20 Memorandum From Carne To Department Of Commerce & Agriculture

24th February, 1953

Trade between Australia and Japan

I desire to advise that on Saturday last, I was invited to attend at the Foreign Office 'to discuss matters relating to trade between Australia and Japan'. On accepting this invitation, I was met by Mr T. Kitahara, a senior officer of the Economic Affairs Bureau, and his assistant, Mr Okiwara.

Mr Kitahara said that the Government was at present engaged in preparations for the Budget for the forthcoming fiscal year commencing on 1st April. They were very disturbed by the deteriorating position of Japan's holdings of Sterling and the continued adverse trade balances which Japan was experiencing with most countries in the Sterling Area. He produced certain papers for my inspection and, at my request, supplied me with copies.

These are documents which have been prepared in connection with discussions between Japanese Government officials and members of the British Embassy here in connection with negotiations on the United Kingdom Japanese Sterling Payments Agreement. I am forwarding copies of these documents, listed as under:

Memo No. 1: Prospects of Sterling Import.

Memo No. 2: Japan's Sterling Holdings as at the end of next March.

Memo No. 3: Japan's prospect of Importation from Sterling Area during the first half of 1953.

Memo No. 4: Table showing Sterling Balances to Credit of Japan in relation to Trade with the whole Sterling Area, 1952 to January, 1953.

Much stress was laid on the continued decline in these balances since June, 1952, and it is estimated that at the end of March, the balance will stand as low as round 44 million. The suggestion was made, therefore, by Mr Kitahara, that Japan might find it necessary in the forthcoming Budget to impose restrictions on imports from the Sterling Area. His Government was, he said, unwilling to take this step, but it could be forced upon the Government if Japan's exports to Sterling Area countries could not be speedily increased by the removal or modification of import restrictions in those countries. He said, for example, that it might be necessary to curtail Japanese buying of Australian wool and other goods.

I was, of course, entirely non-committal throughout this interview and simply promised that I would represent the matter to you as requested. In reply to a question from me, Mr Kitahara said that the matter had not so far been raised through the Japanese Ambassador in Australia.

Following upon this interview, I had a talk with Mr N.S. Roberts, Commercial Minister at the British Embassy, who has been conducting talks on behalf of the United Kingdom on the Payments Agreement. Mr Roberts said that similar suggestions had been made during the discussions as to the possibility of Japan being forced to impose import restrictions against Sterling imports unless a better balance could be secured. The talks so far, he told me, have been mainly exploratory and statistical and, as a point for discussion, a target of 200 million trade each way per annum had been suggested. Japan countered with the view that she would need exports of 230 million to the Sterling Area to be able to finance imports of 200 million. The reason for this was said to be Japan's liability for debt payments and other invisibles. The United Kingdom was not prepared to agree to these figures and suggested that Japan should explore the possibility of accepting Sterling from open account countries such as Egypt, Norway, Sweden, etc.

The matter appears to rest there at the moment and the British Embassy here has reported the situation back to London for instructions. I think that the Foreign Office approach to me in the present instance was probably dictated by newspaper accounts of statements attributed to the Australian Prime Minister to the effect that, while there would be relaxation of import restrictions effective as from April next, these would not cover dollar or Japanese imports.

The matter is therefore submitted for your information. My personal opinion is that import restrictions will not be operated against Australian wool even if some other commodities should be affected. It does not appear likely that the Japanese woollen industry could function without imports of Australian wool and, with regard to quantity, it is interesting to note that this morning's newspaper carried a statement to the effect that the Japanese Wool Spinning Industry hopes to import 739,000 bales of raw wool in the forthcoming fiscal year, and is approaching the Government for the provision of exchange for that purpose. This figure is considerably higher than those which were quoted to me by the leaders of the industry a couple of weeks ago and reported to you on the 12th February. It would seem, therefore, that the industry is putting up a maximum figure in the anticipation of it being reduced by the Government.

[AA : A609/1, 555/120/4, i]