54 Letter From O'sullivan To Mcleay
5th March, 1954
I refer again to your letter of 26th January concerning Australia's commercial relations with Japan.  In the absence of a firm arrangement for discussion of this matter in Cabinet, I would like to offer the following comments.
I agree that Ministers would probably wish to consider the Interdepartmental report on Australia's trading position vis-a-vis Japan before taking any major decisions on trade policy towards Japan.
I note your view that we should authorise senior officials to take part in informal trade talks with the Japanese Embassy. I believe however that such a move should be decided in Cabinet because it would be a matter of some significance in policy. At the same time, I agree that we should correct apparent misunderstandings on the part of the Japanese Government, regarding the extent to which Australia has already relaxed the import controls on Japanese goods. I feel that this can best be done in our reply to the Japanese notes of 5th November and 14th January. 
As I see it, it would be extremely difficult (if not impossible) for our officials to restrict talks with Japanese officials to an exchange of information. The Japanese would undoubtedly press for relaxations in the import licensing controls and for undertakings in respect of the licensing treatment to be accorded to Japanese goods. The Government has already decided upon the relaxations to be introduced on 1st April and if the talks were held, our inability to accept undertakings in the licensing field could well prejudice a satisfactory outcome.
Although the Japanese Note Verbale of 5th November refers to 'an informal trade talk, I think that the Japanese would almost certainly seek to use such discussions as a prelude to negotiations aimed at securing substantial modifications in our trade policy. In this connection I would draw your attention to the following extracts from Cable No. 349 of 4th February, 1954, from the High Commissioner's Office, London:
'Japanese told the United Kingdom they proposed opening up early negotiations on trade with independent sterling area countries, and asked whether the United Kingdom would object to "special payments devices". They said what they had in mind was to negotiate agreements providing for trading on a bilateral "open account" basis with each R.S.A.  country with provision for settlement in sterling if surplus or deficit exceeded an agreed figure. They were quite frank in saying that they thought such agreements would help them to "force their exports" into Commonwealth countries with which they are in persistent deficit.' 'The Japanese also sought the good offices of the United Kingdom as banker for the sterling area, in persuading R.S.A. countries to adopt more liberal policies towards Japan in relation to Customs Tariffs and merchants' rights.'
Our officials are not at present empowered to discuss such matters of policy. They would, in fact, be in an embarrassing position when the Japanese raised them.
To my mind, the important thing at this stage is to correct any Japanese misunderstandings as to the extent of the licensing relaxations on imports from Japan over the past year. Pending submission of the full report to Cabinet on our trading position with Japan, the Interdepartmental Committee is completing a formal reply to the two latest Japanese notes. The committee proposes to include in this reply adequate details of our progressive licensing relaxations during 1953 so that the Japanese Government will be left in no doubt that the relaxations have offered them considerable scope for a greater flow of trade from Japan to Australia.