I refer again to your letter of 26th January concerning
Australia's commercial relations with Japan. [1] In the absence of
a firm arrangement for discussion of this matter in Cabinet, I
would like to offer the following comments.

I agree that Ministers would probably wish to consider the
Interdepartmental report on Australia's trading position vis-a-vis
Japan before taking any major decisions on trade policy towards
Japan.

I note your view that we should authorise senior officials to take
part in informal trade talks with the Japanese Embassy. I believe
however that such a move should be decided in Cabinet because it
would be a matter of some significance in policy. At the same
time, I agree that we should correct apparent misunderstandings on
the part of the Japanese Government, regarding the extent to which
Australia has already relaxed the import controls on Japanese
goods. I feel that this can best be done in our reply to the
Japanese notes of 5th November and 14th January. [2]

As I see it, it would be extremely difficult (if not impossible)
for our officials to restrict talks with Japanese officials to an
exchange of information. The Japanese would undoubtedly press for
relaxations in the import licensing controls and for undertakings
in respect of the licensing treatment to be accorded to Japanese
goods. The Government has already decided upon the relaxations to
be introduced on 1st April and if the talks were held, our
inability to accept undertakings in the licensing field could well
prejudice a satisfactory outcome.

Although the Japanese Note Verbale of 5th November refers to 'an
informal trade talk, I think that the Japanese would almost
certainly seek to use such discussions as a prelude to
negotiations aimed at securing substantial modifications in our
trade policy. In this connection I would draw your attention to
the following extracts from Cable No. 349 of 4th February, 1954,
from the High Commissioner's Office, London:

'Japanese told the United Kingdom they proposed opening up early
negotiations on trade with independent sterling area countries,
and asked whether the United Kingdom would object to "special
payments devices". They said what they had in mind was to
negotiate agreements providing for trading on a bilateral "open
account" basis with each R.S.A. [3] country with provision for
settlement in sterling if surplus or deficit exceeded an agreed
figure. They were quite frank in saying that they thought such
agreements would help them to "force their exports" into
Commonwealth countries with which they are in persistent deficit.'
'The Japanese also sought the good offices of the United Kingdom
as banker for the sterling area, in persuading R.S.A. countries to
adopt more liberal policies towards Japan in relation to Customs
Tariffs and merchants' rights.'

Our officials are not at present empowered to discuss such matters
of policy. They would, in fact, be in an embarrassing position
when the Japanese raised them.

To my mind, the important thing at this stage is to correct any
Japanese misunderstandings as to the extent of the licensing
relaxations on imports from Japan over the past year. Pending
submission of the full report to Cabinet on our trading position
with Japan, the Interdepartmental Committee is completing a formal
reply to the two latest Japanese notes. The committee proposes to
include in this reply adequate details of our progressive
licensing relaxations during 1953 so that the Japanese Government
will be left in no doubt that the relaxations have offered them
considerable scope for a greater flow of trade from Japan to
Australia.