CANBERRA

The submission [1] by the Australian delegation of Departmental
representatives (including External Affairs) shows that agreement
on matters affecting Australia's trade relations with Japan is
very close. So far as Australia is concerned we have, of course,
made it clear to the Japanese delegation that on all questions the
proposals provisionally agreed or still under discussion are
subject to Ministerial approval.

2. For their part, the Japanese have obviously gone out of their
way to meet the Australian requests for import quotas for wool,
wheat, etc. In return, of course, they stand to benefit
considerably by gaining admission for their exports to Australia
under the lower m.f.n. tariff rates, which they do not at present
enjoy, and by securing non-discriminatory import licensing
treatment in Australia, which has up to now been withheld on some
items of importance to them. The conciliatory attitude of Japan on
these and other trade issues shows the importance they attach to
regaining their trading position in the world. Agreement with
Australia would probably open the way to similar negotiations by
Japan with other 'hard' countries.

3. The Departments of Trade and Primary Industry seem satisfied
with the import quotas promised by Japan for wool, wheat, barley,
dried fruits, sugar, skim milk, beef tallow and hides.

4. Somewhat more complex is the position regarding duty free entry
for Australian wool. Japan has agreed to continue this for the
three years' duration of the agreement, but, understandably, has
linked this to an undertaking on our part to enter into
discussions with Japan in that period on the application of the
G.A.T.T. between Australia and Japan. It will be recalled that
when Japan became a party to the General Agreement on Tariffs and
Trade we invoked Article XXXV, which meant that we did not have to
extend m.f.n. tariff treatment to Japanese goods or undertake the
other G.A.T.T. obligations to consult on mutual trade problems,
accept decisions by the contracting parties on points at issue,
and so on.

5. The promise to discuss the application of the G.A.T.T. between
Australia and Japan does not constitute a commitment to withdraw
our invocation of Article XXXV and is not an unreasonable
concession. There is a strong possibility that, if the proposed
Agreement with Japan works well enough, present objections to
applying the G.A.T.T. to Japan will be at least considerably
diminished. The duty on Australian wool would of course be Japan's
strongest card in bargaining under the G.A.T.T.

6. The principal undecided issue in the trade talks is that of the
measures necessary to safeguard Australian industry against
Japanese competition. Japan would be willing to accept Australia's
right to impose special duties for this purpose (and also to
safeguard the markets in Australia of the United Kingdom, Canada,
New Zealand, etc.). However the Department of Trade now considers
that the Special Duties Legislation [2] may not be effective or
rapid enough and wants the right to impose quotas. If this is
insisted upon, Japan may then insist upon the right to take
retaliatory action to redress the loss of her exports by imposing
restrictions on Australian goods.

7. Paragraph 5(a) and recommendation 4 propose that the Australian
delegation endeavour to induce Japan to drop her proposal to take
counter measures by strictly delimiting the circumstances under
which Australia would impose special duties or import quotas, and
undertaking to consult in each case beforehand. Paragraph 5(b) is
an alternative, under which Japan might be permitted to take
'equivalent' counter measures in cases where Australia imposed
import quotas, but not against special duties.

8. It is recommended that the recommendations 1-4 in the
delegation's submission be supported.