So far we have been able to keep SCAP on the defensive and question of sterling purchases has not yet come up for discussion.
At the first meeting the matter of Japanese observers was raised and we replied that we would offer no objection to their presence provided the safeguards previously agreed between ourselves were implemented.  SCAP undertook to do this but pending the formal exchange of letters Japanese have not yet been present at negotiations. We still await formal request.
SCAP has indicated that they have several suggestions for increasing purchases from the Sterling Area particularly if we can see our way clear later to increase purchases of goods (other than cotton textiles) which to date have not been freely permitted into Sterling Area. This applies particularly to ceramics, rubber goods and similar consumer items but not necessarily bazaar goods.
We have gone carefully through list of import requirements published by SCAP and U.K. delegates particularly proposed to mention a number of items; which previously had been supplies from the U.S. The only additional item we suggested win be rabbit skins and fur which presumably would be freely available. Please confirm. Is there any likelihood of nails being available? SCAP has received advice that has led him to believe that arrangements for utilisation of GARIOA and EROA funds  for sterling purchasing may be approved and they estimate that an additional $50 million for purchasing foodstuffs may be possible.
The question is now whether we can supply the items they require but at first glance we do not appear to have anything like this to offer.