131 Notes On Cabinet Submission No. 174 [1]

17th May, 1956

CANBERRA

Trade Negotiations with Japan

Summary This submission suggests that Australia enter into negotiations with Japan with a view to concluding a trade agreement covering most-favoured-nation tariff and import licensing treatment. We feel that Ministers should be certain they realise the implications of the proposals in relation to our trade with the United Kingdom and our domestic industries but nevertheless we recommend support of the proposals. We make the suggestion that negotiations should be placed in the hands of Trade, but subject to the oversight of all of the Departments concerned.

Content of the submission The submission points out that Japan is an important and expanding market for Australian goods mainly wool, wheat, barley and possibly sugar. At the moment these goods enjoy fairly equitable treatment in the Japanese market although there is room for improvement in the treatment of grains especially in relation to the receipts of surplus disposals from the U.S.A. On the other hand, we discriminate very severely against Japan with respect to both the tariff and also import licensing. If our treatment of imports from Japan does not improve there is a very real danger that they will discriminate against our exports to them-not just in retaliation but more likely in order to economise in their spending of sterling.

The Minister suggests that in the negotiations we seek from Japan commitments to safeguard our export interests in her market e.g.

in tariff treatment, import licensing treatment, her internal economic policies on major Australian commodities (wool, wheat and barley), and opportunity of prior consultation in respect of proposed receivals of aid for surplus primary commodities from U.S.A. which might prejudice Australian trade interests.

In return in order for the trade agreement to mean anything for Japan we would have to offer commitments to extend most-favoured- nation tariff treatment to Japan and, subject to currency considerations, the same import licensing treatment as is extended to non-dollar countries generally.

The Minister points out that these concessions are likely to raise problems for the protection of Australian industries and also for export industries in the U.K. and other major supplying countries.

Textiles would be the main item involved and so would other consumer goods such as crockery and toys. It is suggested therefore that we negotiate an 'escape clause' to allow us to impose special duties or quotas to prevent serious damage to Australian industries or to the trade of established suppliers to the Australian market like the U.K. This would require special legislation.

The Minister points out that the fact of our negotiations with Japan and especially proposals for an escape clause will be very useful in our dealings with the U.K.

The proposed negotiations with Japan have no immediate connection from Australia's point of view with the question of the application of the G.A.T.T. to trade relations between Japan and Australia.

Comment We feel that we must underline the fact that for a trade agreement to mean anything to Japan it must provide an opportunity for her to increase her exports to us. For the moment this will operate within the overall framework of our import licensing and will not therefore mean any increase in total imports-it will mean a shift in their source mainly at the expense of the U.K. The submission is proposing an escape clause to prevent serious damage. This escape clause will be the crux of the whole negotiations and we have no guarantee that Japan will accept one that will allow us to protect third countries. However we do not know what is possible until we start negotiations. When import licensing is relaxed, our own industries might well feel the pinch but the process will be gradual and no sudden shifts are likely. The proposed escape clause should provide sufficient safeguard in this event although there is always the chance of some damage occurring before it can be brought into operation. The difficult task with the escape clause will be to persuade the Japanese to extend it to cover the interests of third parties.

We feel that these risks must be faced if we are ever going to do anything to correct the present unsatisfactory situation of our trade relations with Japan. A more satisfactory basis is overdue, and it is a wonder that there has not been any retaliation so far.

The proposed negotiations should enable us to safeguard the present position of our exports to Japan and give us an opportunity to expand them. With careful negotiations and with the right sort of attitude from the Japanese there is a good chance that the difficulties will be overcome.

Recommendation The recommendations of the submission are supported. However, these negotiations go beyond the purely trade sphere, and because of the interest of other Ministers, we suggest that while the actual negotiations should be handled by the Minister for Trade and his officers, they should be subject to the oversight of a group of Ministers-the Prime Minister, Treasurer, Ministers for Trade and External Affairs. These departments should also be consulted.

Common courtesy as well as its tactical benefit in the forthcoming trade discussions with the United Kingdom, warrant advice to the United Kingdom of our intention to negotiate in advance of any public announcement.

1 Presumably prepared in the Prime Minister's Department. No source is given.

[AA : A4926, VOLUME 8]