Reference my telegram 294 and memorandum 598 of 15th May. [1]
Japanese Note Verbale on trade.

I have been giving this question careful consideration and feel
strongly that an early positive response to Japanese
representation is needed, both on economic and on political
grounds.

2. Recent trade figures reveal exceptional lack of balance
following the virtual collapse of Japanese exports to Australia.

According to Japanese statistics imports were (Stg.)47 million
and exports (Stg.)l3 million in calender 1952 leaving an adverse
balance of (Stg.)34 million. In the first four months of 1953 the
Japanese imported (Stg.)24,600,000 and exported only
(Stg.)675,000 leaving an adverse balance of nearly (Stg.)24
million. Unless the trend is modified this year, the adverse
balance will be so dramatic that the Japanese Government, being
short of sterling, will be under great pressure to reduce
purchases from Australia. There are already some signs of this in
the purchase of 18,000 bales of wool from Brazil and earmarking of
dollars [2] 20 million for wool purchases in the Argentine.

Moreover, a reduction in exchange allocations for food imports has
been forecast which might affect our barley exports, despite
existing arrangements.

3. There is already some feeling over this situation in the
Ministry of International Trade, and the Foreign Ministry, and in
the absence of any reply from us to their latest Note Verbale it
will be increasingly difficult to maintain the friendly
cooperation of Japanese Officials with the Embassy on the
commercial and economic sides.

4. Australia's trade policy in relation to Japan should take
account of the broad political objective of keeping Japan in the
non-Communist bloc as well as purely economic considerations. Most
observers here agree that future political trends in Japan are
bound to be influenced by attitude of non-Communist countries
towards their trade with Japan.

5. I should like to suggest for consideration by the Government
that we might agree to hold informal talks of an exploratory
nature directed towards establishing in the first place the
particular commodities which the Japanese feel should have a
larger place in the Australian market, the prices at which they
are offered, and the extent to which existing restrictions are a
serious obstacle to their exportation. Before the beginning of
such talks it should of course be made clear that we would not
expect our trade account to balance bilaterally and that any
subsequent steps to facilitate Japanese exports must take account
of the sterling area's exchange position as well as the needs of
our own industries. But to put off the Japanese request for talks
indefinitely would be short-sighted from both the political and
trade viewpoints.