Eighth Session of the Contracting Parties to G.A.T.T.

The Eighth Session of the Contracting Parties to G.A.T.T. is
scheduled to commence in Geneva on 17th September, 1953.

2. The Advance Agenda (copy attached) contains a fairly lengthy
list of items most of which do not require the attention of
Ministers. The Interdepartmental Committee has prepared the
attached notes on the more important items for consideration of
Ministers. These items are:-

(1) United Kingdom Proposal for Release from the 'No-new-
preference' Rule in the G.A.T.T.

(2) Tariff Negotiations-Article XXVIII.

(3) Balance of Payments Import Restrictions.

(4) United States Restrictions on Dairy Products.

(5) Admission of Japan to the G.A.T.T.

3. It is understood that the United States will suggest at the
Eighth Session that a firm date be fixed in 1954 for a complete
review of the G.A.T.T.

[matter omitted]

ADMISSION OF JAPAN TO THE GENERAL AGREEMENT ON TARIFFS AND TRADE
The attached report on admission of Japan to the G.A.T.T. has been
prepared following discussions in the Inter-Departmental Committee
representing the following Departments:-Commerce and Agriculture,
Trade and Customs, Treasury, External Affairs, National
Development and Prime Minister's.

The Inter-Departmental Committee considers that the forthcoming
G.A.T.T. Session represents the last opportunity to influence the
conditions of Japanese accession and for that reason the report
covers the issues involved at some length.

The report covers the following aspects of the problem:

(a) Background to the Japanese application including previous
consideration by the Government.

(b) Implications of Japanese accession for Australia.

(c) Proposals already considered by the Contracting Parties for
special procedures to meet difficulties arising from Japanese
accession.

(d) Suggested instructions for the Australian delegation to the
Eighth Session.

A short note is also appended on an aspect of the Japanese Peace
Treaty which is relevant to the G.A.T.T. considerations.

Attachment

ADMISSION OF JAPAN TO THE GENERAL AGREEMENT ON TARIFFS AND TRADE

Section A. Background to Japanese Application
Over a year ago Japan asked a group of the Contracting Parties to
the G.A.T.T., including Australia, to initiate a series of tariff
negotiations as a preliminary to Japanese accession to the General
Agreement. Consideration of the Japanese application will be a
major item at the 8th Session of the G.A.T.T. Contracting Parties
to be held at Geneva in September.

2. The Agreement provides that new members may be admitted on
terms agreed between that country and the existing body of
Contracting Parties. The normal procedure is for the Contracting
Parties to agree on a time-table for a series of tariff
negotiations between the applicant and existing members. In the
past these negotiations have taken place as part of a general
round of tariff negotiations. Following these negotiations the
results are incorporated in a protocol of accession. The protocol
would also incorporate any special conditions of membership agreed
upon. The new country 'accedes' when two thirds of the existing
Contracting Parties support the protocol by vote.

3. The grant of membership normally means-subject to the use of
Article XXXV mentioned below-not only that the newly negotiated
tariff concessions become effective, but also that the new member
receives and grants 'most favoured nation' (MFN) treatment, i.e.

tariff treatment not less favourable than is accorded to all other
members, excluding preferences such as those exchanged between
Australia and United Kingdom. In addition the rights and
obligations expressed in the G.A.T.T. apply to the new member.

4. At the 7th Session in October, 1952, it became obvious that
Japanese accession presented a number of difficulties. The problem
was therefore referred to the G.A.T.T. Inter-sessional Committee
for special study. This inter-sessional committee met in February
1953.

5. Two points emerged from the Committee's deliberations:-

(a) A majority of Contracting Parties appeared to favour Japan
being given the opportunity to enter into tariff negotiations with
a view to accession.

(b) It was improbable that approval could be obtained for any
discriminatory safeguard to meet severe Japanese competition, i.e.

unless that safeguard were applicable under like conditions
against any other Contracting Party.

6. The Committee examined the existing escape provisions of
G.A.T.T. and the protection they would accord 'in the event of
violent and disruptive incursions in international markets'. A
draft declaration directed towards meeting such a situation was
prepared for further consideration by Contracting Parties. The
draft declaration is discussed in a later section. The declaration
does not specifically mention Japan and if adopted it would
represent a modification of the Agreement having general
application irrespective of the outcome of the Japanese
application.

7. The adequacy of the existing escape provisions of the G.A.T.T.

is a major consideration in relation to Japanese accession. The
main provisions are contained in Articles XIX and XXIII. Following
is a summary of these articles.

8. Article XIX-Emergency Action and Imports of Particular Products
The purpose of the article is to give a member relief from a
particular G.A.T.T. obligation or tariff concession when 'as a
result of unforeseen developments ... any product is being
imported ... in such increased quantities and under such
conditions as to cause or threaten serious injury to domestic
producers ... of like or directly competitive products'.

In those circumstances the following action is permitted:-

(i) If the situation is critical the obligation may be suspended
or the tariff concession modified or withdrawn immediately for
such time as is necessary to prevent or remedy the injury.

(ii) If circumstances are not critical the Contracting Parties
shall be given as much warning as possible of the intended
remedial action.

(iii)In either case the party affected shall consult with other
Contracting Parties having a substantial interest. The objective
is prior consultation but the determination of whether a situation
is critical is a matter for the Contracting Party affected.

(iv) If an agreement on the proposed action cannot be reached in
consultation 'the contracting party which proposes to take or
continue the action shall nevertheless be free to do so', but any
Contracting Party affected by the action may in turn suspend
substantially equivalent obligations or concessions 'the
suspension of which the Contracting Parties do not disapprove'.

(v) Subject to the same consultative and compensatory procedures
the same article provides some, but very limited, scope for
remedial action to protect the preferential market of another
Contracting Party. In this case, remedial action is permissible
only where a concession has been granted in respect of a
preference. For example, at the request of the United Kingdom,
Australia may withdraw a concession in cases where the reduction
of a preference has led to increased imports into Australia from
another Contracting Party detrimental to the Australian market of
United Kingdom domestic producers.

The important points of the Article are-
(i) It may only be invoked when products are being imported in
increased quantities due to unforeseen developments and the
obligations of the Agreement.

(ii) The Contracting Party affected must consult but is free to
take whatever remedial action is thought necessary, but only to
the extent and for the time necessary to remedy the injury.

(iii)Any action taken must be applied in a non-discriminatory
manner.

9. Article XXIII-Nullification or Impairment
The objective of this article is to provide relief from any
situation, whether or not permited by the Agreement, which
nullifies or impairs any benefit or impedes the attainment of any
objective of the Agreement.

The affected Contracting Party is expected first to take up the
matter with the offending party which is required to give
sympathetic consideration to the representations.

In the absence of agreement, the matter may then be referred to
the Contracting Parties for a ruling or recommendation. As
distinct from Article XIX an affected Contracting Party cannot
take unilateral remedial action but the Contracting Parties may
authorise discriminatory action.

If an obligation or concession is suspended with the authority of
the Contracting Parties, the party affected by the suspension is
then free to withdraw from G.A.T.T. on sixty days notice.

10. Additionally there is the general escape provided by Article
XXXV. This Article provides that the Agreement shall not apply as
between any two contracting parties if
(a) The two members have not entered into tariff negotiations and
(b) The existing member notifies its intention to invoke this
Article at the time the other member becomes a contracting party.

The Contracting Parties may, at the request of any member, review
and make, recommendations on the operation of this Article.

11. As yet no such tariff negotiations have taken place with Japan
so that recourse to this Article is still open to the existing
contracting parties. An individual contracting party may invoke
this Article even though a two-thirds majority of members approved
Japanese membership. In such event the G.A.T.T. would apply only
between Japan and the members not invoking the Article. It is to
be noted also that a country intending to invoke Article XXXV
could nevertheless still vote in favour of Japanese membership,
thus permitting the G.A.T.T. to be applied between Japan and such
other countries as wish to do so.

Section B. Previous Consideration by Ministers
12. Ministers have considered the problems arising from Japanese
accession twice in the past 12 months-in September 1952 [1], in
preparation for the Seventh Session of the Contracting Parties
when the Japanese application was first considered, and again in
January 1953 prior to the meeting of Intersessional Committee. On
each occasion the Australian delegation was instructed to avoid
any commitment. The precise brief approved for the Intersessional
Committee was:-

(a) To take no action which would hinder Australia from invoking
Article XXXV should this later become necessary.

(b) Not to put forward proposals in the discussions.

(c) To report fully on any proposals which might make it possible
for the G.A.T.T. to apply in some limited degree between Australia
and Japan, and under which it might be feasible for Australia and
Japan to enter into tariff negotiations, while retaining for
Australia full freedom to safeguard the interests of her industry
and trade.

Section C. Implications of Japanese Accession
13. If Japanese accession is approved-which now seems most likely-
all members not invoking Article XXXV will be required to extend
most favoured nation tariff treatment to Japan. That means that
Japanese products cannot be subjected to higher tariffs than those
applied to any other member country-British preferences excluded.

For Australia this would require an immediate lowering of tariffs
over a wide range of potential Japanese imports as Japan is the
only country of any trading significance whose products do not
receive m.f.n. rates, i.e. they are subject to the Australian
General Tariff rate. The accession procedures take some time to
carry through and it would be at least 12 months and probably
longer before the obligation to grant m.f.n. became effective.

Trade and Customs representatives maintain that this problem lies
essentially in Japan's low-cost structure and its past use in
concentrated attacks on particular markets. In considering imports
from Japan it is essential to consider the position of textiles
which account for almost 40% of Japanese exports. These are mainly
subject to fixed rate duties whose incidence depreciates with the
rise in Australian costs. The effect of according m.f.n. treatment
to Japan cannot be assessed with confidence but the consequences
are likely to be serious for both Australian and U.K. industry.

14. While G.A.T.T. contains a number of escape clauses, any
remedial action must, except in special cases, observe the m.f.n.

principle and be applied in a nondiscriminatory manner. If it
became necessary to take advantage of these provisions and
increase the rates against Japanese goods, the foreign and
preference tariff rates as they apply to all other countries would
also have to be raised by the amount necessary to overcome
Japanese competition. Where rates are bound by previous
negotiations at their present levels it would be necessary to
negotiate those increases in consultation with Contracting Parties
principally concerned. (Some modification of the non-
discriminatory rule is contemplated in the draft declaration (see
below) put forward for discussion by the Inter-Sessional
Committee.)

15. The consequences of m.f.n. treatment can of course be avoided
by invoking Article XXXV but such action is not necessarily a
solution to the problem of Australia's trade relations with Japan.

The Commerce Department believes that major issue in these
relations (inside or outside G.A.T.T.) is Japan's readiness and
ability to take retaliatory action against any special measures
directed by Australia at imports from Japan.

16. The Commerce Department attaches importance to Japan as:-

(a) The second largest buyer of wool in 1952/53.

(b) A significant market for barley and a few other products.

With respect to wool, Japan competes directly with Bradford on the
bread-and-butter wool lines in the Australian auctions and could
adversely affect prices by the timing of her purchases even if the
total purchased did not decline.

Japan consumes most of her imported wool domestically hence any
cut in wool imports could be passed on to the domestic population,
thus effecting a direct and commensurate saving of foreign
exchange. Moreover, the spinning and weaving machines could
without difficulty be converted to the use of synthetic fibres.

Plans for gradual substitution of wool by nylon, etc., are already
reported to be in hand.

17. Other aspects of Japanese accession are:-

(a) Effect on United Kingdom trade. Potential Japanese exports are
competitive with U.K. exports-e.g. textile and engineering
products. Japanese export gains could be at U.K expense. This
aspect undoubtedly will be a major topic at the Commonwealth pre-
sessional talks in London.

(b) Although with the loss of pre-war Asian sources of raw
materials the Japanese cost structure appears higher relative to
the pre-war situation there are still uncertainties and until the
situation is more settled tariff negotiations would present a
major problem.

(c) Japan is already in difficulties in obtaining food and raw
materials and in finding export markets. Admission of Japan at
G.A.T.T. would be consistent with the general objective of the
Western countries of assisting Japan to maintain a viable economy
without undue dependence on trade with China.

Section D. Discussions at the Inter-sessional Committee
18. The Inter-Sessional Committee at its meeting in February
concerned itself mainly with the adequacy of the existing escape
provisions and the possibility of devising some generally
acceptable formula which would overcome the fears of member
countries for whom Japanese accession presented serious problems
and which, at the same time, would not do violence to the basic
G.A.T.T. principles.

United Kingdom Proposal-Extension of Article XIX
19. The United Kingdom contemplated a proposal which in effect
amounted to an extension of Article XIX but so as to enable
discriminatory action directed specifically at Japan. It was
proposed that the protocol of Japanese accession would clearly
provide that terms under which contracting parties agree to Japan
provisionally acceding to G.A.T.T. would allow any contracting
party to take action against imports from Japan (and to
discriminate against imports from Japan) in the following
circumstances:-

(a) If any product is being imported from Japan into the territory
of a contracting party in such quantities and under such
conditions as to cause or threaten serious injury to domestic
producers in the territory of like or directly competitive
products of a contracting party, or
(b) If any product is being imported from Japan into the territory
of a contracting party in such quantities and under such
conditions as to cause or threaten serious injury to production of
like or directly competitive products in another territory within
the same preferential area (provided a contracting party in whose
territory producers are located requests that action to be taken).

20. United States opposed the proposal and it appeared that a
majority of the Contracting Parties represented would not support
a proposal that did not have general application to all
Contracting Parties. The U.K did not proceed with its proposal at
the Inter-Sessional Committee but there is a possibility of
revival for the Eighth Session.

Fair Labour Standards
21. The U.S.A. proposed that the Agreement be amended to
incorporate a Fair Labour Standards clause but it received no
significant support. It was agreed by the majority of delegates
that such an approach did not get to the root of the problem and
offered no substantial advantage. The U.S. appears to have dropped
this idea.

22. Declaration-Article XXIII
The Executive Secretary initiated a compromise proposal directed
towards meeting the majority objection to:-

(a) Any amendment of the G.A.T.T.; and
(b) any proposal applying to Japan alone.

23. The view was put forward that Article XXIII already provided
the necessary protection and that violent and disruptive
competition would be a situation 'impeding the attainment of the
objectives of the Agreement' and therefore allowing remedial
action under Article XXIII. The Inter-sessional Committee
subsequently agreed on a report which referred to member
Governments for consideration the following draft declaration.

'THE CONTRACTING PARTIES DECLARE
(a) that according to their interpretation of paragraph 1 of
Article XXIII, a situation in which goods are exported by a
contracting party in such circumstances as to produce or threaten
violent disruption of trading conditions affecting a significant
sector or sectors of production of one or more other contracting
parties and where no preventive measures consistent with the
General Agreement and its objectives can be found which seem
likely to be effective, would be deemed to impede the attainment
of objectives of the General Agreement;

(b) that, accordingly, in such a situation a contracting party,
into a territory of which the goods are being imported*, could
have recourse to Article XXIII within the terms of paragraph 1(c)
of that Article for the purpose of arriving at satisfactory
adjustment or, alternatively, appropriate relief in accordance
with paragraph 2 of that Article; and
(c) that, if such a situation is so referred to the CONTRACTING
PARTIES and if the CONTRACTING PARTIES, in critical circumstances
where delay would cause damage which it would be difficult to
repair, fail within 30 days of such reference to reach a final
decision on or adjustment of the matter or to authorize
appropriate provisional measures to prevent such damage, a
contracting party, into a territory of which the goods are being
imported*, may thereafter apply such provisional measures not
otherwise permitted under the Agreement as the situation may
require pending a final decision or adjustment by the CONTRACTING
PARTIES in accordance with Article XXIII.

*Alternatively, this phrase might read:

'...a contracting party, into a territory of which the goods are
being imported and which is directly affected,'

24. If adopted, this declaration would have the effect of
amplifying Article XXIII. It will be noted that when considered
with that Article any remedial action proposed must-
(a) be approved by the Contracting Parties
(b) such approval must be obtained in advance unless, in critical
circumstances, the Contracting Parties fail to reach a decision
within 30 days of such a situation being referred to their notice.

Interim Arrangement-Japanese Proposal
25. It has been suggested that a proposal will be made that the
Contracting Parties grant Japan provisional membership, and extend
m.f.n. treatment, but without any continuing commitment and
preserving the rights of all countries to invoke Article XXXV. It
is reported that Japan will shortly submit a proposal on these
lines to the Contracting Parties. The provisional membership would
apply for a specified limited period. Very little information is
yet available but the proposal raises such obvious difficulties,
especially in the immediate grant of m.f.n. that it does not seem
to offer a practicable approach to meeting Australia's
difficulties.

26. Section E-Instruction for Australian Delegation
The information available suggests that at this Session Japan's
eventual accession will be put beyond doubt. It also seems that
the draft Declaration represents the only kind of modification of
the Agreement which the majority will accept but in any case the
8th Session is likely to be the last opportunity to influence the
conditions of Japanese accession. However it must be emphasized
that actual accession is still a long way off- 12 months at least.

Accession must be preceded by tariff negotiations. In view of the
recent U.S. announcement that it is not intended to enter into any
major tariff negotiations during the one-year renewal of the
Reciprocal Trade Agreement Act and while U.S. external trade
policy is under review, it is generally conceded that a precise
time table for tariff negotiations cannot be formulated at this
Session. At the same time the U.S. Government is reported to have
re-affirmed its desire to see formal Japanese accession to the
G.A.T.T. The following paragraphs attempt to show the issues
involved for the Australian Delegation.

27. In present circumstances can Australia participate with Japan
in G.A.T.T.-as it now stands or subject to any modification or
special conditions agreed at Geneva? The major implications for
Australia of Japanese accession are mentioned in Section C above.

On the Government's assessment of those implications will depend
the answers to this question. There is a choice of answers-
(i) Australia does contemplate such participation
(ii) Under no circumstances can such participation be contemplated
and Australia should therefore retain full freedom to invoke
Article XXXV at the appropriate time thereby relieving Australia
of the obligation to extend the G.A.T.T. to Japan.

(iii)Adopt a 'wait and see' attitude retaining freedom to invoke
Article XXXV or to apply the Agreement according to the
circumstances prevailing when specific proposals for tariff
negotiations are made-i.e., in about 12 months time at the
earliest.

28. In the light of the answers to the preceding question what
attitude is the Australian Delegation to take in discussions at
the 8th Session.

(i) If extension of G.A.T.T. to Japan is contemplated, and on the
assumption that no modification of G.A.T.T. other than of the
Draft Declaration type is acceptable to the majority, then the
Australian delegation could join with other delegations faced with
problems similar to Australia, to achieve the form[s] of
modification which go further to meeting Australian difficulties.

(ii) If participation with Japan is ruled out, and a firm decision
is taken now to invoke Article XXXV at the appropriate time, then
no purpose is served by participating in any active way in the
discussions on this matter.

(iii)If freedom is to be retained to invoke Article XXXV or apply
the G.A.T.T. according to the circumstances prevailing when a
decision on that Article can no longer be deferred then the
Australian delegation could usefully participate in Geneva
discussions with a view to achieving conditions of accession
providing maximum protection to Australia. If this course is
adopted it is difficult to suggest at this stage what might be
achieved. The Commonwealth discussions in London should throw some
light on the possibilities. One suggestion is to eliminate the 30
day provision from the Draft Declaration and so permit immediate
recourse to Article XXIII, as modified by the Draft Declaration,
without any prior consultations. The U.K., in view of previous
proposals, would no doubt support such a move. If the U.K.

proposal on Article XIX is revived, and of those discussed it goes
closest to meeting Australia's problems, [it] could be supported
without committing Australia in any way.

Section F-Conclusion
29. The Interdepartmental Committee concludes the Australian
Delegation could be instructed as follows:-

(i) The proposals so far considered do not overcome all of the
Australian difficulties which extension of G.A.T.T. by Australia
to Japan would give rise to and therefore full freedom to invoke
Article XXXV must be retained.

(ii) Nevertheless there are sufficient reasons in favour of such
extension to make it worthwhile examining any new proposals which
may come out of the Commonwealth pre-sessional talks [or] the
discussions in Geneva.

(iii)The Delegation should report fully and promptly on those
discussions and is authorised at both London and Geneva to take
part in discussions with other Contracting Parties, on the lines
suggested in paragraph 28(iii) with a view to achieving possible
modifications of the conditions of Japanese accession, but without
commitment to Australia.

Section G.-Japanese Peace Treaty
30. Under the Japanese Peace Treaty Japan is obliged to extend
general m.f.n. treatment including m.f.n. tariff treatment to all
Peace Treaty signatories granting such treatment to Japan. At
present Australia receives m.f.n. treatment from Japan but in
tariff matters at least Australia does not reciprocate. Some time
ago Japan asked for a statement of our intentions to enable her to
comply with the Peace Treaty obligations.

31. No reply has gone to Japan other than acknowledgment of the
request. The answer is of course dependent on the essential
decision on the G.A.T.T. issue. The Japanese request might be
interpreted as an indication that in the face of continued tariff
discrimination by Australia Japan is contemplating withdrawal of
present m.f.n. tariff treatment, which the Peace Treaty allows.

However, such action is unlikely while the G.A.T.T. question is
unresolved. This matter is mentioned here as providing relevant
background to the G.A.T.T. issues but the Interdepartmental
Committee considers that for the present a specific reply to Japan
is not needed.