My telegram 15th January No.12, paragraph 2.
Trade with Japan.
Australian High Commissioner's Office in London have shown us Commonwealth Government's three telegrams of 23rd January to the Australian Mission Tokyo (repeated to Washington and London) Nos.
25, 26 and 27  regarding measures contemplated by Australian Government for reviving trade between Australia and Japan.
2. We are especially interested in Australian proposals since we have ourselves been preparing at official level a scheme on somewhat similar lines (which we expect will be submitted for Ministerial approval shortly) for increasing and balancing trade with Japan if possible on a sterling area rather than a United Kingdom and Colonies basis.
3. Like you we contemplate an arrangement under which S.C.A.P.
would undertake to buy a certain range of commodities in return for e.g. textiles, raw silk and other Japanese goods, the commodities and quantities involved on each side would be specified in the agreement on the basis of keeping the account reasonably level. As we see it such an arrangement would have the double advantage of ensuring that S.C.A.P. procured his raw materials in the sterling area to the maximum degree possible and of enabling us all to obtain useful supplies without incurring dollar deficits.
4. We have been working on basis that- (1) Most effective and useful type of arrangement would be one which aims not at a balance on sectional basis between individual parts of sterling area and Japan but at balance on a wider sterling area basis which would provide greater elasticity, (2) Trade agreement with S.C.A.P. should be implemented through both private trade and Government channels, (3) Trade agreement accordingly should not be brought into force until the overall payments agreement which has so long been under negotiation with the United States is concluded, (4) Trade agreement should not come into force until S.C.A.P.
agrees to sell cotton textile on same basis as other commodities covered by agreement.
5. Latest news from Washington indicates that negotiations for payments agreement are now being transferred to Tokyo, agreement on principle having been reached all that is required being transformation of Interim Agreement into full scale agreement, and notification of sterling area countries participating. Other British Commonwealth representatives in Washington have been informed by United Kingdom Ambassador. We hope accordingly to lay our proposals for trade agreement before Ministers as a preliminary to approaching other Commonwealth countries concerned in the very near future.
6. As you see we are very much at one with you in thinking that trade with Japan can and should be increased and have been working though on a wider basis on same general principles as Commonwealth Government. In the light of latest news about overall payments agreement and of what is said above about lines on which we have been thinking Australian Government may, however, wish before Australian Mission in Tokyo broaches to S.C.A.P. subject of bilateral trade agreement between S.C.A.P. and Australia based on the Interim Payments Agreement to consider possibility of either- (a) Delaying approach to S.C.A.P. by Australian Mission until overall payments agreement is concluded and until further consultation can take place between us, or (b) (If this would help with your immediate raw silk-wool difficulty) providing that any bilateral arrangement with S.C.A.P.
on lines proposed in telegram to Australian Mission Tokyo No.25 would be provisional only and subject to modification or supersession in the event of a wider trade agreement of kind we have been considering being successfully negotiated later.
7. We should be grateful for your very early comments.
8. We are repeating substance of this telegram to the United Kingdom Liaison Mission Tokyo for their information.