Page 7.
less being dumped through deterioration" and added "At all events, I find my self completely out of sympathy with a policy which permits of stocks of foodstuffs being held until they deteriorate and then dumped at a time of acute world food shortage (particularly in the United Kingdom) and, in Hong Kong, of notoriously high prices and huge comercial profits."
28.
The matter forms the subject of the Governor's Despatch No.37 of the 19th of February, 1948, to the Secretary of State who has recently given approval in Savingram No.502 of the 28th May, 1948, for the write off of the value of the stores, which was stated in the despatch to be approximately $249,000.
29.
C. INDUSTRIES SECTION.
(a) General.
Under the British Military Administration, and in the early days after the handover to Civil Govenmont, this Section appears to have functioned principally in an advisory capacity in assisting the rehabilitation of industry and accordingly did not come within the purview of audit. December, 1946, however, it was observed that an Industries Section Suspense
In Account had been opened by the Accountant General, and it came to notice that arrangements had been made for Government to finance trade between Japan and Hong Kong on behalf of local merchants through the medium of a "two-way" account with the Supreme Commander for the Allied Powers in Japan. During the course of the routine examination of the accounting transactions of this section, it was also ascertained that Government had purchased cotton and other yain from Japan and also from China and the United Kingdom for resale to manufacturers in Hong Kong.
50.
Subsequent investigation revealed that the activities of the Industries Section had, in fact, been extended to include responsibility for the purchase and distribution of yarn and for handling the imports from, and exports to, Japan. As indicated in the preceding paragraph, all payments involved in undertaking the sc functions were charged to the Industries Section Suspense account, and receipts from sales of goods handled by this Section were credited to that account. Details of the arrangements made and of the relevant authorities were not, however, to this Department. As stated in paragraph 4 above, the prior approval of the Secretary of State for the suspense account method of financing the se arrangements was not obtained and as no financial provision had been made in the Estimates for 1946-47 (nor, subsequently, in the Estimates for 1947-48), Government was informed by my predecessor that the action takan appeared to be unconstitutional.
(b) Japanese Trade
Financial arrangements.
sent
31.
The manner in which the arrangements were first made for the handling of trade between Hong Kong and Japan by Government is not entirely clear, but in response to a request to be referred to the agreement made with the Surene Commander for the Allied Powers in this connection, my predecessor was informed by the Director that the arrangements made were "not embodied in any one document in the form of an agreement" and that "the basis is provided by sundry exchange of communications with SCAD". Copies of the relevant cor:nications were subsequently sent to this Departmen t. It appears from a telegram dated the 5th November, 1946, sent by Head of the Industries Scolion, who was in Japan at this time, to the Director that. SCAP agreed to the use of sterling as the currency for these arrangemen ts to the extent that balances could be used for imports into Japan, but that any excess accruals (in SCAP's favour) should be liquidated in U.S. dollars, "at fixed intervals, at a pro-arranged rate". As regards any ultimate