159 Australia-Japan Trade Negotiations: First Plenary Meeting

1st November, 1956

PRESENT FOR JAPAN FOR AUSTRALIA Mr Nobuhiko Ushiba (Leader) Dr W.A. Westerman (Leader) Mr Atsushi Uyama (Alternate) Mr G.P. Phillips (Alternate) Mr Setsuo Takashima Mr K.G. Brennan Mr Masayoshi Kawanami Mr K. Jones Mr Hajime Nishimiya Mr M.T. Farrell Mr E.E. McPherson Mr R.G. Robertson Dr R.J. Whitelaw Mr N.R. Lind Mr G.C. Hauff DR WESTERMAN welcomed Mr Ushiba and expressed his hope that the negotiations would be successful and swift. He then introduced the members of the Australian Delegation.

MR USHIBA introduced the four members of the Japanese delegation accompanying him.

DR WESTERMAN suggested that apart from the first day or two, it would be best to have plenary sessions in the mornings and working parties and fact finding committees in the afternoons.

The Japanese delegation agreed to this and the holding of meetings from 10 a.m. to midday and 3.30 p.m. to 5.30 p.m.

DR WESTERMAN would arrange for a summary record to be made of meetings and distributed as soon as possible after each meeting.

MR USHIBA nominated Mr Nishimiya to co-operate with Mr Lind on this point.

DR WESTERMAN suggested that no statements be given to the press during the negotiations unless necessary. If it did appear desirable to make a statement, agreement should first be reached between the two parties.

MR USHIBA agreed.

DR WESTERMAN said that each side had indicated broadly its desires from the other and some general reactions were already evident. He now proposed to state the Australian Delegation's attitude in more detail on both Australian and Japanese requests and would then invite a similar statement from Mr Ushiba. From this he visualised a number of points arising which would then best be discussed in small groups.

MR USHIBA agreed to this procedure.

DR WESTERMAN said that both delegations were asking for much the same thing. They were each asking for m.f.n. treatment as regards both tariff and licensing. Because of our respective systems of trade these requests take different forms and present different problems to each side. Doubtless Japan will have difficulties with the Australian requests just as Australia has difficulties with the Japanese requests but it was hoped that these could be resolved on both sides.

Requests by Japan

M.F.N. Tariff Regarding Japan's requests, he proposed examining each request separately commencing with the request for m.f.n. tariff treatment. In 1955/56 about 80% of Australia's imports from Japan consisted of goods which were dutiable at rates higher than m.f.n.

rates. Hence the accord of m.f.n. to Japan would mean a duty reduction on about 80% of Japan's exports to Australia.' Normally, if the tariff rate on a commodity entering Australia is so low as to threaten domestic industry we can raise the tariff.

But in extending m.f.n. to Japan we would be, in effect, binding a considerable number of items to Japan since they have previously been bound to other countries. We can only raise these rates by bargaining our way out of the binding with other countries. There are then the two points:

1. the need to protect Australian industry;

2. the difficulty in raising duties to provide this protection when they have already been bound under other tariff negotiations.

A further point is that our policy is to keep duties as low as possible commensurate with the protection of domestic industry. A considerable number of the preferential duties in our Tariff are bound and there are difficulties which arise from the G.A.T.T. 'no new preference rule' so far as margins of preferences are concerned. To raise m.f.n. we must, in most cases, raise the preferential duty with resultant undesirable effects on our cost structure of the encouragement of uneconomic industries etc.

Amendments to the Australian tariff take considerable time. Hence the proposition to give m.f.n. immediately to Japan raises complications in relation to any adjusting of duties which may be necessary. However, we have at present legislation going through Parliament to allow action to be taken by Australia in accordance with Article XIX of G.A.T.T. [1] This legislation would allow emergency action, without reference to the Tariff Board. Dr Westerman suggested that this was an indication of the steps we have taken to remove difficulties in the way of giving m.f.n. to Japan. As this was a matter of undoubted interest to the Japanese Delegation, he would explain the matter in detail at a later stage.

As the outcome of these negotiations will be watched closely by various sectors of the community which may consider that their interests could be adversely affected we will at times lay store on presentational points. Doubtless the Japanese will have similar problems.

Dr Westerman pointed out that we have an honest desire to accord Japan m.f.n. tariff treatment. This would nevertheless involve substantial sacrifices on our part which may be summarised as:

(1) the direct cost of giving Japan lower tariff rates;

(2) the indirect cost of renegotiating m.f.n. bindings if this becomes necessary;

(3) the direct cost to the economy of raising m.f.n. rates where this is necessary.

As a final point Dr Westerman said that we are currently talking to the UK with the object of securing a reduction in preference margins because we believe that:

(1) it is desirable that all countries have a share of our import trade in relation to competitive ability;

(2) for reasons of cost it is desirable that our duty levels be kept as low as possible, consistent with the protection of efficient local industry.

If the negotiations in UK turn out as hoped there may be significant reductions in m.f.n. rates which would benefit Japan if she received m.f.n. tariff treatment and this might be kept in mind when the Japanese are evaluating the concessions they are seeking.

Import Licensing Dr Westerman then turned to the question of import licensing which is without doubt discriminatory against Japan. Apart from the dollar area Australia makes no distinction in respect of the origin of goods except as regards Japan. This is because of fears that without discrimination in licensing the tariff would be inadequate to protect Australian goods against Japanese competition. Approximately half of Australia's imports from Japan are subject to discriminatory licensing treatment. There are many factors in favour of giving Japan m.f.n. treatment under licensing but this course would remove the only safeguard should the tariff prove insufficient for protection against competition from Japan.

The Bill at present before Parliament was intended to provide reserve powers which would be available for use in an emergency.

It was hoped that an arrangement might be worked out between the two delegations, which would remove the necessity to use this power.

Requests by Australia Turning now to Australia's requests on Japan, Dr Westerman pointed out that they are broadly for m.f.n. treatment on both tariffs and import licensing. However, because of Japan's trading policies and practices it was necessary to express these requests in a somewhat different form.

Dr Westerman then pointed out that Australia's non-discriminatory licensing system was similar in principle to Japan's system of automatic approvals, as he understood it. On the other hand, however, Japan's State purchasing arrangements which cover a number of Australia's important exports, and her practice of providing allocations for imports on what we regard as non- commercial grounds presented real problems for Australia.

In these circumstances it could well be difficult to determine the value of any general assurance relating to tariffs or import licensing which might be offered to Australia. They would give no certainty of Australian sales in the quantities which would normally be dictated by commercial considerations. For this reason emphasis on tariffs or m.f.n. treatment is secondary to an understanding on the type of treatment that Australia could expect and the period for which it could be guaranteed.

Wool: He instanced wool which is licensed from various countries according to the overall Japanese trade policy. This means that Japan can, at any time arbitrarily decrease her purchases of Australian wool without regard to commercial considerations.

Australia is not necessarily requesting a guaranteed level of imports of wool from Australia into Japan over a period of years.

In fact, the placing of wool in the Automatic Approval category would enable Australian wool to enter the Japanese market on a competitive basis which was related solely to commercial considerations. If this course is not possible Australia would wish to explore alternative arrangements with Japan. He suggested an allocation based on either a percentage of total imports or specified quantities or values. Fundamentally, Australia's desire is for the non-discriminatory use of the exchange Japan can make available for wool.

Dr Westerman stated that there might be a tariff aspect on wool which we would raise later on but it is not our prime objective on wool. This objective is nondiscriminatory treatment for Australian wool in the Japanese market.

Wheat: In the case of wheat, the Japanese Food Agency is the sole purchaser. Hence in relation to wheat, the accord of non- discriminatory treatment on tariffs and licensing does not mean much. The important factor is the policy of the Food Agency in arranging its purchases.

Non-discriminatory treatment on wheat in our view means an assurance that we can obtain the share of the market which we could expect if purchases were based purely on price and quality.

We appreciate the Japanese position is complicated by other commitments, some of which obviously involve purchases of wheat on a noncommercial basis.

We would wish to find, in consultation with Japan, and within the policy of the Japanese Food Agency, some assurance of an opportunity to supply a reasonable quantity of both our higher protein and our f.a.q. wheats to the Japanese market.

We will put forward a figure which we think we can justify as a reasonable share of Japan's imports and a sub-committee could examine this. Dr Westerman emphasised that we only want treatment equivalent to non-discrimination, but we cannot afford to get less than non-discriminatory treatment. Hence, we have in mind suggesting an absolute quantity or a percentage of the market for higher protein wheat and a separate figure or percentage for f.a.q. wheat, as we think that to treat the higher protein and soft wheat together would lead to difficulties.

Our major problem is the treatment accorded our f.a.q. wheat and we will be placing more importance on this figure. As an indication of our thinking, we are of the opinion that about one- sixth or one-fifth of Japan's total wheat imports should be soft wheat from Australia. We would prefer to leave detailed figures to a subcommittee.

Barley: On barley we have no particular problem in so far as the Food Agency's current purchasing program is concerned. However, an arrangement which gives Japan a degree of permanence on tariff and licensing in the Australian market must, from our angle, enable us to obtain the same sort of assurance on our commodities in the Japanese market. We want Japan to purchase Australian barley in

the quantity we would normally expect to sell under commercial conditions. This can probably best be expressed as a percentage of total imports over the longterm, although in the short term we might suggest a minimum quantity.

The figure might be 35% or one-third of Japan's imports which is roughly what we have been getting in recent years. Here again the details could best be left to a smaller group.

Sugar In the case of sugar our request is a little different in that it involves m.f.n. tariff treatment as well as non- discrimination in licensing. We think that at present we get a little less than m.f.n. tariff treatment, particularly since the duty adjustment in April, 1956. This is largely due to a technical peculiarity of the Japanese tariff which arises from the polarisation. level at which the higher Japanese tariff rate commences to operate. We will suggest an adjustment to rectify this. We do not think this will affect Japan's sugar refining industry and would not wish it to. We are not seeking any tariff reduction as such but merely an adjustment in description of the tariff item. In actual fact we can produce to the lower pol. at present specified but it costs us more to do so.

In the past, foreign exchange allocations for the purchase of sugar from the sterling area have at times been used to import sugar from the dollar area. Action along these lines could deprive Australia of the access which she might otherwise have to the Japanese market. As a means of ensuring access Australia requests that she be nominated for inclusion at a reasonable percentage in the overall sterling area allocation.

Beef Tallow and Cattle Hides: Both these items are under Automatic Approval for some sterling area countries but imports from Australia are specifically excluded. Here again Australia's request is for non-discriminatory treatment.

Dried Skim Milk: Dr Westerman indicated that he was not certain that Australia had all the facts. Our understanding is that nearly all requirements in the past have been purchased by M.I.T.I. from C.C.C. stocks, but at a price with which Australia can compete.

Australia would like to be able to get her share on the basis of price and commercial considerations. He suggested either the allocation of a percentage of imports or alternatively Automatic Approval, if this were possible.

Other Commodities: There are a number of other comparatively minor commodities where access to the Japanese market would help Australia, particularly from a presentational point of view. Dried Vine Fruit was mentioned as an example.

MR USHIBA thanked Dr Westerman for his explanation of the Australian point of view. He asked for time to consider the points raised before replying, but expressed his opinion that because of this clear statement of the issues involved the talks should be able to go forward quickly. He had prepared a statement setting out Japan's attitude to the negotiations and the requests she had to make.

(He then read his prepared statement-Attachment A. [2]) DR WESTERMAN advised that we would hope to circulate the draft record of this morning's talks this afternoon.

The next step will be to go into the Committee stage. One committee could consider what arrangements might be made to overcome difficulties which we foresee in meeting the Japanese requests. This committee could consider:

Firstly, the arrangements Japan might undertake to meet our position and secondly, arrangements at the Australian end such as liaison with the Japanese Embassy in relation to any sensitive items. Dr Westerman mentioned that we do not have in mind suggesting that Japan should limit her exports to any specific quantities.

A second committee could investigate our specific requests in relation to questions of fact.

On timing, Dr Westerman indicated that we were prepared to go straight into the committee stage and asked for the Japanese view on the timing for the Committees.

MR USHIBA said that it would be most helpful to have the committee on commodity details this afternoon. He nominated Mr TAKASHIMA, Mr KAWANAMI and Mr NISHIMIYA, and suggested that Mr UYAMA might be able to attend also.

DR WESTERMAN nominated Mr PHILLIPS, Mr McPHERSON and Mr A.J.

CAMPBELL and perhaps other commodity officers as required. He pointed out that basically the committee was to canvass the facts.

On major questions arising from the Japanese requests, such as the Legislation, etc., we could have a different committee consisting of Mr ROBERTSON, Mr FARRELL and perhaps others.

MR USHIBA said that the business circles in Japan were very much concerned about the Reserved List [3] in Australian import licensing, as a concrete example of discrimination against Japanese goods. Therefore, he wished the Australian delegation to explain, in the course of the present talks, the reason why each particular commodity was included in the List.

DR WESTERMAN explained that if we were able to grant Japan m.f.n.

treatment, the Reserve List would disappear. The question of what we call 'sensitive items' will be discussed in Committee and we will indicate what items are included and why we are concerned about them.

It was agreed that only one committee should meet at a time and the fact finding Commodity Committee should meet in the afternoon at 3 p.m. The future sequence of meetings would be cleared between Mr NISHIMIYA and Mr LIND.

1 See Document 153.

2 Document 160.

3 Annex C to Document 81.

[AA : A1838/283,759/1/7, iv]