Canberra, March 1971¹

Confidential

Communist China: Strategic Export Controls

This submission reviews the range of restrictions currently imposed on Australia's trade with the People's Republic of China (PRC) and envisages that these restrictions should be eased. In particular, it is suggested that Australia should consider removing the 'China differential' .² In the first instance it is proposed that an Inter-departmental Committee be established forthwith to report on the implications of a decision to abolish the 'China differential'. Proposals are also made for approving applications for export to China of certain items (iron, steel, zinc and chemicals).

2. The present position is that, while Australia applies to the Soviet Union the same controls as applied by Western countries generally, in respect of Communist China we continue to apply the 'China differential' lists while other Western countries, except for the United States, do not. The United States applies a more restrictive policy on trade with China although recently this policy has been relaxed somewhat. In the light of the developments in the policies of other countries, it is becoming evident that the 'China differential' may not only have outlived its usefulness but have become an anachronism now that most Western countries have ceased to apply it. Now–at a time when other Western countries are uninhibitedly developing this market–it is simply a limitation and an inconvenience to important sectors of our economy that require and have scope for more liberal trading opportunities.

A full analysis of the origin of the present controls and of the implications for current trade policy is set out in the following Appendices:³

Appendix A–Background to current controls on trade with China.

Appendix B–Summary of reasons for a more flexible Australian trade policy.

Appendix C–Effect of controls on Australian trade with China.

Included in Appendix B is some information from British sources which suggests that the PRC might be using trade pressures to pursue certain of its political objectives. This is a factor which we should take into account.

4. The considerations set out in the attached material lead me to recommend that an Inter-departmental Committee should be established immediately to prepare a report for consideration by Ministers on the implications for Australia of a decision to abolish the 'China differential'. In the meantime, a number of applications to export iron and steel, zinc and chemicals have been outstanding for some time. Details of these applications and the manner in which I propose that we should now deal with them are set out in Appendix C. ⁴ In brief, I propose that we should now allow export of these items to go ahead but that we should phase them so that exports do not run at a level which would seem, in the light of past experience, to be excessive during the present financial year.

5. I want to make it clear that the proposals in this submission envisage no change in Australia's policy on the export to Communist China of goods with a military or nuclear significance. In addition, the submission does not comment on the implications of easing the 'China differential' for Australia's trade with countries other than Communist China to which the differential applies, i.e. North Viet Nam and Cuba, and the suggested Inter-departmental Committee might comment on this aspect. I do not envisage any change in Australia's policy on trade with North Viet Nam.

Recommendations

6. It is recommended that:

(i) in principle, as few restraints as possible should be placed on the normal development of Australia's export trade with the People's Republic of China;

(ii) we should continue to concert our policies with the major Western Powers, bearing in mind that any more strict application of strategic export controls by us than by other Western Powers can have no practical effect on the military capacity of the PRC;

(iii) an Inter-departmental Committee consisting of representatives from the Departments of Foreign Affairs (Chairman), Prime Ministers, Trade and Industry, Primary Industry, Customs and Excise, Defence and the Treasury, should be established immediately to prepare a report for consideration by Ministers on the implications for Australia of a decision to abolish the 'China differential'; and

(iv) the outstanding applications for exports should be approved on the basis outlined in Appendix C.⁵

William McMahon

Minister for Foreign Affairs

[NAA: A1838, 714/3/2, xv]

1 The source document is dated by month alone.

2 See Document 156.

3 The appendixes are not published.

4 It was asserted that controls had impinged mainly on the export of iron and steel. In outlining applications on which decisions ad to be taken McMahon recommended that preference begiven to John Lysaght (Australia) Ltd. He recommended that on applications apart from iron and steel, these be approved, provided they did not result in a major increase in the volume of exports for each item as compared to the volumes of previousyears.

5 On 20 April, Cabinet endorsed the recommendations, adding that the inter-departmental committee referred to in paragraph 6 (iii)should also examine the possibility of 'relaxing' the COCOM list, and of 'the institution of arrangements for clearance between the departments concerned of advance advice to companies seeking to trade with the PRC that approval to export would be granted in respect of particular transactions in which they may become interested'. Cabinet noted that the committee would also make recommendations, if possible, on two further applications for export that were in prospect. Finally, it was recognised that an announcement would need to be made that Australia was reviewing its trade with China. The relevant departments were asked to concert in preparing the statement.