50 Submission 614 To Cabinet By Mcleay

30th January, 1954

Australia's Commercial Relations with Japan

1. The purpose of this submission is to recommend that informal trade talks be held with the Japanese Embassy as a matter of urgency.

2. On 27th January, 1954, I conveyed this proposal in letters which I addressed to the Prime Minister, the Treasurer, and the Ministers for External Affairs, Trade and Customs and National Development. The Prime Minister felt that this matter could appropriately be considered by Cabinet.

3. On four occasions in the last ten months, the Japanese Government has drawn attention to the need for securing relaxation of the Australian import restrictions on Japanese goods. [1] It has been pointed out to us that a sharp decline has taken place in Japan's sterling reserves, that our relaxations of last July affecting Japanese goods have had little positive result, and that further relaxations should be effected as soon as possible so as to enable Japan to continue to be a good customer for Australian products.

4. In May, 1953, the Japanese Government proposed that an informal talk take place as soon as possible with a view to improving trade relations between the two countries. In our reply to this invitation, it was indicated that the proposed discussions were not considered necessary. [2] The suggestion for informal talks was renewed in November last, but the Japanese Note Verbale containing this proposal has not yet been answered.

5. The Japanese Ambassador's Aide Memoire of 14th January, 1954 [3], copy of which is attached, contains a number of points which cannot be lightly dismissed. A market in Japan for a substantial quantity of wheat would be most useful at this juncture. With a record exportable surplus of barley available from the recent harvest, it would be unfortunate if Japan-our principal customer for barley at present-were to reduce her purchases.

6. Already Japan is taking substantially less Australian wool this season.0ur greasy wool exports to that market during the five months ended 30th November, 1953 were 38% by value lower than in the corresponding period in 1952. The Australian Embassy, Tokyo, states that the decline in Japan's purchases of our wool is due to her sterling difficulties and not to a diminution of demand.

Japan's total wool imports have in fact increased, Argentine and Brazil featuring prominently in the trade.

7. Australia, Canada and New Zealand were among the limited number of GATT Contracting Parties which abstained from signing the Declaration regulating the commercial relations of the signatories and Japan. [4] The Canadian Government has, however, been conducting bilateral discussions with Japan since June, 1952, and New Zealand has informed Japan that she is prepared to do so.

Australia, on the one hand, has rejected Japan's multilateral approach through GATT for closer commercial relations and, on the other hand, has also refused to enter into bilateral discussions.

It is relevant to mention here that proposals have been made in Japan for the imposition of higher duties on imports from countries (such as Australia) which do not extend most-favoured- nation tariff treatment to Japanese goods.

8. Ministers will be aware that a full investigation of Australia's trading position vis-a-vis Japan is being made by a number of Departments concerned and I expect that the report will shortly be available for Cabinet. Whilst policy decisions on our commercial relations with Japan should no doubt await Cabinet's consideration of this review, I feel we should inform the Japanese Government without further delay that we are prepared to arrange informal talks as soon as possible between a small group of senior officials and the Japanese Embassy in Canberra. The senior officials might be drawn from the Departments of External Affairs, Treasury, Trade and Customs, National Development and Commerce and Agriculture.

9. Such informal discussions could embrace such matters as a full explanation of our present import licensing policy, the extent of relaxations in licensing restrictions on Japanese goods, the current trade position of the two countries, the decline in recent months in the Sterling Area's trade with Japan, Japan's sterling and dollar reserves position and the present trade policy of the Japanese Government.

10. These informal talks would bring to light any misunderstandings at present affecting our commercial relations and would pave the way for full-scale bilateral trade talks if these were later found to be desirable. I think such informal talks, clearly stated as aiming only at the exchange of information, could be entered into without commitment on future action by Australia, and would serve the useful purpose of demonstrating that it is not our intention indefinitely to hold Japan at arm's length in trade matters.

11. I recommend that the proposal contained in paragraph 8 above be approved. [5]

1 Documents 24, 46 and 48. See also Note 2 to Document 22.

2 Document 37.

3 Document 48.

4 Japan had been invited by decision of the contracting parties on 23 October 1953 to take part in the work of GATT. Australia abstained on the vote for this provisional participation (see Documents 41 and 45) and did not sign a declaration allowing members to promise GATT provisions for Japan in the interim period until Japan acceeded. Alan Rix, Coming to Terms: The Politics of Australia's Trade with Japan 1945-57, Allen & Unwin, Sydney, 1986, p.131.

5 A note on the file, dated 2 March, records that the submission was removed from the business list at the direction of the Secretary to Cabinet.

[AA : A4905, VOLUME 22]