CANBERRA

1. The Australian Delegation has considered the implications for
Australian trade of the Japanese requests received on 29th August
1956. [1]

2. The Australian Government has been requested by the Japanese
Government to accord Japanese goods most-favoured-nation tariff
treatment, and import licensing treatment no less favourable than
that accorded other non-dollar goods.

3. Although individually either of these requests may not provide
insuperable problems as far as the Australian Government is
concerned, in combination they could raise important difficulties.

It is clear that the extension of m.f.n. tariff treatment to
Japanese goods would not expose Australian production or trade to
the same difficulties if Australia retained the right to impose
quantitative controls on imports of particular Japanese goods.

Similarly, the problems which would obviously arise if Japan were
accorded no less favourable licensing treatment than that accorded
to other non-dollar countries would be less difficult if no tariff
commitments were given in respect of Japanese goods. Under those
circumstances recourse could be had, when necessary, to tariff
action to prevent any serious disruption to Australian industry or
trade.

4. In short, the problems facing the Australian Government relate
to the preservation of the structure of Australian industry and
the maintenance of a stable pattern of external trade. Moreover
the extent to which competition from Japanese goods affected
Australian commerce and industry in the pre-war period, increases
the material difficulties facing the Australian Government in
endeavouring to meet the Japanese requests.

5. Nevertheless the Australian Delegation is anxious to find ways
and means of overcoming these practical trade difficulties with a
view to reaching a solution which is mutually acceptable. To this
end it seems desirable to analyse the problems which it foresees
in more detail.

6. The Japanese delegation will be aware that, by established
policy, protection for Australian industry is provided by tariffs
fixed by the Government after public enquiry and recommendation by
the Tariff Board, an independent tribunal. Depending on the
evidence presented, the Board may recommend protective duties
under the British Preferential and/or the most-favoured-nation
tariff. Whichever rate is recommended, the other is determined
after reference to Australia's contractual obligations in regard
to preference margins which are defined in the Ottawa Agreement
and the G.A.T.T.

7. The usual most-favoured-nation clause in any treaty requires
that the duty applied to imports from one country (other than a
country entitled to preferential tariff treatment) shall also
apply to similar goods from all other countries entitled to m.f.n.

tariff treatment. Because it makes no allowance for their relative
competitive position in the Australian market, the extension of
m.f.n. treatment to additional countries tends to necessitate the
raising of m.f.n. protective rates in order to ensure that
Australian industries are safeguarded against damaging competition
from the lowest cost overseas supplier.

8. The extension of m.f.n. tariff treatment to Japan would
probably necessitate substantially increased m.f.n. duties on a
number of goods where Japan's costs are relatively low. The
increased m.f.n. rates would often be unnecessarily high in
relation to exports from countries at present accorded m.f.n.

treatment and could have serious effects on their exports to
Australia. Moreover it could lead to an unnecessary increase in
the protection accorded Australian manufacturers under the tariff.

9. The probable necessity to increase m.f.n. duties on a number of
lines also presents several other problems. Firstly, many m.f.n.

duties in the Australian tariff have been bound against increase
and in those cases tariff negotiations under Article 28 of
G.A.T.T. would often be a necessary pre-requisite to any increase
in the duties. Secondly, the G.A.T.T. 'no new preference' rule
often requires B.P.T. rates to be increased to the same extent as
m.f.n. duties in order that the maximum permissible margin of
preference shall not be exceeded. The increase in the B.P.T. which
would unavoidably follow increases in the m.f.n. rates may be
quite unnecessary for protective purposes and could seriously
damage the trade of the countries affected, for example, to the
extent that it gave an unnecessary protection to Australian
industry, it would have serious effect on United Kingdom trade.

10. A further point of concern is the period of time which must
inevitably elapse before the Government can adjust individual
tariff levels because of the delays inherent in Tariff Board
procedures. Australia is committed to give the United Kingdom
three months notice before the Board can commence its public
enquiry. By the time the Board has made its report to the
Government and the Government has concluded negotiations under the
G.A.T.T. it is not unusual for 12 months to have elapsed before
the tariff can be amended. Thus the Australian Government is not
able to make rapid adjustments to the tariff to maintain the
degree of protection already accorded to Australian industry
should it need to do so because of damaging competition from
Japanese exports.

11. If no modifications were made to the import licensing
treatment currently applicable to Japanese goods, the Australian
Government would have the means of providing a protection for
Australian industry during the period required to review tariff
levels. In the absence of this alternative means of protection
certain Australian industries could be subject to severe
dislocation. Similarly there could be a sudden disruption to the
pattern of Australia's trade leading to problems in her relations
with other trading partners.

12. Thus the particular problem presented by the Japanese requests
is to find adequate assurances that, under conditions where
Australia undertakes commitments to Japan in respect of both
tariffs and import licensing, it will be possible for the
Australian Government to ensure that those commitments do not
restrict its ability, even if only in exceptional circumstances,
to maintain adequate protection for Australian industries and to
provide the basis for continuance of stability for the normal
pattern of Australia's external trade.

13. The Australian delegation would be pleased to have the
comments of the Japanese delegation on how, in the view of the
Japanese authorities, the difficulties inherent in the present
situation could be met. What steps for example might be taken by
the Japanese authorities to avoid undue disturbance to Australian
production or Australia's pattern of overseas trade? What measures
is it contemplated might be open to Australia, within the
commitments requested by Japan on tariffs and import licensing, to
ensure that those necessary objectives can be attained? It is the
understanding of the Australian delegation that the Japanese
Government has already faced similar problems in the course of
trade negotiations with the Canadian Government.

14. The Australian Delegation is seeking a way of satisfying the
Japanese requests which is compatible with the Australian
Government's traditional policy of protecting Australian
industries and which would not open the possibility of serious
disruption to Australia's external trade. The Delegation would
therefore be glad to have the views of the Japanese authorities in
regard to paragraph 13 above. The Australian Delegation will be
glad to give further consideration to the Japanese requests in the
light of views or comments which may be furnished by the Japanese
Delegation.