81 Submission 153 To Cabinet By Spooner

25th October, 1954

SECRET

Import Licensing of Japanese Goods and the Proposed Trade and Tariff Talks with Japan

In connection with Cabinet submissions Nos. 135 and 142 [1], the Department of Trade and Customs submits for consideration the following line of approach in the matter of.

(a) The assimilation (partial) of Japan into the import licensing system applicable to non-dollar countries.

(b) The proposal for Trade and Tariff talks with Japan with a view to placing the trade and tariff relations of the two countries on a more satisfactory basis but also taking GATT factors into consideration.

First Step A decision should be taken by the Government on the Department's specific proposals relating to the partial assimilation of Japan into the licensing arrangements applying to imports from non- dollar countries. These proposals are explained in Annex A. [2]

Following a survey directed towards listing all goods which are regarded as likely imports from Japan two tabulations are attached, viz:-

Annex B: listing the principal goods proposed for assimilation into the non-dollar licensing system.

Annex C: listing goods which the Department proposes should be excepted from complete assimilation.

Second Step If the Government approves the Department's import licensing assimilation proposals, the Ministers abroad to be informed of the specific proposals and consulted before the assimilation plans are put into effect. If Ministers abroad concur, the proposals can be put into effect independently of developments in the 'Trade and Tariff Talks' field.

Third Step A decision should be taken by the Government on the Department's submission (Annex D) bearing on 'Trade and Tariff Talks' aspects of the matter including the aspects having relationship to G.A.T.T. questions.

Fourth Step The decision of the Government on 'Trade and Tariff Talks' aspects to be conveyed to Ministers abroad to obtain their reactions and to avoid them embarrassment in their dealings either with Commonwealth countries or with G.A.T.T. matters.

Fifth Step When the proposals for the assimilation (partial) of Japan into the non-dollar licensing system are finally approved by the Government and by the Ministers abroad, they could be put into effect promptly thereafter, if that course is desired. It is assumed that the Government does not propose to negotiate with Japan on licensing assimilation issues but act voluntarily.

Sixth Step When the reactions of Ministers abroad bearing on 'Trade and Tariff Talks' aspects have been received, a final decision as to how those aspects are to be dealt with vis-avis the Japanese Government would be taken.

Annex C

COMMODITIES RECOMMENDED FOR LIMITED ASSIMILATION WITH OTHER NON- DOLLAR IMPORTS

COMMODITIES TARIFF ITEMS Cotton piece goods, 105(A)(1)(a), (b), (c) and (d) Furnishing and upholstery fabrics 105(A)(3) Cotton flannelettes 105(C) Artificial silk piece goods 105(0)(1) Velvets, velveteens and plushes 105(E)(1) Waterproofed piece goods 105(H)(1) Trimmings and ornaments for attire 106(B) Buttons 106(F)(3), (4) and (5) Ribbons 107(A) Artificial flowers and fruits 109 Dress gloves 113(B) Handkerchiefs 120(B)(1) Towels and towelling 120(C)(1)(b) Flat bed knitting machines 168(A)(3) Domestic sewing machine heads 168(B)(2) Filament lamps (except motor vehicle types) 180(0)(2) Cutlery 197(B)(2) Aluminiumware 204(B)(1) Tools of trade 219 Portland cement and clinker 234(A) and (D) Porcelaineware for electrical purposes 237 Flooring and wall tiles 240(A) Crockery and other chinaware and porcelaine 241 (B) ware Glassware 250(C)(2) and (F) Sulphur 275(A)(1) Plywood 291(M) Articles for games (including sporting gear)310(A)(2) Toys 310(B) Artificial jewellery 314 Cinematographs 320(A) and (B) Spectacles and sunglasses 321(A)(2) and (3) Elastic (up to 6 inches in width or diameter)331 (B)(2)(b)(1) and (2) Pencils, pencil cases, fountain pens 346(A)(1), (C), (D), (E) and (F) Bags, baskets, cases, purses etc. 376(A), (B) and (C) Cotton yarn 392(A)(1) and (5) Artificial silk yarn 392(G)

Annex D

TRADE AND TARIFF TALKS ASPECT The form of any tariff agreement depends essentially on two factors:-

(a) the structure of the Customs Tariff of the country whose Tariff must be amended to put the agreement into effect;

(b) the nature of the Tariff concessions granted and the tariff and other obligations assumed in the Agreement.

The Department has therefore anticipated the concessions and commitments which Japan can be expected to seek if negotiations for a Trade and Tariff Agreement are opened, and presents for consideration its detailed recommendations as to the tariff concessions which appear to be both possible and impossible.

(These recommendations are limited mainly to those items on which the duties applicable to Japan would be lower if Australia accepted an obligation to accord m.f.n. treatment to Japan.) The Department has taken that action because it is very evident that it is the only way of illustrating the nature and dimensions of the very difficult issues which need to be decided before serious negotiations with Japan could be contemplated.

The exercise and the detailed studies which it has involved lead the Department to the following views:-

(a) The present Tariff as it applies to Japan is out of date. This applies particularly to the pre-war specific rates which were used extensively as protection against low value Japanese imports.

Post-war, the Tariff Board when recommending m.f.n. rates on a number of items stated that reference back to the Board may be necessary if Japan is granted the m.f.n. tariff.

(b) The import licensing restrictions maintained against Japan since 1941 have been applied so selectively that no one is in a position to assess the possible intensity of Japanese competition in particular products under a more liberal import regime.

Experience over the last year since the facilities for the importation of Japanese goods have been extended to a wider range of goods suggests that many surprises may be expected.

(c) It appears unlikely that the Government will find it possible to concede Japan the m.f.n. tariff rates on all items unless that concession is associated with some quantitative limit having discriminatory application to Japan.

(d) The Canadian Agreement with Japan provides no answer to Australian problems. The Canadian approach may be suitable where an embarrassing increase in imports is expected only as an exceptional event in the future. It is unsuitable where an embarrassing increase is already foreseeable.

(e) If the Government, after considering the departmental recommendations on individual items, accepts that the accord of m.f.n. rates must be associated with quantitative restrictions, the UK proposal in the G.A.T.T. context for rules to permit agreements providing for discriminatory quotas or duties to protect domestic industry or the export interests of other countries against 'disruptive or manifestly unfair competition' from Japan would go part of the way to meet the Australian position if the proposal is accepted by the Contracting Parties.

Acceptance appears doubtful.

(f) It appears very unlikely that the frame work of the G.A.T.T.

provisions could be used as the basis for a satisfactory Agreement between Australia and Japan. In that case it would be necessary to avoid negotiations with Japan in the G.A.T.T. context, and to refrain from signing the Protocol of Japan's accession when the time comes to make decisions on those matters. (Probably in November and June respectively).

(g) As the G.A.T.T. is to undergo review and it cannot be foreseen what new rights and obligations it may include, it does not provide a satisfactory framework for dealing now with the special problems associated with Japan.

(h) At present, the Department cannot see a basis for assuming that it would be possible to negotiate with Japan a formal agreement of the kind which the Japanese Government could be expected to accept, for the reason that, as the Department sees the difficulties, it would involve Japan's formal acquiescence in the application of discriminatory treatment to her major exports.

This view is of course dependent on the decisions yet to be taken by the Government as to the concessions possible on the individual Tariff items.

(i) The most practical course appears to be one of informing Japan that the Government proposes to examine, with goodwill, ways and means of affording Japan greater opportunities to expand her export trade to Australia, and to follow a policy of progressively easing import restrictions on Japanese goods (especially discriminatory import restrictions) whenever developments under the proposed more liberal licensing arrangements reveal that special protection against Japan is unnecessary on particular products. In addition Japan could be accorded, on a non- contractual basis, m.f.n. tariff rates on as wide a range of goods as protective considerations (and possibly preference considerations) permit. After Australia has had actual experience in trading under the more liberal conditions, experience may show that a basis exists for a formal Tariff Agreement with Japan.

1 Documents 73 and 78.

2 Annexes A and B are not published.

[AA : A4906, VOLUME 6]