TRADE NEGOTIATIONS WITH JAPAN

1. We are informed by your High Commissioner's Office that the
Australian Government is pressing for additional purchasing power
of 600,000 to cover essential steel requirements and we learn
that the Australian Representative has also raised this with the
Working Party in Tokyo.

2. We appreciate that steel is a particularly important
requirement for Australia at the present time and the Australian
Government will remember that in recognition of this
Representatives of other participants in Tokyo accepted during
negotiations two separate upward revisions of Australian essential
import programme to allow for further steel purchases which raised
the category a figure from the original of dollars twelve million
to dollars twenty million (at the old rate of exchange [1]).

3. We very much regret that the Australian Government have felt it
necessary to re-open once more the whole question of division of
purchasing power at this stage and we would urge them most
strongly to reconsider their position in the light of the
following arguments:-

(A) If Australian claim were to be conceded it would almost
certainly lead to similar claims from other participants who would
of course have to be consulted. This in turn would re-open the
whole question of division. As S.C.A.P. is already pressing our
representatives in Tokyo for earliest possible signature of
arrangement, any development of this kind would be open to serious
objection. We ourselves are particularly anxious to finalize as
soon as possible since the financial memo which guarantees on
behalf of the Supreme Commander the non-convertibility of 10
million of S.C.A.P.'s sterling holding is also awaiting signature
with the trade arrangement itself. We need not emphasize the vital
importance to all participants of securing formal signature of
this guarantee at the earliest possible moment;

(B) It will be appreciated that since the original division took
place position has been altered by S.C.A.P.'s decision to remove
Japanese floor prices. It can be assumed that this will lead to
the reduction of Japanese selling prices and will mean that
purchasing power available to individual participants will go
further. It is by no means impossible that the drop in prices will
be sufficient to allow Australia to fulfil the complete purchasing
programme of essentials without the adjustment which the
Australian Government has suggested;

(C) The United Kingdom and Colonies have been no more liberally
treated than other participants. Indeed on the basis of stated
essential requirements the United Kingdom Colonies are to receive
proportionately less;

(D) The deficit in current trade with Japan which the working of
the trade arrangement makes possible for Colonies is in effect
recognition of their special position as net dollar earners for
the sterling area as a whole. Whereas Australia may buy essential
requirements from the United States, the Colonies buy from Japan
since their main need is cheap cotton textiles;

(E) In recognition of the Commonwealth's pressing need for steel
supplies the United Kingdom Government is making strenuous efforts
to provide an appreciable increase in steel exports to the
Commonwealth in 190. It is not yet possible to give any exact
figure of the amount the United Kingdom can undertake to supply to
Australia. Figures for next years programme have still to be
finally settled but in accordance with the assurances given at the
Finance Ministers meeting [2] considerably greater supplies than
last year can be expected;

4. It is hoped that the above arguments, particularly the promise
of increased steel supplies from the United Kingdom and very
urgent need in the interests of Japan Sterling Area trade for
earliest possible signature of financial memo with trade
arrangement, will induce the Australian Government not to press
for an increased share of purchasing power. Grateful for very
early reply.