Canberra, April 1971¹

Confidential

Communist China: Strategic Export Controls

In decision No. 90 of 20th April, 1971² Cabinet directed that an Interdepartmental Committee consisting of representatives from the Departments of Foreign Affairs (Chairman), Prime Minister and Cabinet, Trade and Industry, Primary Industry, Customs and Excise, Defence and the Treasury, should be established immediately to prepare a report on the implications for Australia of a decision to abolish the 'China differential'. A copy of the Inter-departmental Committee's report is attached as Annex A.³

2. The Inter-departmental Committee, which met on 23rd and 28th April, reached the following conclusions concerning abolition of the 'differential' which Australia applies to exports to China:

(a) The maintenance of the 'China differential' by Australia has no practical effect on the military capacity of the PRC. China already imports from other Western countries considerable quantities of goods covered by the 'differential'.

(b) Removal of the 'differential' would be a tangible demonstration that Australia's policy towards the People's Republic of China is flexible and responsive to the limited thaw which is taking place in the PRC's relations with the outside world. While this could be seen internationally as acknowledgement that the PRC Government has been showing more interest in improving relations with Western countries, it would not prejudge in any way the nature of any decisions which we might make regarding recognition by Australia of the PRC or its admission on whatever basis to the United Nations.

(c) At the same time action to remove the 'differential' and action on the other questions incorporated in Cabinet Decision No. 90, must be recognised as representing to the PRC no more than the removal of self-imposed restraints on our trade with the PRC rather than a positive step to develop trade relations. Although removal of the restraints would certainly contribute to the establishment of a better climate within which exporters conduct trade with the PRC, by removing an area of uncertainty which has been a source of considerable inconvenience, and at times embarrassment to our exporters, it is unlikely that the PRC would show any immediate reaction in terms of increasing prospects for future sales of Australian wheat or other commodities. It would not be seen as something which in itself is of material assistance in persuading the PRC, if they are withholding trade for political motives, to change their attitude.

(d) From a trade point of view, there is a number of measures which could be adopted to improve the trade climate and to bring about the normal exchange that takes place at business level with our other trading partners. Invitations to Chinese traders, sponsored by some semi-official body, to visit Australia; visits to the PRC by Australian industry or business groups; invitations to the PRC to participate in trade fairs in Australia; and visits to China by the Trade Commissioner in Hong Kong, are examples of such measures. These involve broader considerations going beyond strategic export controls and careful consideration would need to be given to the degree of overt Government initiative and Government involvement in each enterprise, including any trade missions which might be sent by Australia or be received by us. None of the possible activities involves any necessary compromise, in the international sense, on our position towards the question of recognition of the PRC.

(e) To assist in the removal of uncertainty which surrounds export trade with the PRC, details of the goods subject to strategic export control should be published.

(f) Removal of the 'differential' would not seem to compromise in any way our relations with the United States which is itself moving quickly towards a relaxation of its trade controls (which are, of course, more strict than Australia's) with the PRC.

(g) Finally provisions concerning Australian trade with North Vietnam, North Korea and Cuba need not be affected in any way by removal of the 'differential' in respect of trade with China.

3. On the basis of these conclusions, the Inter-departmental Committee has made certain recommendations, with which I concur and which are set out below, on the abolition of the 'differential'.

4. It is recommended that:

(a) Australia should forthwith abolish the 'differential' and apply to the People's Republic of China only the current COCOM strategic export controls i.e. the Minister for Foreign Affairs would need to consider applications for export to the PRC only in respect of goods covered by the COCOM International List I Embargo, the International Watch List, the International Munitions List and the International Atomic Energy List. Administration of the Lists would be on the same basis as applied by COCOM members. (A corollary of this recommendation is that, there would cease to be quantitative limits on the volume of iron and steel and other exports covered by the 'differential'.)

(b) In circumstances where other Western countries are prepared to make 'exceptions' to the COCOM controls, Australian exporters should not be placed at a disadvantage and the Minister for Foreign Affairs, in consultation with the Minister for Trade and Industry, should have authority to permit similar 'exceptions'. With this in mind the Departments of Foreign Affairs and Trade and Industry should be asked to institute a progressive and continuing review of the COCOM lists to determine the scope for such 'exceptions'.

(c) In accordance with the practice of other Western countries arrangements should be made by the Departments of Trade and Industry and Customs and Excise to publish details of the goods subject to strategic export control.

(d) In so far as trade is subject to control, exporters should be given advance information about approvals, if necessary subject to certain criteria for supply and shipment for particular applications and, in general where applications need to be examined, they should be dealt with expeditiously.

(e) Ministers accept that there should be a positive development in Australia's trading relations with the PRC and steps of a kind enumerated in paragraph 2( d) above should be taken to improve and normalise our trading position. Action on measures of this kind would be for decision by the Minister for Foreign Affairs and the Minister for Trade and Industry.

(f) Existing export controls should be maintained against North Vietnam, North Korea and Cuba. The controls on our trade with Cuba and North Korea should be reviewed by the Inter-departmental Committee and recommendations placed before the Ministers for Foreign Affairs and Trade and Industry.⁴

R.W. Swartz

Acting Minister for Foreign Affairs

[NAA: A1838, 3107/38/18, ix]

1 The original is dated in handwriting as 'about 30-4-71'.

2 See footnote 4, Document 165.

3 Not published.

4 On 4 May, Cabinet endorsed the recommendations contained in the submission but indicated that approval of 4(e) did not denote endorsement of the particular steps recommended in 4(d). Indeed, Cabinet recorded that on all issues raised in the recommendations 'it wished to proceed carefully step by step weighing Australia's interests including its bargaining position at each stage'. It was agreed that the Prime Minister, the Minister for Foreign Affairs and the Minister for Trade and Industry would be responsible for further decisions or steps in relation to the recommendations.