Japan's Application to Accede to GATT
The Cabinet minute of the Interdepartmental Committee discusses at
length the issues arising from Japan's application to accede to
the GATT.

2. In the GATT context two courses are open to Australia:

(1) To invoke Article 35. In that event the obligations of GATT
would not apply as between Australia and Japan. Both countries
would retain the same freedom as at present to apply to the
products of the other, such treatment with respect to tariff
rates, import licences etc. as each determines.

(2) To refrain from invoking Article 35. In that event Australia
becomes automatically committed (after Japan's accession to GATT)
to accord m.f.n. treatment to Japan with respect to tariff rates,
import licences and other measures affecting the importation and
exportation of goods irrespective of whether tariff negotiations
between Australia and Japan are successfully concluded or not.

3. In present circumstances where Japan is adjusting prices to the
new situation resulting from the worldwide change from a sellers
market to a buyers market, the effects on Australian and British
industry of the grant of m.f.n. treatment to Japan defy a
confident assessment. The Department's studies lead it to the view
that the effects are likely to be serious for both Australian and
British industry.

4. The essence of the problem arising out of an obligation to
accord m.f.n. treatment to Japan is the Japanese low cost
structure and its past use in concentrated attacks on particular
markets. The problem is aggravated by the deterioration in the
Australian cost structure.

5. In considering the effects of Japanese competition the position
with respect to textiles demands chief consideration since
textiles (chiefly cottons and rayons) account for almost 40% of
Japan's total exports. In general, cottons and rayons are subject
to fixed rate duties as distinct from ad valorem duties. The
incidence of the fixed rate duties and the margins of preference
has deteriorated remarkably with the general rise in costs and
more particularly with the sharp rise in Australian costs. The
duties on cottons remain at pre-war levels or lower and those on
rayon fabrics are based on duty-free yarn although the production
of rayon yarn in Australia has commenced. The accord of m.f.n.

treatment to Japan can therefore be expected to have very serious
repercussions on the Australian textile industry. A number of
other industries of smaller dimensions may be expected to suffer
similar repercussions.

6. The parties to GATT have proposed additions to the 'escape'
clauses of GATT with the object of alleviating the possible
consequences of according m.f.n. treatment to Japan. These
proposals involve the accord of m.f.n. treatment to Japan and only
permit the application or retention of such special remedial
measures as the GATT organisation approves. Their acceptance as a
solution of the problem would leave Australia in a precarious
defensive position. The Department is unable to commend them as a
satisfactory solution of the Australian problem.

7. The Department recommends the following course:

(1) Preserve the right to invoke Article 35 until a decision on
whether or not to invoke Article 35 becomes necessary. It is
unlikely that a decision of that nature will be called for within
12 months or probably much later.

(2) Authorise the delegation to give its support to proposals
sponsored by other countries for the adoption of conditions of
accession which provide the greatest freedom to apply remedial
measures. Such support to be given without impairing the right to
invoke Article 35 at the appropriate time. The Government to be
kept informed of developments in the discussions amongst the
contracting parties and of the course followed by the Australian
Delegation.

(3) Defer consideration of possible alternative methods of
expanding trade between Australia and Japan until the GATT
organisation has reached a majority agreement on conditions of
accession. If the conditions remain unacceptable, consideration
could then be given to the possibilities of concluding a bilateral
arrangement with Japan outside the framework of GATT.