89 Cablegram From Menzies To Mcewen And O'sullivan [1]

12th November, 1954

269. SECRET

CANBERRA

1. Our 255. Ministers have considered the further views in support of your proposal [2] but have decided to adopt the assimilation proposals set out in Submission 153. [3] In coming to this decision the following factors were important:

Firstly, we want to keep import licensing commitments out of any trade bargain with the Japanese. It is important that we retain for ourselves the greatest possible freedom of action in using such controls. We have avoided commitments with other countries on import licensing and if we now changed our approach it would be difficult to avoid giving similar commitments to other countries.

It is realized, of course, that import quotas may well prove to be the protective device we will want to include in any agreement with Japan. But this is an issue upon which no final view has yet been taken by us and pending such view we do not want to assume that any important part of concessions by us would be made by limiting our rights in respect of import licensing for protective purposes. As we want to keep our hand as free as possible on this matter it is our strong view that any decisions taken now on licensing of Japanese imports can and should be taken on their present merits irrespective of the possible outcome of the trade talks with Japan.

Secondly, we have approached this problem of licensing of Japanese goods mainly from the standpoint that there was a real need to give Japan some early opportunity in increase export earnings.

Since there were no longer balance of payments reasons for special controls against Japanese goods we should remove the discrimination as far as we are able. The proposals in Submission 153 will give Japan the opportunity to make some early significant increase in her exports and at the same time provide protection of our important trading interests, particularly textiles. Japanese gains should be at the expense of other overseas suppliers and not Australian production.

Thirdly, the budget proposal would necessitate some lifting of overall ceiling level of imports if Japan is to make any worthwhile gains. In view of the latest estimates of the balance of payments position we do not feel able at this stage to approve a higher overall ceiling and unless the assimilation proposals give Japan some reasonable opportunity to increase her trade there does not seem to be any point in pursuing them.

Fourthly, the most optimistic expectation is that it would be at least six months before there could be any successful outcome to the negotiations and there is a real possibility that they will break down completely as you recognise in your GATT 8. These possibilities conflict with the general approach previously agreed that we should place our licensing of Japanese goods on a more satisfactory basis as early as practicable.

Fifthly, we feel that the fact that we have made some worthwhile changes in the licensing regime will create a favourable atmosphere for the opening of the negotiations already approved and will facilitate those negotiations to the extent that it gives us a better knowledge of Japanese trade potential.

We propose to put this decision on assimilation into effect as quickly as possible and to announce it early next week.

1 In Geneva.

2 On 10 November McEwen and O'Sullivan reaffirmed their view that the question of licensing treatment of Japanese goods should be considered in conjunction with the commencement of trade negotiations, and that it would be unwise to surrender any potential bargaining power. Assimilation of all Japanese goods into the non-dollar budget with a restriction to 25% of base year quotas for items on the reserved list (that is, Annex C to Document 81) would place the Japanese in a much more satisfactory position than would the proposal in paragraph 3(b) of Document 85.

On file AA : A1838/283, 759/1/7, i.

3 Document 81.

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