PRESENT FOR JAPAN FOR AUSTRALIA
Mr Nobuhiko Ushiba (Leader) Dr W.A. Westerman (Leader)
Mr Atsushi Uyama (Alternate) Mr G.P. Phillips (Alternate)
Mr Setsuo Takashima Mr K.G. Brennan
Mr Masayoshi Kawanami Mr K. Jones
Mr Hajime Nishimiya Mr M.T. Farrell
Mr E.E. McPherson
Mr R.G. Robertson
Dr R.J. Whitelaw
Mr N.R. Lind
Mr G.C. Hauff
DR WESTERMAN welcomed Mr Ushiba and expressed his hope that the
negotiations would be successful and swift. He then introduced the
members of the Australian Delegation.

MR USHIBA introduced the four members of the Japanese delegation
accompanying him.

DR WESTERMAN suggested that apart from the first day or two, it
would be best to have plenary sessions in the mornings and working
parties and fact finding committees in the afternoons.

The Japanese delegation agreed to this and the holding of meetings
from 10 a.m. to midday and 3.30 p.m. to 5.30 p.m.

DR WESTERMAN would arrange for a summary record to be made of
meetings and distributed as soon as possible after each meeting.

MR USHIBA nominated Mr Nishimiya to co-operate with Mr Lind on
this point.

DR WESTERMAN suggested that no statements be given to the press
during the negotiations unless necessary. If it did appear
desirable to make a statement, agreement should first be reached
between the two parties.

MR USHIBA agreed.

DR WESTERMAN said that each side had indicated broadly its desires
from the other and some general reactions were already evident. He
now proposed to state the Australian Delegation's attitude in more
detail on both Australian and Japanese requests and would then
invite a similar statement from Mr Ushiba. From this he visualised
a number of points arising which would then best be discussed in
small groups.

MR USHIBA agreed to this procedure.

DR WESTERMAN said that both delegations were asking for much the
same thing. They were each asking for m.f.n. treatment as regards
both tariff and licensing. Because of our respective systems of
trade these requests take different forms and present different
problems to each side. Doubtless Japan will have difficulties with
the Australian requests just as Australia has difficulties with
the Japanese requests but it was hoped that these could be
resolved on both sides.

Requests by Japan

M.F.N. Tariff
Regarding Japan's requests, he proposed examining each request
separately commencing with the request for m.f.n. tariff
treatment. In 1955/56 about 80% of Australia's imports from Japan
consisted of goods which were dutiable at rates higher than m.f.n.

rates. Hence the accord of m.f.n. to Japan would mean a duty
reduction on about 80% of Japan's exports to Australia.'
Normally, if the tariff rate on a commodity entering Australia is
so low as to threaten domestic industry we can raise the tariff.

But in extending m.f.n. to Japan we would be, in effect, binding a
considerable number of items to Japan since they have previously
been bound to other countries. We can only raise these rates by
bargaining our way out of the binding with other countries. There
are then the two points:

1. the need to protect Australian industry;

2. the difficulty in raising duties to provide this protection
when they have already been bound under other tariff negotiations.

A further point is that our policy is to keep duties as low as
possible commensurate with the protection of domestic industry. A
considerable number of the preferential duties in our Tariff are
bound and there are difficulties which arise from the G.A.T.T. 'no
new preference rule' so far as margins of preferences are
concerned. To raise m.f.n. we must, in most cases, raise the
preferential duty with resultant undesirable effects on our cost
structure of the encouragement of uneconomic industries etc.

Amendments to the Australian tariff take considerable time. Hence
the proposition to give m.f.n. immediately to Japan raises
complications in relation to any adjusting of duties which may be
necessary. However, we have at present legislation going through
Parliament to allow action to be taken by Australia in accordance
with Article XIX of G.A.T.T. [1] This legislation would allow
emergency action, without reference to the Tariff Board. Dr
Westerman suggested that this was an indication of the steps we
have taken to remove difficulties in the way of giving m.f.n. to
Japan. As this was a matter of undoubted interest to the Japanese
Delegation, he would explain the matter in detail at a later
stage.

As the outcome of these negotiations will be watched closely by
various sectors of the community which may consider that their
interests could be adversely affected we will at times lay store
on presentational points. Doubtless the Japanese will have similar
problems.

Dr Westerman pointed out that we have an honest desire to accord
Japan m.f.n. tariff treatment. This would nevertheless involve
substantial sacrifices on our part which may be summarised as:

(1) the direct cost of giving Japan lower tariff rates;

(2) the indirect cost of renegotiating m.f.n. bindings if this
becomes necessary;

(3) the direct cost to the economy of raising m.f.n. rates where
this is necessary.

As a final point Dr Westerman said that we are currently talking
to the UK with the object of securing a reduction in preference
margins because we believe that:

(1) it is desirable that all countries have a share of our import
trade in relation to competitive ability;

(2) for reasons of cost it is desirable that our duty levels be
kept as low as possible, consistent with the protection of
efficient local industry.

If the negotiations in UK turn out as hoped there may be
significant reductions in m.f.n. rates which would benefit Japan
if she received m.f.n. tariff treatment and this might be kept in
mind when the Japanese are evaluating the concessions they are
seeking.

Import Licensing
Dr Westerman then turned to the question of import licensing which
is without doubt discriminatory against Japan. Apart from the
dollar area Australia makes no distinction in respect of the
origin of goods except as regards Japan. This is because of fears
that without discrimination in licensing the tariff would be
inadequate to protect Australian goods against Japanese
competition. Approximately half of Australia's imports from Japan
are subject to discriminatory licensing treatment. There are many
factors in favour of giving Japan m.f.n. treatment under licensing
but this course would remove the only safeguard should the tariff
prove insufficient for protection against competition from Japan.

The Bill at present before Parliament was intended to provide
reserve powers which would be available for use in an emergency.

It was hoped that an arrangement might be worked out between the
two delegations, which would remove the necessity to use this
power.

Requests by Australia
Turning now to Australia's requests on Japan, Dr Westerman pointed
out that they are broadly for m.f.n. treatment on both tariffs and
import licensing. However, because of Japan's trading policies and
practices it was necessary to express these requests in a somewhat
different form.

Dr Westerman then pointed out that Australia's non-discriminatory
licensing system was similar in principle to Japan's system of
automatic approvals, as he understood it. On the other hand,
however, Japan's State purchasing arrangements which cover a
number of Australia's important exports, and her practice of
providing allocations for imports on what we regard as non-
commercial grounds presented real problems for Australia.

In these circumstances it could well be difficult to determine the
value of any general assurance relating to tariffs or import
licensing which might be offered to Australia. They would give no
certainty of Australian sales in the quantities which would
normally be dictated by commercial considerations. For this reason
emphasis on tariffs or m.f.n. treatment is secondary to an
understanding on the type of treatment that Australia could expect
and the period for which it could be guaranteed.

Wool: He instanced wool which is licensed from various countries
according to the overall Japanese trade policy. This means that
Japan can, at any time arbitrarily decrease her purchases of
Australian wool without regard to commercial considerations.

Australia is not necessarily requesting a guaranteed level of
imports of wool from Australia into Japan over a period of years.

In fact, the placing of wool in the Automatic Approval category
would enable Australian wool to enter the Japanese market on a
competitive basis which was related solely to commercial
considerations. If this course is not possible Australia would
wish to explore alternative arrangements with Japan. He suggested
an allocation based on either a percentage of total imports or
specified quantities or values. Fundamentally, Australia's desire
is for the non-discriminatory use of the exchange Japan can make
available for wool.

Dr Westerman stated that there might be a tariff aspect on wool
which we would raise later on but it is not our prime objective on
wool. This objective is nondiscriminatory treatment for Australian
wool in the Japanese market.

Wheat: In the case of wheat, the Japanese Food Agency is the sole
purchaser. Hence in relation to wheat, the accord of non-
discriminatory treatment on tariffs and licensing does not mean
much. The important factor is the policy of the Food Agency in
arranging its purchases.

Non-discriminatory treatment on wheat in our view means an
assurance that we can obtain the share of the market which we
could expect if purchases were based purely on price and quality.

We appreciate the Japanese position is complicated by other
commitments, some of which obviously involve purchases of wheat on
a noncommercial basis.

We would wish to find, in consultation with Japan, and within the
policy of the Japanese Food Agency, some assurance of an
opportunity to supply a reasonable quantity of both our higher
protein and our f.a.q. wheats to the Japanese market.

We will put forward a figure which we think we can justify as a
reasonable share of Japan's imports and a sub-committee could
examine this. Dr Westerman emphasised that we only want treatment
equivalent to non-discrimination, but we cannot afford to get less
than non-discriminatory treatment. Hence, we have in mind
suggesting an absolute quantity or a percentage of the market for
higher protein wheat and a separate figure or percentage for
f.a.q. wheat, as we think that to treat the higher protein and
soft wheat together would lead to difficulties.

Our major problem is the treatment accorded our f.a.q. wheat and
we will be placing more importance on this figure. As an
indication of our thinking, we are of the opinion that about one-
sixth or one-fifth of Japan's total wheat imports should be soft
wheat from Australia. We would prefer to leave detailed figures to
a subcommittee.

Barley: On barley we have no particular problem in so far as the
Food Agency's current purchasing program is concerned. However, an
arrangement which gives Japan a degree of permanence on tariff and
licensing in the Australian market must, from our angle, enable us
to obtain the same sort of assurance on our commodities in the
Japanese market. We want Japan to purchase Australian barley in

the quantity we would normally expect to sell under commercial
conditions. This can probably best be expressed as a percentage of
total imports over the longterm, although in the short term we
might suggest a minimum quantity.

The figure might be 35% or one-third of Japan's imports which is
roughly what we have been getting in recent years. Here again the
details could best be left to a smaller group.

Sugar In the case of sugar our request is a little different in
that it involves m.f.n. tariff treatment as well as non-
discrimination in licensing. We think that at present we get a
little less than m.f.n. tariff treatment, particularly since the
duty adjustment in April, 1956. This is largely due to a technical
peculiarity of the Japanese tariff which arises from the
polarisation. level at which the higher Japanese tariff rate
commences to operate. We will suggest an adjustment to rectify
this. We do not think this will affect Japan's sugar refining
industry and would not wish it to. We are not seeking any tariff
reduction as such but merely an adjustment in description of the
tariff item. In actual fact we can produce to the lower pol. at
present specified but it costs us more to do so.

In the past, foreign exchange allocations for the purchase of
sugar from the sterling area have at times been used to import
sugar from the dollar area. Action along these lines could deprive
Australia of the access which she might otherwise have to the
Japanese market. As a means of ensuring access Australia requests
that she be nominated for inclusion at a reasonable percentage in
the overall sterling area allocation.

Beef Tallow and Cattle Hides: Both these items are under Automatic
Approval for some sterling area countries but imports from
Australia are specifically excluded. Here again Australia's
request is for non-discriminatory treatment.

Dried Skim Milk: Dr Westerman indicated that he was not certain
that Australia had all the facts. Our understanding is that nearly
all requirements in the past have been purchased by M.I.T.I. from
C.C.C. stocks, but at a price with which Australia can compete.

Australia would like to be able to get her share on the basis of
price and commercial considerations. He suggested either the
allocation of a percentage of imports or alternatively Automatic
Approval, if this were possible.

Other Commodities: There are a number of other comparatively minor
commodities where access to the Japanese market would help
Australia, particularly from a presentational point of view. Dried
Vine Fruit was mentioned as an example.

MR USHIBA thanked Dr Westerman for his explanation of the
Australian point of view. He asked for time to consider the points
raised before replying, but expressed his opinion that because of
this clear statement of the issues involved the talks should be
able to go forward quickly. He had prepared a statement setting
out Japan's attitude to the negotiations and the requests she had
to make.

(He then read his prepared statement-Attachment A. [2])
DR WESTERMAN advised that we would hope to circulate the draft
record of this morning's talks this afternoon.

The next step will be to go into the Committee stage. One
committee could consider what arrangements might be made to
overcome difficulties which we foresee in meeting the Japanese
requests. This committee could consider:

Firstly, the arrangements Japan might undertake to meet our
position and secondly, arrangements at the Australian end such as
liaison with the Japanese Embassy in relation to any sensitive
items. Dr Westerman mentioned that we do not have in mind
suggesting that Japan should limit her exports to any specific
quantities.

A second committee could investigate our specific requests in
relation to questions of fact.

On timing, Dr Westerman indicated that we were prepared to go
straight into the committee stage and asked for the Japanese view
on the timing for the Committees.

MR USHIBA said that it would be most helpful to have the committee
on commodity details this afternoon. He nominated Mr TAKASHIMA, Mr
KAWANAMI and Mr NISHIMIYA, and suggested that Mr UYAMA might be
able to attend also.

DR WESTERMAN nominated Mr PHILLIPS, Mr McPHERSON and Mr A.J.

CAMPBELL and perhaps other commodity officers as required. He
pointed out that basically the committee was to canvass the facts.

On major questions arising from the Japanese requests, such as the
Legislation, etc., we could have a different committee consisting
of Mr ROBERTSON, Mr FARRELL and perhaps others.

MR USHIBA said that the business circles in Japan were very much
concerned about the Reserved List [3] in Australian import
licensing, as a concrete example of discrimination against
Japanese goods. Therefore, he wished the Australian delegation to
explain, in the course of the present talks, the reason why each
particular commodity was included in the List.

DR WESTERMAN explained that if we were able to grant Japan m.f.n.

treatment, the Reserve List would disappear. The question of what
we call 'sensitive items' will be discussed in Committee and we
will indicate what items are included and why we are concerned
about them.

It was agreed that only one committee should meet at a time and
the fact finding Commodity Committee should meet in the afternoon
at 3 p.m. The future sequence of meetings would be cleared between
Mr NISHIMIYA and Mr LIND.