85 Cablegram From Mcewen And O'sullivan To Spooner And Mcleay

3rd November, 1954

GATT 8 SECRET PRIORITY

Re: Cabinet decision on Japan [1] we have considered various aspects raised and also the new urgency because of- (a) the decision in GATT re tariff negotiations with Japan [2];

and (b) the action by the United Kingdom to inform Japan of probable line of the United Kingdom in the review session and to propose bilateral talks. [3]

With the benefit of advice from both Crawford and Meere and with their full endorsement we summarise our views as follows:

1. It would not only be unwise tactically in our subsequent dealing with Japanese but completely unnecessary to withhold a decision to talk bilaterally until we have made a very careful assessment of the extent to which we could go in offering m.f.n.

treatment to Japanese goods. Even if we finally decided that we could not offer such treatment on any lines of textiles (which we doubt) there is still some scope for manoeuvre in respect of the other 50 per cent of our trade.

2. For reasons outlined in our paragraph 3 of GATT No. 2 [4] we stress again very strongly the urgency of opening these talks and believe it desirable to notify immediately our willingness to negotiate even if in the long run the negotiations break down. In such a case we could if politically desirable (domestic or international) blame the Japanese. In the present circumstances Japan, as a good customer country, can place the blame at our door for any restrictive action that she may take in respect of our exports to Japan and we would certainly have no reply. The longer we delay notifying Japan the greater this danger becomes.

3. Much has been done over the last three quarters to ease the licensing position on goods from Japan, but by reason of the current licensing practice Japan is singled out in non-dollar world for special licensing treatment which cannot be justified on balance of payments grounds. Therefore, in our opinion, a move towards assimilation should be made immediately. We have some comments on the proposals for assimilation set out in the Trade and Customs submission but cannot at this remove speak specifically in terms of the actual items listed in various schedules. Our comments follow- (a) We agree, subject to some qualifications given later, that except for the goods of the type listed in annex C [5], imports of Japanese goods should receive ordinary non-dollar treatment.

(b) We disagree with the processed 'ceiling limitation' on goods of type listed in annex C and recommend instead a special budget on the lines of previous Japanese budgets for these goods which it is considered undesirable to assimilate fully. As it is probable that the goods included [6] from non-dollar licensing treatment may form a basis for bargaining in the bilateral talks it is suggested that it is desirable to make it more embracing than the goods which may be damaging to either Australia or the United Kingdom so that there is some margin for concession during the negotiations. The action above would indicate that we were not singling out Japan as a nation for special licensing treatment but rather that we had doubts about the damaging effects on our economy if we permitted unrestricted importation of some types of Japanese goods.

(c) We cannot express an opinion about the Trade and Customs schedule analysing on an item by item basis the possibility of according M.F.N. treatment to Japanese goods. As indicated earlier we believe such an analysis while essential to the preparation of a brief for negotiations, is not a necessary pre-requisite to a decision by government to notify Japanese of our willingness to enter into bilateral talks. As regards relationship of the above to G.A.T.T. our views are as follows- (a) We shall proceed to support United Kingdom proposals in G.A.T.T. but will time such support to give us the best bargaining counter in relation to overall issues with the United Kingdom and United States.

(b) While supporting the United Kingdom view, we would need to be mindful that there is no very great certainty that such a proposal would, in fact, prevail in G.A.T.T.

(c) In the event that it fails to win sufficient support, our line should be- (i) that we have already notified Japan of our intention to negotiate bilaterally outside G.A.T.T. and (ii) that our support of the United Kingdom proposals is indicative of our desire to solve trading problems with Japan within the context of G.A.T.T. and (iii) for the time being we shall have to resort to Article XXXV though in the hope that in our bilateral talks with Japan we can find a solution which will enable us to find it unnecessary to continue recourse to Article XXXV.

The above line would then leave us free to determine at a later date what particular method, i.e. quota restriction or valuation we might wish to resort to in our bilateral negotiations in order to enable us to be able to deal ultimately with Japan.

1 Document 83.

2 A condition precedent to Japanese accession to GATT was the holding of successful tariff negotiations between the contracting parties and Japan. The 1953 decision to allow Japan to participate pending formal accession (see note 4 to Document 50) was made because it was not then possible immediately to arrange tariff negotiations. Commencement of negotiations thus brought Japan a step closer to accession.

3 The UK Government had advised on 30 October of an aide-memoire presented to the Japanese Government proposing a middle course between acceptance of all rights and obligations in relation to Japan as a member of GATT, on the one hand, and invocation of Article XXXV on the other. It suggested proposing an amendment at the forthcoming GATT review to permit members the option of bilateral agreements overriding GATT. If this were accepted the United Kingdom would offer an agreement according Japan full m.f.n. rights subject to safeguards against dislocation of the normal pattern of trade and unfair trade practices.

4 Document 75.

5 Goods listed in Annex C of Document 81, that is, those proposed to be exempt from complete assimilation.

6. Presumably this word should be 'excluded'.

[AA : A1838/283, 759/1/7, i]