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78 Submission 142 To Cabinet By Menzies

14th October, 1954

CANBERRA

Trade Talks with Japan
1. Mr McEwen and Senator O'Sullivan have cabled from London
suggesting very strongly the urgency of opening talks with Japan
(copy of cable attached-attachment 'A'). [1]

2. When considering this question at recent meetings, Ministers
agreed in principle that Australia's trade relations with Japan
should be placed on a more satisfactory basis. Ministers agreed to
defer the announcement of an intention to open negotiations until
after the Commonwealth talks on the General Agreement on Tariffs
and Trade (GATT) now taking place in London. [2]

3. The question of Japan's admission to the GATT will be discussed
at the Ninth Session of the contracting parties which opens on
October 28th. Background notes to the proposal for a bilateral
treaty with Japan including the GATT aspects are given in
Attachment 'B'. [3]

4. The suggestion made by Mr McEwen and Senator O'Sullivan was put
forward on the basis that there are good tactical reasons for
taking the initial step of announcing our willingness to talk with
Japan before the opening of the GATT Session at the end of the
month. Before this step is actually taken however, Ministers
should have in mind fairly clearly what would be the form and
scope of an agreement and what would be the implications in such
an agreement for Australian industry and the pattern of imports
including imports from the United Kingdom.

5. If the suggestion of Mr McEwen and Senator O'Sullivan is
accepted the Committee envisages that the opening of trade talks
with Japan could take place in three steps.

Step 1. Japan could be told immediately that Australia is prepared
to open talks with them with a view to negotiating a bilateral
trade treaty. As soon as this step has been taken a short public
statement could be issued.

Step 2. The time and place for the opening of the talks could be
suggested to the Japanese. If convenient the Japanese could be
given at the same time a broad outline of Australia's ideas on the
possible basis of an agreement and the Japanese could be invited
to give us their ideas. This step would be taken in 4-5 weeks'
time when Ministers would have had an opportunity for a more
detailed examination of the issues.

Step 3. The detailed negotiation of the agreement. It was
contemplated in the previous Ministerial discussions that Mr
McEwen and Senator O'Sullivan would be available before the
detailed negotiations were taken too far.

6. Concessions we might seek from Japan
Most-favoured-nation treatment in tariff and related matters.

7. While there would be mutual recognition that the balance of
payments situation could preclude unconditional non-discriminatory
treatment, Japan should apply that treatment, subject to
exceptions agreed upon between the two Governments, to Australian
wool, wheat, barley, hides and skins and processed milk. This
commitment would not preclude the imposition of discriminatory
restrictions to protect Japan's balance of payments position; but
it would afford Australia the right to consult on the imposition
of such restrictions against the Australian products mentioned.

8. In seeking a commitment on m.f.n. we are asking Japan to
maintain and continue the treatment currently accorded to imports
from Australia. Ministers may wish to consider at a later stage
whether tariff concessions should be sought from Japan. The goods
from which items might be selected are:

Wool
Wheat
Barley
Hides and skins
Processed milk
Tallow
Casein
Butter and Cheese
Meat
Canned and dried fruits, fruit juices, cordials, jams and jellies
Shoe polishes
Attachment 'C' [4] indicates the tariff treatment on the item
suggested.

Commitments we could accept
9. The concession sought in paragraph 7 immediately raises the
question of reciprocal action by Australia. Australia is at
present using quantitative restrictions which discriminate against
Japanese goods. It is not at the present time possible to justify
this discrimination on balance of payments grounds. The Cabinet
decision on Submission No. 135 [5] indicates that Cabinet favours
this policy of using quantitative restrictions for protective
purposes against Japan for the time being.

9A. Under the import controls at present applicable to Japanese
goods, 50 per cent of our imports from Japan consist of textiles.

The bulk of these imports are of goods for further processing by
Australian manufacturers. Imports of textiles would probably
account for two-thirds of our imports from Japan in the absence of
the present discriminatory controls on Japanese goods and the
proportion of finished textiles would be likely to increase. It
follows that an agreement which did not accord m.f.n. to all or
most imports of Japanese cotton and rayon piecegoods would have
little appeal to the Japanese.

9B. It appears therefore that the Government should consider how
far it is prepared to go in according m.f.n. tariff treatment to
Japanese cotton and rayon piecegoods to establish a basis for
negotiation. This raises the question not only of Australian
manufacturing interests but also those of U.K. textile
manufacturers.

9C. Although textiles are the main item involved in any
negotiations with Japan, various other items, mainly consumer
goods (such as toys, artificial flowers, pencils, etc.) also raise
problems of protection.

10. Australian industries manufacturing the following goods would
appear to be vulnerable if similar Japanese goods were admitted at
m.f.n. rate of duty without some limitation on importation:-

Earthenware products other than crockery Elastics
Glassware Fancy Goods
Bags, baskets and other similar goods Pencils
Porcelain insulators Plastics
Snap fasteners Electrical goods (various)
Drills, denims Cotton sheeting
Artificial silk piecegoods Trimmings, ribbons
Buttons Ribbons
Canvas and duck, cotton Copper shapes
Tiles Articles for games
Toys Imitation Jewellery
Spectacles, sunglasses Smokers' requisites
Cotton piecegoods printed, dyed or coloured Cotton piecegoods,
bleached
Cotton tickings Artificial silk furnishing fabrics
Australian industries manufacturing the following goods (the
duties on which are the same under the G.T. [6] as under the
m.f.n. tariff) would be vulnerable if similar Japanese goods were
admitted without limitation:-

Plywood Dental chairs and units
Pencil cases (of wood or base metal) Cinema projectors (smaller
types)
Toilet combs Soda ash
Snap fasteners (for apparel) Sulphur
11. A schedule of the more important goods of which Japan is a
significant or potentially significant supplier to Australia and
which are subject to lower duties under the m.f.n. tariff than
under the general tariff is attached. [7] The schedule is in two
parts:

1. Items raising questions of protection for domestic industries.

2. Items raising questions concerning the interest of third
countries in the Australia market.

The schedule is not exhaustive but is merely to bring to the
notice of Ministers certain important products which could be
affected.

12. If most-favoured-nation treatment is to be accorded to Japan
the agreement must contain safeguards to protect Australian
industries as necessary. There are two possible types of
agreements.

A-THE QUOTA PRINCIPLE
M.F.N. over whole tariff. Import items deemed to be vulnerable
restricted by quotas. Imports above quota subject to G.T. duties
or subject to outright prohibition.

We would probably require freedom to transfer items to quota list
from time to time. The more difficult issues to be decided would
be the selection of the goods to be subject to quota control, the
fixing of the actual quotas and the fact that it would invite the
Japanese to apply similar treatment to Australian exports.

B-THE CANADIAN EXAMPLE
General m.f.n. treatment with appropriate escape provisions (wider
than anti-dumping) to permit the imposition of special
discriminatory duties on damaging low-cost imports from Japan.

The recent agreement between Canada and Japan requires the mutual
accord of m.f.n. tariff treatment between the two countries but
reserves to Canada the right to establish special values as the
basis for levying additional duties on imports entering Canada in
threatening volume. An agreement between Australia and Japan with
similar provisions for the levying of special duties on low cost
imports would entail amendment to existing legislation which would
not apply to imports from other sources. it would also raise
administrative problems.

13. The Canadian type of agreement has been accepted by Japan and
there is therefore the presumption that they would be able to
accept such an arrangement with us. This type of agreement has the
advantage that its escape clause can be invoked immediately when
needed and in principle it could give all the protection required.

This means that we do not have to worry in advance about the list
of industries we want to protect. In addition it goes as far as
possible to complete most-favoured-nation treatment and would give
us a greater chance of getting the concessions we wish to seek
from Japan.

14. For the reasons stated in paragraph 13 an approach based on
the Canadian agreement appears attractive to some members of the
interdepartmental committee. On the other hand the Department of
Trade and Customs who will have the responsibility for
administering the import aspect of the agreement see major
difficulties of administration. These difficulties are listed in
attachment 'D'. [8]

15. The Canadian type of agreement meets the policy requirements
but serious administrative difficulties arise with it. The quota
approach is administratively feasible but serious doubts arise
whether it would result in any useful agreement with the Japanese.

United Kingdom Interests
16. At the Commonwealth talks the United Kingdom expressed the
hope that if Commonwealth countries made bilateral agreements with
Japan they would provide safeguards for the interests of other
Commonwealth countries. This will have to be explored with the
United Kingdom during the further preparations for negotiating the
treaty.

Conclusions
17. If it is considered in the light of the above that an
immediate announcement on trade negotiations with Japan should be
made as suggested by Mr McEwen and Senator O'Sullivan it is
suggested that the following action might be taken:-

(1) Japan be informed immediately that Australia is prepared to
commence talks with a view to negotiating a bilateral trade
agreement and that a time and place for the opening of the talks
will be suggested as soon as possible.

(2) An announcement be made of the Government's intention.

(3) The other Commonwealth countries be informed of Australia's
intention and be invited to consult on the terms of the proposed
agreement.

(4) Ministers give further consideration to the merits of the two
possible types of agreement.

1 Document 75.

2 See Document 71.

3 Not published.

4 Not published.

5 Document 77.

6 General Tariff.

7 Not published.

8 Not published.


[AA : A4906, VOLUME 5]
Last Updated: 11 September 2013
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