11 Memorandum From Turner To Brown

11th October, 1951

Parliamentary Question-Trade with Japan

With reference to his memorandum of 3.10.51 concerning the question asked of the Honorable the Prime Minister by Mr. Haylen, M.P., regarding trade with Japan [1] the following details are forwarded for the Secretary's information.

The Peace Treaty imposes no conditions restricting the freedom of the Australian Government to protect Australian industry. It merely places Japan in the same position as any other country to which we are not bound by any specific trade treaty commitments except that an obligation is placed on Japan to accord most- favoured-nation treatment or national treatment to Australia to the same extent that Australia accords such treatment to Japan.

That obligation rests on Japan for a period of four years from the treaty's coming into force.

These same conditions apply likewise to Japan's relations with any of the other Allied Powers.

The continued accord of advantages, privileges or immunities by Australia to other countries of the British Commonwealth and the continued imposition of restrictions to safeguard Australia's external financial position for balance of payments reasons would be compatible with the grant of most-favoured-nation treatment to Japan for the purposes of the Peace Treaty.

Australia, of course, does not accord most-favoured-nation treatment to Japan. The Peace Treaty does not affect this position. It merely permits Japan not to accord most-favoured- nation treatment to Australia, or in other words places Japan in the same position as any other country to which we do not accord most-favoured-nation treatment.

Additionally Australia is now restricting imports from Japan mainly to essential requirements and maintaining control over all importations from Japan. Such control is being maintained in common with other countries of the sterling area in order to ensure that corrective measures are available if sterling area purchases in Japan give rise to an accumulation of sterling beyond what Japan is prepared to hold.

Although sterling funds [accumulated] by Japan will be available for certain transactions other than imports from the sterling area, the main significance of these funds to the Japanese will be for the purchase of goods from the sterling area. Repressive licensing of Japanese goods could therefore result in a decrease in sales of sterling area goods to Japan. Complete absence of licensing on the other hand might result in such an accumulation of sterling in Japanese hands that the Japanese might seek to convert the excess funds into dollars or might turn to export controls to stem the flow of exports for which they could not obtain imports in return. Experience of the trade with Japan since the conclusion of the first sterling area trade arrangements in 1948 has tended to show that the sterling area's requirements of Japanese goods are running ahead of Japanese requirements of sterling area goods.

Our own expanded imports of Japanese goods are requirements for essential type goods (mainly for building or as basic materials for processing in Australia) which we have not been able to obtain in adequate supplies from other sources.

Many of these goods are being licensed freely from Japan because of the desirability of taking advantage of present availabilities in Japan in order to obtain supplies required to meet current developmental needs in this country.

The Government, however, does not intend that the existence of any efficient Australian industry should be jeopardised because of inadequate protection against the produce of Japan or of any other country.

Japan, it is recognised, must trade, must both import and export, if she is to maintain and improve her standard of living and it is not in Australia's interest to have increasingly depressed standards of living in Japan. At the same time the government recognises its paramount obligation to protect Australia's economic structure, in which secondary industry plays so vital a part.

If we are to maintain and improve that structure and conduct trading relations with Japan, it is for Japan to observe normal international trade practices. But we are not likely to assist Japan in that direction by the indiscriminate application of repressive import controls on Japanese products. For that reason the government will continue to follow the normal procedure of extending protection to Australian industry through the Tariff or by other appropriate measures after enquiry and report by the Tariff Board.

The provisions of the Peace Treaty in no way affect the traditional policy of protecting Australian industry. The Treaty itself imposes no limit on the protection that can be afforded by means of the Tariff, nor any obstacle to the imposition of antidumping duties.

Australian legislation provides for the imposition of anti-dumping duties where the Minister of Trade and Customs is satisfied after enquiry and report by the Tariff Board that goods have been or are being sold to an importer in Australia at a price lower than the fair market value of, or a reasonable price for, the goods at the time of shipment and that detriment may thereby result to Australian industry. Reasonable price means such a price as represents the cost of production of the goods, plus such addition not exceeding 20%, as is determined by the Minister after enquiry and report by the Tariff Board, plus free on board charges, but in the absence of satisfactory evidence as to the cost of production, the Minister may fix such amount as he thinks fit as the cost of production.

In the event that the Minister is satisfied as to the dumping of the goods below the fair market value or the reasonable price, duties equal to the amount necessary to bring the cost up to the fair market value or the reasonable price shall be imposed.

A statement of the advantages accruing to Japan because of her dollar credits in obtaining short supply goods is fraught with all the difficulties attending any statement on the balance of payments or external financial position of any country.

Japan has no doubt benefited as regards her dollar income as a result of procurement of materials for the war in Korea, but it would be extremely difficult to sort out the advantages in relation to dollar earnings that have accrued to other countries and relate them to the advantages that have accrued to Japan.

Japan has admittedly an additional source of dollars for imports in the form of United States appropriated Funds. These are as shown by the following table of Japanese trade for the five months ended May, 1951, decreasing with the growth of Japan's Commercial exports and it is declared United State's policy to terminate aid to Japan as soon as that can be done without jeopardising the aims for which her aid is being given.

Japanese trade with USA (millions of dollars)

Exports Commercial Imports Total Procured from US Appropriation Funds JAN-DEC 1948 65.8 104.5 337.3 441.8 1949 79.1 142.9 432.1 575.0 1950 179.3 89.0 338.4 427.4

JAN-MAY 1950 61.1 18.7 165.4 184.1 1951 78.2 263.7 51.8 315.5

The aid given by the United States to Japan however is not solely or mainly in the form of raw materials. It arises from a recognition that Japan with her decreased resources and increased population pressures needed some relief in the post war period if she were to become viable economically.

Accordingly a major portion of American aid has been in the form of foodstuffs; in the first five months of this year almost entirely so, as shown by the following table of imports purchased with United States aid and commercial imports:-

Japan: imports by main commodities January-May 1951 (millions of dollars)

US Aid Commercial Total 57.6 904.8 Cereals 35.3 134.6 Sugar 3.7 42.8 Fodder - 10.7 Hides and skins - 20.8 Oilseeds and nuts 8.3 39.6 Rubber .2 48.2 Pulp and waste paper - 14.4 Textile fibres 1.1 416.4 Crude fertilisers and minerals not for fuel .9 27.7 Ores and scrap metal .3 30.6 Mineral fuels and lubricants 7.1 41.3 Fats and other fixed oils - 12.2 Chemicals - 13.1 Manufactured articles .4 27.6 Other goods .3 24.8

The sterling area has however foodstuffs and many raw materials in excess of its own requirements, and insofar as it is possible, it is in the interests of the sterling area to open supply and market outlets which offer Japan the possibility of trading without being tied irrevocably to trade with the United States.

That constitutes a major reason for the conclusion of the sterling area trade arrangements and the development of trade between Japan and the sterling area in the post-war period. The trade did show some initial languor because Japan could not purchase from the sterling area unless she had dollar [2] funds. It was therefore necessary that the sterling area first purchase in Japan to establish the funds necessary to finance Japanese imports. That is the function that has been performed by the purchases made in Japan by Australia and other sterling area countries. And those purchases have increased because of the increasing demand for essential materials that could not be supplied in adequate quantities from other sources.

In regard to the last portion of the honorable member's question, the Department of Trade and Customs is fully aware of the possibility that Hong Kong may be used as a port for the illegal transhipment of goods. However, it is a normal function of the Department to ensure that duties are collected in accordance with the tariff applicable to the country in which the goods are manufactured. In addition the Department is responsible for ensuring that imported goods are correctly marked in accordance with Commonwealth legislation.

1 On 16 October L.C. Haylen, ALP MHR for Parkes, NSW, had asked whether Japanese trade representatives were now permitted to attend trade talks at Geneva, whether Japan would soon become a member of GATT and thus receive full benefit of tariff concessions granted under GATT by Australia, and what action was proposed to prevent Australia being flooded with Japanese goods. Menzies had replied that a Japanese observer would be present at Geneva and that in the event of Japan being admitted to membership of GATT it would not automatically become entitled to advantages of concern to Australia. He offered to ask the Minister for Trade and Customs to prepare a statement setting out the exact position for the information of members.

2 This word should presumably be 'sterling'.

[AA : CP553/1/1, 194/B/10/109]