367 Australian Government to Mission in Tokyo

Cablegram 25 CANBERRA, 23 January 1948, 5.25 p.m.

SECRET

Trade with Japan.

1. We have been giving consideration to the practical measures that might be taken within the framework of the Interim Sterling Payments Agreement to break the present deadlock in reviving trade between Australia and Japan which is primarily due to currency difficulties. [1]

2. It seems to us that best prospect of reaching mutually acceptable arrangement would be to explore possibility of arriving at an agreed programme for exchange of commodities between Australia and Japan on a balanced basis which would avoid any question of conversion of marginal amounts into dollars. Even if agreement could initially be reached only on a restricted scale it would permit some two-way trade to take place and would be preferable to present position where trade is virtually at a stand-still.

3. Provided SCAP on his part would undertake that the full amount of proceeds would be used for purchase of Australian export products over approximately the same period we would be willing to undertake to issue import licence to permit private purchases of the following goods during the calendar year 1948:-

Raw silk A750,000 Rayon and fuji silk textiles 6000,000 Rayon yarn 600,000 Milling Silk 25,000 Insulators 40,000 Total A2015,000 All values are C.I.F. [2] The above dissection is approximate only and values of different commodities licensed may vary over the period.

4. Such an arrangement could make use of the machinery provided by the Interim Sterling Payments Agreement. Payments for imports from Japan could be made by the Australian Importers to SCAP's Interim Sterling Account and SCAP could draw against these funds for his purchases of Australian wool or other products.

5. We should welcome the extension of the arrangements to cover other commodities required to meet essential needs in Australia provided always that SCAP would undertake to use the full proceeds arising from Australian imports from Japan for the purchase of Australian export products.

6. In the absence of some arrangement with SCAP to overcome the difficulties created by the convertibility clause in the Interim Sterling Payments Agreement we may have to continue to treat Japan as virtually a dollar country for import licensing purposes and to place drastic restrictions or even prohibitions on the importation of Japanese raw silk and other commodities.

7. We recognise that even if SCAP is willing to conclude a balancing arrangement along the lines suggested it will be some time before payments for Japanese export would be actually received from Australian importers and that SCAP will therefore be unable to begin purchase of Australian wool immediately. We feel however, that outstanding liability for raw silk purchased through Government channels provides a ready means by which SCAP could finance immediate wool purchases. We are fully prepared to meet our obligation to pay in dollars amount owing for raw silk but, feel that SCAP's present reluctance to use these funds to buy wool might be overcome if such purchases were clearly part of a continuing arrangement offering some hope of permanent revival of trade between Australia and Japan.

8. If SCAP is agreeable to this proposal we could pay the money we owe for raw silk to SCAP's Interim Sterling Account thus providing him with funds to finance purchases of wool at the current auctions.

9. Glad if you would discuss foregoing proposals with SCAP immediately and advise his reactions.

1 On the Interim Sterling Payments Agreement and difficulties of reviving trade with Japan, see Volume 12, Document 427.

2 i.e. charged in full.

[AA:A1838/278, 479/2/8]