CANBERRA

MR PHILLIPS [1] suggested that the meeting might discuss the
Japanese draft 'Agreed Minutes' on commodities with the object of
clarifying the position as much as possible before the Australian
delegation placed the Japanese response before Ministers. The
Australian delegation's reactions to the Japanese response on the
individual commodities were:

Wool: The Japanese response envisaged 90% of all Japan's wool
imports being placed on global quota. This was something less than
the request made by Australia, namely free access to the Japanese
market. It was only qualified m.f.n, If wool was not a
sufficiently essential product to place on Automatic Approval
under Japan's existing balance of payments situation the
Australian delegation would have hoped that the Japanese
Government could place wool on 100% global quota.

Concerning the request for a binding of duty free entry on wool,
in our view the grant of m.f.n. tariff treatment would mean the
following tariff advantages for Japan:

(1) a reduction in actual rate of duty over 80% of imports from
Japan in 1955-56;

(2) by virtue of bindings to other countries, an indirect binding
of the m.f.n. rates in which Japan was interested to the extent of
50% of imports in 1955-56;

(3) setting an upper limit to the margin of preference which goods
admitted under the B.P.T. rate would enjoy over Japanese goods;

(4) benefit from the further reductions in m.f.n. rates to be made
resulting from our freedom under the U.K.-Australia Trade
Agreement to reduce preference margins; it was contemplated that
action would be taken to effect reductions on some items during
the current session of Parliament.

MR PHILLIPS emphasised that these amounted to substantial tariff
concession in the Australian view and the Australian delegation
could not accept the Japanese statement that the binding of duty
free entry on wool could not be considered as the current
negotiations were not tariff negotiations.

Barley: Australia had obtained a reasonable share of the Japanese
market in the past on a competitive and non-discriminatory basis.

While there was no reason to doubt that Japan intended to continue
purchasing on this basis there was the possibility of competition
from surplus disposals and subsidised barley. Australia would like
to see a recognition of one-third written into the agreed minutes
as a fair share of the market for Australia and as a quota should
other countries be given quotas or if Japan imported barley on
non-commercial terms.

Sugar: An opportunity to compete for only 40% of total imports did
not amount to full m.f.n. treatment and raised problems from the
presentational point of view.

In relation to the request for an amendment to the Japanese
tariff, the Japanese attitude had been that to accede to the
Australian request would raise difficulties in relation to the
Japanese refining industry. The Australian delegation had pointed
out that other countries had surmounted similar difficulties.

MR PHILLIPS suggested that the Japanese Government might give
further consideration of ways and means of adapting the methods
used by other countries for instance the Canadian practice which
required the sugar to be imported by refiners before it qualified
for the lower rate of duty.

Beef Tallow and Cattle Hide: Appreciated the Japanese reaction to
place those items from Australia on the Automatic Approval list.

Dried Skim Milk: Australia's alternative request on this commodity
was for Automatic Approval and as only a small quantity was
involved this alternative request might be considered further by
the Japanese Government.

Dried Grapes: The quota granted was not unreasonable but only
covered one year. It was hoped that the quota could be extended to
cover the duration of the agreement.

Wheat: Presentationally the Australian delegation would not wish
to record its request on wheat in precise quantities such as
400,000 tons in the first part of the agreed minutes unless the
request were met in full and the same figure was used as the basis
of the guarantee in the later part of the minutes. Accordingly
Australia would prefer to express paragraph 2(a) of the Japanese
draft in a somewhat different manner.

Paragraph 2(b) (1) and (2) of the Japanese draft were supported by
the Australian delegation and might be better expressed as an
agreed view, apart from the comment on the quantity involved.

Paragraph (c)(1) was presentationally difficult in that it only
offered consultation where Australia's right to m.f.n. treatment
was impaired by non-commercial sales and unfair trade practices.

Paragraph (c)(2)(i) did not appear to give Australia satisfactory
assurance of reasonable treatment. The quantity to be imported in
such circumstances would be 'up to the quantity imported in the
previous year'. However the previous years figures might be
abnormal for the following reasons:

(i) a short crop due to climatic conditions
(ii) trade abnormalities
(iii) a depressed level of total purchases due to abnormally high
grain crops in Japan.

MR PHILLIPS explained that the Australian delegation was working
on a draft which was not far removed from the Japanese draft but
which would meet the difficulties outlined. This draft was not yet
in a form which could be handed over but this would be done as
soon as possible. Briefly the Australian draft would consist of-
(i) An agreed statement that a fair share for Australia of the
Japanese market for wheat was difficult to define.

(ii) Since almost no Australian wheat has been imported after the
war for various reasons, it seems that at least one or two years'
experimental import of Australian wheat is required before
Japanese millers or consumers are accustomed to the wheat.

(iii) However, if Japan entered into non-commercial arrangements
with the United States or Australia's competitors resorted to
unfair trade practices in the first two years of the Agreement,
the Japanese Government would ensure X% in the first year and x% +
a% in the second year, of Japan's total import.

(iv)In the event of Japan purchasing wheat under non-commercial
arrangements, or Australia's competitors in the Japanese market
resorting to unfair trade practices, in subsequent years of the
Agreement the Japanese Government would ensure imports of
Australian wheat on the basis of the actual import in the normal
years and not less than an agreed percentage of total imports.

MR USHIBA suggested that dumping and surplus disposals should be
treated in separate paragraphs in the agreed minutes. This would
avoid prejudicing Japan's position vis-a-vis the U.S.A. should
Japan wish to enter into an agreement on surplus disposals in the
first year of the agreement. He considered that it might be easier
from Japan's point of view if the quantity of wheat were expressed
as tonnages as in the Japanese draft.

MR PHILLIPS explained that expressing the wheat as a percentage of
Japan's imports should help the Japanese in that it allowed for
smaller purchases should Japan's overall wheat imports be reduced.

MR USHIBA said that his offhand reactions to the Australian points
outlined by Mr Phillips were:

Wool and Sugar: Japan's Open Account Agreements were necessary
because of exchange difficulties of certain Asian and South and
Central American countries and it was not possible for Japan to
discontinue them at this time. These arrangements were recognised
by G.A.T.T. and I.M.F. Therefore although Australia considered
that Japan's response on sugar and wool only constituted a
qualified m.f.n. it was not possible to grant complete global
quotas for these commodities.

As regards the binding of free entry on wool, Mr Ushiba's personal
reaction was that while the Australian argument that Japan
received the greater tariff benefit from an exchange of m.f.n. was
valid to a point, he did not think that the Japanese Government
would consider the question in the context of the present talks.

However, he would again report the Australian view to Tokyo.

MR USHIBA said that his personal view was that the Japanese
Government would be prepared to discuss the question of the wool
tariff at a later stage.

Dried Skim Milk: The needs of the domestic industry had to be
considered and it was unlikely that Automatic Approval could be
granted.

Dried Grapes: His personal view was that Japan would be willing to
continue to grant a quota to Australia for dried grapes for each
year of the Agreement if circumstances permitted subject to
revision.

Barley: Theoretically this was a similar question to wheat but in
practice Japan had been importing almost as much barley as
Australia could supply. Mr Ushiba expressed his personal view that
while the Japanese Government might agree to some assurance if the
purchasing policy were changed, he did not think that such an
assurance would be politically acceptable at the moment. For
instance, it might be possible for Australia to reserve the right
to raise the matter in the future.

MR USHIBA added that Japan had committed herself to give non-
discriminatory treatment to Canadian barley, and the Canadian
Government did not raise any complaint about the agreed surplus
disposals when Japan concluded the second Surplus Disposal
Agreement with the United States.

Wheat: Although the Australian approach as outlined by Mr Phillips
seemed reasonable apart from the question of quantity or
percentage it would be necessary to examine the text before making
any detailed comment.

MR PHILLIPS said that in relation to the wool tariff it would be
difficult to explain in Australia that the accord of m.f.n. to
Japan did not involve any tariff measures when the reductions in
duty were such a significant feature of the Agreement from
Australia's point of view. The Australian Government must take
this into account when considering the balance of the agreement.

MR PHILLIPS said that the Australian delegation was preparing
papers based on the Japanese drafts and these would be handed over
as soon as they were available.