CANBERRA

Trade Treaty with Japan

Your 1465. [1] We have always been conscious of the need to
maintain our levels of import from the United Kingdom if only
because that was a significant factor in her ability to buy from
us. Even under our new trade agreement with the United Kingdom her
traders continue to enjoy guaranteed margins of preference in
Australia and in practice they are receiving margins of preference
which on many goods are substantially higher than those required
under the Trade Agreement.

On textiles some of the preference margins are small but in the
broad United Kingdom exporters continue to enjoy a substantial
degree of preferment in the Australian market.

The principal effect of the proposed Treaty with Japan will be to
remove some import licensing discriminations which we maintain
against Japan alone and to put her goods on the same tariff
footing on entry into Australia as applies to almost all foreign
countries.

The action now proposed does not put Japan on the same basis in
the Australian market as Britain and it is of course rank
misrepresentation to speak of Australian policy as showing marked
preference for trade with Japan to trade with Britain.

The primary purpose of the Treaty with Japan is simply to adjust a
position in which we have discriminated severely-I would say
unfairly-against a country which is our second largest customer,
and to protect ourselves against the very real danger of adverse
exchange of import restrictions or tariff action by Japan on a
unilateral basis.

It is true that in past years this discrimination has particularly
benefited British exporters to Australia, but few even of the
British exporters concerned would genuinely expect Australia to
persist in policies which obviously invited counter measures from
our second largest market. The fact remains that the total effect
of the proposed Treaty is to place Japan on the same basis for
trade with Australia as other foreign countries without in any way
reducing the advantages which British traders enjoy in the
Australian market compared with foreign countries generally.

Even though the Treaty provides for the removal of the
disabilities which have applied to Japanese trade alone amongst
our foreign suppliers of goods, the arrangements with Japan in
themselves are so drawn that they do not debar action by us to
mitigate a sudden and serious disruption of the established
pattern of imports from preferential suppliers.

India and perhaps Hong Kong are also very serious competitors with
United Kingdom in textiles and some other lines, but of course
United Kingdom herself is loath to restrict or place duties on
imports from India.

Although as long ago as last year our officials indicated that we
would be opening negotiations with Japan, and the United Kingdom
authorities clearly recognised at the time that the British
textile industry might be affected, it is only in recent weeks
that either British industry or officials have shown concern. We
offered last year in our trade talks with United Kingdom to
negotiate higher contractual margins of preference on selected
items of particular interest to them than the general run of
margins, but they did not take this offer up.

In current discussions with the Board of Trade, departmental
officers are taking pains to avoid leaving any impression that we
will be likely to take emergency action (permissible under the
Treaty with Japan) to control imports from Japan to protect the
interests of British traders. (In this connection Crawford's cable
today to Patterson [2] goes into more detail.) The fact is that we
will do what we can, e.g. through action by Japan at the export
end, to find remedies outside such emergency action even where the
real interests of Australian industry are concerned. I am
convinced that action under the emergency provisions in the early
stages of the Treaty would strain it, even where Australian
domestic interests were being protected. Action to protect United
Kingdom trade interests would impose a greater strain. In the
event of the Treaty breaking down, we would lose the trade
advantages we stand to gain under it. It might also then be very
difficult for the Japanese Government to hold back from some sort
of counter measures against imports from Australia. From the point
of view of our total relations with Japan the political and other
aspects of such developments will be apparent to you.

I expect that the Agreement will be signed in Tokyo about 5th July
and the actual texts should be published on that date.

We have had no word from United Kingdom Ministers. However, my
personal assessment is that they are reconciled in principle to
the loss of the advantages which United Kingdom exports to
Australia have hitherto enjoyed quite fortuitously vis-a-vis some
Japanese goods, but are casting about for a line to take with the
more vocal sections of export industry. I doubt whether the United
Kingdom authorities realise the weight of the circumstances of our
trade and other relations with Japan or the inevitability of an
agreement of the kind now in prospect. I would attach a measure of
importance to their due appreciation of these points. So far as
British industries are concerned, it might be useful if the
Japanese Trade Treaty could be placed in perspective, as part of a
comprehensive policy of stabilising Australia's conditions of
trade with other countries, and not as any reduction in our high
estimation of the United Kingdom market.