CANBERRA

Australian-Japanese Trade Relations
In your submission to Cabinet of 28th July, 1954, dealing with
Australian-Japanese relations generally [1], you emphasised the
urgent need to help reduce the attraction for Japan of seeking
closer trade relations with communist China and the Soviet Bloc by
showing that Australia is prepared to provide a reasonable outlet
for Japanese exports. Attention was drawn to the increasingly
serious position of Japan's balance of payments and the fact that
as Japan's imports are mainly basic raw materials, there is little
prospect of her reducing imports. The point which attracted the
interest of the Minister of Commerce was the importance of
maintaining Japan's capacity to buy Australian wool. You may
recall that Japan has not had answers to two notes asking
Australia to enter trade discussions in view of the serious
imbalance of Japanese trade with Australia.

2. In a Cabinet sub-committee on 14th September the Ministers
concerned considered a submission on trade with Japan and agreed
in principle that we should inform the Japanese that we were
agreeable to bilateral trade talks but that the decision should
not be conveyed until after the London talks. [2]

3. Mr McEwen and Senator O'Sullivan, following their talks in
London, have urged very strongly that we should announce to Japan
that we would have trade talks and they stress the technical
advantages of initiating these talks before the GATT meeting
commences on 28th October. [3]

4. The Interdepartmental Committee has been discussing the basis
on which bilateral talks would take place. An agreement similar to
that entered recently by Canada with Japan seemed the most
satisfactory line. This would give generally most-favoured-nation
treatment to Japanese imports but retain the right for Australia
to adjust values for tariffs in order to protect ourselves if the
need arose. The Department of Trade and Customs have argued that
they would encounter administrative difficulties with such an
agreement. The alternative was that the talks should be based on a
quota principal for Japanese imports which would probably be
unacceptable to Japan.

5. On 25th October the Department of Trade and Customs announced
that their Acting Minister, Senator Spooner, had agreed to a
submission to Cabinet [4] outlining and emphasising the
difficulties in the way of Australia's making trade concessions to
Japan, and by inference suggesting that the previous decision in
principle that we should have bilateral trade talks should be
rescinded.

6. It is obvious that to attain the ends which we had considered
necessary, namely giving to Japan some opportunity to rectify to
some degree her imbalance of trade with Australia, we must do so
at the expense of imports from a third country or countries or
Australian industry. If any sort of bilateral agreement is to be
acceptable to Japan it must affect the export industries of other
countries or Australian industry. Action by our part merely to
stabilise the present out-of-balance levels with Japan would
conflict with our wider objective of assisting Japan to achieve
greater economic viability.

7. It is the view of this Department that we should announce to
the Japanese immediately that Australia is willing to enter
bilateral trade talks. We consider that an agreement on the
Japanese-Canadian type would be preferable, although there would
be administrative difficulties which Customs would have to take
care of. Even if these difficulties were proved to be
insurmountable, a basis for bilateral negotiation would still
exist in an agreement on the quota principle if we do not seek to
have excessively harsh restrictions written into it. The important
thing for us is to let the Japanese know that we are willing in
principle to undertake bilateral talks. It is probable that the
Japanese would immediately enquire whether such talks constituted
tariff negotiations within the meaning of the GATT, as their aim
is to be admitted to membership of the GATT. In our view,
membership of GATT will depend on the extent to which the
agreement can be amended so as specifically to allow for bilateral
arrangements which would give us safeguards outside the agreement.

But this is a later issue, and the present principle of announcing
to the Japanese at once that we will talk trade to them is all
that needs immediate decision.

8. The Department of Customs are not advising whether an agreement
with Japan should be on the Canadian lines or on the quota idea.

Rather they are saying that no basis exists for an agreement at
all. In the circumstances, it is submitted that at the Cabinet
meeting on 26th October we should work for the following time
table:

(a) an immediate re-affirmation by Cabinet of the decision already
taken that in principle we agree to the holding of bilateral trade
talks with Japan;

(b) that a sub-committee of Cabinet should this week decide
whether the proper basis for such an agreement should be the
Canadian model or the quota approach. The sub-committee should try
to pin-point Customs administrative difficulties in carrying out a
Canadian type agreement and try to assure themselves that these
difficulties can be overcome;

(c) the Minister or Department of External Affairs should be
authorised, if possible at the end of this week, to notify the
Japanese Ambassador in reply to the Japanese outstanding notes
that in principle Australia will undertake bilateral trade talks
with Japan;

(d) the actual commencement of the talks need not take place for
several weeks, in which time the full implications of what we must
give to the Japanese can be worked out.