345 Kennedy to Burton

Memorandum CANBERRA, 5 November 1948

I refer to confidential cablegram No. 3806 of 27th October, 1948 [1], from the High Commissioner's Office, London, regarding discussions on the question of most-favoured-nation treatment for Japan and the background of American economic policy for Japan.

2. In August last a recommendation was made by the Inter- Departmental Committee on International Trade, and endorsed by the Cabinet Sub-Committee that Australia should continue to oppose commitment to extend most-favoured-nation treatment to Japan 'outside the recognised peace-settlement authorities', and that any decision should be taken initially in the Far Eastern Commission and finally at the Peace Conference. It is noted that the view expressed in this recommendation was adhered to in the discussion with British Commonwealth officials preliminary to the discussions which were to have begun on 1st November, 1948.

3. It is also noted that the view has been expressed that from the political point of view it would not be practicable for Australia to extend most-favoured-nation treatment to Japan while this privilege did not extend to all allies and neutrals. Most- favoured-nation treatment by Australia is still withheld from a number of countries, including some which were allied countries during the war period, e.g., Mexico.

4. The view expressed in the course of the preliminary discussions (vide paragraph 3 of the cablegram under reference) that 'most- favoured-nation treatment for Japan would in fact, from the economic point of view, not result in any increase in the flow of trade which was governed by other factors such as the Sterling Area Balancing Agreement, exchange rates, etc.', is not considered altogether sound, in that the difference in price resulting from the application of the General Tariff rate of duty has affected the flow of goods from Japan. A significant reduction in the importation of goods from Japan might result in the unbalancing of the trade contemplated in the recent negotiations for a Trade Arrangement between S.C.A.P. and certain Sterling Area countries, including Australia, The maximum level of trade is controlled by the terms of the Trade Arrangement, and the grant of most- favoured-nation treatment could not, at present, result in any increase in Japanese imports above the agreed levels.

5. The policy of the Commonwealth Government has up to date been to refuse the grant of most-favoured-nation treatment to ex-enemy countries so long as Australia is technically at war with them, and while trade with them is being carried on under open general licences under the Trading with the Enemy Act. Australia is still technically at war with Japan, and the Trading with the Enemy Act applies. This position still obtains with regard also to Germany and Albania.

6. Australia has never accorded most-favoured-nation treatment to Japanese goods on their importation into Australia. Before the outbreak of war, Japan, as the result of an administrative arrangement with the Commonwealth Government, received Intermediate Tariff treatment in respect of a limited number of tariff items (an applying to textiles and qualified by the application of a quantitative quota). These covered the major portion of her exports to Australia, but Australia was not bound to maintain this concession, which was accorded under Section 9A of the Customs Tariff.

7. So far as concerns the general application of most-favoured- nation principles to trade with Japan in the future, it is considered that such application could only be contemplated on a reciprocal basis, and on the understanding that Australia would be at liberty to revert wholly or in part to General Tariff rates on Japanese goods, should such reversion be thought to be in the best interests of Australia. It is not thought desirable, however, that Australia should enter into any definite commitment to accord most-favoured-nation treatment to Japanese goods, since eventual de-control by S.C.A.P. of Japanese trade might result in changed conditions which would prove embarrassing should there be any binding obligation on Australia to maintain most-favoured-nation treatment, even in a modified form.

8. The absence of a stable rate of exchange for Japanese currency is an additional reason why Australia should avoid entering into a commitment of the nature suggested.

1 Document 344.

[AA:A1838/283, 731/3/3]