Control of Imports from Japan
The 'Canadian Approach' While our global imports are restricted, through licensing control, to their present level it is unlikely that the accord of m.f.n. tariff and non-discriminatory licensing treatment to Japanese goods would create real problems over the general field of Australian industry.
2. There are, however, 'pockets' where competition from Japan, even within the existing global quotas, could create serious problems. As a generalisation it may be said that these problems would arise in the case of goods where Australian production and the Australian market is relatively small and Japan's competitive position especially strong. To isolate these 'danger pockets' is the main objective of the current 'item sheet' survey of imports from Japan in the light of price data for 1955/56. 
3. The other object of the survey is to isolate the items where competition from Japan could result in severe dislocation of the pattern of our imports (or, to put it more bluntly, could cut deeply into the share of our imports supplied by the United Kingdom).
4. In the event of the accord of m.f.n. tariff and non- discriminatory licensing treatment to Japan it is assumed that it will be necessary for some form of 'special' control to be exercised over imports from Japan if only to deal with the problems referred to in paragraph 2 above.
5. It has been suggested that what is colloquially referred to as the 'Canadian line' would be an appropriate 'special' control to meet our problem. In short, the understanding between the Canadians and the Japanese is that the latter will control their exports to Canada so as to avoid any serious disruption to Canadian industries. The Canadians do not suggest a Japanese export quota for any goods, the judgement and the responsibility for the export level being left to the Japanese. If there is a 'dangerous inflow' of any commodity-and this has happened only once-the Canadians ask the Japanese to take remedial action. The Canadians are empowered, under their existing legislation, to fix arbitrary values for duty purposes in certain circumstances. This 'reserve' power could be used to check any dangerous increase in imports from Japan but it has not been used against Japan and it appears that the Canadians do not think it will be necessary to use it against Japan so long as the present understanding exists.
6. It is possible that some of our thinking about the suitability of the 'Canadian line' as a solution to our problem vis-a-vis Japan is based on the assumption that the position in Canada does not differ basically from the position in Australia. There are, however, two very important differences, viz:-
(a) For practical purposes, Canada has no import licensing restrictions whereas we have tight imports controls which are particularly severe in the case of goods which are Japan's principal traditional exports.
(b) Canada does not accord any special protection to United Kingdom exports (i.e. over and above the tariff preferences accorded to the United Kingdom against m.f.n. countries).
7. Canada's global imports have been increasing for a number of years with the expansion of the Canadian economy. This, together with the absence of import restrictions, means that:-
(i) Japanese exports to Canada, both in individual lines and in total value, can reach a fairly high (and increasing) level.
(ii) The Canadian global import level for particular commodities being fairly well ascertainable and reasonably constant, the Japanese can assess with reasonable accuracy the level to which their exports can be permitted to rise without causing serious disturbance to Canadian industries (i.e. to the only interests which the Canadians desire to protect).
8. Let us now look at the 'Canadian line' from the point of view of our own problem vis-a-vis Japan and on the assumption that we wish to protect our own industries only. (For practical purposes, under present circumstances, our interest would be confined to the 'pocket' problems referred to in paragraph 2).
9. Our permissible global import levels for goods in which the Japanese are most interested have fluctuated considerably in recent periods with relaxations and intensifications in import licensing control. For that reason it would be exceedingly difficult for the Japanese to assess the level at which they could export particular lines to Australia without damaging Australian industries. If Japanese export control were to be satisfactory from our point of view I think we would have to provide them with export control quotas for selected goods for each licensing period.
10. I consider that the Canadian line would be acceptable to the Japanese, even though modified to the extent of our suggesting the export quotas for selected lines. (The list could be kept fairly short.) It would- (A) Remove overt discrimination against Japan (and the Japanese are probably just as interested in the question of principle as they are in the actual level of their exports).
(B) Permit Japanese exports to reach a reasonable total figure (say A25m.-the severe global licensing measures against textiles and other 'B' category goods would make it unlikely that Japanese exports would be much in excess of this figure).
(C) Permit Japanese exports to reach a higher level tha[n] if discriminatory controls, in some form or other, were exercised at this end against selected Japanese goods. The Japanese could seek out quota holders willing to use all or a great part of their global quotas to import from Japan whereas, if at present, a ceiling (less than their global quota) were imposed on quota holder's imports from Japan many importers, under present circumstances, would not use any of their quota to import from Japan.
11. The Japanese are well aware of our problem, including its political aspects, regarding imports from Japan. They would, I believe, agree to control certain of their exports to a level which we might suggest provided that they are convinced we are safeguarding our industries only and not seeking to protect the trade of their competitors.
12. I see no reason why we could not come to a satisfactory arrangement with the Japanese which would, in nearly all cases, protect our own industries. We would, of course, also need to introduce legislation giving us emergency powers to take action:
(I) To demonstrate to our manufacturers that we had the power;
(II) To deal with emergency cases if only arising from imports through entrepot sources, e.g. Hong Kong.
13. While our global imports of 'B' category goods are held at their present low level, I cannot see the Japanese agreeing to limit their exports to a level which would preserve the bulk of our restricted market for imports for the United Kingdom. In the first place it would be well nigh impossible for the Japanese to assess the extent to which they could export particular lines to Australia without causing substantial damage to the United Kingdom's trade interests. In the second place, if they could assess the level or if we were to suggest the level to them, it would be obvious that their total exports could not reach a figure which the Japanese would regard as satisfactory (see my second minute of 24.9.56). This is merely an illustration of my view that there can be no basis for an agreement with Japan if we are determined to give any substantial and special protection, (other than through the preferential tariff) to the United Kingdom's exports to Australia.
14. While we must, no doubt, make a survey of the items among our imports from Japan which are of special interest to the United Kingdom, we should, I consider, concentrate on the 'pocket' items which are dangerous to our own industries. [If]  there is to be an agreement with Japan-and it is highly important that there be an agreement-special restrictive measures will need to be confined to relatively few items. [We] shall, however, have to determine the degree of restriction necessary in the case of each item and whether it is to [be on] a quantity or a value basis. But we cannot make any progress here until the 'Item sheets' have been completed in the light of price data for 1955/56.
15. Meanwhile, I am looking at the question of the legislation which it will be necessary to introduce to give us emergency powers.