Trade Arrangement with Japan-Escape Clause Providing for the Imposition of Special Duties in an Emergency In the event of any trade arrangement providing for the accord of most-favoured-nation tariff and non-discriminatory import licensing treatment to Japanese goods, it will be necessary to reserve the right to take special action against imports from Japan in emergency circumstances.
2. The recent amendment to the Customs Tariff (Industries Preservation) Act  authorizing the Minister for Customs and Excise to impose special duties, in certain circumstances, has provided us with an appropriate power, under our domestic legislation, to take emergency action against imports from Japan.
3. The powers conferred by the Customs Tariff (Industries Preservation) Act are wide and provide, in the circumstances described, for the imposition of special duties on imports of particular goods from one or more countries provided that the action taken is not inconsistent with our international obligations.
4. The Japanese will, no doubt, insist that our right to take emergency action against imports from Japan be defined in any trade arrangement (or ancillary document) which we may enter into with Japan. Any emergency action inconsistent with the defined power would then be contrary to the trade arrangement with Japan and, for that reason, to our domestic legislation as well.
5. It is unlikely that the Japanese would agree to our exercise of an emergency power as wide as that provided by the Customs Tariff (Industries Preservation) Act. The type of power to which they are most likely to agree is one which conforms as far as practicable with Article XIX of the General Agreement on Tariffs and Trade.
6. It is considered that the Japanese would prefer any 'emergency powers' regarding the imposition of special duties to be provided for in an exchange of notes rather than in any trade arrangement itself. (This is the case as regards their agreement with Canada.)
7. After considering the terms of the Exchange of Notes annexed to the Canada-Japan Agreement and the terms of Article XIX of G.A.T.T. in the light of what would appear to be our requirements, I have drafted a note covering the imposition of special duties which could form a basis for further discussion on this question.
8. Several points in regard to the note call for comment. These are:
(a) The imposition of special discriminatory duties on Japanese goods:
Our domestic legislation permits the imposition of special duties which may be discriminatory or non-discriminatory as between countries. It clearly gives the power to impose special duties on Japanese goods only.
Article XIX does not permit discriminatory action against the products of any one Contracting Party.
The exchange of Notes between Canada and Japan which reserve to Canada the right to establish values for ordinary and special duty purposes do not permit discrimination against Japanese goods. Any action taken must apply equally to the products of other m.f.n.
countries and, in that sense, the power is consistent with Article XIX of G.A.T.T.
I think we are agreed that it will be necessary for us to reserve the right to take discriminatory action against Japanese goods in an emergency and that the right must be clearly recognized by the Japanese. How can this understanding be established? I would prefer it to be written into the Exchange of Notes (although this may not be acceptable to the Japanese) and there would appear to be three ways in which this could be done- (i) By including the words 'Australia reserves the right to impose special duties on goods produced or manufactured in Japan' in the opening passage of the Exchange of Notes, or (ii) By including the words 'produced or manufactured in Japan' at appropriate places in both paragraphs 1 and 2 of the Exchange of Notes. (This would present drafting difficulties as far as paragraph 2 is concerned); or (iii) By omitting any reference to Japanese goods in the Exchange of Notes, it being understood that the power to impose special duties relates back to the Australian legislation which permits discriminatory duties.
From the presentational aspect (iii) might be the most acceptable form of words to the Japanese. For clarity of meaning and ease of construction, however, I would prefer (i) and have adopted that line in the draft, the relevant words being shown in square brackets.
(b) Conformity in other respects with provisions of Article XIX:
On the assumption that the Japanese will require the emergency power to conform as far as practicable to the terms of Article XIX, 1 have included certain passages (which are shown in square brackets) in paragraphs 1 and 2 of the draft Note. Although the passages shown in square brackets would curtail our power to impose special duties, I can see no reasonable objection to their inclusion. In fact, the Japanese could reasonably insist on their inclusion.
(c) Assessment of the special duty:
No provision has been made in the draft regarding the assessment of the special duty (on the understanding that it will be assessed in the manner prescribed in the Customs Tariff (Industries Preservation) Act). The latter Act, unlike the Canadian legislation, does not fix a ceiling for the ad valorem incidence of the special duty. Under our legislation the special duty could, for example, be 100% or 200%. The Japanese have already expressed some misgivings on this point and may raise difficulties if, and when, negotiations reach the drafting stage.
(d) Interests of preferential countries, eg. the U.K.
It is possible that we may receive pressure from the U.K. to impose special duties on certain Japanese goods in cases where the request is unreasonable and/or we do not desire to take action. It might be contended, therefore that the inclusion of some such words as 'in the national interest' in the Exchange of Notes relating to the imposition of special duties would provide us with a ready answer to the U.K.'s requests. (The U.K. has included those words in her own draft legislation relating to subsidized imports).
I feel it would be absurd to include any such words in the Exchange of Notes if only because we could scarcely be expected to take permissive action unless it were in our national interest to do so. Any unreasonable request from the U.K. could be rejected on the grounds that the inflow of imports from Japan was not unforeseen or that it would not be in our national interest to take action as requested (at the same time pointing to the U.K.'s attitude) or that the Minister's power under the Act was permissive and not mandatory, implying that he would only take action if in our national interest to do so.
(e) Acknowledgment of the conformity of the 'emergency power' with the provisions of GATT The Japanese Ambassador to Canada in a note to the Canadian Minister of External Affairs on 31.3.54 said, inter alia, that 'the Government of Japan recognizes that in the application of the Agreement on Commerce signed this day, the Government of Canada has the right to establish values for ordinary and special duty purposes in accordance with terms set forth in your Excellency's Note referred to above. The Government of Japan concurs in the view that the provisions set forth in your Excellency's Note are consistent with the General Agreement on Tariffs and Trade. The Governments of Japan will also regard these provisions as continuing to be applicable in the event that the General Agreement on Tariffs and Trade is applied between Japan and Canada.' No provision similar to this has been included in the attached draft. The Japanese could hardly make such a statement if the words referred to under (a)(i) or (a)(ii) above were included in the Exchange of Notes. But they might be prepared to make such an admission if course (a)(iii) were adopted. This, however, raises another question-are we prepared to include a statement in an exchange of notes which implies that we contemplate the application of the G.A.T.T. as between Japan and Australia at some future stage? In determining our attitude in this regard we must take into account the fact that our bargaining strength with the Japanese is greater now than it is likely to be after the signature of any initial arrangement. In other words, if we do not secure a concession now we may not be able to secure it later on and an undertaking by the Japanese that they would regard a right on our part to impose (discriminatory) special duties as continuing to apply in the event of the application of the G.A.T.T. could be valuable to us at some later stage.
It appears, however, that our attitude in this matter can only be determined after further discussion among ourselves and in the light of the trend in negotiations with the Japanese.
EXCHANGE OF NOTES REGARDING AUSTRALIA'S RIGHT TO IMPOSE SPECIAL DUTIES ON JAPANESE GOODS IN AN EMERGENCY 'On the occasion of signing the Agreed Minute of discussions on commercial relations between representatives of the Government of the Commonwealth of Australia and the Government of Japan, I have the honour to inform (i)  that the Government of the Commonwealth of Australia reserves the right to impose special duties (on goods produced or manufactured in Japan] in the following terms:
1. If, [as a result of unforeseen developments and of the effect of the obligations incurred by Australia under the aforesaid Agreed Minute] any goods are being imported into its territory [in such increased quantities and] under such conditions as to cause or threaten serious injury to the domestic producers in its territory of like or directly competitive goods, Australia will be free, in respect of such goods, to impose special duties [to the extent and for such time as may be necessary] to prevent or remedy such injury.
2. If any goods, which are the subject of a concession with respect to a preference, are being imported into its territory in the circumstances set forth in paragraph 1, so as to cause or threaten serious injury to domestic producers in a third country which receives or received such preference, Australia will be free [if the third country so requests] to impose special duties on such goods [to the extent and for such time as may be necessary] to prevent or remedy such injury.
3. In determining whether special duties should be imposed in respect of any goods pursuant to paragraphs 1 and/or 2 and in determining the level of such special duties. Australia will take into account the prices of like or directly competitive goods, if any, being imported at that time from other countries.
4. Before Australia takes action pursuant to paragraphs 1 and/or 2, it will give notice in writing to Japan as far in advance as may be practicable and will afford the latter an opportunity to consult with it in respect of the proposed action. In critical circumstances, where delay would cause damage which it would be difficult to repair, action under paragraphs 1 and/or 2 may be taken provisionally without prior consultation, on the condition that consultation shall take place immediately after taking such action.'