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.