Parliamentary Question-Trade with Japan

With reference to his memorandum of 3.10.51 concerning the
question asked of the Honorable the Prime Minister by Mr. Haylen,
M.P., regarding trade with Japan [1] the following details are
forwarded for the Secretary's information.

The Peace Treaty imposes no conditions restricting the freedom of
the Australian Government to protect Australian industry. It
merely places Japan in the same position as any other country to
which we are not bound by any specific trade treaty commitments
except that an obligation is placed on Japan to accord most-
favoured-nation treatment or national treatment to Australia to
the same extent that Australia accords such treatment to Japan.

That obligation rests on Japan for a period of four years from the
treaty's coming into force.

These same conditions apply likewise to Japan's relations with any
of the other Allied Powers.

The continued accord of advantages, privileges or immunities by
Australia to other countries of the British Commonwealth and the
continued imposition of restrictions to safeguard Australia's
external financial position for balance of payments reasons would
be compatible with the grant of most-favoured-nation treatment to
Japan for the purposes of the Peace Treaty.

Australia, of course, does not accord most-favoured-nation
treatment to Japan. The Peace Treaty does not affect this
position. It merely permits Japan not to accord most-favoured-
nation treatment to Australia, or in other words places Japan in
the same position as any other country to which we do not accord
most-favoured-nation treatment.

Additionally Australia is now restricting imports from Japan
mainly to essential requirements and maintaining control over all
importations from Japan. Such control is being maintained in
common with other countries of the sterling area in order to
ensure that corrective measures are available if sterling area
purchases in Japan give rise to an accumulation of sterling beyond
what Japan is prepared to hold.

Although sterling funds [accumulated] by Japan will be available
for certain transactions other than imports from the sterling
area, the main significance of these funds to the Japanese will be
for the purchase of goods from the sterling area. Repressive
licensing of Japanese goods could therefore result in a decrease
in sales of sterling area goods to Japan. Complete absence of
licensing on the other hand might result in such an accumulation
of sterling in Japanese hands that the Japanese might seek to
convert the excess funds into dollars or might turn to export
controls to stem the flow of exports for which they could not
obtain imports in return. Experience of the trade with Japan since
the conclusion of the first sterling area trade arrangements in
1948 has tended to show that the sterling area's requirements of
Japanese goods are running ahead of Japanese requirements of
sterling area goods.

Our own expanded imports of Japanese goods are requirements for
essential type goods (mainly for building or as basic materials
for processing in Australia) which we have not been able to obtain
in adequate supplies from other sources.

Many of these goods are being licensed freely from Japan because
of the desirability of taking advantage of present availabilities
in Japan in order to obtain supplies required to meet current
developmental needs in this country.

The Government, however, does not intend that the existence of any
efficient Australian industry should be jeopardised because of
inadequate protection against the produce of Japan or of any other
country.

Japan, it is recognised, must trade, must both import and export,
if she is to maintain and improve her standard of living and it is
not in Australia's interest to have increasingly depressed
standards of living in Japan. At the same time the government
recognises its paramount obligation to protect Australia's
economic structure, in which secondary industry plays so vital a
part.

If we are to maintain and improve that structure and conduct
trading relations with Japan, it is for Japan to observe normal
international trade practices. But we are not likely to assist
Japan in that direction by the indiscriminate application of
repressive import controls on Japanese products. For that reason
the government will continue to follow the normal procedure of
extending protection to Australian industry through the Tariff or
by other appropriate measures after enquiry and report by the
Tariff Board.

The provisions of the Peace Treaty in no way affect the
traditional policy of protecting Australian industry. The Treaty
itself imposes no limit on the protection that can be afforded by
means of the Tariff, nor any obstacle to the imposition of
antidumping duties.

Australian legislation provides for the imposition of anti-dumping
duties where the Minister of Trade and Customs is satisfied after
enquiry and report by the Tariff Board that goods have been or are
being sold to an importer in Australia at a price lower than the
fair market value of, or a reasonable price for, the goods at the
time of shipment and that detriment may thereby result to
Australian industry. Reasonable price means such a price as
represents the cost of production of the goods, plus such addition
not exceeding 20%, as is determined by the Minister after enquiry
and report by the Tariff Board, plus free on board charges, but in
the absence of satisfactory evidence as to the cost of production,
the Minister may fix such amount as he thinks fit as the cost of
production.

In the event that the Minister is satisfied as to the dumping of
the goods below the fair market value or the reasonable price,
duties equal to the amount necessary to bring the cost up to the
fair market value or the reasonable price shall be imposed.

A statement of the advantages accruing to Japan because of her
dollar credits in obtaining short supply goods is fraught with all
the difficulties attending any statement on the balance of
payments or external financial position of any country.

Japan has no doubt benefited as regards her dollar income as a
result of procurement of materials for the war in Korea, but it
would be extremely difficult to sort out the advantages in
relation to dollar earnings that have accrued to other countries
and relate them to the advantages that have accrued to Japan.

Japan has admittedly an additional source of dollars for imports
in the form of United States appropriated Funds. These are as
shown by the following table of Japanese trade for the five months
ended May, 1951, decreasing with the growth of Japan's Commercial
exports and it is declared United State's policy to terminate aid
to Japan as soon as that can be done without jeopardising the aims
for which her aid is being given.

Japanese trade with USA
(millions of dollars)

Exports Commercial Imports Total
Procured from
US Appropriation
Funds
JAN-DEC
1948 65.8 104.5 337.3 441.8
1949 79.1 142.9 432.1 575.0
1950 179.3 89.0 338.4 427.4

JAN-MAY
1950 61.1 18.7 165.4 184.1
1951 78.2 263.7 51.8 315.5

The aid given by the United States to Japan however is not solely
or mainly in the form of raw materials. It arises from a
recognition that Japan with her decreased resources and increased
population pressures needed some relief in the post war period if
she were to become viable economically.

Accordingly a major portion of American aid has been in the form
of foodstuffs; in the first five months of this year almost
entirely so, as shown by the following table of imports purchased
with United States aid and commercial imports:-

Japan: imports by main commodities
January-May 1951
(millions of dollars)

US Aid Commercial
Total 57.6 904.8
Cereals 35.3 134.6
Sugar 3.7 42.8
Fodder - 10.7
Hides and skins - 20.8
Oilseeds and nuts 8.3 39.6
Rubber .2 48.2
Pulp and waste paper - 14.4
Textile fibres 1.1 416.4
Crude fertilisers and
minerals not for fuel .9 27.7
Ores and scrap metal .3 30.6
Mineral fuels and lubricants 7.1 41.3
Fats and other fixed oils - 12.2
Chemicals - 13.1
Manufactured articles .4 27.6
Other goods .3 24.8

The sterling area has however foodstuffs and many raw materials in
excess of its own requirements, and insofar as it is possible, it
is in the interests of the sterling area to open supply and market
outlets which offer Japan the possibility of trading without being
tied irrevocably to trade with the United States.

That constitutes a major reason for the conclusion of the sterling
area trade arrangements and the development of trade between Japan
and the sterling area in the post-war period. The trade did show
some initial languor because Japan could not purchase from the
sterling area unless she had dollar [2] funds. It was therefore
necessary that the sterling area first purchase in Japan to
establish the funds necessary to finance Japanese imports. That is
the function that has been performed by the purchases made in
Japan by Australia and other sterling area countries. And those
purchases have increased because of the increasing demand for
essential materials that could not be supplied in adequate
quantities from other sources.

In regard to the last portion of the honorable member's question,
the Department of Trade and Customs is fully aware of the
possibility that Hong Kong may be used as a port for the illegal
transhipment of goods. However, it is a normal function of the
Department to ensure that duties are collected in accordance with
the tariff applicable to the country in which the goods are
manufactured. In addition the Department is responsible for
ensuring that imported goods are correctly marked in accordance
with Commonwealth legislation.