38 Unsigned Notes By Department Of Commerce & Agriculture

4th August, 1953

Japan's Accession to GATT

Japan as a country receiving m.f.n. as a right under GATT would present difficulties in relation to protection of Australian industry and UK export interests in this country.

Japan now is and was for some years before the trade dispute Australia's second most important market, mainly for wool. The UK is our most important market for wool and a wide range of commodities.

The difficulties in relation to Australian industry would arise where a commitment had been taken to any country under GATT not to increase the duty. Release from the commitments would involve counter-concessions to the other countries concerned, and to Japan where she established her 'substantial interest'.

When the duty was increased on any commodity, difficulties in relation to the UK would arise, because of the general commitment under GATT to freeze preferential margins. The Department of Trade and Customs would assume that with margins (particularly those on textiles) frozen, duties at the level sufficient to protect Australian industry against Japan would entirely kill UK trade.

There would therefore be considerable opposition to lowering duties against Japan to the m.f.n. level and giving Japan the benefits of Australian concessions and obligations under GATT.

Discussions in GATT so far have been along the lines of the application of measures not otherwise permitted under GATT when imports from any country threatened disruption of a significant sector of industry.

The Department of Trade and Customs feels some hesitance about the result of these discussions because the measures taken will require approval from the Contracting Parties, with a possible maximum delay of 30 days in obtaining approval. They would, in any event, not feel satisfied that the proposals gave assurance of adequate protection to Australian and UK interests.

It seems likely, however, that most countries will vote in favour of Japan's accession to GATT on these terms. The UK may seek to amend the proposal to allow prior action and post-approval by the Contracting Parties.

From the point of view of this Departments approval, prior or post, by the Contracting Parties is a desirable condition of any release from obligations under the agreement. If countries are to obtain releases, the releases should be controlled. Otherwise benefits obtained for export industry would be insecure.

Japan has no concessions to offer Australian trade seeing that most Australian exports enter Japan duty free. (However, she is talking of introducing a two-column tariff).

Wool is, of course, by far the most important item and Japan might take action against wool if we continue discrimination against her trade.

The facts that would tend to make Japan consider action against Australian wool are the heavy adverse balance in trade with Australia and the large outgoings for wool which brings in no export earnings but is required mainly for local consumption.

Any Japanese action that involved switching purchases away from Australia to other sources of supply would prove difficult for Japan as she would find it difficult to obtain elsewhere the large quantity of the types of wool she requires. She has stocks that would help her over a period of six months on a one shift basis.

Additionally it is considered that a reduction of purchases by Japan would not necessarily involve an undue reduction in Australian prices during the coming year. Demand for wool at present seems strong in relation to supplies.

Japanese support for the auctions has, however, been important in the post-war period, the more particularly as she competes with Bradford for the 'bread and butter' lines of the Australian clip.

In the long run, however, we should be concerned at any action that might strengthen the case for increased production of synthetics. There are no technical difficulties in switching wool processing machinery to synthetics and there seems to be considerable scope for Japanese industry to lower wool content to the level prevailing in the early post-war period. The important point in relation to increased use of synthetics is that Japan would be unlikely and probably unable to retrace any steps taken in that direction. To that extent negotiations after the event would face an impossible task.

It is true, of course, that action approved by the Contracting Parties might involve discrimination against Japan. But if this were approved by the Contracting Parties, Japan would not be legally entitled to discriminate in return. She could, of course, withdraw from the GATT, but in doing so she would lose the value of the GATT concessions and would know that the majority of countries that had voted against her in GATT would hold something the same views outside GATT.

The Associated Chambers of Manufactures has vociferously opposed Australian participation in GATT. They have the same attitude to Japan's accession to GATT. Few voices have been raised in support of GATT, nor has any organisation spoken in support of Japan's accession to it. Woolgrowers and some members of Chambers of Commerce could reasonably be expected to support these proposals.

This Department's view is that exclusion of Japan from GATT settles no problems, but the application of GATT as between Australia and Japan may offer possibilities of controlling to some extent Japan's general export and import policies. Any retaliatory measures by Japan against any move by Australia to restrict Japan's exports to Australia, provided these are based on reasonable grounds, should also be subject to more control than if GATT did not so apply.