217 Cablegram From Mcewen To Menzies

26th June, 1957

1638. CONFIDENTIAL PRIORITY

CANBERRA

Trade Treaty with Japan

Your 1465. [1] We have always been conscious of the need to maintain our levels of import from the United Kingdom if only because that was a significant factor in her ability to buy from us. Even under our new trade agreement with the United Kingdom her traders continue to enjoy guaranteed margins of preference in Australia and in practice they are receiving margins of preference which on many goods are substantially higher than those required under the Trade Agreement.

On textiles some of the preference margins are small but in the broad United Kingdom exporters continue to enjoy a substantial degree of preferment in the Australian market.

The principal effect of the proposed Treaty with Japan will be to remove some import licensing discriminations which we maintain against Japan alone and to put her goods on the same tariff footing on entry into Australia as applies to almost all foreign countries.

The action now proposed does not put Japan on the same basis in the Australian market as Britain and it is of course rank misrepresentation to speak of Australian policy as showing marked preference for trade with Japan to trade with Britain.

The primary purpose of the Treaty with Japan is simply to adjust a position in which we have discriminated severely-I would say unfairly-against a country which is our second largest customer, and to protect ourselves against the very real danger of adverse exchange of import restrictions or tariff action by Japan on a unilateral basis.

It is true that in past years this discrimination has particularly benefited British exporters to Australia, but few even of the British exporters concerned would genuinely expect Australia to persist in policies which obviously invited counter measures from our second largest market. The fact remains that the total effect of the proposed Treaty is to place Japan on the same basis for trade with Australia as other foreign countries without in any way reducing the advantages which British traders enjoy in the Australian market compared with foreign countries generally.

Even though the Treaty provides for the removal of the disabilities which have applied to Japanese trade alone amongst our foreign suppliers of goods, the arrangements with Japan in themselves are so drawn that they do not debar action by us to mitigate a sudden and serious disruption of the established pattern of imports from preferential suppliers.

India and perhaps Hong Kong are also very serious competitors with United Kingdom in textiles and some other lines, but of course United Kingdom herself is loath to restrict or place duties on imports from India.

Although as long ago as last year our officials indicated that we would be opening negotiations with Japan, and the United Kingdom authorities clearly recognised at the time that the British textile industry might be affected, it is only in recent weeks that either British industry or officials have shown concern. We offered last year in our trade talks with United Kingdom to negotiate higher contractual margins of preference on selected items of particular interest to them than the general run of margins, but they did not take this offer up.

In current discussions with the Board of Trade, departmental officers are taking pains to avoid leaving any impression that we will be likely to take emergency action (permissible under the Treaty with Japan) to control imports from Japan to protect the interests of British traders. (In this connection Crawford's cable today to Patterson [2] goes into more detail.) The fact is that we will do what we can, e.g. through action by Japan at the export end, to find remedies outside such emergency action even where the real interests of Australian industry are concerned. I am convinced that action under the emergency provisions in the early stages of the Treaty would strain it, even where Australian domestic interests were being protected. Action to protect United Kingdom trade interests would impose a greater strain. In the event of the Treaty breaking down, we would lose the trade advantages we stand to gain under it. It might also then be very difficult for the Japanese Government to hold back from some sort of counter measures against imports from Australia. From the point of view of our total relations with Japan the political and other aspects of such developments will be apparent to you.

I expect that the Agreement will be signed in Tokyo about 5th July and the actual texts should be published on that date.

We have had no word from United Kingdom Ministers. However, my personal assessment is that they are reconciled in principle to the loss of the advantages which United Kingdom exports to Australia have hitherto enjoyed quite fortuitously vis-a-vis some Japanese goods, but are casting about for a line to take with the more vocal sections of export industry. I doubt whether the United Kingdom authorities realise the weight of the circumstances of our trade and other relations with Japan or the inevitability of an agreement of the kind now in prospect. I would attach a measure of importance to their due appreciation of these points. So far as British industries are concerned, it might be useful if the Japanese Trade Treaty could be placed in perspective, as part of a comprehensive policy of stabilising Australia's conditions of trade with other countries, and not as any reduction in our high estimation of the United Kingdom market.

1 Document 215.

2 Document 216.

[AA : A1838/283, 759/1/7, vii]