General Agreement on Tariffs and Trade
The Seventh Session of the Contracting Parties to the General
Agreement on Tariffs and Trade will commence in Geneva on 2nd
October, 1952. An Advance Agenda for this Session has been
circulated by the Executive Secretary and will be considered by
the Ad Hoc Committee on Agenda and Intersessional Business (on
which Australia is represented) at a meeting commencing on 4th
September, 1952.

A pre-sessional meeting of Commonwealth representatives will be
held in London between 23rd-27th September, 1952.

The guidance of Ministers is sought on the items likely to be
discussed at the Seventh Session. Comments on the various items
listed on the Advance Agenda are attached hereto. It will be noted
that in a number of cases communications or reports are awaited
and the nature of the discussion at the Session will depend on the
contents of these reports.

Although Japan's accession to GATT is not listed on the Advance
Agenda, Japan has requested accession and in accordance with
established procedures this question will be discussed at the
Seventh Session. A special paper on Japan is attached.

Attachment

SECRET

JAPAN AND GATT
1. The purpose of this submission is to obtain Ministerial
direction regarding the attitude to be taken by the GATT
Delegation to Japan's application to accede to GATT and to enter
into tariff negotiations with Australia and 27 other contracting
parties to GATT.

2. Article XII of the Japanese Peace Treaty
In addition to the GATT application and in order to comply with
Article XII of the Peace Treaty, Japan has sought advice from
Australia regarding the extent to which Australia intends to
accord national or most-favoured-nation treatment to Japan.

Article XII declares Japan's readiness to enter into negotiations
with each of the Allied Powers for the conclusion of treaties or
agreements to place their trading, maritime and other commercial
relations on a stable and friendly basis. Pending such treaties or
agreements, Japan undertakes to accord most-favoured-nation
treatment with respect to customs duties and national treatment
with respect to shipping-in both cases only to the extent that the
Allied Power accords Japan national or most-favoured-nation
treatment.

We have not replied to the Japanese Ministry of Foreign Affairs on
this matter. The Australian Embassy was instructed 'merely to
indicate to the Ministry of Foreign Affairs that the contents of
the note had been forwarded to Canberra for the consideration of
the Australian Government, and to make no comment, particularly as
regards the possibility of extension of m.f.n. treatment.'

3. Article XXXV of GATT
Should Australia desire that Japan be excluded from GATT, the
formal action (assuming a sufficient number of countries were in
favour to enable this stage to be reached) would be to vote
against Japan's accession and to withhold signature of the
Protocol of Accession. A two-thirds vote in favour would be
required for Japan's accession (there are at present 34
contracting parties).

If Japan should accede to GATT, the Agreement or alternatively
Article II, i.e. the Article implementing all the tariff
concessions already negotiated under GATT, would not apply as
between Australia and Japan if the two parties had not entered
into tariff negotiations with each other and either party, at the
time Japan became a contracting party, did not consent to such
application.

4. Japan and GATT-Questions for Consideration
Japan's application to accede to GATT raises the following primary
questions for Australia:

(1) Whether Australia desires to exchange M.F.N. with Japan, and
to have GATT applying as between Australia and Japan.

(2) Whether Australia proposes to enter into tariff negotiations
with Japan.

5. Exchange of M.F.N. with Japan
Present Position. At present Australia applies the general tariff
to Japan. However, imports from Japan are restricted through
import licensing measures practically to essential goods
unobtainable from easier currency sources. The restrictions are so
severe that present trade presents no index to the competitive
position of Japan under more normal trading conditions. In Japan
the same rates of duty apply to all countries, but the tariff
provides for the application of penal rates of up to 100%. Imports
are strictly controlled, but most of Australia's exports to Japan
are of an essential character. Exports to Japan 1951/52 are
provisionally stated at A47 1/2 million (predominantly wool).

Imports amounted in 1951/52 to A42 1/2 million under rigorous
import licensing.

6. Difficulties in the Way of Application of GATT as between
Australia and Japan
(1) If Japan were accorded M.F.N. treatment, Australia would no
longer be free, in general, to apply special rates higher than
M.F.N. rates to Japanese goods. In many cases the M.F.N. rate
would be 'bound' to another country. Whilst this difficulty might
in part be overcome, in respect of protection of Australian
industry, by action under the 'escape clause' or 'anti-dumping'
provisions of GATT, we do not have the basic information on post-
war Japanese trading position to know whether they would be
appropriate or effective.

(2) Because under GATT preferential margins cannot be increased,
raising the rate of duty (i.e. the M.F.N. rate) on a particular
item imported from Japan would involve raising commensurately the
B.P.T. rate on the like goods from UK, probably beyond the level
at which the United Kingdom could compete in the Australian market
against the Australian-made product.

(3) In tariff negotiations under GATT in 1947 and subsequently
Australia has undertaken commitments, e.g. in binding rates of
duty to foreign countries, which would probably not have been
undertaken if Japan had full rights under GATT to those
concessions. With respect to the 'escape clause', in any case
where Japan had a 'substantial interest', she would be entitled,
under the GATT provisions, to be consulted when a concession was
being revoked, even though the concession had been negotiated with
some third country.

(4) The GATT sets restraints upon Australia's freedom to impose
quantitative restrictions upon imports from Japan on other than
balance of payment grounds. Export restrictions could also come
under scrutiny.

7. Advantages
(1) Australia would be assured of M.F.N. treatment for her wool
and other goods exported to Japan. There would be no question of
retaliatory action by Japan. Japanese treatment of Australian
exports would be subject to the common code of rules set forth in
GATT. Australia would enjoy any tariff concessions made by Japan
in favour of other countries on commodities exported by Australia.

(2) Japan, in her international trade practices, would be subject
to the provisions of GATT and the scrutiny of the Contracting
Parties as a whole. It would be open to any Contracting Party to
raise a particular issue in the GATT forum.

8. International Political Considerations
With the conclusion of the Peace Treaty, Japan has sought and
gained admission to all UN agencies with the exception of I.C.A.O.

which she has not yet sought to join. Her admittance to GATT would
be in accordance with the principle of Japan's reentry into
international organisations in her own right as a sovereign
nation.

Japan's participation in these international organisations is
desirable with a view to her alignment with the non-Communist
world and also because of the possible attitude of other countries
of South and South East Asia.

It is essential that Japan be given opportunity to develop and
maintain a viable economy. The pre-war factors of population
pressures and limited resources still determine the nature of the
Japanese economy, to which extensive foreign trade is vital.

Japan's exclusion from GATT would deprive her of the advantages to
be gained from trading with the greater part of the free world on
terms generally as favourable as other major trading nations and
would give her strong inducements to redirect her trade towards
the USSR and China. It might also lead to undesirable
concentration on trade with South East Asian countries. If Japan's
future trade pattern is on a global basis and not dependent on any
one area, the less reason will she have to use political pressures
in order to find markets for her exports.

Opposition to Japan's entry might well result in an unfavourable
reaction from other South and South East Asian countries which are
parties to GATT, i.e. Ceylon, India, Indonesia and Pakistan. On
the economic plane at least, there has been growing recognition by
the countries of South and South East Asia over recent years that
Japan has an important role in the area as a supplier of capital
goods and essential consumer goods such as textiles. Japan was
recently admitted to the Economic Commission for Asia and the Far
East, a U.N. regional organisation which the countries of South
and South East Asia control.

Japan has already been admitted to the I.L.O. and I.M.F.; these
agencies seek to impose on members an internationally recognised
discipline in relation to the fields that they cover-labour
conditions and national currencies. On the score that the GATT
tends to impose a discipline in relation to international trade it
is desirable that Japan participate in rather than be excluded
from General Agreement on Tariffs and Trade.

9. Attitude of Other Countries
It seems that the question of Japan's accession to GATT presents a
problem to a number of contracting parties, including the United
Kingdom, Canada, France and New Zealand. The United Kingdom
Government states that the question of Japan's accession to the
GATT raises quite special difficulties for Commonwealth countries
because of the no-new-preference rule. Under this rule increases
in M.F.N. duty rates directed against protecting domestic
industries against Japanese competition would automatically make
it necessary to raise the duties on similar goods from
Commonwealth countries who attach value to imperial preference.

(The United Kingdom wish to learn the views of other Commonwealth
countries on this aspect of the matter).

The forthcoming GATT meetings may afford Contracting Parties an
opportunity to devise a solution to the problem of Japan's
accession to GATT which may be acceptable to most contracting
parties and to Japan.

10. Australia's Situation
On trade grounds, in view of the importance of Japan as a buyer of
Australian wool, grains and other products, the best possible
trading relations should be maintained with Japan. With respect to
imports into Australia from Japan, however, it is necessary that
Australia retain the freedom necessary to ensure adequate
protection for Australian industry against excessive Japanese
competition. It may also be considered desirable that Australia
continue to be free to take adequate steps to safeguard United
Kingdom interests in the Australian market should the occasion for
such measures arise.

Whatever the treatment Australia accords to imports from Japan, it
is to be expected that Japan will reserve her rights to treat
Australian exports to Japan similarly.

Japan is one of the most important buyers of Australian wool and
her importance is increasing. In 1951/52 she bought 12% by volume
of Australian greasy wool exports, Only UK, USA and France took
larger quantities.

Per capita consumption of wool in Japan is still well below pre-
war figures and population is rapidly increasing. Subject to
general economic conditions the prospective Japanese demand for
wool is strong and a rising level of purchases may be expected.

Pre-war Japan ranked second among Australia's wool customers. In
the mid-thirties, however, she showed she was quite prepared in
reaction to Australian policies to discriminate against Australian
wool and other products. In 1935 she imported from Australia 94%
of her total raw wool imports. In 1937 the figure was 38%. It is
in part true that because Japan then bought more South African and
New Zealand wool, other countries to the extent they were thus
deprived of supplies of wool from South Africa and New Zealand,
turned to Australia. Nevertheless, a marked withdrawal on the part
of a normally strong bidder must weaken the market. It exposes the
market, for instance, to a substantially greater shock if another
important customer (e.g. UK or France) temporarily loses interest.

Japan's importance arises in part from the fact that she usually
buys the 'bread and butter lines' of the Australian clip, which
are also Bradford's main interest. The stiffening given to the
market in these types from the presence of strong Japanese
competition was particularly evident in the 1951/52 season.

Japan's reactions to any particular trade policy on the part of
Australia cannot be predicted, but due regard must be paid to her
importance as a market for Australian wool.

11 Suggested Approach
Problems arising out of Japan's possible accession to GATT are not
confined to Australia. The contracting parties may endeavour to
work out arrangements under which it would be possible to apply
the GATT in some modified form as between Japan and another
country whereby (say in Australia's case) Australia would retain
sufficient liberty of action to prevent serious prejudice to the
interests of Australian industry or to interests of other
Commonwealth countries enjoying preferences in the Australian
markets. Whilst it is difficult to foresee what form compromise
arrangements of that nature might take, the Australian
representatives might usefully be authorised to consult with
representatives of other Commonwealth countries and of other
contracting parties as to possible compromise arrangements.

12. Tariff Negotiations with Japan
The possibility of tariff negotiations with Japan cannot be fully
canvassed until the conditions or limitations which might be set
to Australia's obligations to Japan under GATT are known.

In the meantime it is necessary, in accordance with the terms of
Article XXXV, if Australia is to reserve completely the position
under GATT in respect of Japan, not to enter into tariff
negotiations.

It is, therefore, suggested that this matter might be further
considered when the position under the General Agreement is
clearer.

13. Conclusion
(1) At this stage it appears that if Australia opposed Japan's
accession to GATT, accession (on some terms or other) would
nevertheless take place. On this assumption, the alternatives for
Australia would be either to invoke Article XXXV and thus avoid
for the present the application of GATT as between Australia and
Japan, even though Japan were a party to GATT, or to seek along
with similarly disposed Commonwealth countries and other
contracting parties, a compromise solution under which the GATT
would apply, but only subject to certain qualifications which
would safeguard Australia's position in certain directions.

(2) It is, therefore, submitted for Ministers' consideration that
the Australian delegation be authorised to proceed as set out in
paragraph 11 above, reporting back from London developments in the
pre-GATT discussions among Commonwealth countries.

(3) With respect to tariff negotiations:

(a) Australia should not oppose Japan entering into tariff
negotiations with other contracting parties.

(b) No action should be taken which would limit Australia's
freedom to invoke Article XXXV.

(c) The question of Australia entering into negotiations with
Japan should be considered later in the light of developments. [2]