At the present time Japan participates on a provisional basis in the sessions of the Contracting Parties of the GATT, and commercial relations between Japan and certain Contracting Parties (including Canada) and governed temporarily by the provisions of that agreement. The press release announcing Canadian acceptance of the Declaration to this effect (pursuant to Order in Council P.C. 1954-517) referred to it as "part of the arrangements which were adopted for Japan to participate in the General Agreement on a provisional basis pending tariff negotiations."¹⁶⁷

The bilateral agreement between Canada and Japan, which, of course, continues in force during this interim period, was worked out in accordance with the GATT and will still apply if Japan accedes fully to the GATT.¹⁶⁸ That bilateral agreement provides for certain specific protection against imports which might cause serious injury to Canadian production, and, by reducing discrimination against Canadian goods, secures certain substantial advantages to Canadian exports.

It has now been agreed in Geneva that the tariff negotiations relating to Japan, which were envisaged when the provisional arrangements with respect to Japan were made, should take place in Geneva on or about February 21 with a view to the full accession of Japan to the General Agreement. The participation countries will be those which have indicated that they would be prepared to enter into tariff negotiations with Japan. Those which have so far indicated their willingness are Burma, Ceylon, Chile, Denmark, the Dominican Republic, the Federal Republic of Germany, Indonesia, Italy, Norway, Peru, Sweden, the United States and Uruguay.

Canadian participation in the proposed tariff negotiations could take two forms. There might be direct bilateral negotiations with Japan, which would be very limited in scope, and there might be triangular negotiations with Japan and the United States under which, in order that Canada might give additional concessions to Japan, the United States would give concessions to Canada. The United States Government has authority to enter into such negotiations under the Reciprocal Trade Agreements Act which was renewed last June for one year. Despite any uncertainty concerning particular aspects of future United States commercial policies, there would seem to be considerable merit in Canada taking a small part in these negotiations which will represent the first tariff negotiations undertaken in some twenty years by a Republican Administration.

The negotiations would be conducted on the basis of the principal supplier rule, and of other principles similar to those which guided the tariff negotiations at Annecy in 1949 and Torquay in 1951, although the proposed negotiations would be more limited. Pursuant to the most-favoured-nation clause of the GATT, all tariff concessions granted by any participating country would be extended to Canada whether or not the concessions were negotiated with Canada. Similarly, Canada would extend to all Contracting Parties any tariff concessions which it might negotiate.

While Canadian negotiations would be modest in scope, several of the items likely to be put forward by both Japan and the United States are items with respect to which Canada has some hope of obtaining concessions which would be of considerable value to particular Canadian industries. On the other hand it does not appear that Canada would have to make any concessions which would be embarrassing.

There are perhaps also economic and political grounds for favouring tariff negotiations with Japan. There has recently been a change of Government in Japan and an election is to be held there fairly soon. By entering into tariff negotiations with Japan in the near future, the Canadian Government might be better able to maintain closer commercial relations with Japan; not to enter into negotiations might increase the difficulty of maintaining such relations under a Japanese Government twice removed from the one which negotiated the bilateral agreement with Canada. At any rate Japan's general attitude toward trade with Canada would probably be influenced in some degree by Canada's willingness to participate in these tariff negotiations. On the political side, it is clear that, as part of her general effort to re-establish herself in the international community, Japan attaches importance to full membership in the GATT. It would seem desirable for Canada to join with other like-minded countries in facilitating the entry of Japan into the GATT.

In addition to the question of new tariff negotiations, it is necessary to consider the related matter of the temporary arrangements for associating Japan with the GATT. Because the Declaration which temporarily brought Japanese trade with certain Contracting Parties under the provisions of the GATT and to which Canada adhered, will expire on June 30 next, a new Declaration has been opened for signature. It would extend the validity of the earlier Declaration until December 31, 1955, unless before that date the Declaration has ceased to have effect by reason of Japan's accession to the GATT.

Recommendations

1. With the concurrence of the Minister of Trade and Commerce and of the Minister of Finance I recommend that Cabinet authorize the Canadian Delegation to the GATT Conference in Geneva, under the chairmanship of Mr. Wilgress, to negotiate on a reciprocal and mutually advantageous basis and in accordance with Section 10 of the Customs Tariff Act:

(a) directly with Japan on items with respect to which one country is the other's principal or major supplier;

(b) in triangular negotiations, - to the extent that the United States may be in a position to offer concessions to countries other than Japan.

It would be understood that the results of the negotiations, when completed, would be subject to confirmation by the Canadian Government.

2. With the concurrence of the Minister of Trade and Commerce and the Minister of Finance I also recommend that an Order in Council be issued authorizing Mr. Wilgress to sign, on behalf of the Government of Canada, the new GATT Declaration which would extend the validity of the earlier Declaration on commercial relations between Japan and certain Contracting Parties until December 31, 1955, unless before that date the Declaration has ceased to have effect by reason of Japan's accession to the GATT.¹⁶⁹

Press Release

If the Cabinet should decide to authorize Canadian participation in the proposed tariff negotiations it might be deemed advisable to issue a public statement. A draft press release? is attached for consideration.

L.B. PEARSON
With the concurrence of:
C.D. HOWE
Minister of Trade and Commerce
W.E. HARRIS
Minister of Finance