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products, solutions had been found, or at least talks were under way. Dr. Owen said that bilateral arrangements had been very useful in this context.
The Prime Minister said that the plain fact was that there was a serious imbalance of trade between Britain and Japan. He then mentioned one specific problem (on which we have been in correspondence with the Department of Industry), namely the new power station contract in Hong Kong for which a tender had been put in by China Light and Power (CLP). Our own people were putting in a tender for this, but were frightened that the Japanese would undercut them, whether on credit terms or in other ways. The Prime Minister said that it would be of great assistance to him if Mr. Fukuda could ensure that any tender that the Japanese might put in did not cut any corners.
Mr. Fukuda said that he did not know about this particular. case (and in a Japanese aside appeared to ask Mr. Hatoyama to look into it). The Prime Minister repeated his hope that Mr. Fukuda would look into this case.
Mr. Hatoyama said that, so far as the shipbuilding industry was concerned, the Japanese Government had taken certain steps in February and he doubted whether these had yet taken effect. They would in due course, and he thought that the whole trade imbalance would soon change in our favour. The Prime Minister wondered whether this was so. We had recently seen cases where Japanese tenders for ships had quoted prices half those quoted by even the most efficient of British shipbuilding firms. As an island, we could not allow our shipbuilding industry to disappear. Even an additional ten per cent on the Japanese price did not begin to make the difference. Dr. Owen said that the Japanese consumer industry was geared to a remarkable extent to Japanese production. This presented a real problem for us in trying to break into the Japanese market. Mr. Fukuda questioned this, and pointed out that nearly all cloth for Japanese suits came from England.
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In conclusion, the Prime Minister said that he was sorry to have to raise these problems, but they were of real concern to the British people. Mr. Fukuda said that, as a former Chancellor of the Exchequer, Mr. Callaghan ought to know that if one took into account the invisible balance, the result came out about even. Japanese had undertaken measures for expansion in their economic policy, and he thought that imports would increase as a result, though it was true that this might primarily benefit the developing countries. Nevertheless, the import of Scotch Whisky had increased four-fold in the past year. The Prime Minister said that he wanted Mr. Fukuda to know that he was only raising these matters in a spirit of friendship and in a desire to co-operate.
As Mr. Fukuda left, Dr. Owen told Mr. Hatoyama that he looked forward to seeing him in Britain at the time of the United Nations General Assembly later this year.
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