Re: Cabinet decision on Japan [1] we have considered various
aspects raised and also the new urgency because of-
(a) the decision in GATT re tariff negotiations with Japan [2];

and
(b) the action by the United Kingdom to inform Japan of probable
line of the United Kingdom in the review session and to propose
bilateral talks. [3]

With the benefit of advice from both Crawford and Meere and with
their full endorsement we summarise our views as follows:

1. It would not only be unwise tactically in our subsequent
dealing with Japanese but completely unnecessary to withhold a
decision to talk bilaterally until we have made a very careful
assessment of the extent to which we could go in offering m.f.n.

treatment to Japanese goods. Even if we finally decided that we
could not offer such treatment on any lines of textiles (which we
doubt) there is still some scope for manoeuvre in respect of the
other 50 per cent of our trade.

2. For reasons outlined in our paragraph 3 of GATT No. 2 [4] we
stress again very strongly the urgency of opening these talks and
believe it desirable to notify immediately our willingness to
negotiate even if in the long run the negotiations break down. In
such a case we could if politically desirable (domestic or
international) blame the Japanese. In the present circumstances
Japan, as a good customer country, can place the blame at our door
for any restrictive action that she may take in respect of our
exports to Japan and we would certainly have no reply. The longer
we delay notifying Japan the greater this danger becomes.

3. Much has been done over the last three quarters to ease the
licensing position on goods from Japan, but by reason of the
current licensing practice Japan is singled out in non-dollar
world for special licensing treatment which cannot be justified on
balance of payments grounds. Therefore, in our opinion, a move
towards assimilation should be made immediately. We have some
comments on the proposals for assimilation set out in the Trade
and Customs submission but cannot at this remove speak
specifically in terms of the actual items listed in various
schedules. Our comments follow-
(a) We agree, subject to some qualifications given later, that
except for the goods of the type listed in annex C [5], imports of
Japanese goods should receive ordinary non-dollar treatment.

(b) We disagree with the processed 'ceiling limitation' on goods
of type listed in annex C and recommend instead a special budget
on the lines of previous Japanese budgets for these goods which it
is considered undesirable to assimilate fully. As it is probable
that the goods included [6] from non-dollar licensing treatment
may form a basis for bargaining in the bilateral talks it is
suggested that it is desirable to make it more embracing than the
goods which may be damaging to either Australia or the United
Kingdom so that there is some margin for concession during the
negotiations. The action above would indicate that we were not
singling out Japan as a nation for special licensing treatment but
rather that we had doubts about the damaging effects on our
economy if we permitted unrestricted importation of some types of
Japanese goods.

(c) We cannot express an opinion about the Trade and Customs
schedule analysing on an item by item basis the possibility of
according M.F.N. treatment to Japanese goods. As indicated earlier
we believe such an analysis while essential to the preparation of
a brief for negotiations, is not a necessary pre-requisite to a
decision by government to notify Japanese of our willingness to
enter into bilateral talks. As regards relationship of the above
to G.A.T.T. our views are as follows-
(a) We shall proceed to support United Kingdom proposals in
G.A.T.T. but will time such support to give us the best bargaining
counter in relation to overall issues with the United Kingdom and
United States.

(b) While supporting the United Kingdom view, we would need to be
mindful that there is no very great certainty that such a proposal
would, in fact, prevail in G.A.T.T.

(c) In the event that it fails to win sufficient support, our line
should be-
(i) that we have already notified Japan of our intention to
negotiate bilaterally outside G.A.T.T. and
(ii) that our support of the United Kingdom proposals is
indicative of our desire to solve trading problems with Japan
within the context of G.A.T.T. and
(iii) for the time being we shall have to resort to Article XXXV
though in the hope that in our bilateral talks with Japan we can
find a solution which will enable us to find it unnecessary to
continue recourse to Article XXXV.

The above line would then leave us free to determine at a later
date what particular method, i.e. quota restriction or valuation
we might wish to resort to in our bilateral negotiations in order
to enable us to be able to deal ultimately with Japan.