134 Minute From Randall To Fadden

21st May, 1956

CANBERRA

Notes on Cabinet Submission No. 174

Trade Negotiations with Japan This submission recommends that Australia should enter into formal trade negotiations with Japan and that we should be prepared to offer Japan most-favoured-nation treatment in tariff matters and non-discriminatory import licensing treatment (except where discrimination is justified on currency grounds).

As a protection against excessive Japanese competition, the submission recommends amendment of the Customs Tariff (Industries Preservation) Act to allow special duties to be imposed on low cost consignments.

The view maintained by the Treasury in the past has been not to oppose trade talks with Japan under any circumstances but rather to suggest that the Government would be well advised to satisfy itself where it was heading before talks with Japan proceeded too far.

In particular we have thought:

(a) that import licensing should not be a matter for bargaining;

(b) that an escape clause of the emergency duty type might not be particularly effective;

(c) that the Government ought to have a clear idea how much Australian industries would be affected before we offered particular concessions to the Japanese.

Import Licensing It is true that we are at present treating Japan differently from other non-dollar countries and that this import licensing discrimination is not justifiable on balance of payments grounds.

If Trade is prepared to recommend imports from Japan be admitted on this basis while retaining existing import licensing ceilings, the Treasury would have no objection.

However, it would be another matter for Australia to give undertakings on the level at which it would licence imports of individual Japanese goods. Japan will always be in a superior bargaining position in trade deals with Australia and the danger is that once import licensing becomes a matter for bilateral bargaining we will gradually be forced to grant specially favourable treatment to the Japanese.

You will remember, Cabinet has agreed in the past that import licensing should not be a matter for bargaining in trade talks with Japan. [1] It may wish to re-affirm this principle on this occasion.

Escape Clause We have always thought there might be difficulties attaching to the emergency duties proposal.

(a) There is a tendency for the escape clauses to become operative only when some local industry has already been damaged.

(b) They tend to result in the Government being subjected to pressure from local industries feeling the pinch of overseas competition whether emergency duties are justified or not.

(c) Whatever the circumstances in which an escape clause is involved the other party is almost certain to allege it has been used without proper justification.

(d) The submission suggests countries like the United Kingdom would be mollified by the existence of an escape clause. In fact, however, is the result not likely to be that the United Kingdom will be displeased when we fail to use the escape clause while Japan will be displeased if we do.

You may recall the Government did not approve a submission in July, 1955 which proposed amendments to the Customs Tariff (Industries Preservation) Act. These amendments had a slightly different purpose from those proposed in the present submission but to some extent the same objections may apply. [2] In these circumstances Cabinet may wish to see the terms of any proposed amendment to the Act before approving Recommendation (a)(iii).

Effects on Industry and Trade An important defect of this submission is that while recommending the granting of most-favoured-nation tariff treatment to Japan and non-discriminatory import licensing, it gives no quantitative estimate as to what these concessions are likely to mean for particular Australian industries and for our pattern of trade with other countries.

It may be argued the emergency duties escape clause could be used to avoid adverse effects on local industry and other countries.

However reasons have been given above for questioning the efficacy of the escape clause. Furthermore if local industry and other countries lose nothing, Japan will gain nothing.

Cabinet may wish to be in possession of more detailed information before agreeing in principle to m.f.n. tariff treatment and non- discriminatory import licensing treatment. You will recall Australia refused to extend G.A.T.T. treatment to Japan last year and this was primarily a question as to whether or not we were prepared to accord Japan m.f.n. treatment and non-discriminatory import licensing.

Conclusions It is not a primary responsibility of the Treasury to advise the Government on trade matters and there is no doubt that there could be substantial advantages in improving our trade relations with Japan at the present time.

However, if Cabinet wished to take a cautious view on this submission it could:-

(a) re-affirm the principle that trade negotiations with Japan should not include bargaining by us on our import licensing policy. (This is not to say that we could not extend non- discriminatory import licensing to Japan but rather that we should not lay ourselves open to pressure on individual commodities);

(b) request that Cabinet see the terms of any proposed amendment to the Customs (Industries Preservation) Act before agreeing in principle to the escape clause proposal;

(c) request further information on the practical effects for Australian industry and the trade of other countries resulting from m.f.n. tariff treatment and non-discriminatory import licensing for Japan.

1 See Documents 71 and 87.

2 Submission 422 of 27 June 1955 proposed amendments in an attempt to meet criticism by the Tariff Board regarding the difficulty of ascertaining 'cost of production', as required under section V of the Act in cases where imposition of a 'dumping below cost duty' was being considered. On 29 July (Decision 554) Cabinet rejected a proposal that the Minister fix instead 'a reasonable price'.

[AA : A571/158, 57/2092, i]