Trade between Australia and Japan I refer to your memorandum 731/3/9 of 2nd April, 1953, and to the copy of a note, dated 27th March, from the Japanese Embassy, in which it is requested that Australian import licensing controls on Japanese goods be relaxed. 
2. The nature of Australia's import licensing controls on Japanese goods and the attitude of the Japanese Government in regard thereto were recently discussed by officers of interested departments, including the Department of External Affairs. The special problems which exist in the case of imports from Japan were fully examined, and the difficulties in the way of liberalising the licensing of importations from that country were considered.
3. It is suggested that the following passages be included in the reply to be sent by your Department to the Japanese Embassy:
'It is appreciated that the balance of trade between Australia and Japan is substantially in favour of Australia and that, on a bilateral basis, Australia has no balance of payments problem with Japan. Australia, however, is a member of the sterling area and the question of Australian import licensing controls on Japanese goods must therefore be considered in relation to the balance of payments between the sterling area and Japan.
2. Although the United Kingdom-Japan Sterling Payments Agreement of 31st August, 1951, did not confer any rights on the Japanese Authorities to convert Japanese held sterling into dollars, it did not follow that Japan could be regarded as an easy-currency country vis-a-vis the sterling area. At the time of the conclusion of this Agreement and subsequently, the trend of trade with the sterling area was markedly in favour of Japan and, as a result, her holdings of sterling were rapidly built up and maintained at very high levels. Associated with this situation was the possibility that these balances might rise beyond the amount which the Japanese Government was prepared to hold. In this connection, the Embassy will recall that representatives of the Japanese Government informed United Kingdom officials, at discussions in November, 1951, that Japan did not wish to hold excessive balances in sterling.
3. While Japan's sterling balances have fallen considerably since July,1952,the Embassy will appreciate that this development may be due to the operation of short-term factors and may not reflect a trend of a permanent nature in trade and payments between the sterling area and Japan.
4. In these circumstances, it has been necessary for the Australian Government to proceed cautiously in varying, with due regard to its obligations to the rest of the sterling group, its policy towards the licensing of Japanese goods. However, the Embassy is advised that relaxations have been made since 1st January, 1953. The list of Japanese goods for which import licences are being issued was increased during the quarter ended 31st March, 1953, by the addition of a number of commodities, and the undermentioned additional items have since been added to the list of Japanese goods which may be licensed for importation in the quarter ending 30th June, 1953:
Velvets, Velveteens and pile fabrics;
Cotton blanketing and molleton;
Plain poplins or broadcloth (not printed or piece dyed);
Soft furnishings and curtain net (not printed or piece dyed);
Handkerchief cloth (not printed or piece dyed);
Microscopes for scientific purposes;
and Scientific instruments.
5. The Department of External Affairs notes the interest of the Japanese Embassy in increasing the importation of particular Japanese products into Australia. It is to be regretted that the relaxations indicated above are the maximum concessions which it is possible to accord to imports from Japan at this stage. The Department would like to assure the Embassy, however, that the trends of trade and payments between the sterling area and Japan are under close and continuous study by the Australian Authorities, that the import licensing controls on Japanese goods will be reviewed from time to time in the light of future developments and that advantage will be taken of any factors which would justify further relaxations in the quantitative import controls.'
Copies of this memorandum have been forwarded to the Departments of the Treasury and Commerce and Agriculture.