CANBERRA

Trade Negotiations with Japan
The Japanese Trade Delegation, which arrived in Australia towards
the end of October, is led by Mr Ushiba of the Ministry of Foreign
Affairs.

2. Negotiations began on 1st November with the holding of a
plenary meeting [2] attended by the Japanese Delegation and
officials from the following six Commonwealth Departments-Trade,
Primary Industry, Prime Minister's, External Affairs, Treasury and
Customs & Excise. The Australian officials were led by Dr
Westerman.

3. Dr Westerman briefly referred to a number of the trade problems
between Australia and Japan and then went on to outline the nature
of the requests which we were making on Japan. He stressed that
Japan's state trading activities in grains, her acceptance of
surplus disposals and other aspects of her commercial policies
meant that a mere undertaking to accord Australian goods most-
favoured-nation tariff and non-discriminatory import licensing
treatment would fall far short of our requirements. Any
undertaking to accord most-favoured-nation tariff and
nondiscriminatory import licensing treatment to Australia must be
accompanied by other assurances and definite commitments which
would ensure that our exports did, in fact, receive most-favoured-
nation treatment. In the case of soft wheat, for example, we would
require a commitment which would amount to an undertaking by Japan
to purchase a specified quantity or a specified percentage of her
total wheat imports from Australia each year.

4. Dr Westerman said that our requests on Japan would not be
restricted solely to the treatment of our exports. We had certain
anxieties on the score of imports from Japan as it was felt that,
in the absence of adequate safeguards and assurances, the accord
of most-favoured-nation tariff and non-discriminatory import
licensing treatment to Japanese goods could result in damage to
certain Australian industries and to a serious disruption of the
pattern of Australia's imports of certain commodities.

Australian requests on Japan:

5. For these reasons, Dr Westerman explained, our request list on
Japan might appear rather formidable. As far as our export
requests were concerned, however, they did not go a great deal
beyond an attempt to ensure that we would receive most-favoured-
nation treatment. Our full requests were as follows:-

(i) M.F.N. tariff and non-discriminatory import licensing
treatment for Australian goods;

(ii) Binding of duty free entry for raw wool;

(iii)Amendment of the Japanese Tariff to permit sugar of below 99
polarisation to be admitted at the lower rate of duty applicable
to sugar and not exceeding 98 polarization;

(iv) Raw wool, beef tallow and cattle hides to be transferred to
the Automatic Approval Licensing Category. (This would amount to
N.Q.R. [3] treatment);

(v) Opportunity to supply 8 million bushels of 'hard' wheat per
annum and a commitment to purchase f.a.q. or lower grade wheat
totalling 15 million bushels per annum or one-sixth of Japan's
imports of all wheat, whichever is the higher figure;

(vi) A commitment to purchase annually from Australia 350,000 tons
of barley or 35% of her barley imports, whichever is the higher;

(vii) An annual import quota of 100,000 tons for Australian sugar;

(viii) An annual import quota for Australian dried skim milk equal
to 3 1/2m. lbs or 25% of Japan's imports, whichever is the higher;

(ix) An import quota for Australian dried vine fruit;

(x) An undertaking to consult with Australia before entering into
arrangements with other countries regarding receivals of surplus
commodities of a kind exported by Australia. Recognition that
imports on concessional, noncommercial or other special terms are
to be regarded as imports for the purpose of determining
Australia's share of the Japanese market for the commodities in
which we are interested;

(xi) An undertaking to consult regarding trade or economic
policies which affect the importation into or consumption in Japan
of commodities in which Australia has a major export interest
(such as wool and grains) and assurances to safeguard our
interests in the Japanese market (e.g. as regards the
encouragement of the use of synthetics instead of wool);

(xii) Assurances that Japan will make such arrangements with her
exporters as may be necessary to prevent serious damage to
Australian industries or severe disruption to the pattern of
Australia's imports;

(xiii) Recognition of a reserve power on our part to impose
special discriminatory duties on Japanese goods in an 'emergency'.

Japan's requests on Australia:

6. The leader of the Japanese Delegation said that his requests on
Australia could be summed up as most-favoured-nation tariff and
non-discriminatory import licensing treatment for Japanese goods.

Discussions on specific questions:

7. It was agreed, at the plenary meeting, to proceed immediately
to the committee stage for the discussion of specific subjects,
including elaboration of the requests which had been exchanged and
the problems which each country envisaged in relation to the
requests.

8. Numerous committee meetings have been held and although the
discussions at these meetings have related mainly to matters of
detail, they have served to give us some indication regarding the
attitude of the Japanese Delegation to a number of our requests.

Initial reaction to Australian requests:

9. As regards the requested undertakings to purchase the specified
quantities of wheat and barley, the Japanese Delegation has said
that there are real difficulties from their point of view. They
have undertaken, in their treaty with Canada, not to grant any
countrywise quotas for barley or to give an undertaking to any

country regarding the purchase of stated quantities. In the case
of 'soft' wheat, two problems are involved-their relations with
the U.S.A. and internal problems relating to the availability,
under 'surplus' deals, of yen counterpart funds. [4]

10. As regards certain of our other requests concerning the
treatment of specific Australian exports, the initial reactions of
the Japanese Delegation have been as follows:-

(a) Our tariff requests on wool and sugar cannot be granted
because they are tariff concessions, going beyond m.f.n.

treatment, for which they would receive no quid pro quo;

(b) Raw wool is not regarded as sufficiently 'essential' to be
placed in the Automatic Approval category. Japan must take some
wool from South American countries in order to obtain payment for
her exports. She will give us full opportunity to supply 90% of
her imports;

(c) Beef tallow and cattle hides will be transferred to the
Automatic Approval category;

(d) There would be no difficulty regarding our request on 'hard'
wheat;

(e) They are committed to purchase approximately 55% of their
sugar imports from Formosa and Indonesia for much the same reason
as their purchases of South American wool. They would give us full
opportunity to supply the remainder of the market, but wish to
avoid a commitment to purchase;

(f) They wish to avoid a commitment to purchase dried skim milk,
but, as far as their 'commercial' purchases are concerned, would
give us full opportunity to compete with other countries;

(g) A Sterling quota could be established for dried vine fruits,
for which we could compete. (At present, imports are permitted
only from Cyprus and Greece.)
11. We have not, as yet, received any reaction from the Delegation
regarding their attitude towards our other requests.

Present stage of the negotiations:

12. The reactions which we have already received from the Japanese
delegation are, therefore, incomplete, and, in some cases, amount
to no more than a statement of the difficulties they see in
meeting a number of our requests.

13. As you are aware, negotiations have been taking place between
the U.S.A. and Japan regarding the supply of U.S. soft wheat to
Japan in the coming year, partly on commercial terms and partly
under a P.L.480 deal. If Japan were to take the same quantity of
soft wheat from the U.S.A. as she did last year, it would appear
that she would be in no position to meet our request on wheat.

14. It is understood that the Japanese Foreign Office, the
Ministry of Finance and M.I.T.I. favour accepting some commitment
to purchase Australian wheat in order to render possible a trade
arrangement with Australia. Their views, however, are strongly
opposed by the Minister for Agriculture and Fisheries mainly
because any commitment acceptable to Australia would entail
reduced soft wheat imports from the U.S.A. on P.L.480 terms.

15. The new Prime Minister of Japan will be appointed shortly by
the Japanese Diet and the Cabinet will be recast. Pending these
changes, it is almost certain that no decision will be reached in
Japan regarding our requests on wheat, barley and the other major
issues involved in the trade negotiations with Australia.

16. We have been advised by the leader of the Japanese Delegation
that there is no foundation whatsoever for the reports from Tokyo'
that the Japanese Government intends to break off negotiations
with Australia on the grounds that a deadlock has been reached.

The reports from Tokyo probably emanate from the Ministry for
Agriculture and Fisheries which has no authority to make any
decision regarding the termination of negotiations.

17. The leader of the Japanese Delegation informed us yesterday
afternoon that he had authority to return to Japan if he
considered that no useful purpose would be served by remaining in
Australia until such time as he received a decision from Japan
regarding our main requests. He was not yet in a position to
decide whether he would return to Japan, but, if he did so, he
expected that negotiations would be resumed in January, 1957. He
hoped to advise us further on the matter in the next few days. [6]

18. A note on trade developments between Australia and Japan and
several other matters which may be of interest is attached to this
minute (see Attachment 'A') [7]. The note is entitled 'Trade with
Japan'.