MR PHILLIPS  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.