Australian-Japanese Trade Relations In your submission to Cabinet of 28th July, 1954, dealing with Australian-Japanese relations generally , you emphasised the urgent need to help reduce the attraction for Japan of seeking closer trade relations with communist China and the Soviet Bloc by showing that Australia is prepared to provide a reasonable outlet for Japanese exports. Attention was drawn to the increasingly serious position of Japan's balance of payments and the fact that as Japan's imports are mainly basic raw materials, there is little prospect of her reducing imports. The point which attracted the interest of the Minister of Commerce was the importance of maintaining Japan's capacity to buy Australian wool. You may recall that Japan has not had answers to two notes asking Australia to enter trade discussions in view of the serious imbalance of Japanese trade with Australia.
2. In a Cabinet sub-committee on 14th September the Ministers concerned considered a submission on trade with Japan and agreed in principle that we should inform the Japanese that we were agreeable to bilateral trade talks but that the decision should not be conveyed until after the London talks. 
3. Mr McEwen and Senator O'Sullivan, following their talks in London, have urged very strongly that we should announce to Japan that we would have trade talks and they stress the technical advantages of initiating these talks before the GATT meeting commences on 28th October. 
4. The Interdepartmental Committee has been discussing the basis on which bilateral talks would take place. An agreement similar to that entered recently by Canada with Japan seemed the most satisfactory line. This would give generally most-favoured-nation treatment to Japanese imports but retain the right for Australia to adjust values for tariffs in order to protect ourselves if the need arose. The Department of Trade and Customs have argued that they would encounter administrative difficulties with such an agreement. The alternative was that the talks should be based on a quota principal for Japanese imports which would probably be unacceptable to Japan.
5. On 25th October the Department of Trade and Customs announced that their Acting Minister, Senator Spooner, had agreed to a submission to Cabinet  outlining and emphasising the difficulties in the way of Australia's making trade concessions to Japan, and by inference suggesting that the previous decision in principle that we should have bilateral trade talks should be rescinded.
6. It is obvious that to attain the ends which we had considered necessary, namely giving to Japan some opportunity to rectify to some degree her imbalance of trade with Australia, we must do so at the expense of imports from a third country or countries or Australian industry. If any sort of bilateral agreement is to be acceptable to Japan it must affect the export industries of other countries or Australian industry. Action by our part merely to stabilise the present out-of-balance levels with Japan would conflict with our wider objective of assisting Japan to achieve greater economic viability.
7. It is the view of this Department that we should announce to the Japanese immediately that Australia is willing to enter bilateral trade talks. We consider that an agreement on the Japanese-Canadian type would be preferable, although there would be administrative difficulties which Customs would have to take care of. Even if these difficulties were proved to be insurmountable, a basis for bilateral negotiation would still exist in an agreement on the quota principle if we do not seek to have excessively harsh restrictions written into it. The important thing for us is to let the Japanese know that we are willing in principle to undertake bilateral talks. It is probable that the Japanese would immediately enquire whether such talks constituted tariff negotiations within the meaning of the GATT, as their aim is to be admitted to membership of the GATT. In our view, membership of GATT will depend on the extent to which the agreement can be amended so as specifically to allow for bilateral arrangements which would give us safeguards outside the agreement.
But this is a later issue, and the present principle of announcing to the Japanese at once that we will talk trade to them is all that needs immediate decision.
8. The Department of Customs are not advising whether an agreement with Japan should be on the Canadian lines or on the quota idea.
Rather they are saying that no basis exists for an agreement at all. In the circumstances, it is submitted that at the Cabinet meeting on 26th October we should work for the following time table:
(a) an immediate re-affirmation by Cabinet of the decision already taken that in principle we agree to the holding of bilateral trade talks with Japan;
(b) that a sub-committee of Cabinet should this week decide whether the proper basis for such an agreement should be the Canadian model or the quota approach. The sub-committee should try to pin-point Customs administrative difficulties in carrying out a Canadian type agreement and try to assure themselves that these difficulties can be overcome;
(c) the Minister or Department of External Affairs should be authorised, if possible at the end of this week, to notify the Japanese Ambassador in reply to the Japanese outstanding notes that in principle Australia will undertake bilateral trade talks with Japan;
(d) the actual commencement of the talks need not take place for several weeks, in which time the full implications of what we must give to the Japanese can be worked out.