Your telegram 49.

Trade with Japan.

Text of S.C.A.P. memorandum 091.31 (February 14th, 1948) ESS/FT,
is as follows. 1. The proposal of the Government of the
Commonwealth of Australia that private trade between the
Commonwealth and Japan be reactivated [1], is received with
pleasure. It is understood that the Government of the Commonwealth
of Australia will permit import licences for Japanese goods to
minimum value of A.2 million for calendar year 1948, providing
such export proceeds as Japan will accrue will be used for
purchase of Australian exports over the same period. This proposal
is accepted. Japan's raw material requirements procurable in
Australia can substantially exceed the A. 2 million referred to
above. Full assurance is given that Japanese purchases in
Australia in 1948 will be at least equivalent to computed
Australian purchases in Japan. Under these circumstances the
question of the Commonwealth having to convert to dollars a
balance will not arise.

2. It is desired that the Government of the Commonwealth of
Australia make available at the earliest possible date outstanding
debt of the Commonwealth to Japan for previous raw silk and rayon
purchases. The proposal that these funds be deposited in the
Commonwealth Bank of Australia where they may be freely drawn upon
for purchases of wool for Japan is desired so that immediate
access may be had to these funds. [2]

3. This understanding is regarded as an important step towards
restoration of normal commercial relations between Japan and
Australia. Subsequent developments it is hoped will make possible
modification of views of the Government of the Commonwealth of
Australia that trade with Japan must be balanced. One of the more
important objectives of sterling based currency agreement was
substitution of a multilateral trading system-sterling area-for
bilateral method of trading between Japan and individual
countries. Therefore we propose re-opening the subject of wider
and multilateral trading system as soon as possible and this
present understanding with Australia is regarded as an interim
measure.