prime Ministers' Conference, as depending
on the text on the agreement he anticipated a storm to break from
United Kingdom industry after the agreement had been announced.

If this became too strong it could become an important issue at
the Prime Ministers' Conference. He had anticipated that, in
addition to protection of our own trade interests we would look to
the interest of United Kingdom industries and that there would be
guarantees that the Japanese would not flood the market.

I had gathered from him that they had been receiving numerous
enquiries as to what was happening on the Australian-Japanese
Agreement but the United Kingdom had decided not to make any
statement until the agreement completed and they know whether the
United Kingdom would be hurt.

I now discover by more searching questionng that it is only the
cotton people who have been at them and Percival tells me that the
cotton people already 'know' of the proposal to give Japan m.f.n.

and to lift the ceiling on quantitative restrictions. He mentioned
that there had been 'leaks' and comments in the Australian press.

I have conveyed to him the substance of your 1538 [3] and whilst
he sees this as being of some help I judge that he is anxious to
get into a position where his Ministers can issue a reassuring
statement to cope with the noise he expects from British industry.

He recognises that they might be unable to say to the industry
here any more than that the agreement marks a major change in
Australian trade policy and British industry must realise that for
several years they have enjoyed many benefits from the way in
which Australia had treated the Japanese.

On the other hand, if the substance of the last sentence of
paragraph 2(d) of your 1517 is contained in the draft agreement it
would be possible for the United Kingdom Government to say that
the Australian Government had reserved this right. But as stated
in your 1517 the last sentence reads more as a commentary than as
part of the agreement. If that is so, the United Kingdom would not
be able to comment in this way and I can see that Percival's
thinking is that it might help them if between now and 5th July
there could be an exchange between Australia and the United
Kingdom as a result of which United Kingdom Ministers would be
able to say that the Australian Government had informed the United
Kingdom that it had been at pains to retain freedom of action to
prevent disruption to the pattern of trade from preferential
suppliers.

I understand that Percival is cabling Gray asking whether the
United Kingdom could comment publicly on the agreement when
signed. It would help us if you could let us know what Gray puts
to you and your answer. Perhaps you could advise whether the last
sentence of paragraph 2(d) of 1517 is substantially in the text of
the draft agreement. Also whether, in the light of the timetable
agreed with the Japanese it is likely to be possible to defer the
announcement until after the Prime Ministers' meeting concludes.