200 Australia-Japan Trade Negotiations: Fourth Plenary Meeting

10th April, 1957

CANBERRA

MR WARWICK SMITH [1] said that his delegation had thought it would be useful if a Plenary Meeting could be held in which the Australian delegation's comments could be given on the papers which had been handed to the Japanese delegation on 4th April.

These papers had consisted of various drafts representing the tentative thinking of the Australian delegation on the form and substance of a possible agreement. [2]

1. Text of an Agreement.

2. Annex to the Agreement concerning the tariff implications of an exchange of m.f.n.

3. Agreed minute on treatment of Australian commodities imported into Japan.

4. Exchange of Notes on surplus disposals.

5. Exchange of Notes (not for publication) on wheat purchases.

6. Exchange of Notes (not for publication) on safeguards.

In passing these drafts to the Japanese representatives, the leader of the Australian delegation had explained in a covering letter that the drafts were quite preliminary and tentative and had not been examined from the point of view of detailed drafting, and that Australian Ministers had had no opportunity to consider even in outline the matters covered by the draft. The drafts were not to be taken therefore as involving any degree of commitment whatsoever.

Mr Warwick Smith offered the following points of explanation in relation to the Australian drafts.

1. Draft Text In general the Australian draft followed the wording of the General Agreement on Tariffs and Trade as far as appropriate but there were some differences. These were largely introduced to make the G.A.T.T. text fit the circumstances of the bilateral agreement.

Article I This was intended to be a standard m.f.n. clause, with appropriate customary reservations on preferences.

Article II was a reciprocal undertaking not to apply import restrictions except for balance of payments reasons and not to discriminate in the application of such restrictions except for balance of payments reasons. Paragraph 3 was intended to make the Article applicable to State Trading enterprises. Paragraph 4 would provide for consultation on balance of payments restrictions. This would be a more specific provision than Article VII of the draft agreement (which provided for general consultation), and might incorporate the substance of some of the relevant G.A.T.T.

provisions on consultations on balance of payments restrictions.

Article III of the Australian draft was based largely on Article XVII of G.A.T.T. It was thought unnecessary for the Australian draft to make mention of the export activities of state trading enterprises. The article was intended to cover only the purchase of imported goods and their subsequent resale, by State trading enterprises.

Article IV was concerned with the relationship between the agreement and G.A.T.T. It aimed to cover the rather unusual situation of two countries which were Contracting Parties to G.A.T.T., which did not apply the G.A.T.T. between themselves, but which had a bilateral agreement between them.

Paragraph I was intended to reassure the Contracting Parties to G.A.T.T. that Japan and Australia did not contemplate taking action under this agreement which would give either country more favourable treatment than other contracting parties received. This was merely in conformity with the general m.f.n. obligation under G.A.T.T.

In drafting the second part of paragraph 1, the concept used was not unrelated to that found in the Declaration of 24th October, 1953, by the Contracting Parties to G.A.T.T. where some Contracting Parties undertook to base their commercial relation with Japan upon the G.A.T.T. as if the G.A.T.T. applied between them. Hence the second part of paragraph I was intended to allow for particular provisions of G.A.T.T. which were not included in the Trade Agreement to serve as a base or guide for commercial relations between Australia and Japan. The particular matters to be covered in this way would be agreed between Australia and Japan.

However, as such provisions would not necessarily be applied literally, and as this Trade Agreement was bilateral, their interpretation would necessarily be a matter for Australia and Japan. The decision on these matters must be with the Japanese and Australian Governments and paragraph 2 of Article IV was designed to make this position clear.

It was necessary from the Australian point of view to include some explicit statement to the effect that the Trade Agreement would not affect the position under Article XXXV. This was done in the last part of Article IV. However, if the Japanese Government would prefer it, the point could be explained in some other form, for example in an exchange of notes.

Although the Agreement as drafted was modelled on a number of G.A.T.T. provisions, it was important to note certain differences between the situation under the trade agreement, if one were concluded, and the situation that would exist if G.A.T.T. applied.

Firstly the Australian Government was not now proposing to accept any agreement with Japan which would give a group of countries the right to make interpretations or decisions directly affecting Australia's trade relations with Japan. Secondly, the Contracting Parties had never ruled on whether some of the special or emergency measures which might be covered by Article V of the draft agreement would be compatible with the provisions of G.A.T.T.

Article V of the Agreement provided for emergency action.

Paragraph 1 set out what might be the reasonable expectation of each Government in relation to the effect of the Agreement on trade between Australia and Japan and then went on to provide that if the expectations of either Government were not realised then appropriate action could be taken.

The Australian delegation would be prepared to discuss drafting changes or alternative forms of this principle, for example the words 'take appropriate measures' in paragraph 1 might be replaced by some such phrase as 'to suspend such obligations as may be appropriate' which was similar to the wording used in G.A.T.T.

Article XXIII. However, it was essential that the basic idea be included, either in the text of the agreement or in an exchange of notes.

The 'appropriate measures' envisaged in paragraph 1 might take the form of conditional entry of goods in relation to quality or marking, or special duties, or quotas. It might be that action would be taken on similar goods from elsewhere or it might be taken on Australian or Japanese goods alone, that is in a discriminatory way but in relation to individual products only.

This emergency provision was recognised as of major importance in the draft agreement, and Australian authorities had therefore introduced some limiting provisions. Paragraph 2 required advance notice in writing and prior consultation. The Australian delegation would be prepared to discuss such procedural aspects further. Paragraph 3 provided that if either Government considered that excessive use of paragraph 1 threatened the basis of the agreement then the agreement could be renegotiated. If this were not successful, then the agreement could be terminated.

If paragraph 1 of Article V were invoked more than absolutely necessary, then the concept of the agreement would have failed.

Paragraph 3 recognised this. Both paragraphs 2 and 3 were designed to avoid or discourage the use of the rights retained under paragraph 1 except under really serious conditions. Of course co- operation would be extremely important. With adequate co-operation it would not be expected that either side would have cause to resort to the Article to any extent.

Article VI on the position of the Australian territories was still under consideration.

Article VII on general consultation was self explanatory.

Article VIII on entry into force and duration could be discussed later when substantive points had been covered.

2. The Proposed Annex to the Agreement set out the Australian view point on the binding of the wool duty. It was not necessary from Australia's point of view for Japan to give formal binding. What was wanted was some assurance that Japan would not raise the duty on wool during the currency of the agreement.

3. The Agreed Minute on Commodities was largely self explanatory.

In relation to wheat, the Special Note on wheat envisaged that Australia would expect Japan to import at least one-eighth of total wheat imports from Australia in the first year and at least one-sixth of total imports in the second.

In relation to what Australia considered should be included in unfair trade practices, the definition set out in the note following paragraph 2(c) of the Agreed Minute was taken to include any non-commercial purchase, country quotas or Government subsidies, perhaps even manipulations such as switch transactions by private traders. While Australia was primarily concerned with the effects of U.S. P.L.480 deals and export subsidies such as were operated by countries like U.S.A. and France, other possibilities could not be overlooked.

4. The Note on Surplus Disposals was straightforward and could be made reciprocal if the Japanese Government preferred this. In relation to this note, Mr Warwick Smith mentioned that U.S.

authorities had on a number of occasions suggested that it was up to Australia to make arrangements with the recipient countries for consultation on surplus receivals.

5. The Exchange of Notes on Assurances was intended to record the understanding between the two governments of the steps to be taken to avoid damage to Australian industry or sudden and serious disruption to Australia's established trade pattern should Australia grant m.f.n. to Japan. The note was not to be made public.

6. MR USHIBA explained that he had no instructions from Tokyo on the latest Australian papers and he could only express his own and the delegation's personal views on the drafts.

Draft Text:

Article I appeared to be acceptable in principle but paragraph 3 concerning preferences given by Japan to the special territories should be placed in a separate note as the preferences concerned involved measures other than the tariff.

As regards Article II the Japanese delegation would be very interested to see the text on Balance of Payments consultation.

In Article IV he thought that there was some discrepancy between the second part of paragraph 1 and the first part of paragraph 2.

If Australia and Japan were to base their commercial relations on the provision of G.A.T.T. then both countries should also adhere to the interpretations generally accepted by the Contracting Parties to G.A.T.T. Should difficulties arise in relation to particular cases then the two Governments could consult but as a basic principle decision of the Contracting Parties should be accepted.

The statement of the position in relation to Article XXXV should be acceptable on principle although it might be desirable to negotiate further on the form which the understanding would take.

As regards Article V Mr Ushiba pointed out that in previous discussions only special duties had been mentioned as possible emergency action, but under the current Australian draft quantitative restrictions and other measures were also possible.

While it is generally beneficial for the agreement to follow G.A.T.T. as closely as possible in this case the adaptation of Articles XIX and XXIII could not be carried past a certain point in the absence in this agreement of the non-discriminatory principle of Article XIX. The Australian draft could give the impression in Tokyo that Australia was intending to take far reaching discriminatory measures. Even the special duties had caused concern in Tokyo and the Japanese Government would wish to consider this latest draft very carefully.

Mr Ushiba suggested that a clearer explanation on how paragraph 1 of Article V was to be applied by Australia would be necessary.

The Australian intention on the disincentives to excessive use of paragraph 1 of Article V was appreciated but the whole matter would require further examination.

On Article VIII it would seem desirable to discuss the question of the duration of the Agreement as soon as possible.

In relation to the matter contained in the Proposed Annex the arguments on both sides had been fully stated. From the draft texts submitted it appeared that the Australian delegation agreed with the Japanese contention that the binding of duty free entry on wool was not part of the general question of m.f.n. Mr Ushiba expressed as his personal view that if Australia insisted on including this matter in the present Agreement then the Japanese Government could well reintroduce the question of the application of G.A.T.T. between Japan and Australia.

In the absence of further instructions from Tokyo the Japanese delegation reaffirmed its earlier position that if Australia's aim was to balance the advantage from tariff implications of m.f.n.

treatment this should be raised in separate negotiations.

In respect to the Note on Commodities, Mr Ushiba raised the following points:-

Sugar: In relation to the request for a change in tariff description, under the Customs Tariff Law it was impossible for Japan to differentiate according to classification of importers as was suggested in the Australian draft.

The special quota for sugar mentioned in the Australian draft was taken to refer only to the 40% of Japan's sugar imports as set out in the first part of the paragraph. If this was so then a redraft would remove any doubt as to the meaning.

Barley: The Japanese Government had no intention of changing its policy on barley and it hardly seemed necessary to make further provisions in the Agreement. It would facilitate the negotiations if the barley question were not pressed further.

Dried Grapes: Mr Ushiba did not think that the Japanese Government would welcome the mention of Automatic Approval in connection with dried grapes.

Wheat: The Japanese delegation reserved its whole position on wheat and upheld its original draft pending further instructions from Tokyo.

In relation to the Australian draft there appeared to be an inconsistency between paragraph 4(b) which provided that a 'fair share' would be determined in the light of imports during the first two years of the agreement and paragraph 4(d) which suggested that 16 2/3% was a fair share of the market.

The Special Note on wheat appeared to provide for a double guarantee on wheat in that it required Japan to import to a certain level from Australia even if there were no special circumstances.

Mr Ushiba suggested that if a guarantee were provided in the event of unfair trade practices, then the special note on wheat was not necessary. Moreover, it had been confirmed that the Australian delegation would not ask Japan to import up to a certain level from Australia unless there were special circumstances.

On the question of the Australian definition of 'unfair trade practices' Mr Ushiba reserved his position. The Japanese Government would not agree that unfair trade practices existed in the Japanese market at present. The situation under which the guarantee to purchase would become effective would be discussed but the Japanese Government would not regard the existing situation as one warranting the operation of the guarantee.

The figure of 16 2/3% was regarded by Japan as too high to form the basis of a guarantee although in fact purchases may actually reach or even exceed that level.

It would be necessary to consider further whether the guarantee should be expressed as a percentage or a definite quantity and in any event the Japanese Government would not want the level of the guarantee to be published.

As regards F.A.Q. wheat, Mr Ushiba said that since it was not the normal grading so far as Japanese purchasing was concerned he wanted to have a guarantee of quality from the Wheat Board.

The Note on Surpluses involved a new matter and the delegation had no instructions on this.

It was agreed that the next meeting should be called as soon as the Japanese delegation had received further instructions from Tokyo.

1 Warwick Smith led the Australian Delegation as alternate. Other Australians present were Durie, Farrell, Jones, Munro, Oakley, Whitelaw, Corkery and Lind. Ushiba led the Japanese delegation, which included Uyama, Kajiki, Hibino, Udo and Nishimiya. The meeting was held at the Department of Trade.

2 See Document 197.

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