We have for sometime been considering what steps could be taken to improve the British Commonwealth position in the occupation of Japan and have come to the conclusion that there would be great advantage for all Commonwealth countries if arrangements could be made for the inclusion of the port and district of Kobe into the area at present under B.C.O.F. occupation.
2. From the military point of view you are aware of the disadvantages at which the military administration has been placed through the lack of any large centre which could provide recreational and other facilities for the occupation troops, comparable to those enjoyed by the United States forces. The relatively inferior position of the Commonwealth Force in these respects has also not been without its effect on Commonwealth prestige. If, in addition, the proposal to allocate to Chinese occupation forces the area around Nagoya should materialise, the fact that the Chinese were in control of an area provided with more adequate facilities and of greater economic importance than that controlled by the British Commonwealth could, in our opinion, not fail to detract further from the Commonwealth's prestige in the Far East.
3. There is the further consideration that the presence of the Commonwealth Occupation Forces in one of the two areas of major economic and social consequence in Japan should not be without its effect in the establishment of better understanding between our countries and Japan in the future. Conversely, confinement to the present area of occupation, which is of only secondary importance in the economic, social and political life of the country, not only deprives the influential sections of the Japanese public of the advantages of our impact upon them but must inevitably tend to make them underrate or overlook our value as a factor in developments in the Far East.
4. It is, of course, clearly realised that considerations of prestige must be subordinate to the overriding question of the availability of manpower, and it was the latter consideration which compelled us to withdraw the United Kingdom Brigade.  In September last, that is before the proposal to withdraw the Brigade was announced, General Robertson was reported to consider that without increasing B.C.O.F. strength he would be in a position to take over Kobe, Osaka and Kyoto; and in December last the British Element on JCOSA reported that in their view, the possibility of including Kobe would remain provided that the total reduction in B.C.O.F. strength did not exceed 3,500 troops. We appreciate that this view must be subject to confirmation by General Robertson and that his views must be conclusive.
5. Subject to this confirmation we consider that both as regards prestige vis-a-vis the other occupying forces and the Far Eastern peoples generally and as regards administrative convenience for the B.C.O.F. authorities, the inclusion of Kobe into the area is a step to be desired and encouraged.
6. Since the military occupation of Japan is intended to come to an end after a limited, though as yet indefinite period, the considerations outlined above are, with the exception of the question of prestige, matters of short term importance only. The economic aspect, on the other hand, is one which will have a direct relation to the trade of all Commonwealth countries with Japan for many years to come. The Kobe-Osaka area was before the war the centre of British Commonwealth commercial interests in Japan and as far as one is able to foresee the area is likely to regain, in relation to the total volume of trade with Japan which develops in the post-war period, the same ascendancy as it maintained in the pre-war years. Since British Commonwealth trade with Japan must be seaborne the importance of establishing a firm footing as early as possible in a seaport such as Kobe will be readily apparent. The present indications that private trade with Japan may soon gradually be renewed make it all the more desirable that steps be taken without delay to secure an advantageous position for all British Commonwealth trading concerns and to provide for them at one of the major Japanese seaports the shipping, insurance, banking and other facilities on which they must rely.
7. We should, therefore, hope that this proposal will be considered not merely as a matter of short term military convenience, but as one of long term economic interest to all those members of the Commonwealth (and not least to Australia and New Zealand) with special economic interests in the Pacific.
8. We should be glad to learn your views. If proposal meets with your general approval we assume that it would be for Australian Government to undertake negotiations with United States authorities. If it is agreed that proposal should be pursued and if General Robertson gives a favourable report on manpower situation we suggest that financial aspects should be considered by JCOSA.