Extracts 17 August 1948

REPORT BY AUSTRALIAN DELEGATION ON MADE CONFERENCE IN TOKYO-
JULY/AUGUST, 1948

1. This Report covers matters of policy and general interest in
relation to the proceedings of the Conference and has been divided
for convenience under the following headings. Detail has been
emitted as far as possible and questions of Departmental concern
will, where necessary, form the subject of separate reports by
individual members of the Delegation:-

A. Purpose and Scope of the Discussions.

B. Draft Trade Arrangement.

C. The Trade Plan.

D. Sterling Area Participants.

E. Entrepot Trade.

F. Scajap Shipping.

G. Memorandum of Understandings reached by Sterling Area
Representatives.

H. Recommendations.

A. PURPOSE AND SCOPE OF THE DISCUSSIONS
2. The main purposes of Australia's representation at the
Conference were:

(a) to secure the inclusion of cotton textiles in the Overall
Payments Arrangement;

(b) to limit the practical application of the convertibility
clauses of the Overall Payments Arrangement by an arrangement for
balanced trade;

(c) subject to (a) and (b) to assist in raising the levels of
trade between the Sterling Area and Occupied Japan consistent with
government policy towards that country; and
(d) to strengthen the use of sterling as a medium of exchange in
Far Eastern trade.

3. The negotiations have taken place against a background of
problems with which the Occupation Authorities are faced in
building up an economy essentially different from that of prewar
Japan. It is difficult to over-emphasise these problems, amongst
the most important and immediate of which is the re-establishment
of external trade on the broadest practicable basis. Without this
it is impossible to place Japan on a self-supporting basis and
avoid the heavy drain of financial and material aid at present
necessary for the subsistence of the Japanese people. In view of
the political situations in the East, the implications of failure
in Occupational responsibilities are obvious.

4. The major part of Japan's trade, particularly in textiles, must
be conducted with the Sterling Area. An Interim Payments
Agreement, based on sterling, was effected in 1947 [1] and was
superseded by an Overall Sterling Payments Arrangement on 29th
May, 1948. [2] This Arrangement set out the means agreed upon
between the countries of the Sterling Area and SCAP for the
settlement of financial transactions resulting from trade between
the Sterling Area and Occupied Japan.

5. Whilst the Overall Payments Arrangement would have permitted
the reestablishment of trade on the moderate basis of exchange of
essential goods, the right of SCAP to convert sterling balances to
dollars at 6-monthly intervals and on the termination of the
Arrangement, together with the exclusion of cotton textiles (the
sale of which remained on a dollar basis), would necessarily have
had a very limiting effect.

6. In order to relate the Overall Payments Arrangement to the
draft Trade Arrangement it is necessary to recall that the Overall
Payments Arrangement may be terminated-
(a) in the event of a proclamation of a Treaty of Peace between
the Allied Powers and the Japanese Government;

(b) upon three months' notice in writing given by either party.

7. The Overall Payments Arrangement stipulates the manner in which
the liquidation of any sterling balances shall be carried out upon
termination of the Arrangement and provides for an over-riding
right of conversion by SCAP in the event that such conversion is
necessary for the protection of the foreign exchange assets of
Japan or for the conduct of Japanese foreign trade.

8. The proposed Trade Arrangement is complementary to the Overall
Payments Arrangement, but cannot add to or subtract from any of
its provisions. This point is important when dealing with the
question of long term contracts entered into by members of the
Sterling Area for the supply of goods from Occupied Japan.

9. In formulating the provisions of the Trade Arrangement
attention has necessarily been paid in full to the limiting
clauses of the Overall Payments Arrangement and the need to take
cognisance of the hard currency implications in any contract
extending beyond a period of three months.

B. DRAFT TRADE ARRANGEMENT
10. The clauses of the draft Trade Arrangement are for the most
part self-explanatory and should provide no difficulties of
interpretation. The draft was prepared by the Sterling Area
representatives after exhaustive discussions on every point, and
minor drafting amendments only were suggested by SCAP
representatives.

11. The following are brief comments on certain clauses:-

Paragraph 1

[matter omitted]

(c) Sterling Area representatives insisted on the inclusion of
cotton textiles in the Overall Payments Arrangement as a
prerequisite to any agreement on trade. SCAP's press release of
25th July, 1948, announcing that it had been decided to amend the
Overall Payments Arrangement in order to include cotton textiles,
was the direct result of this approach. The phrase 'as amended'
appearing after '31 May 1948' refers to the inclusion of cotton
textiles.

[matter omitted]

Attachment
FINAL DRAFT 11 August 1948
MEMORANDUM FOR: The Representatives of the Commonwealth of
Australia,
(the Dominion of India), the Dominion of New Zealand, the Union of
South Africa, and the United Kingdom and its Colonies.

SUBJECT: Trade Arrangement between Certain Countries in the
Sterling Area and Occupied Japan
1. The Representatives of the Commonwealth of Australia, (the
Dominion of India), the Dominion of New Zealand, the Union of
South Africa, the United Kingdom and its Colonies, excluding Hong
Kong, hereinafter referred to as the Sterling Area Participants
and constituting collectively one of the two parties to this
Arrangement), having discussed with the Representatives of the
Supreme Commander for the Allied Powers (constituting the other
party) the measures which might usefully be adopted with the
intention both of expanding trade between the Sterling Area and
Occupied Japan, and of balancing it at the highest practicable
level, have agreed to adopt the Trade Plan (attached as Tab A) on
the following basis:

a. This Arrangement pertains to the period extending from 1 July
1948, to and including 30 June 1949 and extends to all
transactions relating to the purchase and sale of goods in respect
of which contracts entered into prior to or during the period
provide for shipment to be effected within the period. It also
covers services tendered during that period.

b . The Sterling Area Participants are those listed in Tab B,
attached hereto. It is understood, however, that other countries
in the Sterling Area may accede to this Arrangement subject to the
approval of both parties.

c. All trade shall be conducted on a sterling basis in accordance
with the terms and provisions of the Overall Payments Arrangement
in force between the Supreme Commander for the Allied Powers and
the Sterling Area since 31 May 1948, as amended. However, entrepot
trade, as defined in Tab C [3], attached, shall be conducted in
accordance with the terms and provisions indicated therein.

d. Trade may be carried on through both government and private
channels.

e. The attached Trade Plan, without being restrictive in any way,
represents, in the light of the best information available at the
present time to the two parties to this Arrangement, the volume of
trade which may be expected to flow between the Sterling Area and
Occupied Japan during the period of this Arrangement and the
character it is most likely to assume.

It is emphasized that the Trade Plan is not intended to constitute
a commitment, binding on either party, that trade will in fact
attain the proportions or assume the character indicated therein;

rather does it represent a reasonable computation made in good
faith of the volume of sales and purchases likely to result from
the desire of the two parties to the Arrangement to develop trade
between them to the highest practicable level.

Subject to these considerations, both parties will facilitate in
every way the sale and purchase of goods and services as specified
in the attached Trade Plan. f Having regard to the principle that
trade between them is to be balanced at the highest practicable
level, each party to this Arrangement undertakes, in respect of
the period covered by the Arrangement, to expend on imports from
the other party the full amount of the proceeds from exports to
that party, taking into account the provision made in Tab A for
the net requirements of Sterling Area Participants in the Overall
Payments Arrangement who are not listed in Tab B.

g. Should there be reason for either party to this Arrangement or
any individual Sterling Area Participant to believe, at any stage
that the volume and character of sales and purchases contemplated
in the Trade Plan are not likely to materialize, the parties
concerned will consult together to ensure that any modification of
the Trade Plan that may be found necessary protects those
interests to which either party attaches special importance in
relation to the supply of raw materials and/or acquisition of
manufactured goods.

h. Special machinery will be established, in common accord, to
ensure that accurate and up-to-date information will be available
to both parties in respect of the operation of this Arrangement
and to ensure the implementation of the Trade Plan generally.

i. Each party hereto will do everything feasible to ensure
compliance with the export-import controls, exchange controls and
such other controls that pertain to international trade as may be
in force and effect from time to time in the areas under the
control of the other.

2. Both parties recognize the importance of reestablishing trade
through private channels. It is, therefore, agreed that the
parties will take all steps consistent with established policies
to facilitate the reestablishment of pre-war commercial activities
or the establishment of new ones.

3. This Arrangement shall lapse automatically with, and at the
same time, as the Overall Payments Arrangement, should the latter
Arrangement be terminated on or before 30 June 1949. It is
understood that, upon termination of this Trade Arrangement,
transactions referred to in paragraph 1a above, but partly or
wholly unfulfilled, shall be brought into account in arriving at
any settlement under the Overall Payments Arrangement.

4. The trading position between the Sterling Area and Occupied
Japan Shan be reviewed generally by the parties to this
Arrangement not later than 15 January 1949.

5. This Arrangement shall be effective upon formal concurrence of
the Sterling Area Participants.

Tab A

STERLING AREA-OCCUPIED JAPAN TRADE PLAN

1 July 1948-30 June 1949

Summary

Sales by Sterling Area [a] Purchases by Sterling Area [a]

Area ($ Values CIF Japan) ($ Values FOB Japan)
UK and Colonies $46,723,000 $54,423,000 [b]

Australia 19,650,000 18,500,00
India 28,525,840 26,338,721
New Zealand 2,500,000 2,500,000
South Africa 8,191,000 6,768,000
108,529,721
For Internal Allocation:

Cement 810,000
Lithopone 40,000
105,589,840 [c] 109,379,721

Reserve Purchasing Pool 12,210,119 [d]

Estimated Balance of
Indian Open Account 12,000,000 [e]

Estimated Balance of
UK Open Account 4,000,000 [e]

TOTAL $ 121,589,840 $121,589,840 [4]

a As stated in the Memorandum of Understanding, this Trade Plan is
not intended to be exclusive. The Sterling Area Participants, in
making any additional purchases from Japan will seek to include,
according to availability, zinc, copper, semi-manufactured metal
products, caustic soda, cement, cotton textiles, steel scrap,
steel sheets, canned food, agar agar, oak and plywood, woollen and
worsted yarn, raw silk, porcelain and enamel ware, etc. SCAP, for
his part, has expressed an interest in obtaining from the Sterling
Area additional supplies of raw cotton, raw wool, sisal tow,
fodder and foodstuffs, iron ore, pig iron, lead, manganese ore,
mica, petroleum coke, crude rubber, coal, salt, antimony ore,
graphite, magnesite, oils and oil bearing materials, tinplate,
coal, hides and skins, cereals, ground nuts, etc.

b Includes $44,000,000 estimate for cotton manufactures.

c Invisibles; e.g., freight in respect of deliveries in sterling
bottoms from third countries
to Japan (other than Mediterranean salt freights) are not included
in the above figures.

Any additional balances arising from net accruals from such
invisibles will be utilized by the Sterling Area Participants on
additional purchases from Japan. In cases where commodities are
sold by the Sterling Area to Japan on an FOB basis (with the
exception of oil, which is already shown FOB) the values on the
Sterling Area sales side of the Trade Plan will be reduced
accordingly.

d This balance will be available for additional purchases of
Japanese goods by Sterling Area Participants in the Trade
Arrangement and to cover the net requirements of Sterling Area
Participants in the Overall Payments Arrangement who are not
participants in the Trade Arrangement.

E Subject to readjustment in accordance with final statement.

Tab B

STERLING AREA TRADE ARRANGEMENTS PARTICIPANTS

For the purpose of Sterling Area Trade Arrangements discussions
the 'Sterling Area' is defined as:

A. United Kingdom and Colonies as follows:-

United Kingdom of Great Britain and Northern Ireland
Aden (Colony and Protectorate)
Bahamas
Barbados
Basutoland
Bechuanaland Protectorate
Bermuda
British Guiana
British Honduras
British Solomon Islands Protectorate
Cyprus
Falkland Islands and Dependencies
Fiji
Gambia (Colony and Protectorate)
Gibraltar
Gilbert and Ellis Islands Colony
Gold Coast
(a) Colony
(b) Ashanti
(c) Northern Territories
(d) Togoland under U.K. Trusteeship
Jamaica (including Turks and Caicos Islands and the Cayman
Islands)
Kenya (Colony and Protectorate)
Leeward Islands
(a) Antigua, with Barbuda and Redonda
(b) St. Christopher and Nevis, with Anguilla
(c) Montserrat
(d) The Virgin Island, with Sombrero
Malay States (Malayan Union)
(a) Negri Sembilan
Pahang
Selangor
Perak
(b) Johore
Kedah
Kelantan
Perlis
Trengganu
(c) Penang
Province
Wellesley
Malacca
(d) Brunei
Malta
Mauritius
New Hebrides (administered as a British-French Condominium)
Nigeria
(a) Colony
(b) Protectorate
(c) Cameroons under U.K. Trusteeship
North Borneo
North Rhodesia
Nyasaland Protectorate
St. Helena and dependencies
Sarawak
Seychelles (Colony and Protectorate)
Singapore, the Cocos-Keeling Islands and Christmas Island
Somaliland Protectorate
Southern Rhodesia
Swaziland
Tanganyika Territory
Tonga
Trinidad and Tobago
Uganda Protectorate
Windward Islands
(a) Dominica
(b) Grenada
(c) St. Lucia
(d) Vincent
Zanzibar Protectorate

B. British Self-Governing Dominions
Australia
New Zealand
South Africa

C. Observers
India