Australia-Japan Trade Agreement
The Agreement on Commerce between Australia and Japan signed today
is a notable achievement and a great stride forward in the
Government's policy of consolidating in intergovernmental trade
agreements Australia's existing export markets and in opening up
assured new opportunities for export.

Australia and Japan are major trading partners but since the war
trade between the two countries has been carried on without any
framework of inter-Governmental Agreement. Consequently some
Australian exports have had no protection against the risks of
changing import or economic policies on the part of Japan and
others have had little or no access to the Japanese market. The
Agreement on Commerce signed today guards against these risks and
is a major constructive step towards securing and improving
Australia's trade in the Japanese market. As a result of this new
Agreement Australia makes real and positive progress in the
Australian balance of payments problem, and gets closer to
achieving conditions in which we can push ahead with the tasks of
national growth and development without the same risk of
periodically having to curtail development because of shortage of
overseas funds.

It is important to recognise that Japan is Australia's second best
customer. She is the second largest wool market and Japanese
bidding plays a vital role in the establishment of prices on the
auction floor. Should the Japanese Government curtail or
manipulate the exchange available for purchases of wool from
Australia the result could seriously affect our total export
earnings. Such a situation would reflect seriously on the whole
Australian economy.

Of course, Japan like any other country could be forced to curtail
her purchases if she did not have enough overseas funds,
especially sterling; no trade agreement can guard against this,
though of course the more an agreement helps Japan to sell abroad
the more it helps her ability to import.

However, in the absence of a trade agreement a curtailment of
Japanese wool buying could come at any time as the result of a
deliberate change in Japanese trade or economic policies. If
Australia were to continue discriminatory and unfair trade
policies towards Japanese goods, especially in the light of such a
heavy adverse trade balance as Japan is now running with Australia
there would be a constant risk of Japan resorting deliberately to
restrictive trade practices and economic reprisals.

Japan maintains a system of bilateral trade agreements and
exchange allocation arrangements with other countries. In the
absence of a Trade Agreement these arrangements have in some cases
narrowed and in other cases blocked Australia's access to the
Japanese market. Australian trade has constantly been exposed to
the possibility of serious detriment resulting from changes in
Japanese trading policy.

Australia's trade relations with many foreign countries are
regulated through the General Agreement on Tariffs and Trade.

Australia in the absence of a satisfactory period of experience of
the problems of reconciling trading difficulties has not been
prepared to see the G.A.T.T. apply between Australia and Japan.

This position is maintained under the new Agreement on Commerce.

However, as a step towards the establishment of fully normal trade
relations with Japan, Australia has undertaken that within the
next three years discussions will be entered into with Japan with
a view to exploring the possibility and examining the basis of
applying G.A.T.T. to trade between Australia and Japan.

Nevertheless, without a regular trade agreement there can be no
firm expectation on either side as to the treatment to be accorded
by one country to the other's trade. This is completely
unsatisfactory to both parties.

Benefits to Australia
So far as Australia is concerned what have been the constant
objectives of our negotiations? There have been two principal
goals. We need a trade agreement with Japan to preserve the great
stake that we already have in that market. We need an agreement
also to gain important new benefits in the Japanese market. Both
of these objectives have been achieved to a very large degree.

The Agreement now completed ensures that Australian exports to
Japan will receive equal tariff treatment along with other foreign
suppliers. It also ensures nondiscriminatory treatment in import
licensing measures and exchange controls.

These clauses in the Agreement give every Australian export
product for which a real market exists full rights of competitive
entry into the Japanese market. Only when necessitated by Japan's
overseas funds position will our exports to Japan be subjected to
restrictions. No Government, of course, can surrender the right to
control its imports when its overseas financial position requires
a reduction of imports. The Australian Government, of course,
retains the same rights in respect of imports into Australia. If,
for balance of payments reasons, Australian exports are restricted
on entry into Japan, we now have a guarantee that the Australian
product will be treated no less favourably than the product of
competing suppliers. This has not been the case heretofore. I
emphasise that these provisions apply to all Australian exports
present or potential to Japan.

These clauses in the Agreement cover the whole of our export trade
with Japan. However, because of the way the Japanese import system
operates the Australian Government has insisted on specific
assurances regarding the treatment to be accorded certain, major
commodities. Such specific assurances were insisted upon before
the Australian Government would accept commitments in return and
constituted a major consideration so far as we were concerned, in
the whole negotiations.

(a) WOOL: Japan is buying between 700,000 and 800,000 bales of
wool a year. Both this year and last year she has been the second
largest buyer of Australian wool.

Under the Agreement the amount of foreign exchange allocated by
Japan for imports of wool will be subject to restriction only to
the extent that the balance of payments position requires. This
safeguards us against restriction of wool for general economic
considerations or other reasons.

In addition the Agreement provides that 90% of Japan's total
foreign exchange allocation for wool will be in the form of a
global allocation and thus available for Australian wool. This
insures us against bilateral deals that might force Japanese
importers to buy from specific countries other than Australia.

Finally, Australia has successfully negotiated an assurance that
the Japanese Government will take no action to vary the present
duty free entry for wool for the next three years. During the last
year it would appear that the Japanese Government on more than one
occasion has been very close to imposing a substantial duty on
wool-for fiscal reasons. This assurance of duty free entry of wool
for three years should be of particular value to wool, both to the
extent that cost of wool in Japan is a factor in the competition
between wool and synthetics and in determining the demand itself
for wool.

(b) WHEAT: Virtually the only wheat that Australia has sold to
Japan in the post-war period has been premium higher protein wheat
which Australia produces in limited quantities. No difficulty is
encountered in disposing of this wheat in overseas markets. On the
other hand, despite the fact that Japan last year imported over 75
million bushels of wheat all told, roughly half of it soft wheat,
Australia although a low-cost supplier exported practically no
soft wheat to that country. In fact Japan's imports of soft wheat,
averaging about 37 million bushels per annum, have been obtained
almost exclusively from the United States. These imports have
resulted from surplus disposal arrangements and tied sales.

Because of the threat which surplus disposals hold for marketing
opportunities in Japan, Australia in the Agreement has secured
assurances that in the event of unfair trade practices or
Government disposal operations, we will be assured of an equitable
or fair share of the Japanese market based on our ability to
compete under normal commercial considerations. As a result of the
Agreement signed today it is expected that at least in the early
stages of the Agreement under normal commercial considerations
Japanese imports of Australian soft wheat will be over 7 million
bushels with a yearly increasing trend. Even with the limited
availability of Australian higher protein wheat in the past, our
exports of this type of wheat to Japan have reached about 7 1/2
million bushels in a season. It is difficult to overestimate the
importance to Australia of ensuring continuing and fair access to
a grain market with the potential of Japan.

(C) SUGAR: Japan has bilateral agreements with suppliers of sugar
apart from Australia under which she obtains a large portion of
her requirements. In past years the Japanese import system has
operated in an unpredictable fashion that sometimes prevents us
supplying to Japan and at other times permits Australia to sell
some of its sugar on that market.

Australia has now obtained a firm position that despite the
existence of certain bilateral arrangements which Japan may have
with other suppliers, Australian sugar may be imported up to 40%
of total sugar imports. On the basis of current import levels this
would mean that the Australian industry may compete with other
dollar or sterling suppliers to supply up to 460,000 tons.

While the preliminary negotiations were still going on Japan
purchased in May last something like 6 million worth of
Australian sugar. There would seem to be no reason why we cannot
henceforth on a normal competitive basis look forward to regular
and substantial exports of sugar to Japan.

(d) BARLEY: Already, under normal commercial conditions, Australia
has been supplying something like 30% of the Japanese market.

Japan is, in fact, our best market for barley. This position is
now assured in the Agreement and the Australian trade is now
safeguarded from unfair trade practices and non-commercial
arrangements which might threaten our competitive position.

(e) OTHER: Apart from the provisions on wool, wheat, sugar and
barley, there is a range of other commodities such as hides, skim
milk and dried vine fruit where specific assurances have been
secured of reasonable access to the Japanese market.

So the Agreement ensures that all our exports are covered by most-
favoured-nation and non-discriminatory treatment on import into
Japan and these indications are spelled out in detail for our
major export commodities.

The great market for Australian wool in Japan is now covered by
guarantees against the imposition of customs duties and against
import restrictions not justified by Japan's overseas funds
position.

I am quite confident we can now on normal commercial
considerations sell to Japan about 7 1/2 million bushels annually
of our f.a.q. or soft wheats in addition to sales of higher
protein or harder wheats which could amount to a further 7 1/2
million bushels or more in future seasons according to
availability. Thus we may look to a substantial market for wheat
in Japan in the initial stages of the Agreement, increasing as the
Australian product becomes better known.

Undertakings by Australia
With regard to what Australia obtains from the agreement we can be
pretty well satisfied. But what have we had to give in order to
get the assurances we sought? In order to secure these advantages
for Australia's export trade and for the whole Australian economy,
the Australian Government, having carefully examined the
advantages and disadvantages of a trade agreement with Japan (and
wider considerations than commercial matters were taken into
account) has undertaken to accord to Japan the same tariff and
import licensing treatment hitherto accorded to all foreign
countries except Japan. This is known technically as most-
favoured-nation treatment. This means that the duties charged on
certain Japanese goods will no longer be higher than the duties
charged on the same goods from other foreign countries; it also
means that Australian importers within the existing balance of
payments situation and according to whatever import licensing or
import quota system is operating, will be just as free to import
goods from Japan as they are to import from other countries, apart
from the dollar area. Japan is no longer singled out for specially
restrictive measures directed against Japanese goods alone.

Over the last few years and especially when imports have been
restricted severely, there has in fact been pressure from
Australian manufacturers and importers for the removal of the
present discrimination against Japan in import licensing.

Manufacturers requiring raw materials not available in Australia
and importers with quota levels seriously cut down and needing to
buy shrewdly in terms of price and quality have been amongst those
who have argued for the removal of the present discrimination.

On the other hand some Australian manufacturers fear, on the basis
of experience pre-war, that they will be subjected to competition
which, under existing levels of tariff protection, they would not
be able to meet if Japanese goods were freely licensed. During the
course of the negotiations Australia made it very plain that the
successful development of future trade relations between Australia
and Japan must depend upon adequate protection for Australian
industry against serious damage from impossibly cheap imports from
Japan.

With this in mind, in the new Agreement we have now an acceptance
by Japan of the importance of preventing damage to Australian
industry. In this regard Japan assumes a responsibility for action
at the stage of export from Japan, to prevent a damaging
unrestricted flow of Japanese exports. It is clearly provided
under the Agreement that the Australian Government retains full
freedom to take action to protect Australian industry from serious
damage if that is threatened. The position of Australian industry
is fully safeguarded both as to long-term tariff action as well as
the freedom of Australia to use whatever non-tariff measures may
be justified by any particular situations. Australia has this
power under Australian legislation and retains this freedom under
the new Agreement with Japan.

The Agreement provides for consultation with the Japanese
authorities before special action is taken under these safeguards.

Such action will only be taken where a satisfactory alternative
solution cannot be worked out on a cooperative basis with the
Japanese authorities. Moreover, since unreasonable resort to
special action of this kind would jeopardise the great advantages
secured for Australia as a whole under the Agreement, the
Government will act under this provision only in cases where it is
satisfied that the facts of a situation fully justify any such
action in national interest to protect an Australian industry
against serious damage.

The Government expects that this Agreement will give a stimulus to
foreign competition in Australia, between foreign suppliers.

Suppliers of goods from other countries now competing with Japan
under the same tariff and import control conditions will not be
able to ignore this new competitive element. This will not be
without benefit to Australia's cost position.

To summarize the effect of the new agreement,
It gives a new basis of security for the great trade Australia
already does with Japan.

It gains new and important benefits for Australian export to
Japan.

The provisions of the Agreement safeguard Australian rights of
access to the Japanese market on terms at least as favourable as
those of any other country. This applies to all Australian
products for which there is export opportunity in Japan.

It gives duty free entry for Australian wool for the next three
years.

It provides that financial restrictions will not be imposed on the
purchase of Australian wool or other commodities, except as
justified by Japan's overseas funds position.

It assures continued competitive access to the Japanese market for
Australian hard wheat.

It provides, and this is more important to us, a new market of
great potential importance for Australian soft wheat.

It provides some safeguard for the whole of our wheat trade with
Japan against inter-Government non-commercial wheat deals and
unfair trade practices on the part of competing supplying
countries.

It promises a total market in Japan of fifteen million bushels for
Australian wheat with real prospects of increase.

It secures the present Japanese market for Australian barley-the
largest single market for this product.

It provides reasonable licensing treatment for our commodities
generally and assurances in particular for Australian hides,
tallow, dried vine fruits, skim milk. Under the Agreement
Australia places Japan on the normal trading basis that all other
countries enjoy in import licensing treatment and that almost all
foreign countries enjoy in tariff treatment.

Australia will enter into talks with Japan within the next three
years on the possibility and the basis of the application of
G.A.T.T. to trade between Australia and Japan. Experience under
the Agreement will provide a basis for judgement. The Agreement
looks to an expanded two-way trade between Australia and Japan. It
does not expose Australian industry to a flood of Japanese goods,
but it achieves for the Australian economy as a whole a
substantial and solid contribution to stability in overseas trade.

It reduces to a marked extent the risks of checks and blockages to
our programmes of development through severe fluctuations in our
overseas financial position.