CANBERRA

Trade Negotiations-Japan

I attach a report from the Delegation on the position reached in
the negotiations with the Japanese Delegation and making
recommendations regarding the line to be followed in further
discussions.

This report is submitted on a basis for consideration and
discussion by Ministers.

Attachment

TRADE NEGOTIATIONS WITH JAPAN

SUMMARY OF POSITION
Considerable progress has been made in reaching tentative
agreement (at the delegation level only) with the Japanese. A
summary of the main points is set out below.

(i) Tariff Treatment
It has been agreed that each country accord the other m.f.n.

treatment in the tariff. This means that the Australian tariffs
applicable to a wide range of Japanese goods will be lower than at
present. Preference with Commonwealth countries will not be
affected.

Japan for her part will be committed to giving Australia no less
favourable tariff treatment than she gives any other country. As
matters stand, this does not involve any significant changes in
duties on Australian goods but ensures there will be no future
discrimination against Australia.

(ii) Licensing Treatment
In import licensing matters and in the application of import or
export controls generally, each country will accord the other non-
discriminatory treatment. Henceforth we shall have to treat Japan
in import licensing on the same basis as any other non-dollar
country unless balance of payments considerations justify
discrimination. Japan will in principle do the same for us, but
this is qualified by the operation of her foreign exchange system
and the actual treatment to be accorded on major items of
Australian export interest is set out below under commodity
headings.

(iii) State Trading
Both sides undertake to operate their State trading enterprises
export or import, in a non-discriminatory manner. This is of
greater benefit to us in view of the number of such enterprises
operated by Japan.

(iv) G.A. T. T. Application
So far as practicable and as may be agreed between them from time
to time, the two countries shall base their commercial relations
upon the provisions of G.A.T.T. This does not interfere with our
rights under Article XXXV of G.A.T.T. (See notes on wool in
attached Summary Schedule.)
(v) Duration
Japan has suggested that initially the agreement run for three
years, terminable after that on three months' notice. This seems
acceptable.

(vi) Sugar
Japan agrees to place no obstacle in the way of Australia
supplying on a competitive basis, up to 40% of Japan's total
imports of sugar.

(vii) Barley
Japan has been importing approximately 30% of her barley
requirements from Australia. They indicate formally there is no
intention of changing this policy. Japan undertakes, in the event
of unfair trade practices by Australia's competitors to consult
with us with a view to establishing a fair share of the market for
Australian exports. Prima facie the fair share would be not less
than 30%.

(viii) Dried Vine Fruits
Japan agrees to make licence available for up to stg.100,000 of
Australian dried vine fruits (raisins, currants, sultanas) in each
year of the three year period of the Agreement.

(ix) Dried Skim Milk
To be admitted into Japan on a competitive and non-discriminatory
basis within the global foreign exchange allocation except for
imports in connection with the Japanese School Lunch Welfare
Programme.

(x) Beef Tallow and Cattle Hides
Australian imports to be placed on the automatic approval list.

This means licences will be issued for any quantities sold
commercially.

(xi) Surplus Disposals by U.S.A. in Japan
Japan has agreed to consult before concluding any agreement with
U.S.A. for the importation of surplus U.S. commodities affecting
Australia's export interests.

2. Attached is a summary schedule of the points outstanding. [1]
These are:-

(i) Emergency action. (The right to impose special duties on
import quotas without Japan taking counter measures.)
(ii) Wool. (The assurance of duty free entry for wool is linked
with later consultation regarding the application of G.A.T.T.)
(iii) Wheat. (The form of commitment and especially the definition
of unfair trade practices.)
Of these the 'emergency action' provision, which is the
safeguarding clause for Australian industry and preferential
trading partners is of major importance. Full agreement has not
been reached on this. A proposal has virtually been agreed on wool
and may be close on wheat.

3. Whilst some of the more detailed arrangements will not be
publishable, agreement is expected that the following major points
will be covered in the published papers:

(a) Notwithstanding the connection between duty free entry on wool
and G.A.T.T., there is no commitment to withdraw the application
of Article XXXV.

(b) The assurance of continued duty free entry for wool.

(c) The greater part of the undertaking on wheat.

(d) The undertakings on barley, sugar, dried vine fruits, skim
milk, tallow and hides.

(e) The provision in the Agreement for emergency action against
imports from Japan.

The main points not to be published are likely to be:

(a) The Japanese commitment to buy specified quantities of
Australian wheat in the first and second years of the Agreement in
the absence of 'unfair trade practices', and (probably) details of
the definition of unfair trade practices.

(b) Details of the understandings on action under Article
('special' or 'emergency' action).

(c) Consultation regarding acceptance of U.S. surpluses.

4. Cabinet Decision No.203 of 21st May, 1956 [2] set out the basis
on which Australia entered into the negotiations.

On the Australian export side the agreements already reached or
that are now in sight will meet the requirements.

On the import side, the Cabinet decision referred to 'full freedom
to safeguard Australian industry or established trade of the U.K.

or other suppliers'. The proposed arrangement for emergency action
in the form of 'special duties' will retain this freedom for
Australia in respect of Australian industry and, in accordance
with the terms of the special duties legislation enacted last year
[3], in respect of the trade of the U.K. and other preferential
suppliers. In addition, the proposed 'emergency action' provisions
will retain for Australia the right to use discriminatory import
quotas to protect the interests of Australian industry.

5. In respect of the 'emergency action' provisions, the Japanese
have been pressing for the right to apply 'substantial equivalent'
counter measures if action is taken by Australia under those
provisions. Details are set out in the Summary Schedule. Two
possible approaches are seen to this question:

(a) Without any right on the part of Japan to apply counter
measures, in return for a statement by the Japanese underlining
and recognising the importance of the exercise of restraint at the
export end over Japanese exports to Australia. Australia might
state some considerations, designed to reassure the Japanese that
emergency action would not lightly be taken and that a genuine
effort would be made to make consultation effective. These
considerations would include-
(i) prior consultation with Japan in every case;

(ii) emergency action to be taken only if such consultation fails
to provide a mutually acceptable alternative to the solution;

(iii) would be limited in time and extent to the acts absolutely
necessary to correct the situation;

(iv) would be limited to cases where serious damage was caused or
threatened.

(b) That we maintain that where emergency action is by way of
special duties, Japan has no right to take counter measures; but
that we agree, where emergency action takes the form of
discriminatory import quotas that Japan has the right to take
'substantially equivalent' counter measures.

RECOMMENDATIONS:

It is recommended that-
1. The positions outlined under points (i) to (xi) be approved.

2. In connection with the assurance of duty free entry on wool for
the initial three years of the Agreement, Australia be prepared to
enter into discussions with Japan within three years about the
application of G.A.T.T.

3. That Australia accept the Japanese offer on wheat as regards
quantities.

That the Delegation secure the best obtainable definition of price
and of 'unfair trade practices'; and that the Delegation stand out
for the Japanese to put on the record, confidentially if need be,
that in the absence of 'unfair trade practices', they will in fact
buy not less than 200,000 tons and 300,000 tons in the first and
second years respectively.

4. That the delegation press for the first alternative 'emergency
action' arrangement as set out in 5(a) above, but be authorised to
accept the second alternative, 5(b) above, if total agreement is
not likely to be reached otherwise.