61 Submission 5 To Cabinet By O'sullivan

June, 1954

CANBERRA

Trade with Japan On 2nd September, 1953, (Decision No. 833) [1], Cabinet directed the Departments of Trade and Customs, Commerce and Agriculture, National Development and the Treasury to undertake a full investigation into Australia's trading position vis-a-vis Japan.

2. The report made pursuant to this direction is submitted herewith.

Attachment

SECRET

Australia's Trading Relations with Japan Canberra, 23 June 1954 [matter omitted]

G. CONCLUSIONS 56. It is to the economic advantage of both Australia and Japan that trade between the sterling area and Japan should be maintained at a high level. This is of course a sterling area problem. However, Australia is the largest sterling area exporter to Japan and the need to safeguard this important export trade suggests that we cannot leave it to other sterling area countries to make opportunities for Japan to earn more sterling.

57. Significant relaxations have already been made in the value and range of Japanese goods which may be licensed for import into Australia. The fact remains, however, that there are no satisfactory currency reasons for treating Japanese goods differently from other non-dollar goods. Consequently Australia is exposed to Japanese complaints and possibly retaliation.

58. Japan's overall balance of payments is weak, being highly dependent on special American dollar receipts whose duration is uncertain. The position has been deteriorating over the last year.

Japan therefore urgently needs to expand her exports.

59. Such evidence as we have about Japan's present competitive strength indicates that she is a weaker competitor than before the war. Hence Australia and other countries appear to have much less to fear than formerly from Japanese competition. It is noted, however, that Japan's level of costs is liable to change and its future is hard to predict. Japan will probably be driven by economic circumstances to adjust the structure of the economy and take deflationary measures to reduce costs. In the meantime, because of the need to expand exports, Japan has an incentive to sell particular commodities from time to time at prices below domestic cost of production. It is noted also that the information being gathered in Australia on Japanese prices is still very tentative. These factors clearly justify caution.

60. Because of these uncertainties, the Committee has concluded that the present is not the time for long-term decisions on our trade relationships with Japan. Nor, in the Committee's opinion, would it be appropriate to decide immediately the policy to be adopted in relation to questions that will perhaps come up for consideration in the near future, such as, for example, the application of the GATT, in some form or other, to our commercial relations with Japan or the granting of most-favoured-nation treatment to all or some imports from Japan. It would seem to be better to deal with such questions when they actually arise.

61. It seems highly probable that the Japanese Government will renew its request for trade discussions with Australia. The Australian Government can define its attitude to such a request in the light of the circumstances at the time the representations are made.

62. The Committee is of the opinion that, in the meantime, the following short-term measures can be recommended:-

(a) As a first step towards the removal of discriminatory licensing of imports from Japan, those Japanese products which, in the opinion of the Minister for Trade and Customs, offer no detriment to Australian industries would be given the same licensing treatment as that applied to other non-dollar imports.

This process of assimilation could be spread over several licensing periods.

(b) The present system of discriminatory import licensing should be continued in respect of those Japanese products which, in the opinion of the Minister for Trade and Customs, offer detriment to Australian industries. The control of these imports should be relaxed from time to time in such a way as to- (i) permit the real strength of Japanese competition to be tested;

and (ii) allow Australian manufacturers reasonable opportunities to establish before the Tariff Board their need of increased tariff protection.

This recommendation visualises the licensing of at least token quantities of Japanese goods at present not being admitted at all, such as finished rayon piece goods, canvas and duck and cotton drills. There would be no question of admitting quantities sufficient to disrupt Australian production.

1 Document 43.

[AA : A1838/278, 3103/10/2, iii]