CANBERRA

MR WARWICK SMITH [1] said that his delegation had thought it would
be useful if a Plenary Meeting could be held in which the
Australian delegation's comments could be given on the papers
which had been handed to the Japanese delegation on 4th April.

These papers had consisted of various drafts representing the
tentative thinking of the Australian delegation on the form and
substance of a possible agreement. [2]

1. Text of an Agreement.

2. Annex to the Agreement concerning the tariff implications of an
exchange of m.f.n.

3. Agreed minute on treatment of Australian commodities imported
into Japan.

4. Exchange of Notes on surplus disposals.

5. Exchange of Notes (not for publication) on wheat purchases.

6. Exchange of Notes (not for publication) on safeguards.

In passing these drafts to the Japanese representatives, the
leader of the Australian delegation had explained in a covering
letter that the drafts were quite preliminary and tentative and
had not been examined from the point of view of detailed drafting,
and that Australian Ministers had had no opportunity to consider
even in outline the matters covered by the draft. The drafts were
not to be taken therefore as involving any degree of commitment
whatsoever.

Mr Warwick Smith offered the following points of explanation in
relation to the Australian drafts.

1. Draft Text
In general the Australian draft followed the wording of the
General Agreement on Tariffs and Trade as far as appropriate but
there were some differences. These were largely introduced to make
the G.A.T.T. text fit the circumstances of the bilateral
agreement.

Article I This was intended to be a standard m.f.n. clause, with
appropriate customary reservations on preferences.

Article II was a reciprocal undertaking not to apply import
restrictions except for balance of payments reasons and not to
discriminate in the application of such restrictions except for
balance of payments reasons. Paragraph 3 was intended to make the
Article applicable to State Trading enterprises. Paragraph 4 would
provide for consultation on balance of payments restrictions. This
would be a more specific provision than Article VII of the draft
agreement (which provided for general consultation), and might
incorporate the substance of some of the relevant G.A.T.T.

provisions on consultations on balance of payments restrictions.

Article III of the Australian draft was based largely on Article
XVII of G.A.T.T. It was thought unnecessary for the Australian
draft to make mention of the export activities of state trading
enterprises. The article was intended to cover only the purchase
of imported goods and their subsequent resale, by State trading
enterprises.

Article IV was concerned with the relationship between the
agreement and G.A.T.T. It aimed to cover the rather unusual
situation of two countries which were Contracting Parties to
G.A.T.T., which did not apply the G.A.T.T. between themselves, but
which had a bilateral agreement between them.

Paragraph I was intended to reassure the Contracting Parties to
G.A.T.T. that Japan and Australia did not contemplate taking
action under this agreement which would give either country more
favourable treatment than other contracting parties received. This
was merely in conformity with the general m.f.n. obligation under
G.A.T.T.

In drafting the second part of paragraph 1, the concept used was
not unrelated to that found in the Declaration of 24th October,
1953, by the Contracting Parties to G.A.T.T. where some
Contracting Parties undertook to base their commercial relation
with Japan upon the G.A.T.T. as if the G.A.T.T. applied between
them. Hence the second part of paragraph I was intended to allow
for particular provisions of G.A.T.T. which were not included in
the Trade Agreement to serve as a base or guide for commercial
relations between Australia and Japan. The particular matters to
be covered in this way would be agreed between Australia and
Japan.

However, as such provisions would not necessarily be applied
literally, and as this Trade Agreement was bilateral, their
interpretation would necessarily be a matter for Australia and
Japan. The decision on these matters must be with the Japanese and
Australian Governments and paragraph 2 of Article IV was designed
to make this position clear.

It was necessary from the Australian point of view to include some
explicit statement to the effect that the Trade Agreement would
not affect the position under Article XXXV. This was done in the
last part of Article IV. However, if the Japanese Government would
prefer it, the point could be explained in some other form, for
example in an exchange of notes.

Although the Agreement as drafted was modelled on a number of
G.A.T.T. provisions, it was important to note certain differences
between the situation under the trade agreement, if one were
concluded, and the situation that would exist if G.A.T.T. applied.

Firstly the Australian Government was not now proposing to accept
any agreement with Japan which would give a group of countries the
right to make interpretations or decisions directly affecting
Australia's trade relations with Japan. Secondly, the Contracting
Parties had never ruled on whether some of the special or
emergency measures which might be covered by Article V of the
draft agreement would be compatible with the provisions of
G.A.T.T.

Article V of the Agreement provided for emergency action.

Paragraph 1 set out what might be the reasonable expectation of
each Government in relation to the effect of the Agreement on
trade between Australia and Japan and then went on to provide that
if the expectations of either Government were not realised then
appropriate action could be taken.

The Australian delegation would be prepared to discuss drafting
changes or alternative forms of this principle, for example the
words 'take appropriate measures' in paragraph 1 might be replaced
by some such phrase as 'to suspend such obligations as may be
appropriate' which was similar to the wording used in G.A.T.T.

Article XXIII. However, it was essential that the basic idea be
included, either in the text of the agreement or in an exchange of
notes.

The 'appropriate measures' envisaged in paragraph 1 might take the
form of conditional entry of goods in relation to quality or
marking, or special duties, or quotas. It might be that action
would be taken on similar goods from elsewhere or it might be
taken on Australian or Japanese goods alone, that is in a
discriminatory way but in relation to individual products only.

This emergency provision was recognised as of major importance in
the draft agreement, and Australian authorities had therefore
introduced some limiting provisions. Paragraph 2 required advance
notice in writing and prior consultation. The Australian
delegation would be prepared to discuss such procedural aspects
further. Paragraph 3 provided that if either Government considered
that excessive use of paragraph 1 threatened the basis of the
agreement then the agreement could be renegotiated. If this were
not successful, then the agreement could be terminated.

If paragraph 1 of Article V were invoked more than absolutely
necessary, then the concept of the agreement would have failed.

Paragraph 3 recognised this. Both paragraphs 2 and 3 were designed
to avoid or discourage the use of the rights retained under
paragraph 1 except under really serious conditions. Of course co-
operation would be extremely important. With adequate co-operation
it would not be expected that either side would have cause to
resort to the Article to any extent.

Article VI on the position of the Australian territories was still
under consideration.

Article VII on general consultation was self explanatory.

Article VIII on entry into force and duration could be discussed
later when substantive points had been covered.

2. The Proposed Annex to the Agreement set out the Australian view
point on the binding of the wool duty. It was not necessary from
Australia's point of view for Japan to give formal binding. What
was wanted was some assurance that Japan would not raise the duty
on wool during the currency of the agreement.

3. The Agreed Minute on Commodities was largely self explanatory.

In relation to wheat, the Special Note on wheat envisaged that
Australia would expect Japan to import at least one-eighth of
total wheat imports from Australia in the first year and at least
one-sixth of total imports in the second.

In relation to what Australia considered should be included in
unfair trade practices, the definition set out in the note
following paragraph 2(c) of the Agreed Minute was taken to include
any non-commercial purchase, country quotas or Government
subsidies, perhaps even manipulations such as switch transactions
by private traders. While Australia was primarily concerned with
the effects of U.S. P.L.480 deals and export subsidies such as
were operated by countries like U.S.A. and France, other
possibilities could not be overlooked.

4. The Note on Surplus Disposals was straightforward and could be
made reciprocal if the Japanese Government preferred this. In
relation to this note, Mr Warwick Smith mentioned that U.S.

authorities had on a number of occasions suggested that it was up
to Australia to make arrangements with the recipient countries for
consultation on surplus receivals.

5. The Exchange of Notes on Assurances was intended to record the
understanding between the two governments of the steps to be taken
to avoid damage to Australian industry or sudden and serious
disruption to Australia's established trade pattern should
Australia grant m.f.n. to Japan. The note was not to be made
public.

6. MR USHIBA explained that he had no instructions from Tokyo on
the latest Australian papers and he could only express his own and
the delegation's personal views on the drafts.

Draft Text:

Article I appeared to be acceptable in principle but paragraph 3
concerning preferences given by Japan to the special territories
should be placed in a separate note as the preferences concerned
involved measures other than the tariff.

As regards Article II the Japanese delegation would be very
interested to see the text on Balance of Payments consultation.

In Article IV he thought that there was some discrepancy between
the second part of paragraph 1 and the first part of paragraph 2.

If Australia and Japan were to base their commercial relations on
the provision of G.A.T.T. then both countries should also adhere
to the interpretations generally accepted by the Contracting
Parties to G.A.T.T. Should difficulties arise in relation to
particular cases then the two Governments could consult but as a
basic principle decision of the Contracting Parties should be
accepted.

The statement of the position in relation to Article XXXV should
be acceptable on principle although it might be desirable to
negotiate further on the form which the understanding would take.

As regards Article V Mr Ushiba pointed out that in previous
discussions only special duties had been mentioned as possible
emergency action, but under the current Australian draft
quantitative restrictions and other measures were also possible.

While it is generally beneficial for the agreement to follow
G.A.T.T. as closely as possible in this case the adaptation of
Articles XIX and XXIII could not be carried past a certain point
in the absence in this agreement of the non-discriminatory
principle of Article XIX. The Australian draft could give the
impression in Tokyo that Australia was intending to take far
reaching discriminatory measures. Even the special duties had
caused concern in Tokyo and the Japanese Government would wish to
consider this latest draft very carefully.

Mr Ushiba suggested that a clearer explanation on how paragraph 1
of Article V was to be applied by Australia would be necessary.

The Australian intention on the disincentives to excessive use of
paragraph 1 of Article V was appreciated but the whole matter
would require further examination.

On Article VIII it would seem desirable to discuss the question of
the duration of the Agreement as soon as possible.

In relation to the matter contained in the Proposed Annex the
arguments on both sides had been fully stated. From the draft
texts submitted it appeared that the Australian delegation agreed
with the Japanese contention that the binding of duty free entry
on wool was not part of the general question of m.f.n. Mr Ushiba
expressed as his personal view that if Australia insisted on
including this matter in the present Agreement then the Japanese
Government could well reintroduce the question of the application
of G.A.T.T. between Japan and Australia.

In the absence of further instructions from Tokyo the Japanese
delegation reaffirmed its earlier position that if Australia's aim
was to balance the advantage from tariff implications of m.f.n.

treatment this should be raised in separate negotiations.

In respect to the Note on Commodities, Mr Ushiba raised the
following points:-

Sugar: In relation to the request for a change in tariff
description, under the Customs Tariff Law it was impossible for
Japan to differentiate according to classification of importers as
was suggested in the Australian draft.

The special quota for sugar mentioned in the Australian draft was
taken to refer only to the 40% of Japan's sugar imports as set out
in the first part of the paragraph. If this was so then a redraft
would remove any doubt as to the meaning.

Barley: The Japanese Government had no intention of changing its
policy on barley and it hardly seemed necessary to make further
provisions in the Agreement. It would facilitate the negotiations
if the barley question were not pressed further.

Dried Grapes: Mr Ushiba did not think that the Japanese Government
would welcome the mention of Automatic Approval in connection with
dried grapes.

Wheat: The Japanese delegation reserved its whole position on
wheat and upheld its original draft pending further instructions
from Tokyo.

In relation to the Australian draft there appeared to be an
inconsistency between paragraph 4(b) which provided that a 'fair
share' would be determined in the light of imports during the
first two years of the agreement and paragraph 4(d) which
suggested that 16 2/3% was a fair share of the market.

The Special Note on wheat appeared to provide for a double
guarantee on wheat in that it required Japan to import to a
certain level from Australia even if there were no special
circumstances.

Mr Ushiba suggested that if a guarantee were provided in the event
of unfair trade practices, then the special note on wheat was not
necessary. Moreover, it had been confirmed that the Australian
delegation would not ask Japan to import up to a certain level
from Australia unless there were special circumstances.

On the question of the Australian definition of 'unfair trade
practices' Mr Ushiba reserved his position. The Japanese
Government would not agree that unfair trade practices existed in
the Japanese market at present. The situation under which the
guarantee to purchase would become effective would be discussed
but the Japanese Government would not regard the existing
situation as one warranting the operation of the guarantee.

The figure of 16 2/3% was regarded by Japan as too high to form
the basis of a guarantee although in fact purchases may actually
reach or even exceed that level.

It would be necessary to consider further whether the guarantee
should be expressed as a percentage or a definite quantity and in
any event the Japanese Government would not want the level of the
guarantee to be published.

As regards F.A.Q. wheat, Mr Ushiba said that since it was not the
normal grading so far as Japanese purchasing was concerned he
wanted to have a guarantee of quality from the Wheat Board.

The Note on Surpluses involved a new matter and the delegation had
no instructions on this.

It was agreed that the next meeting should be called as soon as
the Japanese delegation had received further instructions from
Tokyo.