224 Statement By Mcewen

6th July, 1957

Australia-Japan Trade Agreement The Agreement on Commerce between Australia and Japan signed today is a notable achievement and a great stride forward in the Government's policy of consolidating in intergovernmental trade agreements Australia's existing export markets and in opening up assured new opportunities for export.

Australia and Japan are major trading partners but since the war trade between the two countries has been carried on without any framework of inter-Governmental Agreement. Consequently some Australian exports have had no protection against the risks of changing import or economic policies on the part of Japan and others have had little or no access to the Japanese market. The Agreement on Commerce signed today guards against these risks and is a major constructive step towards securing and improving Australia's trade in the Japanese market. As a result of this new Agreement Australia makes real and positive progress in the Australian balance of payments problem, and gets closer to achieving conditions in which we can push ahead with the tasks of national growth and development without the same risk of periodically having to curtail development because of shortage of overseas funds.

It is important to recognise that Japan is Australia's second best customer. She is the second largest wool market and Japanese bidding plays a vital role in the establishment of prices on the auction floor. Should the Japanese Government curtail or manipulate the exchange available for purchases of wool from Australia the result could seriously affect our total export earnings. Such a situation would reflect seriously on the whole Australian economy.

Of course, Japan like any other country could be forced to curtail her purchases if she did not have enough overseas funds, especially sterling; no trade agreement can guard against this, though of course the more an agreement helps Japan to sell abroad the more it helps her ability to import.

However, in the absence of a trade agreement a curtailment of Japanese wool buying could come at any time as the result of a deliberate change in Japanese trade or economic policies. If Australia were to continue discriminatory and unfair trade policies towards Japanese goods, especially in the light of such a heavy adverse trade balance as Japan is now running with Australia there would be a constant risk of Japan resorting deliberately to restrictive trade practices and economic reprisals.

Japan maintains a system of bilateral trade agreements and exchange allocation arrangements with other countries. In the absence of a Trade Agreement these arrangements have in some cases narrowed and in other cases blocked Australia's access to the Japanese market. Australian trade has constantly been exposed to the possibility of serious detriment resulting from changes in Japanese trading policy.

Australia's trade relations with many foreign countries are regulated through the General Agreement on Tariffs and Trade.

Australia in the absence of a satisfactory period of experience of the problems of reconciling trading difficulties has not been prepared to see the G.A.T.T. apply between Australia and Japan.

This position is maintained under the new Agreement on Commerce.

However, as a step towards the establishment of fully normal trade relations with Japan, Australia has undertaken that within the next three years discussions will be entered into with Japan with a view to exploring the possibility and examining the basis of applying G.A.T.T. to trade between Australia and Japan.

Nevertheless, without a regular trade agreement there can be no firm expectation on either side as to the treatment to be accorded by one country to the other's trade. This is completely unsatisfactory to both parties.

Benefits to Australia So far as Australia is concerned what have been the constant objectives of our negotiations? There have been two principal goals. We need a trade agreement with Japan to preserve the great stake that we already have in that market. We need an agreement also to gain important new benefits in the Japanese market. Both of these objectives have been achieved to a very large degree.

The Agreement now completed ensures that Australian exports to Japan will receive equal tariff treatment along with other foreign suppliers. It also ensures nondiscriminatory treatment in import licensing measures and exchange controls.

These clauses in the Agreement give every Australian export product for which a real market exists full rights of competitive entry into the Japanese market. Only when necessitated by Japan's overseas funds position will our exports to Japan be subjected to restrictions. No Government, of course, can surrender the right to control its imports when its overseas financial position requires a reduction of imports. The Australian Government, of course, retains the same rights in respect of imports into Australia. If, for balance of payments reasons, Australian exports are restricted on entry into Japan, we now have a guarantee that the Australian product will be treated no less favourably than the product of competing suppliers. This has not been the case heretofore. I emphasise that these provisions apply to all Australian exports present or potential to Japan.

These clauses in the Agreement cover the whole of our export trade with Japan. However, because of the way the Japanese import system operates the Australian Government has insisted on specific assurances regarding the treatment to be accorded certain, major commodities. Such specific assurances were insisted upon before the Australian Government would accept commitments in return and constituted a major consideration so far as we were concerned, in the whole negotiations.

(a) WOOL: Japan is buying between 700,000 and 800,000 bales of wool a year. Both this year and last year she has been the second largest buyer of Australian wool.

Under the Agreement the amount of foreign exchange allocated by Japan for imports of wool will be subject to restriction only to the extent that the balance of payments position requires. This safeguards us against restriction of wool for general economic considerations or other reasons.

In addition the Agreement provides that 90% of Japan's total foreign exchange allocation for wool will be in the form of a global allocation and thus available for Australian wool. This insures us against bilateral deals that might force Japanese importers to buy from specific countries other than Australia.

Finally, Australia has successfully negotiated an assurance that the Japanese Government will take no action to vary the present duty free entry for wool for the next three years. During the last year it would appear that the Japanese Government on more than one occasion has been very close to imposing a substantial duty on wool-for fiscal reasons. This assurance of duty free entry of wool for three years should be of particular value to wool, both to the extent that cost of wool in Japan is a factor in the competition between wool and synthetics and in determining the demand itself for wool.

(b) WHEAT: Virtually the only wheat that Australia has sold to Japan in the post-war period has been premium higher protein wheat which Australia produces in limited quantities. No difficulty is encountered in disposing of this wheat in overseas markets. On the other hand, despite the fact that Japan last year imported over 75 million bushels of wheat all told, roughly half of it soft wheat, Australia although a low-cost supplier exported practically no soft wheat to that country. In fact Japan's imports of soft wheat, averaging about 37 million bushels per annum, have been obtained almost exclusively from the United States. These imports have resulted from surplus disposal arrangements and tied sales.

Because of the threat which surplus disposals hold for marketing opportunities in Japan, Australia in the Agreement has secured assurances that in the event of unfair trade practices or Government disposal operations, we will be assured of an equitable or fair share of the Japanese market based on our ability to compete under normal commercial considerations. As a result of the Agreement signed today it is expected that at least in the early stages of the Agreement under normal commercial considerations Japanese imports of Australian soft wheat will be over 7 million bushels with a yearly increasing trend. Even with the limited availability of Australian higher protein wheat in the past, our exports of this type of wheat to Japan have reached about 7 1/2 million bushels in a season. It is difficult to overestimate the importance to Australia of ensuring continuing and fair access to a grain market with the potential of Japan.

(C) SUGAR: Japan has bilateral agreements with suppliers of sugar apart from Australia under which she obtains a large portion of her requirements. In past years the Japanese import system has operated in an unpredictable fashion that sometimes prevents us supplying to Japan and at other times permits Australia to sell some of its sugar on that market.

Australia has now obtained a firm position that despite the existence of certain bilateral arrangements which Japan may have with other suppliers, Australian sugar may be imported up to 40% of total sugar imports. On the basis of current import levels this would mean that the Australian industry may compete with other dollar or sterling suppliers to supply up to 460,000 tons.

While the preliminary negotiations were still going on Japan purchased in May last something like 6 million worth of Australian sugar. There would seem to be no reason why we cannot henceforth on a normal competitive basis look forward to regular and substantial exports of sugar to Japan.

(d) BARLEY: Already, under normal commercial conditions, Australia has been supplying something like 30% of the Japanese market.

Japan is, in fact, our best market for barley. This position is now assured in the Agreement and the Australian trade is now safeguarded from unfair trade practices and non-commercial arrangements which might threaten our competitive position.

(e) OTHER: Apart from the provisions on wool, wheat, sugar and barley, there is a range of other commodities such as hides, skim milk and dried vine fruit where specific assurances have been secured of reasonable access to the Japanese market.

So the Agreement ensures that all our exports are covered by most- favoured-nation and non-discriminatory treatment on import into Japan and these indications are spelled out in detail for our major export commodities.

The great market for Australian wool in Japan is now covered by guarantees against the imposition of customs duties and against import restrictions not justified by Japan's overseas funds position.

I am quite confident we can now on normal commercial considerations sell to Japan about 7 1/2 million bushels annually of our f.a.q. or soft wheats in addition to sales of higher protein or harder wheats which could amount to a further 7 1/2 million bushels or more in future seasons according to availability. Thus we may look to a substantial market for wheat in Japan in the initial stages of the Agreement, increasing as the Australian product becomes better known.

Undertakings by Australia With regard to what Australia obtains from the agreement we can be pretty well satisfied. But what have we had to give in order to get the assurances we sought? In order to secure these advantages for Australia's export trade and for the whole Australian economy, the Australian Government, having carefully examined the advantages and disadvantages of a trade agreement with Japan (and wider considerations than commercial matters were taken into account) has undertaken to accord to Japan the same tariff and import licensing treatment hitherto accorded to all foreign countries except Japan. This is known technically as most- favoured-nation treatment. This means that the duties charged on certain Japanese goods will no longer be higher than the duties charged on the same goods from other foreign countries; it also means that Australian importers within the existing balance of payments situation and according to whatever import licensing or import quota system is operating, will be just as free to import goods from Japan as they are to import from other countries, apart from the dollar area. Japan is no longer singled out for specially restrictive measures directed against Japanese goods alone.

Over the last few years and especially when imports have been restricted severely, there has in fact been pressure from Australian manufacturers and importers for the removal of the present discrimination against Japan in import licensing.

Manufacturers requiring raw materials not available in Australia and importers with quota levels seriously cut down and needing to buy shrewdly in terms of price and quality have been amongst those who have argued for the removal of the present discrimination.

On the other hand some Australian manufacturers fear, on the basis of experience pre-war, that they will be subjected to competition which, under existing levels of tariff protection, they would not be able to meet if Japanese goods were freely licensed. During the course of the negotiations Australia made it very plain that the successful development of future trade relations between Australia and Japan must depend upon adequate protection for Australian industry against serious damage from impossibly cheap imports from Japan.

With this in mind, in the new Agreement we have now an acceptance by Japan of the importance of preventing damage to Australian industry. In this regard Japan assumes a responsibility for action at the stage of export from Japan, to prevent a damaging unrestricted flow of Japanese exports. It is clearly provided under the Agreement that the Australian Government retains full freedom to take action to protect Australian industry from serious damage if that is threatened. The position of Australian industry is fully safeguarded both as to long-term tariff action as well as the freedom of Australia to use whatever non-tariff measures may be justified by any particular situations. Australia has this power under Australian legislation and retains this freedom under the new Agreement with Japan.

The Agreement provides for consultation with the Japanese authorities before special action is taken under these safeguards.

Such action will only be taken where a satisfactory alternative solution cannot be worked out on a cooperative basis with the Japanese authorities. Moreover, since unreasonable resort to special action of this kind would jeopardise the great advantages secured for Australia as a whole under the Agreement, the Government will act under this provision only in cases where it is satisfied that the facts of a situation fully justify any such action in national interest to protect an Australian industry against serious damage.

The Government expects that this Agreement will give a stimulus to foreign competition in Australia, between foreign suppliers.

Suppliers of goods from other countries now competing with Japan under the same tariff and import control conditions will not be able to ignore this new competitive element. This will not be without benefit to Australia's cost position.

To summarize the effect of the new agreement, It gives a new basis of security for the great trade Australia already does with Japan.

It gains new and important benefits for Australian export to Japan.

The provisions of the Agreement safeguard Australian rights of access to the Japanese market on terms at least as favourable as those of any other country. This applies to all Australian products for which there is export opportunity in Japan.

It gives duty free entry for Australian wool for the next three years.

It provides that financial restrictions will not be imposed on the purchase of Australian wool or other commodities, except as justified by Japan's overseas funds position.

It assures continued competitive access to the Japanese market for Australian hard wheat.

It provides, and this is more important to us, a new market of great potential importance for Australian soft wheat.

It provides some safeguard for the whole of our wheat trade with Japan against inter-Government non-commercial wheat deals and unfair trade practices on the part of competing supplying countries.

It promises a total market in Japan of fifteen million bushels for Australian wheat with real prospects of increase.

It secures the present Japanese market for Australian barley-the largest single market for this product.

It provides reasonable licensing treatment for our commodities generally and assurances in particular for Australian hides, tallow, dried vine fruits, skim milk. Under the Agreement Australia places Japan on the normal trading basis that all other countries enjoy in import licensing treatment and that almost all foreign countries enjoy in tariff treatment.

Australia will enter into talks with Japan within the next three years on the possibility and the basis of the application of G.A.T.T. to trade between Australia and Japan. Experience under the Agreement will provide a basis for judgement. The Agreement looks to an expanded two-way trade between Australia and Japan. It does not expose Australian industry to a flood of Japanese goods, but it achieves for the Australian economy as a whole a substantial and solid contribution to stability in overseas trade.

It reduces to a marked extent the risks of checks and blockages to our programmes of development through severe fluctuations in our overseas financial position.

[NLA : MENZIES PAPERS MS4936/21/440, FOLDER 18]