51 Minute From Shaw To Casey

10th February, 1954

SECRET

Trade with Japan The following developments have taken place regarding trade with Japan since the preparation of our submission dated 27th January, 1954. [1]

In reply to Senator McLeay's suggestion in his letter of 26th January that informal trade talks be arranged with the Japanese Embassy as a matter of urgency, the Prime Minister expressed the view that this matter should be discussed by Cabinet. A draft submission was prepared by the Department of Commerce and Agriculture for consideration by Cabinet but the Prime Minister has now decided that the matter should not go to Cabinet. [2]

We understand through Departmental channels the Prime Minister feels that, in view of recent publicity [3], Cabinet might be unduly cautious in considering questions relating to Japan before the elections and is anxious for the present to avoid raising issues which might possibly be contentious.

In the light of the Prime Minister's views, the interdepartmental Committee preparing a report on Japan's trading position (the Committee comprises representatives of the Departments of Commerce and Agriculture, Trade and Customs, Treasury and National Development) agreed at a meeting on 9th February that completion of the report should not now be regarded as a matter of urgency.

Moreover Treasury suggested that Japan's sterling position was not yet critical since United States aid was continuing and Japan could swap dollars for sterling. It was decided to amend the draft conclusions of the report and take account of the Treasury view.

It was thought that the report might be ready for consideration by Cabinet in two weeks to a months time. We understand that one of the conclusions of the report is that Japan might well be placed in the same import licensing basis as other non-dollar countries.

The interdepartmental Committee apparently does not, however, see any prospect of this being done before 1st July, 1954.

We understand that the Department of Trade and Customs propose to recommend a further general relaxation of import licensing restrictions to take effect from 1st April and at the same time to recommend further relaxations on imports from Japan.

The consideration of matters affecting trade with Japan is now being treated as highly confidential.

As regards a reply to the outstanding Japanese notes, the Department of Trade and Customs are preparing as a matter of urgency a redraft for circulation to Departments concerned. There appears to be agreement among the Departments that this reply should be as helpful as possible, within the limits of existing Government decisions, and that details should be given on the extent of previous relaxations and on current administrative policy. As regards informal talks, the view is strongly held by Trade and Customs, Treasury and National Development that nothing can be done to meet the Japanese request at this stage. It is, of course, understood that Mr Nishi might be asked to receive our reply to his aide memoire of 14th January, 1954, and that some remarks would necessarily be made at the time by the Secretary or Assistant Secretary of this Department. (A reply should also be made to our Embassy in Tokyo in response to the note of 5th November, 1953, from the Japanese Ministry of Foreign Affairs).

You will be aware that, following the conclusion of the sterling payments agreement between the United Kingdom and Japan on 29th January, 1954 [4],(see attached copy of Commonwealth Relations telegram No. 4 of 29th January) the New Zealand Government has announced its willingness to enter into bilateral trade talks with Japan. In this regard, Mr Nishi informed the Secretary in the course of a courtesy call on 5th February that Japan now proposed to work out detailed trade arrangements with sterling area countries to fit into the general framework of the overall sterling area payments arrangement.

Under the circumstances it is doubtful whether action at present proposed will go far to meet the wishes of the Japanese authorities.

1 A long submission signed by Shaw and Upton noting that a report on Japan's trading position being prepared for Cabinet by an interdepartmental committee would not be ready for some time, and that a draft reply to Documents 46 and 48 by Trade & Customs was being amended after discussions with the departments concerned.

There was little hope of early agreement to trade talks, although the negative tone of the draft reply had prompted the Department of Commerce & Agriculture to recommend that McLeay urge immediate agreement. His proposal was likely to be favoured by the departments of National Development and Prime Minister, but opposed by Trade & Customs and not favoured by Treasury until the wider issues of Japanese trade had been considered. The submission recommended that DEA support early dispatch of the redrafted response, and seek membership of the interdepartmental committee, in view of the overriding importance of removing an irritant in relations with a powerful neighbour, of keeping Japan in the Western trade orbit and preventing her adopting prewar 'bad practices' such as dumping and subsidies.

2 See Document 50 and note 5 thereto.

3 A US proposal to use Japanese technicians for a survey, under the ANZUS Pact, of waters around New Guinea and New Britain had drawn widespread hostility in Australia late in January.

4 The agreement was extended for a further year until 31 December 1954. Japan had ended 1953 with a substantial sterling deficit on current account; the United Kingdom undertook to help Japan earn sterling by measures including partial relaxation of United Kingdom import restrictions.

[AA : A1838/278, 3103/10/2, iii]