183 Minute From Phillips To Mcewen [1]

12th December, 1956

CANBERRA

Trade Negotiations with Japan The Japanese Trade Delegation, which arrived in Australia towards the end of October, is led by Mr Ushiba of the Ministry of Foreign Affairs.

2. Negotiations began on 1st November with the holding of a plenary meeting [2] attended by the Japanese Delegation and officials from the following six Commonwealth Departments-Trade, Primary Industry, Prime Minister's, External Affairs, Treasury and Customs & Excise. The Australian officials were led by Dr Westerman.

3. Dr Westerman briefly referred to a number of the trade problems between Australia and Japan and then went on to outline the nature of the requests which we were making on Japan. He stressed that Japan's state trading activities in grains, her acceptance of surplus disposals and other aspects of her commercial policies meant that a mere undertaking to accord Australian goods most- favoured-nation tariff and non-discriminatory import licensing treatment would fall far short of our requirements. Any undertaking to accord most-favoured-nation tariff and nondiscriminatory import licensing treatment to Australia must be accompanied by other assurances and definite commitments which would ensure that our exports did, in fact, receive most-favoured- nation treatment. In the case of soft wheat, for example, we would require a commitment which would amount to an undertaking by Japan to purchase a specified quantity or a specified percentage of her total wheat imports from Australia each year.

4. Dr Westerman said that our requests on Japan would not be restricted solely to the treatment of our exports. We had certain anxieties on the score of imports from Japan as it was felt that, in the absence of adequate safeguards and assurances, the accord of most-favoured-nation tariff and non-discriminatory import licensing treatment to Japanese goods could result in damage to certain Australian industries and to a serious disruption of the pattern of Australia's imports of certain commodities.

Australian requests on Japan:

5. For these reasons, Dr Westerman explained, our request list on Japan might appear rather formidable. As far as our export requests were concerned, however, they did not go a great deal beyond an attempt to ensure that we would receive most-favoured- nation treatment. Our full requests were as follows:-

(i) M.F.N. tariff and non-discriminatory import licensing treatment for Australian goods;

(ii) Binding of duty free entry for raw wool;

(iii)Amendment of the Japanese Tariff to permit sugar of below 99 polarisation to be admitted at the lower rate of duty applicable to sugar and not exceeding 98 polarization;

(iv) Raw wool, beef tallow and cattle hides to be transferred to the Automatic Approval Licensing Category. (This would amount to N.Q.R. [3] treatment);

(v) Opportunity to supply 8 million bushels of 'hard' wheat per annum and a commitment to purchase f.a.q. or lower grade wheat totalling 15 million bushels per annum or one-sixth of Japan's imports of all wheat, whichever is the higher figure;

(vi) A commitment to purchase annually from Australia 350,000 tons of barley or 35% of her barley imports, whichever is the higher;

(vii) An annual import quota of 100,000 tons for Australian sugar;

(viii) An annual import quota for Australian dried skim milk equal to 3 1/2m. lbs or 25% of Japan's imports, whichever is the higher;

(ix) An import quota for Australian dried vine fruit;

(x) An undertaking to consult with Australia before entering into arrangements with other countries regarding receivals of surplus commodities of a kind exported by Australia. Recognition that imports on concessional, noncommercial or other special terms are to be regarded as imports for the purpose of determining Australia's share of the Japanese market for the commodities in which we are interested;

(xi) An undertaking to consult regarding trade or economic policies which affect the importation into or consumption in Japan of commodities in which Australia has a major export interest (such as wool and grains) and assurances to safeguard our interests in the Japanese market (e.g. as regards the encouragement of the use of synthetics instead of wool);

(xii) Assurances that Japan will make such arrangements with her exporters as may be necessary to prevent serious damage to Australian industries or severe disruption to the pattern of Australia's imports;

(xiii) Recognition of a reserve power on our part to impose special discriminatory duties on Japanese goods in an 'emergency'.

Japan's requests on Australia:

6. The leader of the Japanese Delegation said that his requests on Australia could be summed up as most-favoured-nation tariff and non-discriminatory import licensing treatment for Japanese goods.

Discussions on specific questions:

7. It was agreed, at the plenary meeting, to proceed immediately to the committee stage for the discussion of specific subjects, including elaboration of the requests which had been exchanged and the problems which each country envisaged in relation to the requests.

8. Numerous committee meetings have been held and although the discussions at these meetings have related mainly to matters of detail, they have served to give us some indication regarding the attitude of the Japanese Delegation to a number of our requests.

Initial reaction to Australian requests:

9. As regards the requested undertakings to purchase the specified quantities of wheat and barley, the Japanese Delegation has said that there are real difficulties from their point of view. They have undertaken, in their treaty with Canada, not to grant any countrywise quotas for barley or to give an undertaking to any

country regarding the purchase of stated quantities. In the case of 'soft' wheat, two problems are involved-their relations with the U.S.A. and internal problems relating to the availability, under 'surplus' deals, of yen counterpart funds. [4]

10. As regards certain of our other requests concerning the treatment of specific Australian exports, the initial reactions of the Japanese Delegation have been as follows:-

(a) Our tariff requests on wool and sugar cannot be granted because they are tariff concessions, going beyond m.f.n.

treatment, for which they would receive no quid pro quo;

(b) Raw wool is not regarded as sufficiently 'essential' to be placed in the Automatic Approval category. Japan must take some wool from South American countries in order to obtain payment for her exports. She will give us full opportunity to supply 90% of her imports;

(c) Beef tallow and cattle hides will be transferred to the Automatic Approval category;

(d) There would be no difficulty regarding our request on 'hard' wheat;

(e) They are committed to purchase approximately 55% of their sugar imports from Formosa and Indonesia for much the same reason as their purchases of South American wool. They would give us full opportunity to supply the remainder of the market, but wish to avoid a commitment to purchase;

(f) They wish to avoid a commitment to purchase dried skim milk, but, as far as their 'commercial' purchases are concerned, would give us full opportunity to compete with other countries;

(g) A Sterling quota could be established for dried vine fruits, for which we could compete. (At present, imports are permitted only from Cyprus and Greece.) 11. We have not, as yet, received any reaction from the Delegation regarding their attitude towards our other requests.

Present stage of the negotiations:

12. The reactions which we have already received from the Japanese delegation are, therefore, incomplete, and, in some cases, amount to no more than a statement of the difficulties they see in meeting a number of our requests.

13. As you are aware, negotiations have been taking place between the U.S.A. and Japan regarding the supply of U.S. soft wheat to Japan in the coming year, partly on commercial terms and partly under a P.L.480 deal. If Japan were to take the same quantity of soft wheat from the U.S.A. as she did last year, it would appear that she would be in no position to meet our request on wheat.

14. It is understood that the Japanese Foreign Office, the Ministry of Finance and M.I.T.I. favour accepting some commitment to purchase Australian wheat in order to render possible a trade arrangement with Australia. Their views, however, are strongly opposed by the Minister for Agriculture and Fisheries mainly because any commitment acceptable to Australia would entail reduced soft wheat imports from the U.S.A. on P.L.480 terms.

15. The new Prime Minister of Japan will be appointed shortly by the Japanese Diet and the Cabinet will be recast. Pending these changes, it is almost certain that no decision will be reached in Japan regarding our requests on wheat, barley and the other major issues involved in the trade negotiations with Australia.

16. We have been advised by the leader of the Japanese Delegation that there is no foundation whatsoever for the reports from Tokyo' that the Japanese Government intends to break off negotiations with Australia on the grounds that a deadlock has been reached.

The reports from Tokyo probably emanate from the Ministry for Agriculture and Fisheries which has no authority to make any decision regarding the termination of negotiations.

17. The leader of the Japanese Delegation informed us yesterday afternoon that he had authority to return to Japan if he considered that no useful purpose would be served by remaining in Australia until such time as he received a decision from Japan regarding our main requests. He was not yet in a position to decide whether he would return to Japan, but, if he did so, he expected that negotiations would be resumed in January, 1957. He hoped to advise us further on the matter in the next few days. [6]

18. A note on trade developments between Australia and Japan and several other matters which may be of interest is attached to this minute (see Attachment 'A') [7]. The note is entitled 'Trade with Japan'.

1 McEwen had been absent from Australia from 13 October to 26 November attending the UN Sugar Conference in Geneva and trade negotiations in the United Kingdom.

2 See Document 159.

3 No quota requirement.

4 See note 5 to Document 175.

5 See Document 182.

6 The Japanese Embassy advised on 14 December that the trade delegation would return to Tokyo on 23 December, as answers to Australia's requests could not be expected until mid-January when the political situation in Japan was settled. Ushiba also believed he might better influence the Japanese response in Tokyo(Minute from Phillips to McEwen, 14 December, on file AA : A1310/1, 810/1/39). A press statement was issued by McEwen on 21 December stating that the delegation was returning for consultations and denying rumours that talks had reached a deadlock.

7 Not published.

[AA : M58/2, 509]