Your telegram 182 [1] Trade Negotiations with Japan.

We have given careful consideration to the points made in your
telegram and are particularly glad to note your renewed assurances
that you will be able to provide us with considerably greater
supplies of steel during 1950. We shall look forward to receiving
more precise information on the quantities which will be available
when your 1950 steel export programme has been finally settled.

2. At the same time it would seem to us from your message that the
nature of our difficulties in accepting at this stage the reduced
import figures set down for Australia in the Tokyo Trade Plan may
not be fully appreciated. For practical purposes our 1949/ 50
purchases from Japan are governed by the value of import licences
issued during the licensing year running from 1st April, 1949 to
31st March, 1950. More than half of this period has now elapsed.

In view of our commitments under licences already issued, we could
keep our 1949/50 purchases within the reduced Trade Plan figure
only by a most drastic reduction in the rate of issue of licences
from now until 31st March, 1950.

3. We should have to refuse licences not only for urgent steel
requirements but also for other essential goods which are not
available from the United Kingdom or other sterling or easy
currency sources.

4. In assessing at stg600,000 the amount by which the licensing
quotas available to us for the next two quarters will fall short
of our needs to meet essential requirements, no allowance was made
for price increases in terms of sterling resulting from
devaluation. An increase of stg600,000 in our Trade Plan
allocation would nevertheless do much to ease the situation.

5. We recognise the importance of securing S.C.A.P.'s firm
acceptance of the Financial Memorandum together with the Trade
Arrangement as early as possible. As we had not intended to
suggest an increase in total Sterling Area purchases under the
Trade Arrangement, but merely to seek a relatively minor
readjustment of the division of purchasing power between the
Sterling Area participants, we are today despatching instructions
to our representatives in Tokyo authorizing them to sign the Trade
Arrangement on behalf of Australia. [2]

6. We have taken this decision on the understanding that it will
not prejudice further consideration of the adjustment of the
purchasing programmes of the Sterling Area participants and would
propose that this be examined further by convening a special
Working Party in London where all Governments concerned are
represented. 7. In pressing for this further review we are not
unmindful of the special needs and position of the Colonies. We
feel, however, that there is no reason to regard the division of
purchasing power made in Tokyo as final or rigid. Task of the
Working Party there was complicated by devaluation, the effects of
which could not be immediately assessed, and, as you point out,
there has since been a new factor brought into the situation by
S.C.A.P.'s removal of floor prices for Japanese exports. On the
face of it, this seems much more likely to result in a reduction
in prices for cotton textiles than for the steel and other metal
products which bulk so largely in our own programme.

8. It has always been recognised that provision would need to be
made for consultation between the Sterling Area participants if
difficulties arose in keeping to the allocations made in the Trade
Plan for individual countries. In view of the surplus which
Australia contributed in 1948/49 and the fact that, even if our
1949/50 programme is adjusted as we have proposed, it is likely
that we shall again contribute a small surplus in 1949/50 we do
not feel it unreasonable to request other participants to re-
examine the 1949/50 allocations with us to see if some means can
be found of relieving at least to some extent the difficulties
with which we shall be faced in meeting our minimum essential
needs during the remainder of the current period.

9. We should hope that you would feel able to agree to converting
of Working Party in London immediately following formal signature
of the Trade Arrangement in Tokyo.