CANBERRA

Trade with Japan
On 2nd September, 1953, (Decision No. 833) [1], Cabinet directed
the Departments of Trade and Customs, Commerce and Agriculture,
National Development and the Treasury to undertake a full
investigation into Australia's trading position vis-a-vis Japan.

2. The report made pursuant to this direction is submitted
herewith.

Attachment

SECRET

Australia's Trading Relations with Japan
Canberra, 23 June 1954
[matter omitted]

G. CONCLUSIONS
56. It is to the economic advantage of both Australia and Japan
that trade between the sterling area and Japan should be
maintained at a high level. This is of course a sterling area
problem. However, Australia is the largest sterling area exporter
to Japan and the need to safeguard this important export trade
suggests that we cannot leave it to other sterling area countries
to make opportunities for Japan to earn more sterling.

57. Significant relaxations have already been made in the value
and range of Japanese goods which may be licensed for import into
Australia. The fact remains, however, that there are no
satisfactory currency reasons for treating Japanese goods
differently from other non-dollar goods. Consequently Australia is
exposed to Japanese complaints and possibly retaliation.

58. Japan's overall balance of payments is weak, being highly
dependent on special American dollar receipts whose duration is
uncertain. The position has been deteriorating over the last year.

Japan therefore urgently needs to expand her exports.

59. Such evidence as we have about Japan's present competitive
strength indicates that she is a weaker competitor than before the
war. Hence Australia and other countries appear to have much less
to fear than formerly from Japanese competition. It is noted,
however, that Japan's level of costs is liable to change and its
future is hard to predict. Japan will probably be driven by
economic circumstances to adjust the structure of the economy and
take deflationary measures to reduce costs. In the meantime,
because of the need to expand exports, Japan has an incentive to
sell particular commodities from time to time at prices below
domestic cost of production. It is noted also that the information
being gathered in Australia on Japanese prices is still very
tentative. These factors clearly justify caution.

60. Because of these uncertainties, the Committee has concluded
that the present is not the time for long-term decisions on our
trade relationships with Japan. Nor, in the Committee's opinion,
would it be appropriate to decide immediately the policy to be
adopted in relation to questions that will perhaps come up for
consideration in the near future, such as, for example, the
application of the GATT, in some form or other, to our commercial
relations with Japan or the granting of most-favoured-nation
treatment to all or some imports from Japan. It would seem to be
better to deal with such questions when they actually arise.

61. It seems highly probable that the Japanese Government will
renew its request for trade discussions with Australia. The
Australian Government can define its attitude to such a request in
the light of the circumstances at the time the representations are
made.

62. The Committee is of the opinion that, in the meantime, the
following short-term measures can be recommended:-

(a) As a first step towards the removal of discriminatory
licensing of imports from Japan, those Japanese products which, in
the opinion of the Minister for Trade and Customs, offer no
detriment to Australian industries would be given the same
licensing treatment as that applied to other non-dollar imports.

This process of assimilation could be spread over several
licensing periods.

(b) The present system of discriminatory import licensing should
be continued in respect of those Japanese products which, in the
opinion of the Minister for Trade and Customs, offer detriment to
Australian industries. The control of these imports should be
relaxed from time to time in such a way as to-
(i) permit the real strength of Japanese competition to be tested;

and
(ii) allow Australian manufacturers reasonable opportunities to
establish before the Tariff Board their need of increased tariff
protection.

This recommendation visualises the licensing of at least token
quantities of Japanese goods at present not being admitted at all,
such as finished rayon piece goods, canvas and duck and cotton
drills. There would be no question of admitting quantities
sufficient to disrupt Australian production.