CONTROL OF THE JAPANESE ECONOMY

[matter omitted]

The 'Packer Plan' [1]

From the above [2] it will be clear that Mr. Packer's contention
that 'departmental economists' are not prepared to examine his
plan and his implication that they are not prepared to engage in
research work on economic control of Japan is completely without
foundation. An elaboration of Mr. Packer's plan was requested but
has not been received. As stated above, the amount of time
available to our small economics staff for research is severely
limited and must be used to the fullest advantage. We cannot
afford to be side-tracked into consideration of proposals which,
either through lack of development or insufficient clarity of
expression, do not appear likely to yield concrete results.

From the brief and apparently nebulous outline given by Packer in
ACJS, it appeared that the crux of his plan was control of Japan's
import of key commodities. For this Department, this proposal, in
its essentials, contained nothing new. It was a form of control
which we had long had under consideration.

In the papers on individual industries mentioned earlier, attempts
have been made to isolate a number of commodities:

(1) supplies of which are really fundamental from a war-potential
point of view;

(2) in which Japan is significantly deficient; and
(3) which are required in sufficiently large quantities to enable
importation over the prescribed limits to be detected with
relative case.

Where these criteria are met, import controls are suggested. For
example, as Japan's domestic resources of iron ore-surely a key
raw material-are very limited, her importation of ore, scrap, pig
iron and ingot steel will be bulky, and hence capable of
relatively easy control. Limits on importation of these goods have
been suggested. On the other hand, it has been suggested, partly
for the reason that Japan possesses adequate resources of copper
and chromium, that no long-term controls should be applied.

Similarly because such small quantities are used and consequently
smuggling could be relatively easy, it is not suggested that the
import of tungsten, vanadium and molybdenum should be controlled
although Japan is deficient in them. The point is that, if a few
key commodities are effectively policed, it will be impossible for
Japan to re-establish a dangerous war-potential. Once these key
commodities are determined, any additional restrictions would be
superfluous, costly and dangerous.

It is in the way in which Japan is to obtain the key raw materials
that Mr. Packer's plan appears to suggest something different from
the general line of thought in the Department. Mr. Packer wishes
to guarantee Japan supplies of these materials. The purpose of
such a guarantee is difficult to understand. The object is control
and the danger is not that Japan will be unable to purchase
supplies of key commodities but that she will be able to purchase
them in spite of our controls. Our concern must be to ensure that
Japan is not permitted to import more than is required for the
peaceful conduct of her economy. A further point made by Packer is
that control should be placed on the sources from which Japanese
imports are derived. This is intended to prevent the resurrection
of the yen bloc. Guarantees, however, seem to form no essential
part of this idea. The purpose could be achieved-if that is
desirable-simply by forbidding trade in certain items with certain
areas. The reactions of those areas, China, Philippines, Siam, for
example, can be imagined. Any economic control of Japan will
involve difficulties of effective implementation and supervision
but Packer's ideas appear to magnify these difficulties beyond all
reason.

With regard to the issue of multilateral as opposed to Government
trading (as the means of supplying goods), it is suggested again
that if the objective of security may be obtained in either way,
it is more consistent with present Government policy to choose the
multilateral approach. Mr. Packer's objection to this approach
does not deny that import control will be any less effective. In
fact, he draws specific attention to possible evasion under the
Government-to-Government scheme. His objection is to the
reemergence of an Asian bloc. This objection he suggests would be
met by withholding supplies-by economic sanctions. A clause in the
treaty providing for economic sanctions explicitly would be quite
as effective as Packer's elaborate suggestion. Economic sanctions
are, as we know from past experience, difficult to apply
effectively and I doubt that a scheme for withholding supplies
under some sort of intergovernmental agreement goes any distance
towards removing those difficulties, Packer may have in the back
of his mind some ideas which would overcome those difficulties. If
he has, it would be most useful for us to have them. I fully agree
that it is desirable to prevent the re-emergence of a yen bloc but
I cannot, at the moment at least, see that the Packer plan
provides an effective means of achieving this. In the final count,
it seems we must rely mainly on the vigorous nationalism of newly-
emerged Asian states to resist would-be imperialism in Asia, with
assistance, wherever possible, on a bilateral basis or through
international organisations. (Reparations and non-discriminatory
peace treaty provisions could help). Mr. Packer's intention
appears to be to completely disrupt Japan's economic ties with
Asia, by restricting Japan's imports of key raw materials from
that area and forcing countries within the area to seek export
markets elsewhere. To find the exchange necessary to import
restricted goods from countries outside Asia, Japan may have to
redirect her exports. The precise effect of these repercussions is
difficult to estimate but there seems to be little possibility of
finding acceptance for a wholesale redirection of trade of the
nature he apparently intends. The key position which Japan
occupies in the Far Eastern economy must be realistically faced.

If Mr. Packer does not intend to place drastic restrictions on
Japan's importation of key commodities from Asia, it is difficult
to see how Government-to-Government trading would be effective in
preventing a serious attempt by Japan at economic imperialism.

Mr. Packer distorts the meaning of Mr. Truelove's letter of 3rd
February by implying that 'the two economists' suggested that
state trading was debarred by ITO, that pure multilateralism was
the objective being sought, that American opposition to anything
short of pure multilateralism was fixed and that because of
American opposition we were barred from raising proposals for
state trading. It was merely pointed out that the trend of the
Australian Government's policy was towards multilateralism unless
substantial policy considerations directed otherwise. In this case
there did not appear on the evidence available any reason to make
an exception to that trend. It was also suggested that present
American opinion tended to oppose any departure from
multilateralism unless a strong case was made for the departure.

If there are two ways of achieving a certain result, on one of
which compromise may be easily achieved and the other of which
would involve a protracted and possibly vain struggle, it is
surely realistic to choose the first alternative.

Mr. Packer is completely wrong in implying that objections have
been made to economic control. On the contrary, economic controls
have been strongly suggested. This Section, as you know, has
pressed for economic controls of much greater stringency and
breadth than have been acceptable to other people concerned in
treaty work. It is on the form of controls that our differences
with Packer arise. Granted this disagreement with Packer on the
form of his proposals as they exist at the moment, it must be
emphasised that there has never been any 'lighthearted' dismissal
of any proposals for economic control of Japan which may have been
brought forward.

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