Your telegram 182  Trade Negotiations with Japan.
We have given careful consideration to the points made in your telegram and are particularly glad to note your renewed assurances that you will be able to provide us with considerably greater supplies of steel during 1950. We shall look forward to receiving more precise information on the quantities which will be available when your 1950 steel export programme has been finally settled.
2. At the same time it would seem to us from your message that the nature of our difficulties in accepting at this stage the reduced import figures set down for Australia in the Tokyo Trade Plan may not be fully appreciated. For practical purposes our 1949/ 50 purchases from Japan are governed by the value of import licences issued during the licensing year running from 1st April, 1949 to 31st March, 1950. More than half of this period has now elapsed.
In view of our commitments under licences already issued, we could keep our 1949/50 purchases within the reduced Trade Plan figure only by a most drastic reduction in the rate of issue of licences from now until 31st March, 1950.
3. We should have to refuse licences not only for urgent steel requirements but also for other essential goods which are not available from the United Kingdom or other sterling or easy currency sources.
4. In assessing at stg600,000 the amount by which the licensing quotas available to us for the next two quarters will fall short of our needs to meet essential requirements, no allowance was made for price increases in terms of sterling resulting from devaluation. An increase of stg600,000 in our Trade Plan allocation would nevertheless do much to ease the situation.
5. We recognise the importance of securing S.C.A.P.'s firm acceptance of the Financial Memorandum together with the Trade Arrangement as early as possible. As we had not intended to suggest an increase in total Sterling Area purchases under the Trade Arrangement, but merely to seek a relatively minor readjustment of the division of purchasing power between the Sterling Area participants, we are today despatching instructions to our representatives in Tokyo authorizing them to sign the Trade Arrangement on behalf of Australia. 
6. We have taken this decision on the understanding that it will not prejudice further consideration of the adjustment of the purchasing programmes of the Sterling Area participants and would propose that this be examined further by convening a special Working Party in London where all Governments concerned are represented. 7. In pressing for this further review we are not unmindful of the special needs and position of the Colonies. We feel, however, that there is no reason to regard the division of purchasing power made in Tokyo as final or rigid. Task of the Working Party there was complicated by devaluation, the effects of which could not be immediately assessed, and, as you point out, there has since been a new factor brought into the situation by S.C.A.P.'s removal of floor prices for Japanese exports. On the face of it, this seems much more likely to result in a reduction in prices for cotton textiles than for the steel and other metal products which bulk so largely in our own programme.
8. It has always been recognised that provision would need to be made for consultation between the Sterling Area participants if difficulties arose in keeping to the allocations made in the Trade Plan for individual countries. In view of the surplus which Australia contributed in 1948/49 and the fact that, even if our 1949/50 programme is adjusted as we have proposed, it is likely that we shall again contribute a small surplus in 1949/50 we do not feel it unreasonable to request other participants to re- examine the 1949/50 allocations with us to see if some means can be found of relieving at least to some extent the difficulties with which we shall be faced in meeting our minimum essential needs during the remainder of the current period.
9. We should hope that you would feel able to agree to converting of Working Party in London immediately following formal signature of the Trade Arrangement in Tokyo.