292 Cumes to Eggleston

Memorandum [CANBERRA], 1 March 1948

CONTROL OF THE JAPANESE ECONOMY

[matter omitted]

The 'Packer Plan' [1]

From the above [2] it will be clear that Mr. Packer's contention that 'departmental economists' are not prepared to examine his plan and his implication that they are not prepared to engage in research work on economic control of Japan is completely without foundation. An elaboration of Mr. Packer's plan was requested but has not been received. As stated above, the amount of time available to our small economics staff for research is severely limited and must be used to the fullest advantage. We cannot afford to be side-tracked into consideration of proposals which, either through lack of development or insufficient clarity of expression, do not appear likely to yield concrete results.

From the brief and apparently nebulous outline given by Packer in ACJS, it appeared that the crux of his plan was control of Japan's import of key commodities. For this Department, this proposal, in its essentials, contained nothing new. It was a form of control which we had long had under consideration.

In the papers on individual industries mentioned earlier, attempts have been made to isolate a number of commodities:

(1) supplies of which are really fundamental from a war-potential point of view;

(2) in which Japan is significantly deficient; and (3) which are required in sufficiently large quantities to enable importation over the prescribed limits to be detected with relative case.

Where these criteria are met, import controls are suggested. For example, as Japan's domestic resources of iron ore-surely a key raw material-are very limited, her importation of ore, scrap, pig iron and ingot steel will be bulky, and hence capable of relatively easy control. Limits on importation of these goods have been suggested. On the other hand, it has been suggested, partly for the reason that Japan possesses adequate resources of copper and chromium, that no long-term controls should be applied.

Similarly because such small quantities are used and consequently smuggling could be relatively easy, it is not suggested that the import of tungsten, vanadium and molybdenum should be controlled although Japan is deficient in them. The point is that, if a few key commodities are effectively policed, it will be impossible for Japan to re-establish a dangerous war-potential. Once these key commodities are determined, any additional restrictions would be superfluous, costly and dangerous.

It is in the way in which Japan is to obtain the key raw materials that Mr. Packer's plan appears to suggest something different from the general line of thought in the Department. Mr. Packer wishes to guarantee Japan supplies of these materials. The purpose of such a guarantee is difficult to understand. The object is control and the danger is not that Japan will be unable to purchase supplies of key commodities but that she will be able to purchase them in spite of our controls. Our concern must be to ensure that Japan is not permitted to import more than is required for the peaceful conduct of her economy. A further point made by Packer is that control should be placed on the sources from which Japanese imports are derived. This is intended to prevent the resurrection of the yen bloc. Guarantees, however, seem to form no essential part of this idea. The purpose could be achieved-if that is desirable-simply by forbidding trade in certain items with certain areas. The reactions of those areas, China, Philippines, Siam, for example, can be imagined. Any economic control of Japan will involve difficulties of effective implementation and supervision but Packer's ideas appear to magnify these difficulties beyond all reason.

With regard to the issue of multilateral as opposed to Government trading (as the means of supplying goods), it is suggested again that if the objective of security may be obtained in either way, it is more consistent with present Government policy to choose the multilateral approach. Mr. Packer's objection to this approach does not deny that import control will be any less effective. In fact, he draws specific attention to possible evasion under the Government-to-Government scheme. His objection is to the reemergence of an Asian bloc. This objection he suggests would be met by withholding supplies-by economic sanctions. A clause in the treaty providing for economic sanctions explicitly would be quite as effective as Packer's elaborate suggestion. Economic sanctions are, as we know from past experience, difficult to apply effectively and I doubt that a scheme for withholding supplies under some sort of intergovernmental agreement goes any distance towards removing those difficulties, Packer may have in the back of his mind some ideas which would overcome those difficulties. If he has, it would be most useful for us to have them. I fully agree that it is desirable to prevent the re-emergence of a yen bloc but I cannot, at the moment at least, see that the Packer plan provides an effective means of achieving this. In the final count, it seems we must rely mainly on the vigorous nationalism of newly- emerged Asian states to resist would-be imperialism in Asia, with assistance, wherever possible, on a bilateral basis or through international organisations. (Reparations and non-discriminatory peace treaty provisions could help). Mr. Packer's intention appears to be to completely disrupt Japan's economic ties with Asia, by restricting Japan's imports of key raw materials from that area and forcing countries within the area to seek export markets elsewhere. To find the exchange necessary to import restricted goods from countries outside Asia, Japan may have to redirect her exports. The precise effect of these repercussions is difficult to estimate but there seems to be little possibility of finding acceptance for a wholesale redirection of trade of the nature he apparently intends. The key position which Japan occupies in the Far Eastern economy must be realistically faced.

If Mr. Packer does not intend to place drastic restrictions on Japan's importation of key commodities from Asia, it is difficult to see how Government-to-Government trading would be effective in preventing a serious attempt by Japan at economic imperialism.

Mr. Packer distorts the meaning of Mr. Truelove's letter of 3rd February by implying that 'the two economists' suggested that state trading was debarred by ITO, that pure multilateralism was the objective being sought, that American opposition to anything short of pure multilateralism was fixed and that because of American opposition we were barred from raising proposals for state trading. It was merely pointed out that the trend of the Australian Government's policy was towards multilateralism unless substantial policy considerations directed otherwise. In this case there did not appear on the evidence available any reason to make an exception to that trend. It was also suggested that present American opinion tended to oppose any departure from multilateralism unless a strong case was made for the departure.

If there are two ways of achieving a certain result, on one of which compromise may be easily achieved and the other of which would involve a protracted and possibly vain struggle, it is surely realistic to choose the first alternative.

Mr. Packer is completely wrong in implying that objections have been made to economic control. On the contrary, economic controls have been strongly suggested. This Section, as you know, has pressed for economic controls of much greater stringency and breadth than have been acceptable to other people concerned in treaty work. It is on the form of controls that our differences with Packer arise. Granted this disagreement with Packer on the form of his proposals as they exist at the moment, it must be emphasised that there has never been any 'lighthearted' dismissal of any proposals for economic control of Japan which may have been brought forward.

[matter omitted]

1 Eggleston had show Truelove's letter (Document, 291) to Packer who had commented unfavourably on the Department's attitude.

Eggleston had conveyed the comments to the Economic Relations Section.

2 An account of studies done in the Economic Relations Section on the control of a number of Japanese industries.

[AA:A1838/275, 731/4/1, i]