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201 Notes On Cabinet Submission 593 [1]

11th April, 1957

CANBERRA

Trade Negotiations with Japan
The negotiations with the Japanese Trade Delegation have advanced
to the stage where the Minister is seeking support for a firm
attitude on critical provisions.

The Content of the Proposed Agreement
It is contemplated that Australia will give Japan most-favoured-
nation treatment both on tariffs and import licensing subject to
our right to impose emergency duties and possibly other measures
to protect Australian industries, or the industries of our
preferential partners, from serious injury by excessive Japanese
imports.

Japan would bind itself to continue to give us most-favoured-
nation tariff treatment. To make this effective against the
background of Japanese trade practices and the special
significance of United States' surplus disposals, we are seeking
specific assurances on imports of particular commodities-wool,
wheat, barley, sugar, dried milk etc.

The general effect of the agreement will be that each party will
accord G.A.T.T. treatment to the other generally but the
obligation and rights in this regard will lie in the bilateral
agreement and not in G.A.T.T.

Background to Negotiations
Japan is our second-best customer but the only substantial trader
to whom we apply general tariff rates of duty. At present, wool is
admitted duty free to Japan where it is used principally for
domestic consumption. However, there is some pressure for a duty
on wool to encourage the use of locally produced synthetics, and
also for a revenue duty or internal tax on wool. If Japan were to
take some discriminatory action against wool, or against
Australian imports, we would have no redress. Ministers finally
faced up to a Japanese trade negotiation at the end of 1954 when
Japan was seeking admission to G.A.T.T. and we were under strong
pressure to accord her G.A.T.T. treatment, or, at least, some
alternative bilateral arrangement which would reduce our present
discrimination against Japan. Furthermore, the Government's
general attitude on foreign policy grounds has been to foster the
assimilation of Japan into the Western world and to facilitate the
solution of her economic problems. All these considerations have
led up to the present negotiations but it does not follow that an
agreement has to be reached at any price at this time.

The Balance of Advantage under the Agreement
The present submission, particularly paragraph 9, could be read as
stating that Japan would accept more onerous obligations under the
agreement than Australia would. However, we do not think that is
the case. Most-favoured-nation treatment is all the Japanese are
asking, and it will be quite important to them giving them
considerably increased opportunity for competition in the
Australian market. On the other hand, the commitments we are
seeking on commodities apart from wool might well be of short-term
value. By that we mean that if we can look forward within a few
years to a situation in which the United States is no longer
dumping its agricultural surplus, Australia's principal exports to
Japan will be able to hold their own in that market on their
merits. Briefly then the advantages to Australia under the
agreement are likely to be short-term gains in exports of wheat
etc. and the only long-term advantage would be duty binding on
wool.

When Japan is granted m.f.n. in Australia, its exports will be
expanded at the cost of Western European countries some of whom
have been complaining about the lack of balance in our trade with
them. However, if this happens in a period of increasing imports,
the effect upon other countries will not be so marked.

We suggest, therefore, that unless Ministers are prepared to give
m.f.n. to Japan as something which is due to them without any
substantial concessions in return, they should stand firm on the
wool duty issue. Nevertheless, there is merit in the Japanese
claim that this is an m.f.n. agreement, not a tariff negotiation,
and we might have to settle for a declaration that Australia would
consider the imposition of a duty on wool as grounds for
renegotiating the whole agreement (paragraph 14(1) of the
submission).


Critical Issues Raised in the Submission

WOOL: Wool is now regarded by Trade and Primary Industry as the
major commodity issue although considerable encouragement was
given to the Japanese in the earlier stages to believe that wheat
was our major commodity problem. As already suggested, we
recommend that our delegation should continue to press for duty
binding of wool, and, at the very least, for a declaration along
the lines of paragraph 14(1).

WHEAT: It is apparent that the Japanese are prepared to go a long
way to meet our wheat request, the only disagreement being upon
the size of the quotas in the first two years. The Minister's
views in paragraph 19 could be endorsed.

OTHER COMMODITIES:

BARLEY: Japan is now our best market for barley and they consider
it highly. We ought not, therefore, to spoil our case by pressing
too hard for the maximum commitment on this item.

SUGAR: The Japanese are prepared to meet us on quota, and,
although at this stage we should maintain our request on tariff
treatment, it is not nearly as important to us as the wool duty.

Provision for Emergency Action
Cabinet's 1956 direction [2] was for the reservation of the right
to take action to protect our own industries and the interests of
other trading partners. However, our drafts refer only to
Australian industry and preferential partners. The Japanese have
indicated that they could accept a special duties provision
coupled with an undertaking of best endeavours to influence their
own merchants. Our delegation has only recently introduced the
idea of emergency quantitative restrictions in addition to, or in
place of, special duties. In our view, if a situation arose in
which emergency action had to be taken over a wide range of
commodities, it would mean virtually the end of the agreement. If
that is so, it may well be unnecessary to seek such wide powers of
emergency action. Nevertheless, if we limited our rights, and the
Japanese also, to special duties it would need to be clearly
understood by the Japanese that the onus was on them to see that
their merchants acted so that emergency action over a wide range
of commodities would not be necessary. We suggest, therefore, that
if the Japanese are strongly opposed to it, we should ultimately
withdraw the demand for emergency quantitative restrictions.

1 Document 197. The notes appear to have been prepared in the
Prime Minister's Department by Jones.

2 Document 135.


[AA : A4926, VOLUME 24]
Last Updated: 11 September 2013
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