64 Minute From Shaw To Casey

27th July, 1954

CANBERRA

Australia's Trade Relations with Japan It is understood that the problem of making some adjustment towards correcting Japan's present heavily adverse balance of trade with Australia will come before Ministers very shortly in two ways, namely:

(i) through a Cabinet agendum proposed by the Minister for Trade and Customs based on a report of an Expert Committee, composed of the Departments of Trade and Customs, Commerce and Agriculture, Treasury and National Development. [1]

This report surveys the economic problems associated with trade with Japan but makes only one recommendation designed to afford Japanese imports into Australia some short-term alleviation under the import licensing controls. It explicitly avoids such longer term issues as the extension of most-favoured-nation tariff treatment to Japanese goods, and the accession of Japan to the GATT.

Similarly, the report does not deal with approaches made to us by Japan to hold trade discussions.

(ii) through informal discussions with interested Ministers, proposed by the Minister for Commerce and Agriculture.

It is understood that these discussions will embrace the projected review of the GATT, as well as the problem of Australia's trade relations with Japan. (A separate note is attached on GATT questions apart from that of the accession of Japan. [2])

2. The case for giving Japan increased opportunities of trade is covered in some detail in the comprehensive paper being submitted to you for the information of Cabinet, on outstanding questions in regard to Japan. [3]

3. The interests of the Department of External Affairs run parallel to those of Commerce and Agriculture, which is apprehensive of a severe reduction by Japan of imports of wool and foodstuffs from Australia, unless Australian imports from Japan are facilitated through relaxation of the import licensing controls and tariff concessions. Our objectives to some extent conflict with the concern of Trade and Customs to protect Australian industry. Treasury appears to be in rather a dilemma at the moment, since admittedly there is no ground for maintaining the present discrimination against Japan, in exchange control policy, on balance of payments grounds. National Development's interest presumably runs parallel to Trade and Customs.

4. There is, moreover, a certain degree of pressure-not exerted directly as yet-from the United Kingdom for Australia to refrain from granting most-favoured-nation tariff treatment to Japanese goods such as textiles which might thus compete more effectively in the Australian market with British products. The UK, however, herself accords m.f.n. tariff treatment to Japanese goods.

Although the UK avoided undertaking any obligation to continue this treatment, on the other hand Japan is obliged to reciprocate under the terms of the Peace Treaty. The UK also has negotiated a Payments Arrangement with Japan, under which agreement was reached on levels of trade.

5. France and Australia are the only major trading countries which do not extend m.f.n. tariff treatment to Japan. France's attitude is doubtless dictated by her own difficult economic position and high-cost production. Australia applies the General Tariff (the highest rate) to Japanese goods. Under the import licensing system we accord her less favourable treatment than that given all other countries outside the dollar area. In 1952/53 our imports from Japan amounted to only 4.7 million against exports of 84 million.

Relaxations have brought the permissable level of licensing to 21million, but it is doubtful whether firm orders actually reach this level. Moreover, under the 'administration' control system import quotas for particular goods are not publicised or made known in any way, and the Japanese complain with some justice, that this uncertainty is a deterrent to traders.

6. There is no easy solution of the problems, on the one hand, of affording Japan access to the Australian market on equitable terms and, on the other, of providing assurances to the Australian manufacturing interests against their fear of severe competition from cheap Japanese goods and a recurrence of the harmful trade practices associated with prewar Japanese trade (although it is understood that as far as Australia is concerned, there has been no evidence of either).

7. The following proposals have been discussed to some extent with the interested Departments and it is felt that they represent limits, within which Cabinet might agree to authorise trade discussions with Japan.

Import Licensing 8. The objective should be the elimination of the existing discriminatory element and the placing of Japanese goods on a par with imports from other countries outside the dollar area. The original basis of discrimination, which lay in the possibility of an adverse balance of trade resulting in a dollar liability to Australia, has disappeared. Although the Government has not committed itself specifically in relation to Japanese goods, it has reiterated many times that import restrictions are not intended to be used for purposes of protection of local industries.

9. It is considered that the non-protection principle is the best answer to opponents of the admission of Japanese goods, together with the ancillary argument that they should look for protection to the Tariff Board.

10. It may have to be conceded that equality of treatment to Japan under the import licensing system can only be reached by progressive steps, to avoid abrupt dislocation of Australian industries but a definition of this as the ultimate policy objective would prepare Australian manufacturers and should satisfy the Japanese.

11. In the meantime, it is thought that a part relaxation of the Australian import restrictions, on a unilateral basis, as proposed by the Expert Report referred to in para. 1 (i) above, would be bad tactics. The Report recommends relaxation on items which offer no detriment to Australian industry. It would be better to agree to such a relaxation (naming specific goods), as a first step, in trade discussions with Japan.

Tariff Treatment 12. Anything short of accord of m.f.n. tariff treatment would present problems as difficult as the extension of complete m.f.n.

treatment. New Zealand has reached an agreement with Japan under which each party will accord m.f.n. treatment to a range of imports from the other (i.e. New Zealand has virtually excluded from this agreement goods manufactured in that country). However the question is entirely different for New Zealand, which does not manufacture the range of goods produced in Australia. For Australia, the task of sorting out items for different tariff treatment would be very difficult, politically, in the face of pressures from business interests, and, in the outcome, little increased trade for Japan would be likely.

13. The major question is whether extension of general m.f.n.

tariff treatment is possible with sufficient safeguards to satisfy Australian industries that their interests can be protected against a flood of Japanese goods.

14. In the first place there is, of course, the machinery of the Tariff Board, but, while this is very important, the procedures are time-consuming and the Board's powers are probably insufficient to cope with the kind of problems which may arise. A higher tariff recommended by the Board normally has general application, whereas action might only be indicated against imports from Japan.

15. The best example of the type of safeguards needed seems to be the Trade Agreement recently negotiated by Canada with Japan.

Under that Agreement, Canada, while according m.f.n. treatment to Japanese goods reserved the right to establish values for duty purposes, on which duties would be assessed in respect of any Japanese goods entering Canada in such increased quantities as to cause or threat[en] serious injury to Canadian producers of like or competitive products.

16. One difficulty is that the Australian Tariff Act does not permit of the establishment of special values for duty, but this could be met by amendment of the Act.

17. If such an Agreement were achieved with Japan (and there is ground to believe Japan would be quite willing to accept limiting conditions, provided there is a prospect of increased trade), it should solve the problems connected with Japanese accession to the GATT. We should be able, as Canada has done, to stipulate that our bilateral agreement with Japan would continue in operation even if we applied the GATT to Japan, i.e. make the GATT, in respect of Japan, subordinate to the bilateral agreement. While the USA which is very anxious to ensure trade concessions for Japan, which would assist the latter's international position, would doubtless reckon any inconsistency with GATT as one of the costs necessarily incurred.

Summary 18. It is recommended that you should propose- (i) trade discussions be undertaken with Japan. These should be held in Australia to obviate criticism of undue pressures and to permit of ready access to Ministers for direction.

(ii) that authority be given to the Australian negotiators to endeavour to secure agreement within the following limits- (a) extension of m.f.n. tariff treatment to Japanese goods, with adequate safeguards on the lines of the Canadian/Japanese Agreement.

(b) equality in import licensing treatment with goods from other countries outside the dollar area. (But see possible practical limits in para 10 above).

(c) inclusion in any bilateral agreement reached with Japan that the agreement will continue even if Japan accedes to the GATT and Australia applies the GATT to Japan.

(d) on the Japanese side, Australia should secure the continuance of m.f.n. tariff treatment of Australian goods, and the best treatment obtainable under Japan's import licensing controls in respect of the entry of Australian goods. (Commerce and Agriculture would be responsible for the details of this.)

1 Document 61.

2 Not published.

3 Document 65.

[AA : A1838/278, 3103/10/2, iii]