40 Minute From Meere To O'sullivan

12th August, 1953

Japan's Application to Accede to GATT The Cabinet minute of the Interdepartmental Committee discusses at length the issues arising from Japan's application to accede to the GATT.

2. In the GATT context two courses are open to Australia:

(1) To invoke Article 35. In that event the obligations of GATT would not apply as between Australia and Japan. Both countries would retain the same freedom as at present to apply to the products of the other, such treatment with respect to tariff rates, import licences etc. as each determines.

(2) To refrain from invoking Article 35. In that event Australia becomes automatically committed (after Japan's accession to GATT) to accord m.f.n. treatment to Japan with respect to tariff rates, import licences and other measures affecting the importation and exportation of goods irrespective of whether tariff negotiations between Australia and Japan are successfully concluded or not.

3. In present circumstances where Japan is adjusting prices to the new situation resulting from the worldwide change from a sellers market to a buyers market, the effects on Australian and British industry of the grant of m.f.n. treatment to Japan defy a confident assessment. The Department's studies lead it to the view that the effects are likely to be serious for both Australian and British industry.

4. The essence of the problem arising out of an obligation to accord m.f.n. treatment to Japan is the Japanese low cost structure and its past use in concentrated attacks on particular markets. The problem is aggravated by the deterioration in the Australian cost structure.

5. In considering the effects of Japanese competition the position with respect to textiles demands chief consideration since textiles (chiefly cottons and rayons) account for almost 40% of Japan's total exports. In general, cottons and rayons are subject to fixed rate duties as distinct from ad valorem duties. The incidence of the fixed rate duties and the margins of preference has deteriorated remarkably with the general rise in costs and more particularly with the sharp rise in Australian costs. The duties on cottons remain at pre-war levels or lower and those on rayon fabrics are based on duty-free yarn although the production of rayon yarn in Australia has commenced. The accord of m.f.n.

treatment to Japan can therefore be expected to have very serious repercussions on the Australian textile industry. A number of other industries of smaller dimensions may be expected to suffer similar repercussions.

6. The parties to GATT have proposed additions to the 'escape' clauses of GATT with the object of alleviating the possible consequences of according m.f.n. treatment to Japan. These proposals involve the accord of m.f.n. treatment to Japan and only permit the application or retention of such special remedial measures as the GATT organisation approves. Their acceptance as a solution of the problem would leave Australia in a precarious defensive position. The Department is unable to commend them as a satisfactory solution of the Australian problem.

7. The Department recommends the following course:

(1) Preserve the right to invoke Article 35 until a decision on whether or not to invoke Article 35 becomes necessary. It is unlikely that a decision of that nature will be called for within 12 months or probably much later.

(2) Authorise the delegation to give its support to proposals sponsored by other countries for the adoption of conditions of accession which provide the greatest freedom to apply remedial measures. Such support to be given without impairing the right to invoke Article 35 at the appropriate time. The Government to be kept informed of developments in the discussions amongst the contracting parties and of the course followed by the Australian Delegation.

(3) Defer consideration of possible alternative methods of expanding trade between Australia and Japan until the GATT organisation has reached a majority agreement on conditions of accession. If the conditions remain unacceptable, consideration could then be given to the possibilities of concluding a bilateral arrangement with Japan outside the framework of GATT.

[AA : CP514/1/1, JAPAN C31]