I have the honour to inform you that, when your Government introduced last April the 25% reduction in the import permits for cotton piece goods from non-sterling countries, including Japan, to take effect for the three months ending 30th June, 1941, I addressed a letter on 7th May last to the Minister for Trade and Customs , inviting his attention to the letter addressed by his predecessor (Senator McLeay) to the then Consul-General for Japan  under date of 21st June, 1940, in which it was stated that the Commonwealth Government would endeavour to ensure the maintenance, for the financial year 1940-41, of the value basis established by importations in the year 1938/39. I also informed the Minister for Trade and Customs that this information was conveyed at that time to the Japanese Government, thus enabling the interests concerned in that country to book orders and plan their business ahead accordingly, and that the recent reduction in import permits had therefore caused a great deal of disturbance to those interests.
For this reason, I requested the Minister's favourable reconsideration of the import restriction on this particular commodity with a view to the maintenance of the basic value at least to next July.
A reply to these representations was received by me from the Minister for External Affairs under the date of 5th June, 1941 , drawing my attention to the fact that the statement of Senator McLeay to which I referred in my letter of 7th May could not be construed as, in any sense, an assurance that the Commonwealth Government would in all circumstances maintain permitted imports of piece goods at the level determined by the value of importations in 1938-39. In informing me further that my representations could not be acceded to, because of the position of the foreign exchange funds of your country, the Minister stated that he felt it necessary to add that, in the emergency which now exists, the trend is in the direction of a more severe rationing of unnecessary imports rather than towards any alleviation of the restrictions already in force.
I should like to say, in this regard, that my abovementioned representations were made, not because I have interpreted Senator McLeay's statement as having given any assurance concerning the present matter, but because of the due weight attached by the Japanese Government to his statement in question, which was generally regarded as one party's undertaking in a sort of gentlemen's agreement, and also because of the fact that sudden reduction of imports of cotton piece goods by 25% naturally caused no little surprise and disturbance to all those concerned.
I can well understand that wartime trade controls entail business dislocations in the industries affected. At the same time I am firmly of the belief that the maintenance of trade with other countries to the fullest possible extent is a sound policy, for the reason that it minimises the dislocation of the economic structure in the respective countries and also serves to secure a source of available funds for essential materials for a time of emergency.
Should our consideration be limited to the plane of purely economic matters or to direct economizing by the sole means of cutting down imports, our trade may simply dwindle On both sides, until it becomes eventually a negligible quantity. I firmly hold the view that whatever may be the situation now prevailing, the social and economic relations between Australia and Japan are destined, not merely on account of the geographical situation of the two countries, but because of the world wide trend towards the further conquest of time and distance, to become increasingly closer, and, therefore, it is my belief that adequate steps should be taken now to endeavour to pave the way for the day to come. I therefore greatly appreciate your kind invitation to set out my frank opinions on this matter of our mutual trade, and I am accordingly addressing this letter to you, the contents of which, I understand, you will, if you deem it advisable, be good enough to bring before the Cabinet.
I am particularly desirous of being informed by you of the fundamental policy of the Commonwealth Government in regard to the trade relationship between Australia and Japan-a relationship which is no longer that pertaining to a time of free trade economy but is under more or less rigid governmental control on both sides. Under such regimentation, it will easily be seen that, particularly in the case of such commodities as are being exported by Japan to Australia which are almost all manufactured or semi- manufactured goods, and many of which are manufactured mainly or partly from imported raw materials, it is essential that some outline, even if only a very rough one, of the items and quantity or value of the commodities to be permitted importation during a certain period of time should be made available so that the interests concerned may draw up a plan for the carrying on of their business. Only thus is such action as the keeping of the market prices at a reasonably stabilized level or the maintenance of an orderly and continuous flow of goods to the market possible.
For the foregoing reasons, I should like to know whether your Government is ready to entertain the idea of entering into some practicable form of Trade Agreement between our two countries, which will not always be expected to be binding on us in a legal sense, though to a large extent it will be so morally. I shall be very glad to hear from you your views on the abovementioned matter at the earliest possible date.