TRADE NEGOTIATIONS WITH JAPAN
1. We are informed by your High Commissioner's Office that the Australian Government is pressing for additional purchasing power of 600,000 to cover essential steel requirements and we learn that the Australian Representative has also raised this with the Working Party in Tokyo.
2. We appreciate that steel is a particularly important requirement for Australia at the present time and the Australian Government will remember that in recognition of this Representatives of other participants in Tokyo accepted during negotiations two separate upward revisions of Australian essential import programme to allow for further steel purchases which raised the category a figure from the original of dollars twelve million to dollars twenty million (at the old rate of exchange ).
3. We very much regret that the Australian Government have felt it necessary to re-open once more the whole question of division of purchasing power at this stage and we would urge them most strongly to reconsider their position in the light of the following arguments:-
(A) If Australian claim were to be conceded it would almost certainly lead to similar claims from other participants who would of course have to be consulted. This in turn would re-open the whole question of division. As S.C.A.P. is already pressing our representatives in Tokyo for earliest possible signature of arrangement, any development of this kind would be open to serious objection. We ourselves are particularly anxious to finalize as soon as possible since the financial memo which guarantees on behalf of the Supreme Commander the non-convertibility of 10 million of S.C.A.P.'s sterling holding is also awaiting signature with the trade arrangement itself. We need not emphasize the vital importance to all participants of securing formal signature of this guarantee at the earliest possible moment;
(B) It will be appreciated that since the original division took place position has been altered by S.C.A.P.'s decision to remove Japanese floor prices. It can be assumed that this will lead to the reduction of Japanese selling prices and will mean that purchasing power available to individual participants will go further. It is by no means impossible that the drop in prices will be sufficient to allow Australia to fulfil the complete purchasing programme of essentials without the adjustment which the Australian Government has suggested;
(C) The United Kingdom and Colonies have been no more liberally treated than other participants. Indeed on the basis of stated essential requirements the United Kingdom Colonies are to receive proportionately less;
(D) The deficit in current trade with Japan which the working of the trade arrangement makes possible for Colonies is in effect recognition of their special position as net dollar earners for the sterling area as a whole. Whereas Australia may buy essential requirements from the United States, the Colonies buy from Japan since their main need is cheap cotton textiles;
(E) In recognition of the Commonwealth's pressing need for steel supplies the United Kingdom Government is making strenuous efforts to provide an appreciable increase in steel exports to the Commonwealth in 190. It is not yet possible to give any exact figure of the amount the United Kingdom can undertake to supply to Australia. Figures for next years programme have still to be finally settled but in accordance with the assurances given at the Finance Ministers meeting  considerably greater supplies than last year can be expected;
4. It is hoped that the above arguments, particularly the promise of increased steel supplies from the United Kingdom and very urgent need in the interests of Japan Sterling Area trade for earliest possible signature of financial memo with trade arrangement, will induce the Australian Government not to press for an increased share of purchasing power. Grateful for very early reply.