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Wednesday, 2 December 1936

Senator E B JOHNSTON (Western Australia) (12:49 PM) - I wish, first, to protest against having t,o deal with this very important measure at an early hour in the morning, particularly as I understood, from a statement made by the Leader of the House last week, that three days were to be devoted to the consideration of the bill in the Senate. However, this is the first and only opportunity which has been afforded to the Senate to discuss the unfortunate trade-diversion policy upon which the Government recently entered, and I propose to take full advantage of it. When the Government embarked upon this policy more than six months ago, it did so, as we have been told in the House of Representatives,, on its own initiative, without taking the rank and file of its supporters, in either the

United Australia party or the Federal Country party, into its confidence. I regret exceedingly that the many practical men from various primary industries who are included in the ranks of those parties did not have the opportunity to prevent the Government from taking so unwise a step. I believe that they would have done so had they known the Government's intentions. The main object of the trade-diversion policy is to restrict Australian trade with our two most powerful neighbours in the Pacific, namely, the United States of America and Japan. In view of the war cloud that has been darkening in Europe in recent months, no worse time could have been chosen to initiate a trade war with those two powerful and neighbouring nations in the Pacific Ocean. The Government evidently realized that it had made a mistake in the matter, as is evidenced by its apparent desire substantially to retrace its steps so far as concerns at least one, and probably both, of those nations, and its appeal to its supporters, the press, and public associations to refrain from public criticism of its action whilst negotiations for settlement of the trade dispute with Japan are in progress. These protracted negotiations have been conducted for over six months, during which period members of both Houses, ai well as members of the associations of primary producers most concerned, have, with commendable loyalty, endeavoured to serve the national interest by remaining silent. The negotiations which the' Minister for trade treaties (Sir Henry Gullett) has been conducting with Japan, have been both difficult and delicate, and I do not desire to embarrass the Government in any way in its task. I should have preferred to defer my remarks on this subject indefinitely, if the Government had similarly postponed this bill for the ratification of its action. But as the Government is asking us to ratify its policy I am not prepared to agree silently to " rubberstamp " actions of which I entirely disapprove, and which I regard as a stupid blunder, threatening not only the prosperity, but also the peace and safety of the Australian nation in the Pacific. I censure the Government for its action in this matter the more severely because it took the steps in defiance and breach of the law which enacts that no new or increased duties shall be imposed without prior reference to the Tariff Board. These drastic alterations in the tariff were made without any reference to the board at all.

Now that the subject of the duties on motor engines is being referred to the board I may say that the original terms of reference were unsatisfactory, and loaded, and denied the board the right to report fully on the Government's policy. In this connexion, however, I was pleased to read in this morning's pre3S a ministerial statement that the terms of reference to the board are to be amended. I hope they will be made so comprehensive that this Parliament will know exactly whether or not the policy of constructing motor engines and chassis in Australia is economic, or such as to justify the drastic action being taken by the Government, by regulation, to exclude the engines and chassis of modern motor vehicles. I hope the Government will review and cancel its announced policy in regard to the local manufacture of motor engines and chassis if this is proved before the board to be utterly uneconomic.

In regard to the trade dispute with Japan, it should be remembered that last year Japan purchased, in round figures, £17,000,000 worth of products from Australia, whilst Australia purchased just under £6,000,000 worth of goods from Japan. From these figures the folly of initiating a trade war with so valuable a customer becomes apparent. As is usual the burden of the Government's economic folly and blundering is to fall in full on the primary industries, particularly on the wool-growers and wheat-farmers who, whilst carrying the cost of the Australian policy of high protection, have to sell in what used to be called the open markets of the world, but what are now closing markets. Now they have the additional mortification of seeing an unsympathetic Government deliberately closing to them the expanding market of our second-best customer, a market moreover very close to our shores. The Government should settle the trade dispute with Japan without delay. If, as we have been told in the press from day to day recently, there is only a narrow margin between the Government and the great and powerful country of Japan, and if, in order to reach a settlement it becomes necessary, as has been stated in the press, to permit a few extra tens of thousands of square yards of textiles to enter Australia, then I hope that such action will be taken without further delay or haggling. In this way we may close an act of political stupidity which has been most unjust to those engaged in two of our fundamental primary industries. If the great wool industry of Australia sustains loss in the future through the sacrifice of the Japanese and other markets by this Government, the Commonwealth should fully compensate the wool-growers and any other producers who similarly suffer. This request has already been made to the Government by a great many of the associations representing the graziers, pastoralists, and farmers of the Commonwealth, and I urge that it should be acceded to in full.

Senator JAMES McLACHLAN (SOUTH AUSTRALIA) - How is the value of the loss to be assessed?

Senator E B JOHNSTON - Difficulties of that kind can easily be overcome by a sympathetic government. I again question the wisdom of the trade contraction policy, but no fair-minded person can doubt the justice of its cost being borne, not merely by the producers in the wool, wheat, flour, and allied industries, but by the whole nation. In this connexion I remind the Senate of the words uttered by Mr. Menzies, the highly respected Attorney-General of the Commonwealth, on his return from his last trip to England. He said then that we could not expect England to provide an unlimited market, for our increasing volume of products, and. that it was necessary for us to retain and increase other markets. These are the exact words he used -

For two successive years I have been engaged in discussions which were primarily about the export of Australian products, and one thing I have learned is that the United Kingdom does not present an unlimited market for vis. Nothing would be more foolish than to believe that we can go on expanding that market year after year in accordance with our desires and capacity.

That statement justifies, if justification be needed, the wisdom of the policy adopted by successive Australian governments, until the 22nd May last, of endeavouring to expand, exploit and increase our markets in Japan, China, and what is generally spoken of as the Far East. In this connexion it must be remembered that about three years ago Mr. Bruce, the present High Commissioner for Australia in the United Kingdom, visited Australia and in addressing meetings in all the States, laid great emphasis on the policy of the British Government as then expounded by Mr. Walter Elliott, the Minister for Agriculture, to limit the quantities of wheat, meat, butter and other primary products exported to the British market. Mr. Bruce actually urged that Australia should restrict its production of those commodities possibly for two years, when it was hoped that prices would rise, and the world had realized the need for a greater freedom of trade. That suggestion was, quite properly, received adversely throughout Australia, and amongst those" who opposed the suggestion at that time was Mr. Cowper, a solicitor of Sydney, who is not a member of the Country party. In a series of widely published articles he mentioned Mr. Bruce's audacity in asking the Australian people to adopt a policy which Mr. Walter Elliott had expounded in the interests of the British people. Mr. Cowper declared that there was no justification for the belief, that Mr. Bruce had expressed, that within two years there would be a modification of the policy of economic nationalism in other countries. Mr. Cowper maintained that a policy of restriction was undesirable and dangerous, and should, therefore, be avoided. He concluded the series of articles with the two paragraphs which I propose to bring under the notice of the Senate, because they express the point of view so widely accepted by Australian governments and the Australian people. He said -

Even if we resign ourselves to the view that we have nothing but ever-narrowing restrictions to expect from British and European markets, we ought not to abandon hope of finding other outlets. If we turn to the East, we see markets of marvellous potentialities. The significant, the all-important facts (I said) are the immense growth of industrialism in Japan, and the commencement and rapid progress of it in China. It is true that the small Japanese farmer, winning enough for the subsistence of himself and his family from half an acre of ground, is not, and never will lie, a purchaser of our meat, wheat, butter or eggs; but the factory worker and the city dweller have higher standards and expanding needs. . . .

Australia, where wheat can be produced at less cost than anywhere else in the world, and where other primary commodities can also be produced cheaply, has a remarkable opportunity in these Eastern markets if she cares to cherish it. If she can keep her right to trade freely with the East, while retaining as much as possible of her trade with the United Kingdom and the rest of Europe, her wealth and standards of living are certain to rise. Higher standards here will in turn attract immigrants from the old world, and thereby add to our strength and resources; and we may to some extent imitate in this century the extraordinary growth of the United States in the last. This is our destiny. Shall we grasp it, or weakly let it slip?

These are the lines upon which the governments of Australia were operating in endeavouring to retain our markets in Great Britain, while extending them in Japan and China, until the calamitous blunder was made on the 22nd May last. At any rate, time has proved that Mr. Bruce was wrong. We have not only increased our exports to the United Kingdom during the last three years, 'but we have also adopted the suggestion incidentally made by Mr. Cowper, which came also from other quarters, and was regarded as a national policy, of endeavouring to increase our trade with Japan and throughout the Far East. In pursuance of that policy, the Government sent the then Attorney-General (Mr. Latham), a senior Minister in the Lyons Cabinet, to lead a goodwill mission to Japan and China. That mission certainly had a remarkable effect in directing the attention of the Chinese and Japanese people to our resources, in an endeavour to extend our trade and friendly relations with them. Some time after Mr. Latham's return, Australia not only received a goodwill mission from Japan, but also appointed trade commissioners in Japan and China. The object of these appointments was, undoubtedly, to extend our sales in those countries, and to encourage the sale of Japanese products in Australia. In these circumstances, many Australians expected an expansion of our export of primary products to eastern countries; they did not expect that there should be only one-way traffic. Having regard to these facts, and to our position in the Pacific in relation to both Japan and the United States of America - which has been described as our most powerful potential friend - we cannot understand why such a stupid blunder should have been made by the Government. I sincerely trust that the trade war will soon terminate on terms satisfactory to Australian primary producers.

I wish to deal now with the proposal of the Government to encourage the manufacture of motor engines and chassis in Australia, and in doing so I desire to answer some of the comments made by the Minister directing negotiations for trade treaties ('Sir Henry Gullett), who has been described as "the Minister for trade .wars ".

Senator Duncan-Hughes - He is not solely to blame; he cannot act without the authority of Cabinet.

Senator E B JOHNSTON - I realize that the Government is responsible. The remarks to which I am about to reply are reported in Hansard.. No. 27' of 1936, page 2209. When Sir Henry Gullett referred to the certain classes of. engines and chassis he must have meant those used in the Ford and Chevrolet cars. He said : " Such engines could be landed in Australia without duty for about £20." On engines made in Australia it is proposed to pay a bounty of £30. In order to rarer for Australian requirements it would be necessary to manufacture 50,000 engines of this type annually which at £20 each would cost £1,000,000, while the bounty alone would cost £1,500,000. Is that an economic proposition? I say that it is not.

Senator Duncan-Hughes - There are many others who agree with the honorable senator.

Senator E B JOHNSTON - There are very few persons in Australia who support the Government's contention that the production of motor cars in Australia is an economic proposition.

Senator JAMES McLACHLAN (SOUTH AUSTRALIA) - Apparently the honorable senator has not a very good opinion of the capabilities of the Australian workmen.

Senator E B JOHNSTON - I have, but the production of cars would be un economic owing to the relatively small number of users. The cost of manufacture combined with the loss of revenue would be tremendous. The Minister further stated " that the duty of £43 Ss. per ear could be saved if the chassis were built in Australia". That may be so, but the revenue would suffer to that extent. Moreover, those engaged in the motor trade in Australia are of the opinion that Australian-made chassis would cost more than £43 8s., which is the present duty landed cost. The Minister also said that the cost of motor car bodies would be reduced by £20 each if the chassis were built in Australia. Those engaged in the motor trade in Australia are of the opinion that the price of the 90 per cent, of bodies now built in Australia could not be reduced if the chassis were manufactured here, and on the other 10 per cent, no saving of cost would be effected. Present manufacturers would, no doubt, be forced off the market altogether under Sir Henry Gullett's scheme. The good bodies which are now being made here would be replaced by bodies and chassis of a cheaper type. The Minister, who expects an Australian chassis to cost £100 more than an imported chassis, has endeavoured to show that that £100 can be met without cost to any one. On the Minister's own figures, the cost of the imported chassis is about £50, but he says that an Australian chassis will cost £150. Is that an economic proposition ? Again I say, " No ". Those engaged in the motor trade disagree entirely with the Minister. Moreover, the Government should consider the difficulty of local manufacturers in keeping pace with overseas development in respect of new types of motor engines and chassis. Although Australian manufacturers may establish a plant to produce 50,000 chassis a year they would not have the financial resources to make the necessary alterations year after year in order to keep their plants right up to date. At present if British manufacturers export to Australia chassis which do not contain less than 50 per cent, of English labour and material, they are admitted practically free of duty. This means that an English company can include American engines and transmission in the English chassis and export it to Australia under the British preferential tariff without any restrictions. Australian manufacturers of chassis cannot compete against importations under such conditions. The British manufacturers can keep up to date by adopting the latest American innovations and also by utilizing the inventions of their experts. Australia cannot afford to do so because of the huge cost of equipping factories to meet only a limited demand. Australia will eventually be two or three years behind overseas manufacturers and costs will be two or three times greater than those of their American and British competitors. The Minister also stated that work would bc provided for 6,000 Australians. If each received on an average £200 per annum, the total amount of wages paid would be £1,200,000; that is quite a good addition to the wages bill of Australia. The bounty on 50,000 engines, however, would amount to £1,500,000. Why not pay the 6,000 new workers proposed to be employed their £200 each year to go fishing and save the country £300,000 on the deal?

In regard to the trade balance between the United States of America and Australia, it might be pointed out that the [British Empire buys more from the United States of America than that country buys from the British Empire, because England purchases huge quantities of American raw cotton. If the United States of America cut down its exports of raw cotton to England it. would be found to be a better customer of the Empire than . the Empire is of the United States of America. England buys American raw cotton because it pays to do so; in fact, the processing of the cotton provides employment for thousands of English workers. Another point to be considered is that Australia participates in Empire trade in a manner that does not appear in the statistics. The United States of America buys huge quantities of products from England, a portion of which undoubtedly originates in Australia. For instance, the imports statistics of the United States of America for 1928 show the following figures in relation to the imports of wool, other than carpet wool, in the United States of America during 1928:-


The year 1928 is taken because the figures for 1935 and 1936 are not yet available in Australia, and, in any case, the depression years would not give a true indication of the volume of the trade. This year's figures will undoubtedly exceed those of 1928 ; they have already reached £2,500,000, and are almost sure to go to £4,000,000. The figures relating to the "United Kingdom" and "Other sources " undoubtedly represent large quantities of Australian wool. This is particularly so in respect of wool manufactures, of which France is a large supplier. Goods represented in wool manufactures are of a class that is made up from high-grade Australian, wool. Another important fact emerges from the figures appearing in Hansard of the 1st October, 1936, at page 783, where the Minister for Trade and Customs (Mr. White) informed Mr. Francis that Australian exports to the United States of America in 1935-36 totalled £9,343,7S1, while the imports not influenced by the embargo were valued at £13,901,764. This showed a remarkable levelling-down of previous figures, and if we could add to the £9,343,781 the full value of Australian products that reach the United States of America indirectly, we would probably find the balance of trade to be, if not equal, at least much less adverse to Australia than is publicly recognized a! the present time. The Government's scheme is definitely aimed at placing the Australian motor car industry in the hands of two, or, at" the most three, companies. The Minister directing negotiations for trade treaties (Sir Henry Gullett) admits the necessity for an overseas organization behind the Australian manufacturers. How can that assistance be secured, and who will control the Australian industries? In this connexion, I have received the following telegram from Mr. Winterbottom, of Perth, who is one of the biggest distributors of both British and American cars in Western Australia : -

Gullett's 20 per cent, represents fully 60 per cent, factory costs complete motor vehicle built under mass production methods. This portion consisting of engine and vital chassis parts if manufactured Australia would increase cost of complete vehicle at least 40 per cent.; also efficiency and performance of vehicle would be reduced. Australian progress through considerably increased motor transport costs would be retarded and employment reduced through reduction in use motor vehicles due higher costs. Refer particulars my letter July, also West Australian newspaper article 23rd June. Government's proposal will have particularly serious effect on Western Australia's development, and would seriously affect many hundreds of mechanics and assemblers now employed Perth in completing this State's motor vehicle requirements.

The Government would be wise to heed the expert advice presented by Mr. Winterbottom in regard to this matter. At present the importers and distributors of cars manufactured in the United States of America and Canada have been promised a quota only until April, 1938. The Government consented to grant a quota for that period, only because the importers were unable to place their orders for bodies until they were sure that the chassis would be permitted to be imported. The motor distributors are threatened with ruin eighteen months hence if the Government refuses to allow the necessary chassis to be imported; they will be paid no compensation. If that comes about it will result in a great amount of unemployment, and will impose a considerable amount of hardship upon those who are at present employed in the well-paid Australian motor industry. It would appear that the Government already realizes that this policy is ill-advised, that the heavy duties on unassembled chassis, plus freight and exchange, and the bounty of £30 on the engine alone, are insufficient for a local manufacturer, and that imports must be by permit, as in the case of galvanized iron, in order to create a monopoly for a single chassis builder. When we add to that the high prices, by comparison, for frames, wheels, selfstarters, generators, radiators, clutches, gears, as well as royalties - because all important fitments are covered by world patents - plus the high cost of local engines, with probable loss of comparative efficiency, we begin to think furiously about the cost of an all-Australian car in a market of fewer than 7,000,000 people, the fact must also be remembered that there is a comparatively small replacement business in Australia and no export market. Fuel and taxes on motor transport are costly and further limit the sales of motor vehicles. The volume market is held by vehicles turned out by overseas factories producing millions of units, from which Australia draws its unassembled chassis, as the basis of an already enormous industry now threatened with destruction. It would appear, then, that the effort to produce a complete car with the aid of a bounty on engines can only result, firstly in a heavy loss of federal customs revenue, amounting on say 60,000 chassis to nearly £2,500,000; secondly, a heavy bounty payment and a tax on the public for nursing another uneconomic industry; thirdly, the destruction of the distributors' assembling plants and the placing out of employment of employees who are now engaged in handling upwards of a hundred makes and models, because a few types of chassis are incapable of meeting requirements; fourthly, a heavy reduction of the output of bodies, tyres and other parts, which are already being produced in Australia, because of the decreased volume of sales which would follow higher prices ; fifthly, in much higher prices being charged to the public for cars and, trucks; and lastly, general stagnation and loss of employment. Another consideration is that- by creating a monopoly to bring production costs of a local vehicle as low as possible Australians cannot hope to enjoy all the latest developments which are taking place in transport vehicles not exclusively produced by any single manufacturer overseas. The people are always seeking just the right chassis for their varying requirements. This is but another example of a government deliberately increasing the cost of production to rural and, primary industries which have to sell their export products in the open markets of the world. The proposal to manufacture motor engines in Australia is simply an attempt to establish another wholly uneconomic Australian industry at the expense of the Australian users of motor transport. Its only effect will be to deny to Australia the latest improvements of modern science in regard to motor transport, and unfairly to increase the cost of transport throughout this island continent of great distances. As is usual in federal policy, whilst Sydney and Melbourne will gain a few factories, disadvantage will be felt by all users of motor vehicles, and the burden of increased cost of transport will fall most heavily on the rural population. That would be another shocking example of centralization. I shall oppose the heavy tariff increases contained in this measure.

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