CANBERRA

1. See no prospect of delaying announcement of Japanese Agreement
which it is planned should be signed on 5th July.

2. Gray has discussed the question fully with us over the last
week or so. We have let him know we will require convincing
evidence of threatened or actual serious damage and will be at
pains to satisfy ourselves through consultation with the Japanese
that no alternative solution is available before we take action on
behalf of the Australian industry under the emergency or escape
provisions. It would be only realistic for United Kingdom to
recognise that we would be even more reluctant to move under those
provisions to protect United Kingdom traders' interests than to
protect the interests of Australian industries. However, the power
is there and it may be that we will come to use it in a really
critical situation. We do not at this time foresee the occasion.

United Kingdom authorities must realise that whereas Japan might
have been brought with great difficulty to accept the notion that
we retain rights to protect our own industry and even to tolerate
the possibility of action on behalf of the trade interests of a
preferential supplier, emergency action to control imports from
Japan would be a much more difficult pill for them to swallow if
taken in the trade interests of the United Kingdom than if taken
in the interests of an Australian industry. Moreover, the Japanese
have some rights under the proposed agreement to terminate it
under certain conditions of action under the emergency clauses.

3. We have told Gray that he can if he wishes give us a list
before the Minister reaches Tokyo (July 3rd) of the items in which
United Kingdom has a special interest. This does not necessarily
mean that we will take up their list or any items on it with the
Japanese during the Minister's visit or later. The contrary is
probable.

4. We have also told Gray that what United Kingdom chooses to say
about the Agreement is a matter for them, but we have no objection
to their saying, for example, that they have put certain points to
us whilst the negotiations were in progress. We are, however, not
prepared to say anything to the United Kingdom authorities which
could be quoted as an expression by Australia on the lines of the
exchange you mention. [1] When the details are published United
Kingdom authorities will be able, if they wish, to point to a
reference in the published papers as an indication that trade
interests of preferential supplier have not been overlooked (see
2(d) our 1517 [2]). However, we will work towards totally avoiding
action under the emergency provisions and it would be unwise for
the United Kingdom to make any statement which encouraged United
Kingdom manufacturers to hope or believe that Australia would in
any particular case take action to protect their special
interests. Excluding the colonies Australia is one of the few
countries (and probably the largest market) in which United
Kingdom goods particularly textiles have enjoyed an entirely
fortuitous shelter against Japanese competition.

5. Percival will remember that among the principles we put forward
at beginning of Ottawa Review negotiations last year was mutual
protection from low cost competition. This along with the other
principles then proposed they rejected. In discussion they
referred to the difficulties of action along these lines (see
minutes of July 10). It is also fair to recall that we gave notice
of our negotiations with Japan and invited comment, which,
however, has at no time then or since been forthcoming.

6. It was a feature of our case last year that United Kingdom had
done nothing to protect Australian trade, particularly in wheat,
against heavy subsidies, much less against 'legitimate' low cost
competition. United Kingdom on the other hand continued to enjoy
substantial advantages from our treatment of Japanese trade.

7. In any case what we do about Japanese imports could not shield
United Kingdom trade from competition in this market from India,
Hong Kong and perhaps other low cost suppliers.

8. We do not understand the reference to this question becoming an
issue at the Prime Ministers' Conference. It would presumably only
arise at the instance of United Kingdom, and we do not see it as a
subject of great common interest among Commonwealth countries
generally.

9. We are giving copy of foregoing to Gray.

10. See also McEwen's cable to Menzies. [3]