126 Brief By Morrison For Watt

31st March, 1956

CANBERRA

Australia's Economic Relations with Japan The main features of our present economic relations with Japan are:

A. Treaty of Friendship, Commerce and Navigation 2. At the opening session on 31st October l955 of the series of informal trade talks between Australia and Japanese officials held in Canberra, the Japanese asked for an indication of the Australian Government's attitude to the conclusion of a Treaty of Friendship, Commerce and Navigation.

3. The Minister told the Japanese Ambassador on 6th January, 1956, that it was doubtful whether we could conclude a Treaty which would be satisfactory. The Minister referred to our desire to

conclude such a Treaty with the United States and explained the difficulties that had arisen due to the Australian federal system and the diversity of State laws regulating many of the items usually included in such treaties.

4. Further representations on this matter were made by Mr Uyama, Counsellor of the Japanese Embassy, on 6th February, 1956. It was made clear to Mr Uyama at this meeting that a Treaty of Friendship, Commerce and Navigation was out of the question.

B. Present Discussions

5. On 6th February, 1956, the Japanese Embassy handed over a paper on which was listed a number of subjects, and on which the Japanese were anxious to conclude an understanding. The subjects listed were:-

(a) Entry, stay, travelling and residence;

(b) Business activities;

(c) Establishment of companies, branches and other establishments appropriate to the conduct of business;

(d) Foreign exchange control;

(e) Entry of goods;

(f) Customs tariff;

(g) Treatment of ships.

6. These subjects have been referred to interested Departments for their views, and as yet we are not in a position to reply to the Japanese. The following notes on some of the subjects listed will be of interest:

(a) ENTRY OF JAPANESE BUSINESSMEN

7. The Japanese Embassy on 3rd November l955 were informed of Immigration's decision that Japanese businessmen engaged in the wool trade and their families would in the future be permitted indefinite residence in Australia. All other Japanese businessmen (e.g. those associated with the wheat and barley trade etc.) and their families would only be permitted to stay for six months in the first instance, with the possibility of an extension for another six months.

8. An Immigration Department submission, which has been pigeonholed since before the election, is now with the Secretary of that Department. The submission proposes that Japanese businessmen, whose business has an annual turnover of more than 10,000, be permitted residence in Australia for seven years in the first instance. If this proposal is agreed to, Japanese businessmen would be on a similar footing to all other Asians. The only difference is that at present the required annual turnover of the business in which other Asians are engaged is only 500. [2] According to Immigration a recommendation will be made to their Minister in the near future to increase this amount to 10,000.

(b) THE ESTABLISHMENT OF JAPANESE TRADING AND BANKING OFFICES IN AUSTRALIA

9. The question of the establishment of Japanese business agencies in Australia staffed by Japanese was considered by Cabinet in August 1951 but was deferred until after the Peace Treaty came into force. The Minister for Immigration on reconsideration, decided against allowing the establishment of business agencies.

10. We do not favour the establishment of branches of foreign banks, mainly because their operations involve us in a loss of profits on foreign exchange transactions. The only foreign bank operating in Australia is the old established Comptoir National d'Escompte de Paris. We have refused a United States request to allow an American bank to operate. We can therefore claim we are not discriminating against the Japanese on this question.

(c) ABOLITION OF DISCRIMINATORY TARIFFS

11. Japanese imports are subject to the general tariff. The former Department of Commerce and Agriculture favoured m.f.n. tariff treatment along the lines of the agreement between Japan and Canada. This proposal was not favourably received by the former Department of Trade and Customs.

12. The Japanese are still pressing for m.f.n. tariff treatment.

This is our thorniest problem, and no practical solution is in sight.

(d) ABOLITION OF IMPORT RESTRICTIONS ON IMPORTANT JAPANESE COMMODITIES

13. It was announced in November, 1954, that the Australian Government had decided to assimilate licensing of Japanese imports into the system applied to the other non-dollar countries. There are, however, exceptions to this general rule, covering a reserved list of 36 commodities. [3] An importer is permitted to import from Japan, goods in the reserved list to a limit of 25 per cent of the total value of those goods which he imported into Australia from non-dollar countries during the year ended 30th June, 1954.

(This percentage was cut to 16 2/3 per cent by the recent restrictions.)

14. This decision has permitted a substantial increase of Japanese imports. Imports which totalled 4.7 million in 1952/53 and 6.5 million in 1953/54 were valued at 18.4 million in 1954/55.

15. The former Department of Trade and Customs indicated a preference for complete assimilation of Japanese imports for licensing purposes, but the Cabinet in deciding on partial assimilation pointed out that this would have the advantage of testing the strength of Japanese competition.

C Lapse of Article XII of the Japanese Peace Treaty

16. Article XII of the Japanese Peace Treaty, which provides for reciprocal most-favoured-nation treatment between Japan and the Allied Powers on commercial matters, lapses on 28th April, 1956.

Japan was obliged to accord this treatment 'only to the extent that the Allied Powers concerned' reciprocated. Australia has not accorded such treatment to Japan and Japan is, therefore, not bound to accord the treatment which we at present enjoy in Japan.

17. In response to our enquiry, the Japanese Embassy has informed us that Australia's present position would remain unchanged after 28th April, i.e. that Japan would be willing to give us most- favoured-nation treatment to the extent that we accord it to Japan.

18. It will be necessary to watch Japanese policy for any variations of its treatment of Australian nationals and commercial matters. It is quite possible that Japan may apply reciprocity if the present discussions on trade and immigration matters do not lead to the results Japan anticipates.

D. Informal Trade Talks

19. The informal trade talks between members of the Japanese Embassy and Australian officials which began on 31st October, 1955, have now concluded.

20. The talks were on an informal and purely exploratory basis. It is generally understood that these discussions will be followed by more formal talks at a later stage. The Australian attitude to formal negotiations is at present being considered and the matter is likely to come before the Ministers in the near future.

E. Australian Trade with Japan

21. Trade between Australia and Japan has increased significantly during this financial year and Japan now ranks after the United Kingdom as our most important export market. Japan is our best market for wheat and barley and our third best market for wool and sugar.

22. Australian exports to Japan in the financial year 1954-55 totalled 58.5 million whilst our imports totalled 18.4 million.

In the first four months of this financial year our exports to Japan were worth 23 million and our imports from Japan amounted to 9.1 million.

1 This paper was one of several dispatched to Watt when he took up his appointment as Australian Ambassador in Tokyo. See Document 127.

2 A note in the margin suggests this figure should read 5000.

3 See Annex C to Document 81.

[AA : A1838/283,759/1, v]