100 Letter From O'sullivan To Menzies

13th April, 1955

CANBERRA

As you are aware, tariff negotiations are at present being conducted in Geneva between Japan and certain of the contracting parties to G.A.T.T. with a view to Japan's accession to the General Agreement. It will therefore be necessary for the Government to decide, in the near future, whether the G.A.T.T.

shall apply between Australia and Japan or whether we should invoke Article XXXV of the G.A.T.T. as against Japan.

If the G.A.T.T. were applied between Australia and Japan the principal effect, as far as Australian import trade is concerned, would be that we would be under an obligation to extend unqualified most-favoured-nation tariff treatment to Japanese imports and to restrict Japanese imports only to the extent necessary to safeguard our external financial position and balance of payments.

Australian industries have from time to time expressed grave fears of the effect of Japanese competition, even with the protection afforded by the application of the General Tariff rate to Japanese imports and we have been under constant pressure not to disturb the incidental protection afforded by import licensing control on Japanese goods. It is clear that certain important Australian industries would suffer hardship if unconditional most-favoured- nation treatment were afforded by Australia to the whole range of Japanese goods and I consider that we should not agree to the application of the G.A.T.T. between Australia and Japan, at least until a clearer picture emerges of the strength of Japanese competition.

The course open to the Government in these circumstances is to invoke the provisions of Article XXXV as against Japan. Article XXXV is in the nature of a 'safety clause' which provides, in this context, that if Australia does not participate in tariff negotiations with Japan and does not sign the Decision on Japan's accession [1], Australia is released from the otherwise automatic obligation to apply the provisions of G.A.T.T. to Japan.

We have been advised that the United Kingdom Government has notified Japan of its intention to invoke Article XXXV as against Japan and that an announcement to this effect will be made some time after Easter, although a firm date for the announcement has not yet been decided. The action of the United Kingdom means that there will be strong pressure from Australian industries for Australia to do likewise and it would be extremely difficult for us to justify failure to act in a similar manner.

Irrespective of the pressure that could arise as a result of the action of the United Kingdom Government however, I consider that it would be in Australia's best interests to invoke Article XXXV as against Japan, at least until Japan's trading position is clearer.

I therefore propose that, after the announcement has been made by the United Kingdom, I should make an announcement in terms of the attached draft press statement. [2] It would, however, be a matter of courtesy to advise Japan of our intentions before the announcement is made and I consider that, before release of the press statement, Japan should be informed confidentially of our intention (say a day or so before) so that no publicity would be given to the matter in Japan before publication in Australia.

Unless you so desire, it is not my intention to bring this matter before Cabinet by way of a formal submission.

1 The italicised words have been underlined by hand, and 'NO has been written in the margin.

2 A marginal annotation against this sentence reads: 'Hold until after Monday's Cabinet. RGM'.

[AA : A462/20, 602, iv]