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Tuesday, 9 April 1957

Mr McEWEN (Murray) (Minister for Trade) . - I lay on the table the following paper: -

Trade Agreement signed at Canberra on 26th February, 1957. by the United Kingdom Government and the Australian Governmeni. and move -

That this House approves the trade agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of the Commonwealth ofAustralia signed at Canberra on 26th February.

This motion is for the approval of the House for the Government's acceptance of the new trade agreement with theUnited Kingdom Government to replace the Ottawa Trade Agreement made in 1932.

These last 25 years have been years of great significance in Australia's history. The economic structure of the country has undergone great changes. Our population has increased from 6,500,003 in 1932 to more t,ian 9,500,u00, nearly a 50 per cent, increase. The number of people in jobs has more than doubled. Great strides have been made towards a more fully developed economy. A striking indication of the progress in our manufacturing industry is the rise in steel production over the last 25 years from a monthly average of about 35.000 tons to almost 250.000 tons to-day.

Electric power consumption has increased more than five-fold since 1932. This impressive increase has taken place alongside a doubling of coal production in the same period. The evidence of industrial development is clear to all in the every-day indications of the production of such goods as motor vehicles, electric appliances and textiles. The production and refining of nonferrous metals has increased tremendously.

On the rural side, too, there has been a steady pattern of development. Without going into details of production, such as the 40 per cent, increase in the wool clip, I will mention only the seven-fold increase in the number of tractors from about 25,000 to about 190,000 and the three-fold increase in usage of fertilizer - to-day we use nearly 2,000,000 tons a year.

These great developments have created a demand for plant, equipment and raw materials, much of which cannot be procured locally. To-day, manufacturing industry is the country's principal customer for imports. Primary industry also has substantial import needs. Then there are the normal demands created by the sole fact of increased population.

From these developments we have a tremendous appetite for imports. These same developments provide us with our export capacity, but we find .ourselves with a balance of payments problem which is clearly more than a passing phase. In a total picture which includes a forceful programme of development and a vitally significant immigration programme, the Government has geared its policies, and actions to meet the trade consequences of these circumstances.

So you have the Department of Trade appearing and a lively programme on the part of the Government for the stimulation of exports. But the whole community had been very conscious of the cost situation. The need to increase exports underlined this cost problem, just as it underlined the importance of Government activity in setting the international framework within which our export trade must be conducted and our import needs supplied. Hence, in developing its constructive approach to the problem of increasing exports, the Government has planned a systematic and comprehensive review of Australia's trade relationships with other countries. In this programme, trade with the United Kingdom, which is our greatest trading partner, naturally came under early review. It was clear that a review of the 1932 trade agreement between Australia and the United Kingdom - known in this country as the Ottawa Agreement - was fundamental to any wider review of Australia's international trade relationships. It is my purpose now to explain what we sought in a replacing agreement with the United Kingdom, and what we secured.

This new agreement was signed in Canberra on 26th February last. As I shall explain, it preserves security in the United Kingdom market for a number of our important primary industries. It secures a significant new arrangement for wheat exports. It offers scope for Australian manufacturers to obtain many of their imported requirements more cheaply. It gives the Commonwealth Government new room to secure new export trade benefits in foreign countries by trade negotiations. Nothing in the agreement encroaches on the established policy of tariff protection for efficient Australian producers. The new agreement represents a positive contribution to our balance of payments position as well as to our cost situation.

The Ottawa Agreement was one of the dramatic incidents of the world depression in which the British Empire closed its ranks to protect its share of a diminishing world trade. That agreement was written to meet the conditions at that time. It brought about the system of reciprocal preferences between Australia and the United Kingdom which has continued since. However, over the quarter-century that had elapsed since the Ottawa Agreement was drawn up, the

Changes I have already, referred to had caused a major, shift in the balance of the agreement and in our trade relationships with the United Kingdom. Lel me illustrate this by reference to preferences and the wheat position. On preferences, under the Ottawa Agreement. Australia was committed to an automatic preference formula which gave tariff preferences to United Kingdom goods over almost the whole range of the Australian tari IT. On the other hand, Australian wheat and wool - the bulk of our exports to the United Kingdom - received no preference. In fact. Australia gave preferences on 80 per cent, of imports from the United Kingdom, but received preference on only about 40 per cent, of Australia's exports to the United Kingdom.

There is another point about the preferences. Many of the preferences guaranteed to us in the United Kingdom market were expressed in pre-war money values. However, the preferences Australia gave were, for the greater part, expressed in percentage terms. The steep increases in world price levels since 1932 have operated to deprive preferences expressed in pre-war money values of much of their effectiveness. For example, in 1932 the margin of 15s. a cwt. on butter was equivalent to about 15 per cent, ad valorem, but at 1956 prices the same margin was equivalent to about 4i per cent. In 1932 the preference on eggs was equivalent to 12 per cent, ad valorem but at prices for 1956 season eggs, the margin had also fallen to 4} per cent. Thus many of the preferences we received lost much of their value, whilst the greater part of the preferences we gave retained their usefulness. lt has been calculated that the average level of preference Australia has granted to United Kingdom goods in recent years was 14 per cent, by value. Australian goods have received preference in the United Kingdom equivalent to about 9 per cent by value. Again the preferences we held in the United Kingdom market were shared with several other competing countries, for instance. New Zealand and other Commonwealth countries, whereas in' Australia the preferences we gave the United Kingdom were practically reserved to the United Kingdom alone. So, on preferences, we were giving much more than we were getting.

My second illustration of the major shift in our trade position is wheat. In pre-war years, Australia shipped an average of 52.000.000 bushels of wheat and flour to the United Kingdom. Over the last five years the average shipments have been only 23,000,000 bushels, and in 1954 were as low as 13.000.000 bushels. This post-war position has been attributed to a 50 per cent, increase in the United Kingdom's domestic production of wheat, as well as heavy importations in recent years of subsidized wheat from other countries.

The trade figures also show the changes since pre-war. In the five years ended June, 1939, Australia enjoyed an average annual trade surplus with the United Kingdom of £24.000.000. In the five years ended June, 1956, we incurred an average annual deficit of £67.000.000. The actual volume of imports from the United Kingdom has almost doubled, whilst the volume of our exports has actually declined to a quite measurable extent. The significance of this, after a period of great Australian population increase, is serious and of important consequence.

Thus the balance of the Ottawa Agreement had changed and our whole trade situation with the United Kingdom had changed. But, of course, in opening up the revision of the Ottawa Agreement it was not our objective to seek to redress an unbalanced position for the mere sake of achieving a balance. We wanted a new. agreement which met our economic circumstances and our policy requirements under to-day's conditions.

So our first objective was to preserve the great principle of mutual preferences established and confirmed at Ottawa. This principle has been expressly reaffirmed in the new agreement in Article I. In particular we wanted to retain the protection for our exports which the existing preferences and rights of duty free entry gave us in the United Kingdom market. We had tried in 1952 al the Commonwealth Prime Ministers' conference to get support there for a restoration of the value of those preferences which were expressed in the prewar money terms. I only have to say that we gained little support.

At the Review Conference of the General Agreement on Tariffs and Trade in 1954 we tried to get the rules loosened in a manner that would have enabled the United

Kingdom to restore the value of the earlier preferences to us. There we failed. Clearly, in the General Agreement on Tariffs and Trade we were inviting our foreign competitors in the United Kingdom markets to vote for a situation that would have advantaged us against them. So, as I say, we failed, lt was against this background that we approached these new negotiations in 1956, therefore with a knowledge that it was futile to ask the United Kingdom to increase our preferences. Our object was to hold what we had in preferences and to improve our trade position by other means, particularly in respect of wheat.

Our second objective was to narrow the obligatory preferences on British imported items significant to our Australian cost structure.

Our third objective was to gain some tariff flexibility in trade bargaining with other countries. The General Agreement on Tariffs and Trade prevented any thought by us of proposing widening of British preferences as a bargaining factor to be used in trade negotiations, while, on the other hand, the Ottawa Agreement prevented us from narrowing these preferences. We badly wanted room to manoeuvre in the tariff field in trade negotiations so we set out to get some freedom in the new agreement to lower the Australian tariff rates on foreign goods where these tariffs were higher than needed for the protection of our home industries.

The 1932 agreement failed to give Australia clear rights of decision on allowing foreign goods to enter free under by-law in cases where satisfactory equivalent goods were not available from Britain. We set out to correct this position also. As I said, the old Ottawa Agreement was confined to tariffs. We wanted the new agreement to cover our total trade relationship with the United Kingdom and to provide remedies for such matters as imports of subsidized products from other countries, restrictive business practices, the disposal of surplus shipping and so on. All these other problems, as well as the question of preferences and the question of our diminished trade in wheat, we sought to bring within a single new agreement replacing the Ottawa agreement.

Our Government, having cleared its mind on its objectives, the Prime Minister and I opened negotiations in London with the United Kingdom Prime Minister and other British Ministers early, in July, last year. lt soon became clear that the United Kingdom authorities were not prepared for such a comprehensive review of the Ottawa agreement as we were pressing for. The issues involved were important and they were certainly complex. There was no easy meeting of views between the two governments. However, when the talks were adjourned late in July, the principles of a new agreement along the lines of our thinking could be discerned.

The next step was a resumption of the talks in October to carry forward the development of the main points. After many meetings, marked at times by pretty frank exchanges, the heads of a new trade agreement were hammered out and these were signed in London on 9th November. The final step was the drawing up, in Canberra, of the detailed text of the agreement. This was completed in February last and is now before; the House. The negotiations were not simple. Before progress could be made, it had to be strongly emphasized to United Kingdom Ministers that we were determined to secure a thoroughly new basis for our trade relations with the United Kingdom, and a new coverage in the replacing agreement that we sought.

I have stated what our objectives were in these negotiations. In the agreement, our export trade to the United Kingdom has been protected in four positive ways. In the first place, we retain for Australian exports to the United Kingdom the same rights of duty-free entry as were provided under the Ottawa Agreement. This applies to nearly all our exports to the United Kingdom. Secondly, all of the tariff preferences that were guaranteed to us under the old agreement have been re-guaranteed in the new one. To the extent that these preferences are expressed in terms of specific money values such as with butler, eggs, milk products and some fruits, we have had to accept that they could not. be restored to their former degree of value of 1932. As explained. United Kingdom membership of the General Agreement on Tariffs and Trade effectively obstructed this. A number of other important exports, including cheese, canned fruit and canned meat, enjoy preferences expressed in terms that are not affected in. this way. They are ad valorem terms. The retention of all the preferences, however, is of definite value in a world of sharpening trade competition.

In addition to the renewal of commitments on these preferences, we were also able to secure from the United Kingdom guaranteed preferences that were previously non-contractual on currants, egg powder and egg pulp, jam, rice, tomato juice, pineapple juice, and in the interests of producers in Papua and New Guinea, coconut oil. Thirdly, the new trade agreement in no way touches Australia's rights under the Fifteenyear Meat Agreement. All rights negotiated at Ottawa in respect of meat are retained.

The fourth step in protecting our export trade is the wheat arrangement. In the prewar years, the United Kingdom bought more than 1,000,000 tons of wheat a year from us. In the last three years, that has fallen to an average of 550,000 tons. The explanation of this diminished buying is, first, a great expansion of local production in Britain resulting from price support policies, and, secondly, the acute competition in recent years which Australian f.a.q. wheat has suffered from wheat exports subsidized by foreign governments and offered in the United Kingdom markets. We sought to meet this situation on a principle. We proposed that protection of each other's trade against the competition of governmentsubsidized exports of other countries should be a mutual obligation under the agreement. This was not acceptable to the United Kingdom, but on this point it is provided in the agreement that each country shall have legislation capable of being invoked to protect the other's trade against dumping or export subsidies by third countries. Legislation is to be available, but I make it clear that there is no contractual obligation to invoke and employ it.

In this way, we have secured recognition tn the trade agreement of a principle of great importance to Australian export trade. On the immediate trade problem, the important agreement on wheat that was secured assures a market in the United Kingdom over the next five years of at least 750,000 tons f.a.q. wheat or flour equivalent annually. Any high protein wheat which we might sell to the United Kingdom, and for which there is a ready ^market, would not be counted against the 750.000 tons obligation. The Australian Wheat Board was consulted throughout. A grower member of the board and an officer of the board were present in London during the negotiations. Assurance of an annual market of 28,000,000 bushels of f.a.q. wheat - that is the equivalent of the tonnage that I mentioned - represents a very important further under-pinning of the Australian wheat industry. It avoids the disadvantages which Australia has suffered on occasions through fixed-price long-term wheat sales. 1 am sure that the Australian Wheat Board regards this provision as a quite valuable achievement. The value of this arrangement is to be judged against the recollection that in 1954 the United Kingdom bought only 13,000,000 bushels of our wheat. 1 have been striving since then to achieve an assured basis of adequate sale of Australian wheat to the United Kingdom.

On the import side, the new minimum margins of preference which it was agreed to give to United Kingdom goods are set forth in Article 7 of the agreement. Briefly, producer goods are subject to a minimum preference of 7i per cent. " Producer goods " in this context means plant and machinery, and raw materials and goods for further processing in Australia. The tariff items for these goods are listed in schedule B of the agreement. We have also undertaken to accord minimum preferences of Ti per cent, where the British preferential duty is free or does not exceed 10 per cent., and to give a preference of 10 per cent, where the British preferential duty is more than 10 per cent. The comparison will be seen when I mention that, in general, the Ottawa Agreement provided for minimum preferences of 12± per cent - that will now be reduced, as I have said, to 7± per cent. - and 15 per cent, or 17± per cent., according to the level of the British preferential duty. There were, however, goods on which the Ottawa Agreement required us to maintain preferences in favour of the United Kingdom of 20 per cent, and 25 per cent.. or, in a few cases, even greater. The new agreement, as I have said, calls for a maximum level of protection of 10 per cent.

In the new minimum margins of preference of 7i per cent, and 10 per cent.. the Government has therefore secured under the new agreement a very considerable degree of freedom to move in the customs tariff that it sought, lt will now be possible to effect an important easing of the cost load of Australian industry in respect of imported goods. Australian costs will not, of course, be reduced solely as the direct result of reductions of import duties against foreign goods. We can also expect significant savings from the sharpening of competition between United Kingdom and foreign manufacturers in their quotations as preferences are narrowed towards the new minimum levels of preference. The Government will also have a very valuable field of possible tariff reductions for the purpose of bargaining concessions with other countries to secure new openings for our exports in their markets. Tariff changes towards the level of the new preference obligations are expected to take place over a period of time. The freedom to reduce duties on goods from foreign countries was sought for the two purposes already stated - for cost reductions and for trade negotiations. These motives will govern the reductions in existing tariffs against foreign goods, which will not be made in any wholesale or, certainly, in any ill-considered way. It is expected that during this session tariff proposals related to the cost reduction objective will be introduced to reduce the duties against foreign goods of a kind not produced in Australia. Among these items will be included some by-law items of the tariff and a number of other items where the British preferential tariff is free.

In the field of trade treaty negotiations, we shall be turning to possible reductions of the rate of duty against foreign goods. Many of these rates are at levels that have no relation to our protective requirements. The British preferential rate is in fact the protective column for the overwhelming majority of Australian industries. Where protection of Australian industry is an issue, the Government regards the Tariff Board as the established instrument. The provisions of the Ottawa Agreement concerning the fixing of protective duties following inquiry and report by the Tariff Board have been retained in the new agreement.

I have already referred to the by-law question involving the suspension of a preference on the ground that the goods concerned are not commercially available from United Kingdom production. The United Kingdom Government will continue to bs consumed before any particular margin of preference is suspended under the relevant by-law item, but there is clear recognition under the new agreement that it is thi Australian Minister concerned who decide? the issue. Undue delay will be eliminated

There is another group of subjects which, because of their nature, do not readily lend themselves to explicit or contractual arrangements. These questions, however, have an importance in our total trading relationship with the United Kingdom. The use of anti-dumping or countervailing duties to protect each other's trade is one of these questions which I have already spoken about. The United Kingdom's own agricultural policies, which have such an effect on the United Kingdom market for wheat, meat, and- other products, and. to-day, for eggs, are another. There are also questions of shipping. Questions relating to United Kingdom imports of American primary products under aid or concessional programmes, and to aspects of restrictive business practices are also in thu list of these items. The new agreement provides for consultation between the twu governments on these matters at the request of either.

The negotiations were long, difficult, and complex. That is where the new agreement is much wider than the old Ottawa Agreement. Indeed, without a high degree o! technical skill and administrative experience, successful negotiation of such a treaty would be impossible, or perhaps dangerous, to attempt. I mention this to pay a proper tribute to the officers of the Government who worked on the negotiations. The officials in the delegation, and those involved in the preparatory work in Australia and in advising the Cabinet during the absence of the delegation, were officers of the Department of Trade, the Department of Customs and Excise, the Department of Primary Industry, and of other departments. The bulk of the work and responsibility, of course, fell upon Mr.' J. G. Crawford, the leader of the officials and secretary of the Department of Trade. In this work, Mr. Crawford added to th« reputation that he has already established for himself in international negotiations, and the Government, and all the parties who will benefit from this new trade treaty, are indebted to him for his invaluable contribution. For myself, I cannot speak too highly of the value of his work and of his devotion to the Australian cause. Speaking of officials, 'I should like to pay tribute to the ability and fairness of Sir Frank Lee, who was the leader of the British officials, and who is secretary of the United Kingdom Board of Trade.

I am indebted to my colleague the Minister for Primary Industry (Mr. McMahon), who was Acting Minister for Trade during my absence and also to Dr. Westerman, who was acting Secretary lo the Department of Trade in Australia during that period.

The agreement is for a five-year term, Subject after that period to termination at six- months' notice. The operation of the agreement may be reviewed from time to time and there is definite provision for the whole agreement to bc the subject of negotiation during the fifth year.

To sum up, the principle of reciprocal preference is maintained. All contractual preferences for our exports are renewed and some preferences are now, for the first time, made contractual. Duty free entry rights are preserved for our exports. On wheat a . new situation of definite value is created. There" is new scope through tariff action to lower the Australian cost structure. There' is new bargaining room in trade negotiations with foreign countries. Delays and other irritations in the operation of by-law procedures have been removed. The position of the Tariff Board is maintained. In respect of a number of problems that have arisen in recent years in our trade relations with the United Kingdom wo now have provision for consultation.

This agreement restores balance in reciprocal preference. To maintain the tempo of our national development there must be a stable economic base. This new treaty with our greatest trading partner is a solid contribution to stability in our international trading.

Debate (on motion by Mr. Pollard) adjourned.

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