I have the honour to inform you that, when your Government
introduced last April the 25% reduction in the import permits for
cotton piece goods from non-sterling countries, including Japan,
to take effect for the three months ending 30th June, 1941, I
addressed a letter on 7th May last to the Minister for Trade and
Customs [1], inviting his attention to the letter addressed by his
predecessor (Senator McLeay) to the then Consul-General for Japan
[2] under date of 21st June, 1940, in which it was stated that the
Commonwealth Government would endeavour to ensure the maintenance,
for the financial year 1940-41, of the value basis established by
importations in the year 1938/39. I also informed the Minister for
Trade and Customs that this information was conveyed at that time
to the Japanese Government, thus enabling the interests concerned
in that country to book orders and plan their business ahead
accordingly, and that the recent reduction in import permits had
therefore caused a great deal of disturbance to those interests.

For this reason, I requested the Minister's favourable
reconsideration of the import restriction on this particular
commodity with a view to the maintenance of the basic value at
least to next July.

A reply to these representations was received by me from the
Minister for External Affairs under the date of 5th June, 1941
[3], drawing my attention to the fact that the statement of
Senator McLeay to which I referred in my letter of 7th May could
not be construed as, in any sense, an assurance that the
Commonwealth Government would in all circumstances maintain
permitted imports of piece goods at the level determined by the
value of importations in 1938-39. In informing me further that my
representations could not be acceded to, because of the position
of the foreign exchange funds of your country, the Minister stated
that he felt it necessary to add that, in the emergency which now
exists, the trend is in the direction of a more severe rationing
of unnecessary imports rather than towards any alleviation of the
restrictions already in force.

I should like to say, in this regard, that my abovementioned
representations were made, not because I have interpreted Senator
McLeay's statement as having given any assurance concerning the
present matter, but because of the due weight attached by the
Japanese Government to his statement in question, which was
generally regarded as one party's undertaking in a sort of
gentlemen's agreement, and also because of the fact that sudden
reduction of imports of cotton piece goods by 25% naturally caused
no little surprise and disturbance to all those concerned.

I can well understand that wartime trade controls entail business
dislocations in the industries affected. At the same time I am
firmly of the belief that the maintenance of trade with other
countries to the fullest possible extent is a sound policy, for
the reason that it minimises the dislocation of the economic
structure in the respective countries and also serves to secure a
source of available funds for essential materials for a time of
emergency.

Should our consideration be limited to the plane of purely
economic matters or to direct economizing by the sole means of
cutting down imports, our trade may simply dwindle On both sides,
until it becomes eventually a negligible quantity. I firmly hold
the view that whatever may be the situation now prevailing, the
social and economic relations between Australia and Japan are
destined, not merely on account of the geographical situation of
the two countries, but because of the world wide trend towards the
further conquest of time and distance, to become increasingly
closer, and, therefore, it is my belief that adequate steps should
be taken now to endeavour to pave the way for the day to come. I
therefore greatly appreciate your kind invitation to set out my
frank opinions on this matter of our mutual trade, and I am
accordingly addressing this letter to you, the contents of which,
I understand, you will, if you deem it advisable, be good enough
to bring before the Cabinet.

I am particularly desirous of being informed by you of the
fundamental policy of the Commonwealth Government in regard to the
trade relationship between Australia and Japan-a relationship
which is no longer that pertaining to a time of free trade economy
but is under more or less rigid governmental control on both
sides. Under such regimentation, it will easily be seen that,
particularly in the case of such commodities as are being exported
by Japan to Australia which are almost all manufactured or semi-
manufactured goods, and many of which are manufactured mainly or
partly from imported raw materials, it is essential that some
outline, even if only a very rough one, of the items and quantity
or value of the commodities to be permitted importation during a
certain period of time should be made available so that the
interests concerned may draw up a plan for the carrying on of
their business. Only thus is such action as the keeping of the
market prices at a reasonably stabilized level or the maintenance
of an orderly and continuous flow of goods to the market possible.

For the foregoing reasons, I should like to know whether your
Government is ready to entertain the idea of entering into some
practicable form of Trade Agreement between our two countries,
which will not always be expected to be binding on us in a legal
sense, though to a large extent it will be so morally. I shall be
very glad to hear from you your views on the abovementioned matter
at the earliest possible date.

TATSUO KAWAI