Your telegram 71 [1], 72, and 106. Proposed Sterling Area Trade
Agreement with SCAP
1. We have given consideration to prospective level and
composition of trade between Australia and Japan on the assumption
that overall Sterling Area trade agreement including cotton
textiles can be reached. Our conclusions which are necessarily
very tentative at this stage are set out hereunder.

Imports
2. Our approach to the examination of our import requirement from
Japan has been based on the view that, provided an agreement can
be reached that win avoid loss of gold or dollars, it would be to
our common interest to develop Japan as a source of supply of
essential industrial and consumer goods, particularly of types
which could otherwise be obtained only from hard currency sources.

We should not, however, contemplate issuing licences for Japanese
goods of a non-essential nature.

[matter omitted] [2]

Exports
6. With regard to exports you will know that the principal
commodity involved is wool. There may be some sales of other
items, for instance, salt and raw material for shell and bone
buttons, but wool has been the central item in our negotiations
for Australian exports to Japan. When wool requirements were
discussed as far back as 1946, we informed SCAP that 120,000 bales
per annum could be made available at that time, and last year,
when our wool mission visited Japan, SCAP was advised that
Australia could meet his demands for Australian wool up to the
maximum quantity required. Up to the present, however, we have no
dear idea of the quantity of Australian wool which will actually
be purchased by Japan. Only one shipment of wool, totalling 7,500
bales, has been made to Japan since the end of the war. SCAP's
Chief Wool Procurement Officer, Max B. Laupheimer, is now in
Australia making arrangements for further purchases of wool
totalling about 50,000 bales, which would be worth say A2
million, the amount we suggested as the basis of our bilateral
agreement with SCAR The initial wool purchases will be made with
the credits we have paid into SCAP's two accounts (No's 4 and 5)
in London. Laupheimer cannot furnish an estimate of SCAP's future
wool purchases from Australia, but he mentioned that SCAP's total
annual requirements will probably be about 200,000 bales, drawn
from South Africa, New Zealand, South America and Australia. You
will understand that (quite apart from financial considerations)
we regard it as important from a marketing viewpoint that the
export of Australian wool in quantity to Japan should be resumed
as quickly as possible.

Objectives of proposed Sterling Area Agreement and Procedure
7. In general we take it that objective of the proposed agreement
Will be to promote high level of two-way trade between Japan and
Sterling Area on a basis that win avoid dollar drain. We are
inclined to feel, however, that it will not be practicable to
achieve this objective by incorporating in the agreement schedules
of agreed minimum purchases to be made by the parties concerned as
appears to be suggested in your 71. So far as we are concerned,
trade will be conducted through private channels and we should not
feel able to guarantee that purchases by private importers would
reach any particular level.

8. It would seem to us that key provision of the proposed
agreement should be an undertaking by SCAP that full amount of
proceeds of Japanese exports to sterling countries participating
in the Agreement would be spent on imports into Japan from those
countries as a group. An undertaking of this kind would overcome
the difficulties created by the convertibility clause in the
proposed overall payments agreement and, in view of the fact that
trade agreement will be initially limited to a twelve month
period, there would seem to be no risk to SCAP in giving such an
undertaking. Our own bilateral agreement is, of course, based on a
similar undertaking by SCAR

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