Australia-Japan Commerce Agreement
Menzies with Kishi, from the Menzies Collection.
On this day, 6 July 1957, the historic Australia-Japan Commerce Agreement is signed at Hakone. In signing the agreement, Australia became one of the first allied nations to normalise its trade relations with Japan following World War Two, setting a precedent which others would follow. Australia would reap tremendous rewards for this act of foresight as the Japanese economy blossomed and became for a long time the major export market for Australian goods.
Robert Menzies had been at the forefront of pushing for reconciliation with Australia’s wartime enemy from an early date. Even during the war, Menzies had rejected attempts to unnecessarily vilify the Japanese people as something that would sow the seeds of an enduring, rather than a temporary and inevitable, bitterness. During a Forgotten People Radio Broadcast on ‘Hatred as an Instrument of War Policy’ delivered in 1942, he had denounced a propaganda slogan which read ‘we always did despise them anyway’, explaining:
‘It is an offence to an honest citizen to imagine that the cold, evil and repulsive spirit of racial hatred must be substituted for honest and brave indignation if his greatest effort is to be obtained…This war is no sordid conflict of racial animosities. If it were it could never end in your lifetime or mine. When generals and statesmen sit around the conference table at the end of this war they may make treaties, but treaties cannot alter the spirit of man. Peace must not only close the door on war; it must open the door to better things. It is not by treaty that we shall pass out of this hideous valley of death into the higher lands of peace and goodwill. Peace may be all sorts of things – a real end of war; a mere exhaustion; an armed interlude before the next struggle. But it will only be by a profound stirring in the hearts of men that we shall reach goodwill.’
Likewise, in the early 1950s Menzies had pushed hard for the ratification of the Japanese Peace Treaty, which offered generous terms that would allow the defeated nation to rebuild, in the face of fierce opposition from the Australian Labor Party and a wide section of the Australian public. He even went so far as to publish an article in the prestigious journal Foreign Affairs on ‘The Pacific Settlement Seen from Australia’, explaining the difficulties to be overcome but also the benefits of magnanimity, to an international audience:
‘It is simple to understand that the instinctive reaction of Australia to any proposal for a Japanese peace settlement is, “Keep them down! Don’t let them rearm! Don’t trust them!” It is true that history proves that such reactions are ephemeral and sometimes dangerous. But we are not living in a world of historians; we are living in a world of men and women, of widowed wives and bereaved mothers; a world tenaciously attached to a justice which precedes mercy, though it may be tempered by it.’
Menzies laid the diplomatic groundwork for the agreement first by opening an Australian embassy in Japan in 1952, and then by becoming the first Australian Prime Minister to visit Japan in April 1957. His counterpart Nobusuke Kishi would repay the favour by becoming the first Japanese Prime Minister to visit Australia later that same year.
Other important groundwork was the negotiation of a new trade deal with Britain, which would free Australia from some of the imperial preference obligations entered into in Ottawa in 1932. This then gave Australian negotiators the flexibility to offer Japan a deal that would make it a direct competitor with British importers. It is important to note that Australian exports to Japan were already significant but not reciprocal; the purpose of the trade agreement was not just to grow these exports but to go some way towards evening out the terms of trade to ensure the relationship had lasting stability.
The Commerce Agreement conferred ‘most favoured nation’ status on Japan, allowing her to bypass several of Australia’s protective tariff barriers, and promised non-discriminatory treatment in import and exchange controls. As with the peace treaty, the Menzies Government faced fierce criticism from Labor during the ratification process. Opposition Leader Dr H.V. Evatt felt that the agreement lacked adequate safeguards for Australian industry and was a form of ‘economic aggression’, his colleague Eddie Ward went so far as to describe it as a ‘criminal action against the Australian nation’.
Outside of Parliament there was also criticism from the powerful manufacturing vested interest, the trade union movement, and from sections of the press. Director of Associated Chamber of Manufacturers Latham Withall called the agreement a ‘blueprint for unemployment’. Textiles manufacturer Crunda Knitting Mills bought a full page advertisement in the Sydney Sun-Herald with a banner reading ‘UNEMPLOYMENT – It’s up to you, Mr Menzies’. Meanwhile the A.C.T.U. collected a petition of 30,000 signatures protesting the arrangement.
While Labor and the manufacturers were opposed, Menzies had the enthusiastic backing of his Coalition partner the Country Party. Rural interests would initially be the primary beneficiaries of an expanded market to gobble up wool exports, though they would soon be joined by a bourgeoning mining sector, and the knock-on benefits would be felt by the whole nation. It was Country Party leader John McEwen, who in many other circumstances was a fierce opponent of free trade, who took the lead in negotiating the details and ultimately signed the agreement for Australia. Credit should also be given to key public servants like John Crawford, who had been advocating fostering closer economic and political ties with Asia since the 1930s.
The success of the agreement is difficult to overstate. By as early as 1967, ten years after its signing and the year after Menzies left office, Japan had already surpassed the United Kingdom as the largest importer of Australian goods. The agreement would ensure that Britain’s entry into the European Economic Community did not devastate Australia as it might otherwise have, and it also acted as the template for a host of other successful economic relationships Australia has since developed in Asia. In modern times, Australia enjoys what has been dubbed the ‘special strategic partnership’ with Japan, and far from the threat that Menzies’s opponents envisaged, Japan has become a crucial partner in ensuring peace and security in an increasingly troubled region.
Further Reading:
Robert Menzies, The Forgotten People and Other Studies in Democracy, (Sydney: Angus and Robertson, 1943).
Robert Menzies, ‘The Pacific Settlement Seen from Australia’, Foreign Affairs, January 1952.
Barry York, ‘Kishi and Friends’, Museum of Australian Democracy, Kishi and Friends · Museum of Australian Democracy at Old Parliament House (moadoph.gov.au)
Robert Menzies, The Measure of the Years (Sydney: Cassell, 1970) from which the following extended extract is made:
“After my government won the general election in 1954, we gave some thought to how Australia should handle its relations with Japan during the three years of office that were ahead of us, and we approached this in a positive, considered way so that we would not be taking things simply as they turn up. Casey outlined to Cabinet the outstanding problems that existed between Australia and Japan, most of them arising out of the war, and after discussion we authorized him to try and settle each of them, either alone or in association with those of his ministerial colleagues who had responsibilities in regard to a particular subject. Our general approach was that Australia wanted to be on good terms with Japan and to bring it into the community of nations, so that it would have its self-respect and be a co-operative partner with full opportunities to develop and sustain its economy. I regard the outcome as one of the outstanding successes of my Government.
I turn particularly to our trade problems.
I shall not make reference to pre-war events since my prime purpose in this chapter is to show what my Government did. I might appropriately say what my deputy Prime Minister John McEwen did, except that, of course, he moved in consultation with me and with our colleagues, particularly Casey, who was most active on the diplomatic front, and had our constant backing. There was still much hostility in Australia, among both manufacturers and the general public, to the making of any special agreement with Japan which might increase Japanese exports to Australia. Not only were war memories very strong, but most Australians viewed Japanese industry and its products with suspicion. Both had, before the war, been associated in the Australian mind with cheap labour; poor-quality goods; policies of price-cutting which unfairly competed with products manufactured within Australia and also imported from traditional suppliers; and, I fear, occasional dubious practices for the evasion of our Customs tariff.
Nevertheless, the long view needed to be asserted. Japan would be a growing Pacific power with a vast industrial population and she would need many of the things that we could provide and needed to sell. We, in turn, in all common sense, would have to recognize that, though trade between us might never be expected to balance, Japan must have adequate means of earning foreign exchange if she were to become a big customer of ours.
So it was that in October of 1956 it was announced by the Government that trade negotiations would shortly commence and would be directed towards the conclusion of a trade agreement. Japan was already our second most important customer, particularly for wool, and the balance of trade leaned heavily in our favour. That imbalance could be expected to become even more serious at the time of our announcement, because domestic supplies of Australian steel were becoming sufficient to satisfy most internal demands, and Japanese exports to Australia of this item would substantially cease. This expectation proved correct, because the 1957 trade statistics showed that Australia had sold £139,000,000’s worth of goods to Japan and had bought only £13,000,000. We had other considerations in our minds: development in Australia, which, even then, in the mineral field was very great, meant that we must expect a high rate of imports of capital equipment. This emphasized our need for additional export income. Our exports to the United Kingdom were not growing at anything like the rate needed and, in any event, London was looking eagerly in the direction of the Common Market as a means of ensuring her trade development.
Our trade agreement with Japan was made in July 1957.
In August and September it produced a great debate in the House of Representatives. McEwen made a clear explanatory statement, tabled the agreement, and, following our parliamentary practice, moved that it be printed. Evatt, Leader of the Opposition, moved an amendment disapproving of the agreement. So the battle was clearly joined. If it had not been won by us, the whole course of our relations with Japan would have been drastically altered for the worse. Fortunately for Australia, the Labour Party’s move failed.
I made an extensive speech myself, from which I shall make two brief quotations.
‘The first question which emerges quite plainly from lots of speeches that have been made is, should we have a trade agreement with Japan at all? What emerges from many criticisms is an apparent belief that we should not. This age in which we live is an age of trade agreements, either multilateral trade agreements or bilateral trade agreements - like the recent one that was negotiated with Great Britain. It is a common and proper expression of mutual arrangement between trading nations. Japan is a great trading nation - one of the significant trading nations in the whole Pacific area, and indeed in the world - and Australia is a significant trading nation.
We were reminded by my colleague, in his statement the other night, that in spite of our relatively small population, we are the eighth trading nation in the world. That represents a remarkable development - a remarkable development of export, a remarkable development of import and a remarkable development of internal production. The Government is as aware of that as is any critic, and is as determined to preserve that position and to improve it as is any critic. Could it be said that we could sensibly decline to make any arrangements for the regulation of our mutual trade with Japan? Do we prefer to be free to do exactly as we please with Japanese exports, leaving Japan free to do exactly as she pleases with Australian exports? Because, unless that is our strange point of view, we must have an agreement; and the first question answers itself…
The agreement will play some part in assisting to create economic stability and growth in Japan. That is not to be dismissed as something unimportant. That is a proposition of the highest statesmanship if we know our position in the world and understand the problems of the Pacific. Indeed it ought not to take much to persuade us of the validity of that point because the economic recovery of Japan since the war has already given great benefit to us.’
To say that the agreement was controversial really is an understatement. There was great hostility on the part of the organized manufacturers and of important sections of the Press. I made speeches and national broadcasts. So did my colleagues. We secured some good support from prominent ex-servicemen. We found ourselves facing a good deal of hostility. But we had made the treaty. It accorded to each party most-favoured-nation tariff treatment. Japan guaranteed more liberal access to the Japanese market for wool, wheat, sugar and so on. Japan undertook not to impose a duty on wool during the first three years of the agreement. A very important provision of the agreement was one which enabled us to take immediate action to protect any Australian industry that was seriously disrupted by imports from Japan. Such action could be taken only after consultation with the Japanese; a consultation which was in any event provided for on a full and regular basis. The treaty was strongly opposed in Parliament by the Labour Opposition. Its Leader, Dr Evatt, urged that it should not be adopted, and said that from an Australian point of view it was a thoroughly bad treaty.
Well, admittedly the provision about emergency action was one which could give rise to differences of opinion. What assurances could manufacturers of goods which competed with imported Japanese goods have that their interests would be effectively protected? To meet this point the Government constituted a one-man advisory authority, M.E. McCarthy, who was Chairman of the Tariff Board and very well regarded in manufacturing circles. It was to be his duty to investigate complaints and to advise the Minister of Trade on the need for emergency action. The appointment of McCarthy was welcomed by both the Chamber of Manufacturers and the Australian Chamber of Commerce. In the result, although there were over a hundred items manufactured in Australia which were considered as sensitive to Japanese imports, in the first three years only fourteen complaints and inquiries needed to be referred to the advisory authority, and only in five cases was action necessary. Apprehensions expressed at the time of the signing of the agreement were proving unfounded. The Japanese authorities turned out to be frank and co-operative. In some difficult cases conveyed to them, they voluntarily limited their exports to Australia. The general atmosphere improved all round. As the years went on, and as the manifold advantages deriving from the treaty and subsequent events became clear, various improvement were made. So that mutual understanding and fair dealing might be ensured, and after discussions with the major business groups in Australia, the Australia-Japan Business Co-operation Committee was formed in 1962. Its first President, interestingly enough, was a former President of the Australian Manufacturers’ Association. At the same time a similar committee was formed in Japan, delegates from each of the committees meeting jointly once a year.
The only other major matter I need mention in this highly summarized account results from the famous Kennedy Round under the GATT. Australian finally got a ‘binding’ from Japan on the duty-free entry of Australian wool.
There are still, and of course there are likely to be for many years to come, problems which will crop up and which will need adjustment. But my colleagues and I look back with satisfaction on this great achievement in the trade field, the benefits of which for Australia (and, of course, to Japan) have been enormous.
The old controversies have, I think, largely died away because each country has found mutual advantage in the arrangements that have been made. I can best summarize the position by saying that in the year in which we came back into office our exports to Japan were four times as great in value as our imports from her, and represented seven per cent of our total exports. The figures have risen on both sides substantially during the years until last year Japan was taking twenty-four per cent of our total exports while our imports from Japan were twelve per cent of our total. It is clear, in short, that our trade with Japan has become a tremendously important factor in our national economy. She has become our best customer, and we are certainly one of hers.”