118 Informal Trade Talks: Australia-Japan: Record Of Discussion

31st October, 1955

MR HEYES welcomed visitors [1] and expressed the hope that the discussions would lead to a concrete solution to mutual trade problems. Discussion would be on an informal basis as had been agreed by the permanent heads of the two Departments and the Japanese Ambassador. It was not proposed at this stage to give any publicity to the talks. He suggested that the discussions could best begin by each delegation outlining the problems which faced it in disposing of its products in the territory of the other.

MR UYAMA said that the problems the Japanese had hoped to discuss included Japan's position in GATT, the invocation of Article XXXV by Australia and other matters usually covered by a treaty of Friendship, Commerce and Navigation. The Japanese delegation would also be willing to answer questions on other mutual trade problems. If the questions posed by the Japanese delegation could not be answered by the two Departments, they could be referred to other appropriate Departments.

MR HEYES replied that neither he nor Dr Westerman were in a position to reply to the Japanese on wider questions of policy. He was in a position to state only the views of the two Departments present on trade matters and would expect to discuss technical problems arising out of trade relations between the two countries.

DR WESTERMAN said that the object of the talks was to define particular spheres of interest to both countries as talks progressed. Out of what arose from the informal talks a basis might be formed for formal discussions which might take place at a later date. The Japanese might raise any problems they wished and they would be placed on record and we would pass them on to the Government as a whole although the purpose of the talks was to examine in detail only mutual problems of trade interest.

MR HEYES agreed with this.

The Japanese then circulated a paper of proposed items for discussion, namely:-

1. Application of GATT provisions:-

Japan's proposal at the 10th CP Session;

safeguards for Australian industries against abnormal influx of Japanese goods.

2. Matters to be dealt with usually in a Treaty of Friendship, Commerce and Navigation.

3. Other measures to be taken for the expansion of trade between the two countries.

The Japanese then circulated an Initial Statement (attached) [2] which Mr Uyama read out.

MR HEYES said that he would like some time to look more closely at the paper and the GATT implications it involved.

DR WESTERMAN said that our attitude on the export side was to seek out Japan's attitude on mutual problems. Our objective was to find out and pass on to the Government the reactions of officials to matters discussed. We had largely a listening brief. However, that did not mean that we had a negative role. We might ask questions in the course of discussion because we thought that this was the best way of being positive and of formulating concrete proposals.

MR HEYES then pointed out that an aide memoire from the Japanese Embassy [3] on the question of the invocation of Article XXXV by Australia had been received from the Department of External Affairs and was currently receiving consideration by Departments and Ministers. The question of an FCN [4] agreement would need consideration by a number of Departments and by the Government as a whole. We might therefore go to Item 3 and leave Items 1 and 2 to Departments concerned and the Government.

DR WESTERMAN said that he agreed that everything possible should be done to eliminate trade obstacles between the two countries.

There appeared to be general and specific problems which required attention. Turning to the general problems it seemed that Japan's and Australia's were similar but affected us with different emphasis at different times. At present Japan was in a strong position as regards sterling holdings. Australia was in a relatively weak balance of payments position. To a great extent the balance of payments difficulties had been forced on us because of the export position. Among other causes, e.g. price, seasonal conditions, etc., which were responsible for the decline in exports, were the policies of protection particularly in relation to agricultural production adopted by other countries. For Japan the tariff abroad was largely the problem. For us the tariff abroad was not the main problem. Other forms of protection were our chief difficulty. The GATT was not so effective on these other problems as it was on the tariff. The kind of problems facing us were-quantitative restrictions for other than balance of payments reasons, State trading, State monopolies. As protective measures these were not so straightforward as the tariff. The level and exact nature of protection was not known and information could not easily be gained about them. For example, it was difficult to gain information about internal protective measures adopted by countries. Our questions were designed to gain information on the measures used by Japan. Questions on bilateral agreements were also involved where the bilateral agreements gave particular advantages to individual countries. The effect of these specific concessions was to insulate a part of the market against competition from Australia. Specific commitments of this kind took the meaning out of the general commitments such as most-favoured- nation treatment. It was not Australia's objective to seek quotas unless it were shown that this was the only way of gaining access to the Japanese market. Another difficult problem for us was the US policy on disposals under P.L.480. U.S. had done much to try and obviate disruption to world markets but some disruption was inevitable and the presence of surpluses itself constituted a problem. Australia recognised the validity of restrictions for balance of payments reasons and this was mutual. Japan's interest was in tariffs. Ours was more in other forms of restrictions, particularly on agricultural products. There was little more to state on general matters and we could now proceed to specific problems.

MR UYAMA said that the Japanese were ready to discuss mutual problems of trade and certainly this held good in regard to Dr Westerman's comments re State trading, monopolies, etc. He was quite prepared to give information on this and also on bilateral agreements and the U.S. disposals question.

DR WESTERMAN then proceeded to address questions on the following specific commodities:

WOOL. It was noted that exports of woollen manufactures from Japan had risen and this was a satisfactory development both from the Japanese and the Australian point of view since it led to the consumption of more wool by Japan. The position was that we supplied Japan with raw materials in large quantities for manufacturing industries and there was little prospect, while the Australian economy stood as it did, of effecting a bilateral balance with Japan. However, Japan was not in a unique position.

France and Italy were in a comparable position. Japan had the same problems with other countries supplying raw materials, e.g. cotton from Mexico, oil from Arabia. There was little prospect of our balancing trade bilaterally while we continued to be raw material suppliers and our object was to effect an overall balance in our trade. The sterling area payments agreement set the pattern for our trade with Japan. We were interested in trade agreements which we understood Japan had concluded with Argentina, Uruguay and Netherlands because we understood that these included undertakings by Japan to import wool. It seemed likely that because of the trade agreements, commercial consideration might not be given full play in determining where Japan buys her wool.

1. We would like to know whether commercial considerations e.g.

price, quality, etc. determined where Japan bought her wool.

2. There must be some mechanism by which the Japanese Government allocated its purchases between different sources. We would like to know what this mechanism was.

3. Wool was an important raw material for Japan. We understood that most of the important raw materials were in the Automatic Approval category. Why was wool not in Automatic Approval category.

4. We would like to know on what basis Japan determined the level of its wool imports-was it on a base year quota or on an estimate of industry's requirements. It was very desirable to know this for our estimation of wool sales to Japan in a particular year.

5. Was wool imported under a global quota within which commercial considerations applied. The presence of trade agreement quotas suggested it was not, but that it was divided among sources of supply. On what basis was the division made.

6. We had previously referred to the trade agreements. We understood that the commitments varied in these. We would like to know whether the agreements with Argentina, Uruguay and Netherlands definitely committed Japan to buy specific quantities of wool. This we would regard as a section of the trade within which commercial considerations did not have full play.

7. Another question was whether Japan differentiated between different classes, grades, types of wool. Did Japan have separate allocations for, say, merino wool, cross bred wool, or was there the one allocation for wool of all types.

Another point was whether Japan differentiated between different stages of processing. Were separate allocations made for greasy wool, scoured wool, tops, noils, wastes, etc.

We had an interest in the market for tops. We understood that Uruguay had been selling wool tops to Japan at low prices through the device of multiple exchange rates. This Australia, and the GATT also, regarded as tantamount to a dumping of tops in Japan.

This was a case obviously where competition on a purely competitive basis was not in evidence and was detrimental to countries like Australia who were selling wool tops on a commercial basis. We should like to know how Japan allocated its purchase of wool at different levels of processing and how the particular levels were determined.

8. To sum up and put the position in perspective, we should like to know how Japan divided its purchases between:

Trade Agreement commitments, Quantities reserved for barter transactions, Quantities not committed or reserved.

On concluding the questions on wool, DR WESTERMAN suggested that they be presented to the Japanese informally in writing in the form of a questionnaire.

MR UYAMA said that this would be satisfactory. After addressing questions on wool, the meeting adjourned for lunch. It was agreed that the talks be resumed at 3 p.m. and that the timetable for the future should be morning 11 a.m.- 12.30 p.m., afternoon 3 p.m.-5 p.m.

On resumption at 3 p.m., it was decided that because Tuesday was mail day at the Japanese Embassy and pressure of Cabinet business on the other intervening days, that after conclusion of talks on Monday, they should be adjourned until Friday, 4th November.

DR WESTERMAN then took up the question of wheat with the Japanese.

WHEAT. DR WESTERMAN pointed to the fact that Australia's share of the market had declined very significantly in post-war years.

Canada and USA had increased their share very significantly. Both these countries had very favourable balances with Japan like Australia, yet they appeared to receive much better treatment on wheat. Some unusual features were recognised-the P.L.480 deals with USA-the trade agreement with Canada. It seemed that commercial considerations of price and quality did not determine where Japan bought her wheat.

We understood that the Food Agency-an instrumentality of the Japanese Government-bought wheat from overseas suppliers. It concluded agreements and entered into contracts with overseas suppliers in collaboration with the Japanese Ministry for Trade and Industry. It would seem that if commercial considerations determined where wheat was bought, Australia's share would be larger.

Japan had bought large quantities of soft white wheat from USA. It would, therefore, seem that Australian wheat types were satisfactory. Australia could, however, produce harder types of wheat and was doing so. If commercial considerations determined the market, we could adjust our production accordingly. Australia, in selling wheat, believed that under normal commercial conditions the customer was always right. If we knew what types of wheat Japan wanted, and were satisfied that considerations of price, quality and buyers' preferences determined where wheat was bought, we could develop our production to meet the requirements of the Japanese market. We needed a clear indication of the extent to which commercial considerations did or did not determine where Japan bought her wheat.

1. We needed, as in the case of wool, to know what mechanism was operated by the Japanese Government to determine where wheat was bought, and how decisions were made which differentiated between different types of wheat and different sources of supply.

2. Another question was-was there a price differential between different classes of wheat-U.S.A.-Canada-Argentina-Australia all produced different grades of wheat at different prices. Flour milled from different grades of wheat should reflect the price differential. Was the benefit of lower wheat prices passed on to the Japanese consumer in the form of lower prices for different grades of flour.

3. At different times the Food Agency had fixed selling prices much higher for wheat and much lower for rice than would appear reasonable from the purchase prices. Did this mean that the Food Agency established high mark-ups for wheat, on sales for internal consumption, which was reflected in high flour prices at the consumer level. Did flour in fact subsidise rice. We could appreciate the interest of the Japanese Government in keeping rice prices down but were concerned at the possibility if this involved measures detrimental to imported wheat. It seemed that monopoly measures were being adopted which enabled Japan to protect locally grown cereals by fixing prices for grains within Japan and adding mark-ups to imported wheat to keep its price high. There were other methods monopolies could employ. The Germans, for example, through their food importing agency, not only fixed mark-ups on imported cereals but regulated releases of stocks to the market in such a way that an artificial shortage was created and prices were kept high. We needed information on mark-ups, monopoly taxes, fixed prices, and any other practices Japan might employ to protect local grain production.

We understood that the duty on wheat was at present suspended.

Furthermore there was little scope geographically for increased wheat production in Japan.

4. Japan was understood to have commitments on wheat to USA, Canada, Argentina, Syria, Turkey. We would be interested to know whether this involved commitments to purchase.

5. We had mentioned that different grades of wheat were purchased by Japan. How was wheat or flour utilised in Japan. How was its usage distributed between bread making, noodles, macaroni etc., cakes, biscuits.

6. On P.L.480 deals we should like to know what special inducements were offered Japan to take US wheat. It might be that financial measures, i.e. long-term loans, gifts, payment in local currency, were inducements offered by USA. In some cases other raw materials, say cotton, would be offered at an attractively low price if wheat were bought from US. In other words, Japan would have to take a 'package' of US products.

7. To sum up, we should like to know the distribution of wheat in imports between P.L.480 deals, trade agreements, barter transactions etc. The questions on wheat would also be presented in writing.

BARLEY. DR WESTERMAN said that our questions on barley were similar to our questions on wheat and covered Japanese commitments under trade agreements, internal protective measures, and P.L.480 deals. Australia could regard herself as competitive with US and Canada on a price basis, and again we would stress the importance of commercial considerations. We would submit a list of questions in writing on barley. We should be interested to know in particular how barley was utilised in Japan.

MR UYAMA said that a small quantity of barley was milled and used as a filler to or a substitute for rice. Some was included in bread.

The methods of distribution for grains were changing. Even on wheat the position had changed. The most important cereal was, of course, rice. The Japanese Government had to be very careful of the attitude of producers on rice. He thought wheat was almost de- controlled, but it was a delicate position. Answers to our questions could not be provided immediately and would have to be referred to Japan. They would probably need to be cleared at higher levels of authority.

He did not think Japan had taken barley under P.L.480 deals but he was uncertain.

DR WESTERMAN asked whether barley was used for brewing purposes in Japan.

MR UYAMA said that beer production was increasing in Japan, and that there was some demand for barley and malt by brewers.

DR WESTERMAN then said that the other main commodity, SUGAR, could be discussed at the next meeting as time was short and he wished to cover it in some detail. There were other items to be covered, of a minor nature, in particular 'foreign foods', or so called luxury goods largely consumed by European residents of Japan. He understood these had a low priority rating for foreign exchange allocations. Powdered milk was an example. Was there any reconstitution scheme for milk in Japan as in India. Welding rods would be an example of the classes of manufactured goods on which we might have some questions to ask. Another point was whether licences could be exchanged automatically for different products within a certain category, say, to Category 'B' of Australian import licensing.

MR UYAMA did not think there was any reconstitution of milk system operating in Japan. He agreed that 'foreign goods' received a low priority. So far as he knew, licences could not be exchanged automatically.

MR UYAMA referred to the mention in his 'Initial Statement' of Australia's discriminatory import restrictions on a 'Reserved List' of Japanese goods. He said that, unless there was some immediate plan to change this restriction, Japan would request its reconsideration. He also asked that his 'Initial Statement' be circulated to the various other Departments concerned. He intended to prepare a more detailed statement later but in the meantime desired that the Departments should have an opportunity of perusing the present document.

MR UYAMA suggested that in view of some publicity already given to the talks we might say that talks of an informal and exploratory character were taking place between officials.

MR HEYES said we should not go out of our way to give publicity to the talks. Talks between officials were going on continually. If asked he would point out this fact.

DR WESTERMAN said that because of the vulnerability of Ministers to pressures at election times, his Minister had asked that publicity be avoided. If there was a leakage he would indicate that Japanese and Australian officials were clarifying the position on trade and other matters to find out whether any basis could be found for formal discussions at a later date.

1 The meeting was held in the Department of Trade & Customs, which was represented by Heyes, R.G. Robertson, G.D. Vincent and G.C.

Hauff. Westerman and K. Campbell attended from the Department of Commerce & Agriculture and Uyama, Y. Yamamoto and T. Kosugi from the Japanese Embassy.

2 Document 119.

3 Document 116.

4 Friendship, Commerce and Navigation.

[AA : A1310/1, 805/118/24]