201 Notes On Cabinet Submission 593 [1]

11th April, 1957

CANBERRA

Trade Negotiations with Japan The negotiations with the Japanese Trade Delegation have advanced to the stage where the Minister is seeking support for a firm attitude on critical provisions.

The Content of the Proposed Agreement It is contemplated that Australia will give Japan most-favoured- nation treatment both on tariffs and import licensing subject to our right to impose emergency duties and possibly other measures to protect Australian industries, or the industries of our preferential partners, from serious injury by excessive Japanese imports.

Japan would bind itself to continue to give us most-favoured- nation tariff treatment. To make this effective against the background of Japanese trade practices and the special significance of United States' surplus disposals, we are seeking specific assurances on imports of particular commodities-wool, wheat, barley, sugar, dried milk etc.

The general effect of the agreement will be that each party will accord G.A.T.T. treatment to the other generally but the obligation and rights in this regard will lie in the bilateral agreement and not in G.A.T.T.

Background to Negotiations Japan is our second-best customer but the only substantial trader to whom we apply general tariff rates of duty. At present, wool is admitted duty free to Japan where it is used principally for domestic consumption. However, there is some pressure for a duty on wool to encourage the use of locally produced synthetics, and also for a revenue duty or internal tax on wool. If Japan were to take some discriminatory action against wool, or against Australian imports, we would have no redress. Ministers finally faced up to a Japanese trade negotiation at the end of 1954 when Japan was seeking admission to G.A.T.T. and we were under strong pressure to accord her G.A.T.T. treatment, or, at least, some alternative bilateral arrangement which would reduce our present discrimination against Japan. Furthermore, the Government's general attitude on foreign policy grounds has been to foster the assimilation of Japan into the Western world and to facilitate the solution of her economic problems. All these considerations have led up to the present negotiations but it does not follow that an agreement has to be reached at any price at this time.

The Balance of Advantage under the Agreement The present submission, particularly paragraph 9, could be read as stating that Japan would accept more onerous obligations under the agreement than Australia would. However, we do not think that is the case. Most-favoured-nation treatment is all the Japanese are asking, and it will be quite important to them giving them considerably increased opportunity for competition in the Australian market. On the other hand, the commitments we are seeking on commodities apart from wool might well be of short-term value. By that we mean that if we can look forward within a few years to a situation in which the United States is no longer dumping its agricultural surplus, Australia's principal exports to Japan will be able to hold their own in that market on their merits. Briefly then the advantages to Australia under the agreement are likely to be short-term gains in exports of wheat etc. and the only long-term advantage would be duty binding on wool.

When Japan is granted m.f.n. in Australia, its exports will be expanded at the cost of Western European countries some of whom have been complaining about the lack of balance in our trade with them. However, if this happens in a period of increasing imports, the effect upon other countries will not be so marked.

We suggest, therefore, that unless Ministers are prepared to give m.f.n. to Japan as something which is due to them without any substantial concessions in return, they should stand firm on the wool duty issue. Nevertheless, there is merit in the Japanese claim that this is an m.f.n. agreement, not a tariff negotiation, and we might have to settle for a declaration that Australia would consider the imposition of a duty on wool as grounds for renegotiating the whole agreement (paragraph 14(1) of the submission).

Critical Issues Raised in the Submission WOOL: Wool is now regarded by Trade and Primary Industry as the major commodity issue although considerable encouragement was given to the Japanese in the earlier stages to believe that wheat was our major commodity problem. As already suggested, we recommend that our delegation should continue to press for duty binding of wool, and, at the very least, for a declaration along the lines of paragraph 14(1).

WHEAT: It is apparent that the Japanese are prepared to go a long way to meet our wheat request, the only disagreement being upon the size of the quotas in the first two years. The Minister's views in paragraph 19 could be endorsed.

OTHER COMMODITIES:

BARLEY: Japan is now our best market for barley and they consider it highly. We ought not, therefore, to spoil our case by pressing too hard for the maximum commitment on this item.

SUGAR: The Japanese are prepared to meet us on quota, and, although at this stage we should maintain our request on tariff treatment, it is not nearly as important to us as the wool duty.

Provision for Emergency Action Cabinet's 1956 direction [2] was for the reservation of the right to take action to protect our own industries and the interests of other trading partners. However, our drafts refer only to Australian industry and preferential partners. The Japanese have indicated that they could accept a special duties provision coupled with an undertaking of best endeavours to influence their own merchants. Our delegation has only recently introduced the idea of emergency quantitative restrictions in addition to, or in place of, special duties. In our view, if a situation arose in which emergency action had to be taken over a wide range of commodities, it would mean virtually the end of the agreement. If that is so, it may well be unnecessary to seek such wide powers of emergency action. Nevertheless, if we limited our rights, and the Japanese also, to special duties it would need to be clearly understood by the Japanese that the onus was on them to see that their merchants acted so that emergency action over a wide range of commodities would not be necessary. We suggest, therefore, that if the Japanese are strongly opposed to it, we should ultimately withdraw the demand for emergency quantitative restrictions.

1 Document 197. The notes appear to have been prepared in the Prime Minister's Department by Jones.

2 Document 135.

[AA : A4926, VOLUME 24]