CANBERRA

1. Our 255. Ministers have considered the further views in support
of your proposal [2] but have decided to adopt the assimilation
proposals set out in Submission 153. [3] In coming to this
decision the following factors were important:

Firstly, we want to keep import licensing commitments out of any
trade bargain with the Japanese. It is important that we retain
for ourselves the greatest possible freedom of action in using
such controls. We have avoided commitments with other countries on
import licensing and if we now changed our approach it would be
difficult to avoid giving similar commitments to other countries.

It is realized, of course, that import quotas may well prove to be
the protective device we will want to include in any agreement
with Japan. But this is an issue upon which no final view has yet
been taken by us and pending such view we do not want to assume
that any important part of concessions by us would be made by
limiting our rights in respect of import licensing for protective
purposes. As we want to keep our hand as free as possible on this
matter it is our strong view that any decisions taken now on
licensing of Japanese imports can and should be taken on their
present merits irrespective of the possible outcome of the trade
talks with Japan.

Secondly, we have approached this problem of licensing of Japanese
goods mainly from the standpoint that there was a real need to
give Japan some early opportunity in increase export earnings.

Since there were no longer balance of payments reasons for special
controls against Japanese goods we should remove the
discrimination as far as we are able. The proposals in Submission
153 will give Japan the opportunity to make some early significant
increase in her exports and at the same time provide protection of
our important trading interests, particularly textiles. Japanese
gains should be at the expense of other overseas suppliers and not
Australian production.

Thirdly, the budget proposal would necessitate some lifting of
overall ceiling level of imports if Japan is to make any
worthwhile gains. In view of the latest estimates of the balance
of payments position we do not feel able at this stage to approve
a higher overall ceiling and unless the assimilation proposals
give Japan some reasonable opportunity to increase her trade there
does not seem to be any point in pursuing them.

Fourthly, the most optimistic expectation is that it would be at
least six months before there could be any successful outcome to
the negotiations and there is a real possibility that they will
break down completely as you recognise in your GATT 8. These
possibilities conflict with the general approach previously agreed
that we should place our licensing of Japanese goods on a more
satisfactory basis as early as practicable.

Fifthly, we feel that the fact that we have made some worthwhile
changes in the licensing regime will create a favourable
atmosphere for the opening of the negotiations already approved
and will facilitate those negotiations to the extent that it gives
us a better knowledge of Japanese trade potential.

We propose to put this decision on assimilation into effect as
quickly as possible and to announce it early next week.