Wool. As a result of your telegram of 6th February  further meeting held yesterday. Am more hopeful that the action urged in paragraphs 2 and 4 of my telegram of 6th February  will now be taken.
Economic Warfare memorandum  referred to in paragraph 3 now prepared. In my view not satisfactory and as I feel essential that the position should be cleared up without friction, have urged that the original intention of conveying the contents of the memorandum either direct to you or to Whiskard  as reply to representations Bell  made to him should not be followed. Have arranged that I will discuss the memorandum's clauses with the Minister for Economic Warfare with the object of getting more satisfactory understanding from Australian point of view. 
Memorandum deals entirely with Japan and makes following points:-
(1) Desirable that supplies to Japan should be restricted because although assumed purchases are intended primarily for own military and manufacturing requirements Department has evidence of German efforts to obtain raw materials including wool through Japan.
This fear I feel is exaggerated because undisguised anxiety of Japan to secure Australian wool, plus known facts of her textile manufacturing position, show that she urgently requires it for her own purposes. This differentiates wool from other materials.
In addition definite undertakings would be given against re-export which in the case of Japan have some value.
(2) Great stress is laid on the necessity of an understanding with the United States to limit her export to Japan of raw materials essential to Germany and it is urged that to give favourable treatment to Japan in respect of wool we must arouse America's suspicions.
This contention would have force if we were contemplating any particularly favourable treatment. This however is not so and in any event the position could be met by the frankest disclosure to and discussion with the United States.
(3) Supplies should be limited to month by month arrangement.
This I think is unreasonable and should be three months basis with, if necessary, an arrangement for supplies to be made available in equal monthly quantities and with the right to withhold in the event of unexpected developments. Necessity for this provision could be explained as possibility of unexpected demands for war purposes but would in fact be to enable disciplinary action to be taken against Japan.
Above are the essential points of the memorandum but it also contains appropriate expressions of appreciation of Australia's position, interests and point of view.
Please telegraph as soon as possible if you agree to my discussing with the Minister for Economic Warfare and inclusion of any additional points you want to emphasize.
Crossbred wool for Japan. This raises difficult point. As my cables indicate up to the time when direct communications established between Essendon  and Central Wool Committee military obtained assent of Ministry of Supply to two to one proportion. Did Essendon either directly or indirectly by approving two to one proportion in monthly quotas of 25,000 bales give that assent. If not, appears to me difficult to place on United Kingdom the responsibility of breach of faith referred to in your telegram of 5th February.
Position of cross-breds is definite shortage for war purposes and every effort being made to obtain additional supplies.