POLICY IN THE FAR EAST
1. The Burma Road agreement expires on October 17. By the terms of the agreement the three months for which the road was to be dosed in accordance with the Japanese request was to be utilized to investigate the possibility of a general settlement with Japan, including a settlement of the China war in consonance with British policy towards China in the past.
2. No progress has been made in this investigation beyond some preliminary consideration of possible terms of a general settlement by the Foreign Office. The proposal to discuss a settlement has not yet been put to the Japanese Government.
Nothing has happened in fact to suggest that the new Japanese Government which came into office immediately after the conclusion of the agreement is prepared to fulfil Japan's part of the understanding.
3. In case the Japanese Government attempt to place on the United Kingdom Government the responsibility of making concrete suggestions for a general settlement, the British Ambassador in Tokyo  has been instructed meanwhile to take the line that before the United Kingdom could make any approach to the Chinese or decide on the British contribution to a general settlement, it would of course have to know on what precise basis Japan was prepared to deal with China.
4. In a preliminary consideration of the question by the British War Cabinet on September 5, the Foreign Secretary  expressed the view that United Kingdom and United States public opinion would react strongly against continued closure of the Burma Road, but there was some danger of a crisis if the road was re-opened.
He said that either a settlement with Japan had to be reached or the United Kingdom must face the necessity of meeting forceful action by Japan. Any settlement must safeguard China's position but also must be sufficiently attractive to keep Japan on the right lines.
5. Mr. Churchill's comment was that the British Empire would be in no better position to face Japan in war in mid October than it was when the agreement was made, but that the position might be changed two or three months later when two battleships of the Royal Sovereign class should be in commission.
6. It is understood that the matter will again be discussed by the British War Cabinet this week and that in the meantime proposals for terms of a general settlement with Japan are to be put on paper for consideration.
7. The position in Japan itself is not encouraging. The British Ambassador's view is that the swing of popular sentiment towards the Axis has been so violent that Japan's position is comparable to that of Italy at the outbreak of war. The Moderates have suffered a complete eclipse and continuance of a conciliatory policy aimed at strengthening their hands would, in the Ambassador's opinion, probably now be useless unless with the full cooperation of the United States. Sir Robert Craigie thinks, however, that the hope of future economic co-operation with the United States, combined with distrust of German intentions in the Far East, appear to be imposing some restraint on the policy of the new Government. Japanese policy in the near future, he thinks, is likely to go as far as possible in pressing political and economic demands in the Southern Pacific area before opening a breach with the United Kingdom and the United States. Such restraint, however, would tend to disappear in the event of a settlement of the China incident or further successes of the Axis Powers.
8. According to the Australian Minister at Washington , it can be assumed that the United States Government would like to see the Burma Road re-opened, Chinese resistance encouraged and Japan restrained, although it is unlikely to use more than diplomatic weapons to help to achieve these objectives.
9. At an interview with the United States Secretary of State  on September 5, Lord Lothian  accompanied by the Australian Minister requested that the United States Government should consider and advise the United Kingdom Government as to the nature and extent of support it would give if and when it was decided to re-open the Burma Road. The Secretary of State was receptive but non-committal. He said the United States Government had given much thought to the many ways in which it could make further use of economic weapons, such as by extending the embargo on scrap metals and other American exports needed by Japan. He invited the Ambassador and the Australian Minister to keep in periodical touch with him so that ideas and views could be freely-exchanged.
10. In the discussions on policy preceding and following the conclusion of the Burma Road agreement in July, the Commonwealth Government expressed the following views:-
(a) The Japanese demand on the Burma Road did not in itself vitally affect the future or present security of the Empire.
(b) If the United States was not prepared to give the most complete support to Great Britain, the Japanese demand must be conceded.
(c) The alternative appeared to be grave risk of war with Japan which could not be contemplated in the present position of the British Empire.
(d) There was little hope of promoting a general or lasting settlement with Japan while the European situation remained as at present.
(e) Time was considered to be in Britain's favour and any weakness which Britain might be forced to reveal in bargaining might lead to further awkward demands.
(f) Neither a policy of appeasing Japan nor of attempting to enlist the active support of Russia and America to assist China was desirable.
(g) The best line to adopt would be for Britain to play for time, to give way to Japan only under force majeure on questions which were not absolutely vital and maintain a policy of as close co- operation as possible with the United States.
(h) This policy would involve the facing of each issue separately and deciding whether it was one of vital importance necessitating a firm attitude or whether it was one about which we could afford to be conciliatory. It was fatal to bluff all the time or to take an irrevocable stand on any non-vital issue.
(i) Although it would be to the Empire's great advantage to achieve a common policy in the Far East with the United States, the negative and indefinite attitude of the United States Administration made it apparent that in the questions immediately arising, the United Kingdom would in practice have to deal alone with Japan.
(j) In the absence of early prospect of a general settlement and of any definite assurance of United States support in the application of a strong policy, each question as it arose must be settled according to the circumstances of the moment.
11. The Burma Road agreement is generally in accordance with this point of view. Its essential feature was that it avoided immediate complications with Japan while being at the same time only a qualified acceptance of the Japanese demand.
12. In two respects, however, the agreement has failed of its object:-
(a) The prospect of a general settlement with the Konoye Government is even slighter than with the Yonai Government.
(b) It is much less likely now than it seemed in July that the European situation will have clarified sufficiently by October to enable a clear-cut decision whether or not to resist Japanese pressure.
13. The problem is therefore very much what it was in July:-
(a) We are not in a position to face hostilities with Japan in existing circumstances.
(b) We must therefore still play for time while avoiding a mere surrender to Japanese pressure.
14. Suggested draft reply to M.58  as follows:
To the Secretary of State for Dominions.
Most Secret. Your M. 58.
Our preliminary view is that the problem remains much the same as it was in July and therefore our essential aim is unchanged, i.e.
we are not in position to face hostilities with Japan in existing circumstances and must consequently still play for time while avoiding appearance of mere surrender to Japanese pressure. We think it can be assumed that decision to re-open Burma Road would cause violent reaction in Japan with grave risks of complications leading to war. It is also evident that to an equal degree as in July we should avoid charge of desertion [of] China and consequences of alienation of large sections of British and United States opinion.
It seems doubtful that any satisfactory compromise can be reached in respect of terms of agreement, for example by a stricter limitation of class of material to which prohibition would apply, though this possibility might be worth exploring. Scope for temporary accommodation probably only lies in period of agreement.
Considerations in favour of extension of agreement for closure of road for further short limited period would seem to be as follows:-
(a) Prospect of better defensive position of Empire in Far East at end of the year.
(b) Slightly increased signs of readiness of United States to co- operate in restraint of Japan. Further indication of this could hardly be expected before Presidential election but may well become more pronounced after election.
(c) Undoubted nervousness of Japan regarding American intentions in Pacific area which might cause Japanese Government to hesitate to embark on overt aggression, provided no occasion arose for face-saving action.
The prospect of general settlement with Japan would appear even less than in July, but we consider that investigation of possible terms of settlement should none the less be proceeded with. If it was decided to intimate to Japan that United Kingdom Government was ready to extend Burma Road agreement for limited period for reasons indicated above the possibility of settlement could still be given as reason. It seems to us much preferable that any proposition for continuance of agreement should come some time in advance of mid October from United Kingdom Government rather than that it should appear to be forced at the last moment by renewal of anti-British agitation in Japan. If Japanese Government could be engaged in cursory discussion of terms of settlement extension of date for re-opening of Burma Road could without great difficulty be represented as not unreasonable.