CANBERRA

Trade Negotiations with Japan

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 quantitative
instructions to protect Australian industries or those of our
preferential partners. Japan will bind itself to continue to give
us most-favoured-nation tariff treatment. To make this effective
against the background of Japanese trade practices and special
significance of United States' surplus disposals, we are seeking
specific assurances on imports of particular commodities.

The general effect of the agreement is that each party will accord
G.A.T.T. treatment to the other but the obligations and rights
will lie with the parties to this agreement and not with the
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
It must not be assumed that Japan will accept more onerous
obligations than we will. Most-favoured-nation treatment will be
all important to them but, on the other hand, their commitments to
us on commodities apart from wool might well be of short-term
value. That is to say if we can look forward in a few years to a
situation when the United States is no longer dumping agricultural
surpluses, Australia's principal exports to Japan should be able
to hold their own with their competitors. Briefly then, the
advantages to Australia are likely to be short-term gains in the
exports of wheat etc. with long-term advantages in the duty
binding of wool only.

This agreement should enable Japan to expand exports to us but at
the expense of the European countries some of whom are already
complaining at the lack of balance in our trade with them. The
effect upon them will of course be less in a period of relaxation
of import restrictions.

Critical Issues
The immediate items are: wool, wheat, emergency action.

WOOL: Japan is prepared to bind the duty free entry of wool for
the three year term of the Agreement, provided that we negotiate
with them within that period, with a view to the application of
full G.A.T.T. treatment to Japan. G.A.T.T. treatment is, of
course, the ultimate objective and the Japanese have been told
that its achievement will depend upon the performance of their
exporters under this Agreement. The wool provision means:

(a) The guarantee of no duty is for three years only.

(b) If we agree to full G.A.T.T. treatment later, we would have to
re-negotiate the wool tariff for some tariff concession in
Australia, wool is almost the only important item the Japanese can
give us.

(c) If we reject G.A.T.T. application we will lose the guarantee
on the wool duty.

EMERGENCY ACTION: Japan is prepared to accept the special duties
provision without right of retaliation. We have only recently
raised the question of quantitative restrictions in addition to
special duties and the Japanese are reluctant to accept these
without the right of retaliation or to agree to them being used
for the benefit of the United Kingdom. The essence of Article V is
that the Japanese Government will so control its exporters that
the necessity for emergency action will not arise. That has been
the experience in Canada.

The first alternative is to agree to some restrictions upon the
use of emergency duties and quotas in return for the right to use
these without retaliation; the second alternative that they give
us the right to use duties without retaliation, but quotas should
be subject to retaliation. Our negotiators should endeavour to
achieve the first alternative, but as we are not contemplating the
necessity to apply Article V it might be possible to settle for
freedom to use special duties and give away the idea of quotas. A
point in favour is that under the first alternative the published
document would refer to Australia's rights to take emergency
action, but conditions attached to that right would not be
published. There could therefore be circumstances in which
requests were made to the Government for emergency action but
these would have to be rejected because of unpublished
understanding with the Japanese.

Conclusion
We support the recommendations in the Submission subject to the
suggestion in the previous paragraph about emergency action.