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Historical documents

345 Kennedy to Burton

Memorandum CANBERRA, 5 November 1948

I refer to confidential cablegram No. 3806 of 27th October, 1948
[1], from the High Commissioner's Office, London, regarding
discussions on the question of most-favoured-nation treatment for
Japan and the background of American economic policy for Japan.

2. In August last a recommendation was made by the Inter-
Departmental Committee on International Trade, and endorsed by the
Cabinet Sub-Committee that Australia should continue to oppose
commitment to extend most-favoured-nation treatment to Japan
'outside the recognised peace-settlement authorities', and that
any decision should be taken initially in the Far Eastern
Commission and finally at the Peace Conference. It is noted that
the view expressed in this recommendation was adhered to in the
discussion with British Commonwealth officials preliminary to the
discussions which were to have begun on 1st November, 1948.

3. It is also noted that the view has been expressed that from the
political point of view it would not be practicable for Australia
to extend most-favoured-nation treatment to Japan while this
privilege did not extend to all allies and neutrals. Most-
favoured-nation treatment by Australia is still withheld from a
number of countries, including some which were allied countries
during the war period, e.g., Mexico.

4. The view expressed in the course of the preliminary discussions
(vide paragraph 3 of the cablegram under reference) that 'most-
favoured-nation treatment for Japan would in fact, from the
economic point of view, not result in any increase in the flow of
trade which was governed by other factors such as the Sterling
Area Balancing Agreement, exchange rates, etc.', is not considered
altogether sound, in that the difference in price resulting from
the application of the General Tariff rate of duty has affected
the flow of goods from Japan. A significant reduction in the
importation of goods from Japan might result in the unbalancing of
the trade contemplated in the recent negotiations for a Trade
Arrangement between S.C.A.P. and certain Sterling Area countries,
including Australia, The maximum level of trade is controlled by
the terms of the Trade Arrangement, and the grant of most-
favoured-nation treatment could not, at present, result in any
increase in Japanese imports above the agreed levels.

5. The policy of the Commonwealth Government has up to date been
to refuse the grant of most-favoured-nation treatment to ex-enemy
countries so long as Australia is technically at war with them,
and while trade with them is being carried on under open general
licences under the Trading with the Enemy Act. Australia is still
technically at war with Japan, and the Trading with the Enemy Act
applies. This position still obtains with regard also to Germany
and Albania.

6. Australia has never accorded most-favoured-nation treatment to
Japanese goods on their importation into Australia. Before the
outbreak of war, Japan, as the result of an administrative
arrangement with the Commonwealth Government, received
Intermediate Tariff treatment in respect of a limited number of
tariff items (an applying to textiles and qualified by the
application of a quantitative quota). These covered the major
portion of her exports to Australia, but Australia was not bound
to maintain this concession, which was accorded under Section 9A
of the Customs Tariff.

7. So far as concerns the general application of most-favoured-
nation principles to trade with Japan in the future, it is
considered that such application could only be contemplated on a
reciprocal basis, and on the understanding that Australia would be
at liberty to revert wholly or in part to General Tariff rates on
Japanese goods, should such reversion be thought to be in the best
interests of Australia. It is not thought desirable, however, that
Australia should enter into any definite commitment to accord
most-favoured-nation treatment to Japanese goods, since eventual
de-control by S.C.A.P. of Japanese trade might result in changed
conditions which would prove embarrassing should there be any
binding obligation on Australia to maintain most-favoured-nation
treatment, even in a modified form.

8. The absence of a stable rate of exchange for Japanese currency
is an additional reason why Australia should avoid entering into a
commitment of the nature suggested.

1 Document 344.

[AA:A1838/283, 731/3/3]
Last Updated: 11 September 2013
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