Agreement has now been reached in Tokyo on the details of the
Japan-Sterling Area Trade Arrangement for 1949/50. The final
draft, copy of which is attached, represents a continuance of the
principles embodied in the 1948/49 arrangement.

You will be aware that Australia's allocation for purchases from
Japan has been fixed at Stg. 4.96 million and of the steps that
have been taken to obtain an increased allocation for Australia.

The present position is that the principal negotiators have left
Tokyo and Mr. V.A. Clark of my Department has been asked to reopen
the question in London with a view to obtaining an additional
A750,000 which is regarded as the minimum necessary to meet our
essential needs.

Despite this unsatisfactory aspect I do not think that Australia's
formal acceptance of the arrangement should be withheld. The
question of reallocation is essentially one for the sterling area
participants and does not involve S.C.A.P. Apart from this feature
the proposed arrangement is generally satisfactory and should do
much to expand and facilitate trade between the parties. Although
we will have to place severe restrictions on the issue of licences
for the remaining two quarters of 1949/50, we have in fact already
issued licences this year for a greater value of goods than was
obtained during 1948/49-
I therefore feel that our best course is to formally approve the
arrangement with S.C.A.P., but should Mr. Clark's endeavours in
London be not immediately successful we could inform the United
Kingdom that in endorsing the arrangement we reserve the right to
continue to press for an additional allocation adequate to our
essential needs. Nothing is to be gained by further delaying
implementation of the plan as a whole.

I have consulted our colleague the Minister for Commerce and
Agriculture who has estimated that Australian exports to Japan
will reach Stg. 6 million during 1949/
50. He has no objection to the plan insofar as it affects his
administration. Therefore if you concur in my suggestion I will
arrange for the Department of External Affairs to authorise the
Australian Mission in Tokyo to sign on Australia's behalf as soon
as we know the results of Mr. Clark's efforts. Should they not be
successful in the first instance I will arrange the despatch of a
telegram to Crosec [1] in accordance with my suggestion above.

The negotiatiors in Tokyo have prepared a press statement, vide
Tokyo telegram 357 of 12th October announcing the end of the
talks. This statement when released will give the main features of
the arrangement but it would be desirable to make a farther
statement, when formal acceptance is announced, elaborating on
those aspects directly affecting Australia. I am having a suitable
statement prepared which I will forward to you as early as
possible. [2]