Agreement has now been reached in Tokyo on the details of the Japan-Sterling Area Trade Arrangement for 1949/50. The final draft, copy of which is attached, represents a continuance of the principles embodied in the 1948/49 arrangement.
You will be aware that Australia's allocation for purchases from Japan has been fixed at Stg. 4.96 million and of the steps that have been taken to obtain an increased allocation for Australia.
The present position is that the principal negotiators have left Tokyo and Mr. V.A. Clark of my Department has been asked to reopen the question in London with a view to obtaining an additional A750,000 which is regarded as the minimum necessary to meet our essential needs.
Despite this unsatisfactory aspect I do not think that Australia's formal acceptance of the arrangement should be withheld. The question of reallocation is essentially one for the sterling area participants and does not involve S.C.A.P. Apart from this feature the proposed arrangement is generally satisfactory and should do much to expand and facilitate trade between the parties. Although we will have to place severe restrictions on the issue of licences for the remaining two quarters of 1949/50, we have in fact already issued licences this year for a greater value of goods than was obtained during 1948/49- I therefore feel that our best course is to formally approve the arrangement with S.C.A.P., but should Mr. Clark's endeavours in London be not immediately successful we could inform the United Kingdom that in endorsing the arrangement we reserve the right to continue to press for an additional allocation adequate to our essential needs. Nothing is to be gained by further delaying implementation of the plan as a whole.
I have consulted our colleague the Minister for Commerce and Agriculture who has estimated that Australian exports to Japan will reach Stg. 6 million during 1949/ 50. He has no objection to the plan insofar as it affects his administration. Therefore if you concur in my suggestion I will arrange for the Department of External Affairs to authorise the Australian Mission in Tokyo to sign on Australia's behalf as soon as we know the results of Mr. Clark's efforts. Should they not be successful in the first instance I will arrange the despatch of a telegram to Crosec  in accordance with my suggestion above.
The negotiatiors in Tokyo have prepared a press statement, vide Tokyo telegram 357 of 12th October announcing the end of the talks. This statement when released will give the main features of the arrangement but it would be desirable to make a farther statement, when formal acceptance is announced, elaborating on those aspects directly affecting Australia. I am having a suitable statement prepared which I will forward to you as early as possible.