694.0031/6–2248
The Acting Political Adviser in Japan (Sebald) to the Secretary of State
No. 379
[Received July 2.]
Sir: I have the honor to enclose copies of a personal and confidential letter of June 16, 1948 to Mr. F. E. Pickelle,1 Chief of the Foreign Trade and Commerce Division of the Economic and Scientific Section of this Headquarters, from Minister E. R. Lingeman, Counselor (Economic) of the United Kingdom Liaison Mission in Japan, indicating a framework of general principles within which it is suggested that the proposed sterling area trade negotiations with General Headquarters of the Supreme Commander for the Allied Powers be conducted, together with a tentative balance sheet showing the scale of trade which might be involved. Furthermore, the hope is expressed by Mr. Lingeman that, the discussions regarding such an arrangement with the Economic and Scientific Section of this Headquarters, be opened prior to, but not later than, July 6th of this year.
According to the enclosed letter, participants in such an arrangement will definitely include the United Kingdom and Colonies (with the present exception of Hong Kong), Australia, New Zealand and Ceylon. Although invited to participate, neither South Africa, India nor Pakistan have indicated their intention to do so as yet. The Supreme Commander’s and the sterling area countries’ mutuality of interest in a balance of trade at the highest possible level, to be accomplished by the conclusion of a trade arrangement on the widest possible sterling area basis, is emphasized. The United Kingdom Liaison Mission [Page 980] envisages an arrangement whereby Japan would purchase as much as possible of its raw materials from the sterling area countries in return for textiles, raw silk, and other Japanese goods. According to the provisional balance sheet enclosed, proposed sales to Japan by sterling area countries are shown at $83,065,000 and proposed purchases from Japan, at $82,588,000. The figures include contemplated purchases and sales by the United Kingdom and Colonies, Australia and New Zealand, as well as estimated South African wool exports, contingent of course upon that Dominion’s participation. Figures for Ceylon are unavailable pending the arrival in Tokyo of a special representative from that Dominion.
The enclosed letter suggests that such an understanding might be predicated upon an exchange of identical letters between this Headquarters and each sterling area country concerned, in which would be included an indication of the volume of sales and purchases expected to result therefrom, and a statement of intention to take necessary governmental action to that end. An approximate balance would be agreed upon and each party concerned would endeavor to authorize or facilitate trade up to that level. Since a statement of intention only is contemplated and not a definite governmental undertaking, the further suggestion is made that the understanding be referred to as an “arrangement” rather than as an “agreement”.
Mr. Lingeman proposes that such an arrangement be made effective for one year initially, that it include trade conducted through private as well as government channels, and that it be on a sterling basis in accordance with the Overall Payments Agreement enclosed to this Mission’s despatch No. 334 of June 8, 1948 entitled “Currency Arrangement Between Japan and the Sterling Area”.2 Although the latter agreement provided that all trade between Japan and the specified sterling area countries should be conducted on a sterling basis with the exception of exports of cotton textiles manufactured in Japan from raw cotton procured in the United States, Mr. Lingeman indicates that one of the objects of the proposed trade arrangement is to permit the unqualified sale of textiles by Japan to sterling area participants.
The proposed arrangement envisages a balance of trade between Occupied Japan and the sterling area participants as a group. In the event that either party should fail to comply substantially with the terms of the understanding, it is suggested that consultations be held by them. In this connection, it is contemplated that mutually satisfactory arrangements for the exchange of information can be consummated. With respect to trade on government account, the thought is expressed that this could best be done through the establishment of a [Page 981] consolidated account in Tokyo for all sterling area participants, whereas, weekly reports from the British banks in Tokyo (Hong Kong and Shanghai Banking Corporation and the Chartered Bank of India, Australia and China) would afford information regarding trade on private account.
This Mission considers that the conclusion of an early mutually advantageous trade arrangement between Japan and the sterling area, upon as wide a sterling basis as possible, will give impetus to the economic rehabilitation of Japan and will afford progress toward the reestablishment of normal trade relationships, an important part of Japan’s pre-war trade having been conducted on a sterling basis. Available sterling markets for Japanese goods, which in turn can supply raw materials needed in the Japanese economy, must be utilized to the fullest possible extent. Dollar purchases without equivalent dollar sales, as in the case of U.S. raw cotton, should be kept to an absolute minimum if Japan is to achieve an international balance of trade and payments.
Respectfully yours,