Your telegram 71 , 72, and 106. Proposed Sterling Area Trade Agreement with SCAP 1. We have given consideration to prospective level and composition of trade between Australia and Japan on the assumption that overall Sterling Area trade agreement including cotton textiles can be reached. Our conclusions which are necessarily very tentative at this stage are set out hereunder.
Imports 2. Our approach to the examination of our import requirement from Japan has been based on the view that, provided an agreement can be reached that win avoid loss of gold or dollars, it would be to our common interest to develop Japan as a source of supply of essential industrial and consumer goods, particularly of types which could otherwise be obtained only from hard currency sources.
We should not, however, contemplate issuing licences for Japanese goods of a non-essential nature.
[matter omitted] 
Exports 6. With regard to exports you will know that the principal commodity involved is wool. There may be some sales of other items, for instance, salt and raw material for shell and bone buttons, but wool has been the central item in our negotiations for Australian exports to Japan. When wool requirements were discussed as far back as 1946, we informed SCAP that 120,000 bales per annum could be made available at that time, and last year, when our wool mission visited Japan, SCAP was advised that Australia could meet his demands for Australian wool up to the maximum quantity required. Up to the present, however, we have no dear idea of the quantity of Australian wool which will actually be purchased by Japan. Only one shipment of wool, totalling 7,500 bales, has been made to Japan since the end of the war. SCAP's Chief Wool Procurement Officer, Max B. Laupheimer, is now in Australia making arrangements for further purchases of wool totalling about 50,000 bales, which would be worth say A2 million, the amount we suggested as the basis of our bilateral agreement with SCAR The initial wool purchases will be made with the credits we have paid into SCAP's two accounts (No's 4 and 5) in London. Laupheimer cannot furnish an estimate of SCAP's future wool purchases from Australia, but he mentioned that SCAP's total annual requirements will probably be about 200,000 bales, drawn from South Africa, New Zealand, South America and Australia. You will understand that (quite apart from financial considerations) we regard it as important from a marketing viewpoint that the export of Australian wool in quantity to Japan should be resumed as quickly as possible.
Objectives of proposed Sterling Area Agreement and Procedure 7. In general we take it that objective of the proposed agreement Will be to promote high level of two-way trade between Japan and Sterling Area on a basis that win avoid dollar drain. We are inclined to feel, however, that it will not be practicable to achieve this objective by incorporating in the agreement schedules of agreed minimum purchases to be made by the parties concerned as appears to be suggested in your 71. So far as we are concerned, trade will be conducted through private channels and we should not feel able to guarantee that purchases by private importers would reach any particular level.
8. It would seem to us that key provision of the proposed agreement should be an undertaking by SCAP that full amount of proceeds of Japanese exports to sterling countries participating in the Agreement would be spent on imports into Japan from those countries as a group. An undertaking of this kind would overcome the difficulties created by the convertibility clause in the proposed overall payments agreement and, in view of the fact that trade agreement will be initially limited to a twelve month period, there would seem to be no risk to SCAP in giving such an undertaking. Our own bilateral agreement is, of course, based on a similar undertaking by SCAR