Your 209. E.C.A.F.E. and Japan.

The questions raised by the Industrial Working Party are
difficult. We have not yet received the report itself, but from
your summary it would appear that the report adopts many of the
principles which Dr. Evatt has called for in the Japanese peace
settlement, for example in Tokyo on 30th July and on other
occasions when he has said that the peace settlement should help
to co-ordinate the Japanese economy with the economies of the
Pacific and East Asian regions. Moreover, we appreciate that the
industrial potential etc. of the E.C.A.F.E. region cannot be
considered adequately without taking Japan into account. In any
discussion of the points raised by the Working Committee you
should not allow yourself to be forced into a negative or
defensive position. Opportunity should be taken to restate the
general policy of the Australian Government towards Japanese
recovery along foregoing lines. We believe too that Japanese
standards of living and levels of production should not be
deliberately depressed except for such controls as are necessary
in the interests of allied security, but at the same time Japan
should not be given preference over the other countries of the Far
East in import of raw materials and in general economic
assistance.

2. However, we would not wish E.C.A.F.E. to make recommendations
or adopt proposals which are opposed to decisions by the Far
Eastern Commission or which usurp the function of F.E.C. For
example, it is impossible to estimate Japan's capacity to produce
and export capital goods and Japan's need for raw materials until
Japanese level of industry has been decided, which is a matter for
F.E.C. Similarly, decision on the volume of reparations from Japan
is matter for F.E.C. It would in our view be premature to
establish machinery to work closely with S.C.A.P. in coordinating
development of E.C.A.F.E. region with Japanese economy. If
E.C.A.F.E. wishes to make recommendations on Japan to an outside
body, they should be made to F.E.C., with a view to assisting that
body in reaching early and satisfactory decisions. Such
recommendations should be in general terms, possibly along lines
of Working Party's report, and should not go into details or
discuss specific levels of Japanese production. There is a danger
that E.C.A.F.E. might give too much emphasis to building up Japan
as an industrial supplier in the immediate future, and might
weaken influence in F.E.C. of countries such as Australia, New
Zealand, and United Kingdom which must give full weight to
security and other long-term considerations. On all foregoing you
should keep in close touch with your British Commonwealth
colleagues.

3. Working Party recommends discussion of financial arrangements
for facilitating trade with Japan. Principle of resuming trade
with Japan has already been agreed to by F.E.C. Talks with
S.C.A.P. by some countries of the sterling group (including
Australia) will take place in Japan in the middle of June and
until those talks are concluded it would be preferable for no
detailed E.C.A.F.E. discussions to take place on subject of
financial arrangements. [1]