CANBERRA

Notes on Cabinet Submission No. 174

Trade Negotiations with Japan
This submission recommends that Australia should enter into formal
trade negotiations with Japan and that we should be prepared to
offer Japan most-favoured-nation treatment in tariff matters and
non-discriminatory import licensing treatment (except where
discrimination is justified on currency grounds).

As a protection against excessive Japanese competition, the
submission recommends amendment of the Customs Tariff (Industries
Preservation) Act to allow special duties to be imposed on low
cost consignments.

The view maintained by the Treasury in the past has been not to
oppose trade talks with Japan under any circumstances but rather
to suggest that the Government would be well advised to satisfy
itself where it was heading before talks with Japan proceeded too
far.

In particular we have thought:

(a) that import licensing should not be a matter for bargaining;

(b) that an escape clause of the emergency duty type might not be
particularly effective;

(c) that the Government ought to have a clear idea how much
Australian industries would be affected before we offered
particular concessions to the Japanese.

Import Licensing
It is true that we are at present treating Japan differently from
other non-dollar countries and that this import licensing
discrimination is not justifiable on balance of payments grounds.

If Trade is prepared to recommend imports from Japan be admitted
on this basis while retaining existing import licensing ceilings,
the Treasury would have no objection.

However, it would be another matter for Australia to give
undertakings on the level at which it would licence imports of
individual Japanese goods. Japan will always be in a superior
bargaining position in trade deals with Australia and the danger
is that once import licensing becomes a matter for bilateral
bargaining we will gradually be forced to grant specially
favourable treatment to the Japanese.

You will remember, Cabinet has agreed in the past that import
licensing should not be a matter for bargaining in trade talks
with Japan. [1] It may wish to re-affirm this principle on this
occasion.

Escape Clause
We have always thought there might be difficulties attaching to
the emergency duties proposal.

(a) There is a tendency for the escape clauses to become operative
only when some local industry has already been damaged.

(b) They tend to result in the Government being subjected to
pressure from local industries feeling the pinch of overseas
competition whether emergency duties are justified or not.

(c) Whatever the circumstances in which an escape clause is
involved the other party is almost certain to allege it has been
used without proper justification.

(d) The submission suggests countries like the United Kingdom
would be mollified by the existence of an escape clause. In fact,
however, is the result not likely to be that the United Kingdom
will be displeased when we fail to use the escape clause while
Japan will be displeased if we do.

You may recall the Government did not approve a submission in
July, 1955 which proposed amendments to the Customs Tariff
(Industries Preservation) Act. These amendments had a slightly
different purpose from those proposed in the present submission
but to some extent the same objections may apply. [2] In these
circumstances Cabinet may wish to see the terms of any proposed
amendment to the Act before approving Recommendation (a)(iii).

Effects on Industry and Trade
An important defect of this submission is that while recommending
the granting of most-favoured-nation tariff treatment to Japan and
non-discriminatory import licensing, it gives no quantitative
estimate as to what these concessions are likely to mean for
particular Australian industries and for our pattern of trade with
other countries.

It may be argued the emergency duties escape clause could be used
to avoid adverse effects on local industry and other countries.

However reasons have been given above for questioning the efficacy
of the escape clause. Furthermore if local industry and other
countries lose nothing, Japan will gain nothing.

Cabinet may wish to be in possession of more detailed information
before agreeing in principle to m.f.n. tariff treatment and non-
discriminatory import licensing treatment. You will recall
Australia refused to extend G.A.T.T. treatment to Japan last year
and this was primarily a question as to whether or not we were
prepared to accord Japan m.f.n. treatment and non-discriminatory
import licensing.

Conclusions
It is not a primary responsibility of the Treasury to advise the
Government on trade matters and there is no doubt that there could
be substantial advantages in improving our trade relations with
Japan at the present time.

However, if Cabinet wished to take a cautious view on this
submission it could:-

(a) re-affirm the principle that trade negotiations with Japan
should not include bargaining by us on our import licensing
policy. (This is not to say that we could not extend non-
discriminatory import licensing to Japan but rather that we should
not lay ourselves open to pressure on individual commodities);

(b) request that Cabinet see the terms of any proposed amendment
to the Customs (Industries Preservation) Act before agreeing in
principle to the escape clause proposal;

(c) request further information on the practical effects for
Australian industry and the trade of other countries resulting
from m.f.n. tariff treatment and non-discriminatory import
licensing for Japan.