173 Department of External Affairs to Ward

Cablegram 149 CANBERRA, 28 May 1948, 11.59 a.m.

SECRET

Your 209. E.C.A.F.E. and Japan.

The questions raised by the Industrial Working Party are difficult. We have not yet received the report itself, but from your summary it would appear that the report adopts many of the principles which Dr. Evatt has called for in the Japanese peace settlement, for example in Tokyo on 30th July and on other occasions when he has said that the peace settlement should help to co-ordinate the Japanese economy with the economies of the Pacific and East Asian regions. Moreover, we appreciate that the industrial potential etc. of the E.C.A.F.E. region cannot be considered adequately without taking Japan into account. In any discussion of the points raised by the Working Committee you should not allow yourself to be forced into a negative or defensive position. Opportunity should be taken to restate the general policy of the Australian Government towards Japanese recovery along foregoing lines. We believe too that Japanese standards of living and levels of production should not be deliberately depressed except for such controls as are necessary in the interests of allied security, but at the same time Japan should not be given preference over the other countries of the Far East in import of raw materials and in general economic assistance.

2. However, we would not wish E.C.A.F.E. to make recommendations or adopt proposals which are opposed to decisions by the Far Eastern Commission or which usurp the function of F.E.C. For example, it is impossible to estimate Japan's capacity to produce and export capital goods and Japan's need for raw materials until Japanese level of industry has been decided, which is a matter for F.E.C. Similarly, decision on the volume of reparations from Japan is matter for F.E.C. It would in our view be premature to establish machinery to work closely with S.C.A.P. in coordinating development of E.C.A.F.E. region with Japanese economy. If E.C.A.F.E. wishes to make recommendations on Japan to an outside body, they should be made to F.E.C., with a view to assisting that body in reaching early and satisfactory decisions. Such recommendations should be in general terms, possibly along lines of Working Party's report, and should not go into details or discuss specific levels of Japanese production. There is a danger that E.C.A.F.E. might give too much emphasis to building up Japan as an industrial supplier in the immediate future, and might weaken influence in F.E.C. of countries such as Australia, New Zealand, and United Kingdom which must give full weight to security and other long-term considerations. On all foregoing you should keep in close touch with your British Commonwealth colleagues.

3. Working Party recommends discussion of financial arrangements for facilitating trade with Japan. Principle of resuming trade with Japan has already been agreed to by F.E.C. Talks with S.C.A.P. by some countries of the sterling group (including Australia) will take place in Japan in the middle of June and until those talks are concluded it would be preferable for no detailed E.C.A.F.E. discussions to take place on subject of financial arrangements. [1]

1 The Commission adopted a resolution endorsing the view that the region's most urgent need was for capital goods and finance. Ward argued against the proposal to establish co-ordination machinery with SCAP; the resolution was not adopted.

[AA:A1838/2, 856/20, iii]