375 Report by Clark, Wrigley and McWatters

Extracts 17 August 1948

REPORT BY AUSTRALIAN DELEGATION ON MADE CONFERENCE IN TOKYO- JULY/AUGUST, 1948

1. This Report covers matters of policy and general interest in relation to the proceedings of the Conference and has been divided for convenience under the following headings. Detail has been emitted as far as possible and questions of Departmental concern will, where necessary, form the subject of separate reports by individual members of the Delegation:-

A. Purpose and Scope of the Discussions.

B. Draft Trade Arrangement.

C. The Trade Plan.

D. Sterling Area Participants.

E. Entrepot Trade.

F. Scajap Shipping.

G. Memorandum of Understandings reached by Sterling Area Representatives.

H. Recommendations.

A. PURPOSE AND SCOPE OF THE DISCUSSIONS 2. The main purposes of Australia's representation at the Conference were:

(a) to secure the inclusion of cotton textiles in the Overall Payments Arrangement;

(b) to limit the practical application of the convertibility clauses of the Overall Payments Arrangement by an arrangement for balanced trade;

(c) subject to (a) and (b) to assist in raising the levels of trade between the Sterling Area and Occupied Japan consistent with government policy towards that country; and (d) to strengthen the use of sterling as a medium of exchange in Far Eastern trade.

3. The negotiations have taken place against a background of problems with which the Occupation Authorities are faced in building up an economy essentially different from that of prewar Japan. It is difficult to over-emphasise these problems, amongst the most important and immediate of which is the re-establishment of external trade on the broadest practicable basis. Without this it is impossible to place Japan on a self-supporting basis and avoid the heavy drain of financial and material aid at present necessary for the subsistence of the Japanese people. In view of the political situations in the East, the implications of failure in Occupational responsibilities are obvious.

4. The major part of Japan's trade, particularly in textiles, must be conducted with the Sterling Area. An Interim Payments Agreement, based on sterling, was effected in 1947 [1] and was superseded by an Overall Sterling Payments Arrangement on 29th May, 1948. [2] This Arrangement set out the means agreed upon between the countries of the Sterling Area and SCAP for the settlement of financial transactions resulting from trade between the Sterling Area and Occupied Japan.

5. Whilst the Overall Payments Arrangement would have permitted the reestablishment of trade on the moderate basis of exchange of essential goods, the right of SCAP to convert sterling balances to dollars at 6-monthly intervals and on the termination of the Arrangement, together with the exclusion of cotton textiles (the sale of which remained on a dollar basis), would necessarily have had a very limiting effect.

6. In order to relate the Overall Payments Arrangement to the draft Trade Arrangement it is necessary to recall that the Overall Payments Arrangement may be terminated- (a) in the event of a proclamation of a Treaty of Peace between the Allied Powers and the Japanese Government;

(b) upon three months' notice in writing given by either party.

7. The Overall Payments Arrangement stipulates the manner in which the liquidation of any sterling balances shall be carried out upon termination of the Arrangement and provides for an over-riding right of conversion by SCAP in the event that such conversion is necessary for the protection of the foreign exchange assets of Japan or for the conduct of Japanese foreign trade.

8. The proposed Trade Arrangement is complementary to the Overall Payments Arrangement, but cannot add to or subtract from any of its provisions. This point is important when dealing with the question of long term contracts entered into by members of the Sterling Area for the supply of goods from Occupied Japan.

9. In formulating the provisions of the Trade Arrangement attention has necessarily been paid in full to the limiting clauses of the Overall Payments Arrangement and the need to take cognisance of the hard currency implications in any contract extending beyond a period of three months.

B. DRAFT TRADE ARRANGEMENT 10. The clauses of the draft Trade Arrangement are for the most part self-explanatory and should provide no difficulties of interpretation. The draft was prepared by the Sterling Area representatives after exhaustive discussions on every point, and minor drafting amendments only were suggested by SCAP representatives.

11. The following are brief comments on certain clauses:-

Paragraph 1

[matter omitted]

(c) Sterling Area representatives insisted on the inclusion of cotton textiles in the Overall Payments Arrangement as a prerequisite to any agreement on trade. SCAP's press release of 25th July, 1948, announcing that it had been decided to amend the Overall Payments Arrangement in order to include cotton textiles, was the direct result of this approach. The phrase 'as amended' appearing after '31 May 1948' refers to the inclusion of cotton textiles.

[matter omitted]

Attachment FINAL DRAFT 11 August 1948 MEMORANDUM FOR: The Representatives of the Commonwealth of Australia, (the Dominion of India), the Dominion of New Zealand, the Union of South Africa, and the United Kingdom and its Colonies.

SUBJECT: Trade Arrangement between Certain Countries in the Sterling Area and Occupied Japan 1. The Representatives of the Commonwealth of Australia, (the Dominion of India), the Dominion of New Zealand, the Union of South Africa, the United Kingdom and its Colonies, excluding Hong Kong, hereinafter referred to as the Sterling Area Participants and constituting collectively one of the two parties to this Arrangement), having discussed with the Representatives of the Supreme Commander for the Allied Powers (constituting the other party) the measures which might usefully be adopted with the intention both of expanding trade between the Sterling Area and Occupied Japan, and of balancing it at the highest practicable level, have agreed to adopt the Trade Plan (attached as Tab A) on the following basis:

a. This Arrangement pertains to the period extending from 1 July 1948, to and including 30 June 1949 and extends to all transactions relating to the purchase and sale of goods in respect of which contracts entered into prior to or during the period provide for shipment to be effected within the period. It also covers services tendered during that period.

b . The Sterling Area Participants are those listed in Tab B, attached hereto. It is understood, however, that other countries in the Sterling Area may accede to this Arrangement subject to the approval of both parties.

c. All trade shall be conducted on a sterling basis in accordance with the terms and provisions of the Overall Payments Arrangement in force between the Supreme Commander for the Allied Powers and the Sterling Area since 31 May 1948, as amended. However, entrepot trade, as defined in Tab C [3], attached, shall be conducted in accordance with the terms and provisions indicated therein.

d. Trade may be carried on through both government and private channels.

e. The attached Trade Plan, without being restrictive in any way, represents, in the light of the best information available at the present time to the two parties to this Arrangement, the volume of trade which may be expected to flow between the Sterling Area and Occupied Japan during the period of this Arrangement and the character it is most likely to assume.

It is emphasized that the Trade Plan is not intended to constitute a commitment, binding on either party, that trade will in fact attain the proportions or assume the character indicated therein;

rather does it represent a reasonable computation made in good faith of the volume of sales and purchases likely to result from the desire of the two parties to the Arrangement to develop trade between them to the highest practicable level.

Subject to these considerations, both parties will facilitate in every way the sale and purchase of goods and services as specified in the attached Trade Plan. f Having regard to the principle that trade between them is to be balanced at the highest practicable level, each party to this Arrangement undertakes, in respect of the period covered by the Arrangement, to expend on imports from the other party the full amount of the proceeds from exports to that party, taking into account the provision made in Tab A for the net requirements of Sterling Area Participants in the Overall Payments Arrangement who are not listed in Tab B.

g. Should there be reason for either party to this Arrangement or any individual Sterling Area Participant to believe, at any stage that the volume and character of sales and purchases contemplated in the Trade Plan are not likely to materialize, the parties concerned will consult together to ensure that any modification of the Trade Plan that may be found necessary protects those interests to which either party attaches special importance in relation to the supply of raw materials and/or acquisition of manufactured goods.

h. Special machinery will be established, in common accord, to ensure that accurate and up-to-date information will be available to both parties in respect of the operation of this Arrangement and to ensure the implementation of the Trade Plan generally.

i. Each party hereto will do everything feasible to ensure compliance with the export-import controls, exchange controls and such other controls that pertain to international trade as may be in force and effect from time to time in the areas under the control of the other.

2. Both parties recognize the importance of reestablishing trade through private channels. It is, therefore, agreed that the parties will take all steps consistent with established policies to facilitate the reestablishment of pre-war commercial activities or the establishment of new ones.

3. This Arrangement shall lapse automatically with, and at the same time, as the Overall Payments Arrangement, should the latter Arrangement be terminated on or before 30 June 1949. It is understood that, upon termination of this Trade Arrangement, transactions referred to in paragraph 1a above, but partly or wholly unfulfilled, shall be brought into account in arriving at any settlement under the Overall Payments Arrangement.

4. The trading position between the Sterling Area and Occupied Japan Shan be reviewed generally by the parties to this Arrangement not later than 15 January 1949.

5. This Arrangement shall be effective upon formal concurrence of the Sterling Area Participants.

Tab A

STERLING AREA-OCCUPIED JAPAN TRADE PLAN

1 July 1948-30 June 1949

Summary

Sales by Sterling Area [a] Purchases by Sterling Area [a]

Area ($ Values CIF Japan) ($ Values FOB Japan) UK and Colonies $46,723,000 $54,423,000 [b]

Australia 19,650,000 18,500,00 India 28,525,840 26,338,721 New Zealand 2,500,000 2,500,000 South Africa 8,191,000 6,768,000 108,529,721 For Internal Allocation:

Cement 810,000 Lithopone 40,000 105,589,840 [c] 109,379,721

Reserve Purchasing Pool 12,210,119 [d]

Estimated Balance of Indian Open Account 12,000,000 [e]

Estimated Balance of UK Open Account 4,000,000 [e]

TOTAL $ 121,589,840 $121,589,840 [4]

a As stated in the Memorandum of Understanding, this Trade Plan is not intended to be exclusive. The Sterling Area Participants, in making any additional purchases from Japan will seek to include, according to availability, zinc, copper, semi-manufactured metal products, caustic soda, cement, cotton textiles, steel scrap, steel sheets, canned food, agar agar, oak and plywood, woollen and worsted yarn, raw silk, porcelain and enamel ware, etc. SCAP, for his part, has expressed an interest in obtaining from the Sterling Area additional supplies of raw cotton, raw wool, sisal tow, fodder and foodstuffs, iron ore, pig iron, lead, manganese ore, mica, petroleum coke, crude rubber, coal, salt, antimony ore, graphite, magnesite, oils and oil bearing materials, tinplate, coal, hides and skins, cereals, ground nuts, etc.

b Includes $44,000,000 estimate for cotton manufactures.

c Invisibles; e.g., freight in respect of deliveries in sterling bottoms from third countries to Japan (other than Mediterranean salt freights) are not included in the above figures.

Any additional balances arising from net accruals from such invisibles will be utilized by the Sterling Area Participants on additional purchases from Japan. In cases where commodities are sold by the Sterling Area to Japan on an FOB basis (with the exception of oil, which is already shown FOB) the values on the Sterling Area sales side of the Trade Plan will be reduced accordingly.

d This balance will be available for additional purchases of Japanese goods by Sterling Area Participants in the Trade Arrangement and to cover the net requirements of Sterling Area Participants in the Overall Payments Arrangement who are not participants in the Trade Arrangement.

E Subject to readjustment in accordance with final statement.

Tab B

STERLING AREA TRADE ARRANGEMENTS PARTICIPANTS

For the purpose of Sterling Area Trade Arrangements discussions the 'Sterling Area' is defined as:

A. United Kingdom and Colonies as follows:-

United Kingdom of Great Britain and Northern Ireland Aden (Colony and Protectorate) Bahamas Barbados Basutoland Bechuanaland Protectorate Bermuda British Guiana British Honduras British Solomon Islands Protectorate Cyprus Falkland Islands and Dependencies Fiji Gambia (Colony and Protectorate) Gibraltar Gilbert and Ellis Islands Colony Gold Coast (a) Colony (b) Ashanti (c) Northern Territories (d) Togoland under U.K. Trusteeship Jamaica (including Turks and Caicos Islands and the Cayman Islands) Kenya (Colony and Protectorate) Leeward Islands (a) Antigua, with Barbuda and Redonda (b) St. Christopher and Nevis, with Anguilla (c) Montserrat (d) The Virgin Island, with Sombrero Malay States (Malayan Union) (a) Negri Sembilan Pahang Selangor Perak (b) Johore Kedah Kelantan Perlis Trengganu (c) Penang Province Wellesley Malacca (d) Brunei Malta Mauritius New Hebrides (administered as a British-French Condominium) Nigeria (a) Colony (b) Protectorate (c) Cameroons under U.K. Trusteeship North Borneo North Rhodesia Nyasaland Protectorate St. Helena and dependencies Sarawak Seychelles (Colony and Protectorate) Singapore, the Cocos-Keeling Islands and Christmas Island Somaliland Protectorate Southern Rhodesia Swaziland Tanganyika Territory Tonga Trinidad and Tobago Uganda Protectorate Windward Islands (a) Dominica (b) Grenada (c) St. Lucia (d) Vincent Zanzibar Protectorate

B. British Self-Governing Dominions Australia New Zealand South Africa

C. Observers India

1 See Volume 12, Document 427.

2 See Document 374.

3 Not Published.

4 In the final memorandum dated 9 November 1948, the total was reduced to $112,789,840 mainly due to a reduction of $11.5m. in India's estimate of sales and an increase of $1.9m. in its estimate of purchases.

[AA:A1838/278, 479/1/1, iii]