CANBERRA

1. Under her fundamental policy on the importation of foreign
goods and in view of her trade relations with certain wheat-
exporting countries, Japan cannot but give foreign wheat, in
principle, equal treatment, irrespective of the source of supply,
with respect to its importation.

(It is therefore impossible for Japan to give a special import
quota for Australian wheat unless she grants similar commitments
to other countries. We think that the Australian Government had a
general idea of such situation in the course of the trade talks in
recent months.)

2. a) Japan has imported practically no soft wheat from Australia.

It is therefore very difficult for her to assess what quantity
will be a 'fair share' to be allocated to Australian wheat in the
Japanese market, in case Australian soft wheat is to be imported
on a competitive basis. Particularly, it must yet be ascertained
whether Australian wheat will meet the requirements currently set
forth by the Food Agency with respect to quality and other
specifications. The Japanese Government is therefore planning to
have a sample import of Australian wheat and also to send a
technical expert of the Food Agency to Australia in order to make
researches on the spot. Even if satisfactory results were obtained
from these steps, it has still to be found out whether and to what
extent Australian wheat would satisfy the requirements of Japanese
flour mills and meet the tastes of general consumers in Japan, and
how successful the Food Agency will be in selling it in Japan.

This cannot satisfactorily be ascertained until after sufficient
experience has been gained by the importation of Australian wheat
for a few years.

Under these circumstances, we cannot form a reliable concept of
the 'fair share'. We would hope very much that the Australian
Government will agree, at least for the time being, to the formula
that Japan import wheat from foreign countries on an equal basis.

b) The Australian Government suggests that a 'fair share' for
Australian soft wheat in the Japanese market is 400,000 tons a
year or one-sixth of Japan's total wheat imports. We cannot
understand what is the basis of calculation for these figures.

These figures-namely, 400,000 tons or one-sixth of the total
import-seem to be too high in view of the proportions of wheat
imported into the major wheat importing countries, such as the
United Kingdom and Germany from Australia, Canada and the United
States.

3. The Japanese Government has decided not to enter into a surplus
agricultural products agreement with the American Government this
year. However, we cannot be definite about whether or not we would
conclude similar agreements with the United States during the next
few years. Such agreements will not become necessary as long as
the situation, which has led to the above-mentioned decision by
the Japanese Government, continues to exist.

It may sound slightly unrealistic to discuss on such uncertain
premises the quantity of wheat to be imported from Australia in
case Japan takes surplus wheat from America. However, we can
assume that if a 'surplus' agreement is to be negotiated upon
after a trade agreement has been concluded between Japan and
Australia, the quantity of Australian wheat actually imported into
Japan will naturally be included in the so-called 'normal imports'
to be set forth in the P.L.480 agreement.

In the past, Japan purchased the 'surplus' wheat on the premises
that the 'normal import' from America was 750,000 tons a year.

However, this quantity will probably be reduced by the quantity of
Australian wheat imported on an equal and competitive basis.

(It will be clear from what I have so far stated, that our Food
Agency has no intention of arbitrarily trying to reduce the
quantity of wheat imports from Australia after an agreement with
Australia is concluded, but rather it is more inclined to think it
advisable to import as much Australian wheat as possible on a
competitive basis.)
c) However, after careful analysis, we have arrived at a tentative
conclusion that it might be possible for Japan to import at least
200,000 tons of wheat a year from this country. It is possible
that Japan import more wheat from Australia, but we just cannot
make a reliable estimate. [1]

4. Taking all these factors into consideration, I think it
essential for us to conclude a trade agreement as soon as possible
so that we shall start importing Australian soft wheat on a
commercial basis and ascertain how much can be commercially
imported into Japan in a year.

By so doing, we shall be able to estimate what will be the 'fair
share' for Australian soft wheat in the Japanese market when Japan
enters into a 'surplus' agreement with the United States.

5. At the same time, I should not be frank with you if I did not
tell you that some of my colleagues in the Japanese Government
still doubt the advisability of according equal treatment to
Australian wheat, which could further aggravate the already large
trade deficit with this country. Furthermore, others argue that it
is politically unwise to shift the source of wheat supply, to
Australia from the United States, which is a very promising market
for Japan, taking nearly half of Japan's exports if the 'special
procurements' are taken into account.

It is therefore essential that we should be shown a very clear
prospect of Japan's exports to this country being greatly
increased after a trade agreement has been concluded.

6. It might be difficult for the Australian Government to make any
commitment as to how much Japan's exports to this country will
increase after Australia has started to accord most-favoured-
nation treatment to Japanese goods. It is just as difficult for
Japan to make any commitment on the quantity of soft wheat she
might import from this country.

7. During my brief stay in Tokyo, I made my best efforts in an
attempt to solve this matter. However, I obtained an impression
that, at the moment, it was impossible for them to go further than
what I have just told you.

I also think that from your point of view it is extremely
important to start selling Australian soft wheat in Japan and to
firmly establish your market there, now that American soft wheat
is not given special priority. [2] In order to do so, I very much
hope that you will be able to agree to the views of the Japanese
Government I have just told you and to enter into a trade
agreement along these lines. [3]