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The Secretary of State for Dominion Affairs to the acting Prime Minister of New Zealand

Circular telegram. My preceding telegram M. 173.¹ Japan. Following for Prime Minister:

1. While detailed application of United States proposals remains to be clarified, it is now clear that the measures they have immediately in mind are:

(1)	The complete freezing of all Japanese assets, which thereafter would be immobilised except in so far as specific licences might be granted for particular transactions.
(2)	The subjection of all imports from Japan to licensing.
(3)	Further restrictions on exports of petroleum products to Japan. Details of these are awaited and will be telegraphed on receipt.

2. As regards (1), the United States Government apparently anticipate that the immediate effect of the freezing order will be to bring to a standstill all trade between Japan and the United States. But it is clear that they contemplate that some measure of trade will continue thereafter. As we understand the position, all business and trade with Japan will be effectively stopped except that covered by special licences or permissions given under the freezing order. This will mean that transactions could only take place with difficulty on a basis equivalent to barter if so desired by both parties.

3. In accordance with the general conclusions set out in my telegram [No. 35], we think it important that we and other British Commonwealth Governments should follow the United States lead as [regards] (1) as closely as we can, and put into effect similar measures throughout the Empire as soon as possible after the United States Government have taken action. The machinery which we ourselves would propose to use would be that provided by Defence (Finance) Regulation 2A in S.R. and O.² 1329 of 1940 as modified by S.R. and O. 649 of 1941—see my Circular notes 159, 14 August 1940, and 41 of 24 May.³ (Copies have also been sent by the Bank of England to Reserve Banks.) The application of this regulation to Japan would automatically freeze all Japanese assets in this country, and the position thereafter would be regulated in such a way as to accord with developments in the United States practically as in paragraph 2 above—it page 46 should be noted in this connection that Regulation 2A would apply to residents in Japan or concerns controlled for Japan and not to Japanese nationals elsewhere.

4. We should be glad to learn by immediate telegram if possible whether the Dominion Governments would be willing to take similar action simultaneously with us. It will be appreciated that the general conception underlying the United States proposal is that, while the immediate shock to trade would cause a more or less complete stoppage, the licensing system would afford, within limits, opportunities for obtaining essential imports from Japan. If this expectation should be realised such imports could no doubt only be obtained against the equivalent value of exports needed by Japan, and it would, of course, be important that licences granted for such exports should formally be confined to commodities other than strategic commodities such as those already restricted below normal.

5. Application of the regulation to China (on the lines proposed by the United States) raises special questions on which we will telegraph shortly. Apart from the complicated technical aspects involved, it would of course be necessary firstly to obtain the concurrence of the Chinese Government and to make it clear that in the case of China the action proposed would be a friendly action intended to give every support to the Chinese monetary authorities.

6. A further telegram will be sent as regards paragraph 1 (2) as soon as we know in more detail the degree of restriction of imports contemplated by the United States Government.