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Thursday, 11 June 1970

Mr KELLY (Wakefield) - lt is a long time since I have taken part in a tariff debate of this nature. As the honourable member for Lalor (Dr J. F. Cairns) suggested. I come back to this subject with some excitement. I always enjoyed these tariff debates and I intend to enjoy this one. One of the reasons I will enjoy it is because of the change in the form of the debate. 1 pay a very great tribute to the Minister for Customs and Excise (Mr Chipp) and his departmental officers for amending the system and for making it much more understandable for those of us engaged in this exercise. I also pay tribute to the parliamentary officers. For many years tariff has been a very difficult subject. No-one knew quite what they were doing - at least I did not - but it is now much clearer and easier for us.

Dr J F Cairns (LALOR, VICTORIA) - Hear, hear!

Mr KELLY - I am going to handle this debate in a different manner to that adopted by the honourable member for Lalor. The fundamental difference is that 1 am going to deal with the general principles on which the proposals are based. In the Committee stage, particularly when the Thirteenth Schedule is before us, I shall bc happy to engaged in defence of the Government and the Minister and. prominently, a defence of the Tariff Board for the quality of the report on man made fibre. 1 think that report is one of the finest pieces of economic analysis 1 have ever read. However I will let that wait until the Committee stage is reached. 1 want to deal with some of the changes I have seen in respect of tariff in the last 9 or 10 years. I think, Mr Deputy Speaker, you would remember with some pain the way these debates were conducted in this House. There was almost no interest on the part of honourable members. I remember dealing with 16 or 17 separate proposals and I guarantee that I emptied the House as no-one else ever did. However, those proposals had to be debated. At that stage the principles behind what was happening had to be spelt out. lt was not a pleasant or easy process but it had to be done. However now there has been a very great change. I want to pay tribute to the honourable members for Corangamite (Mr Street) and Moore (Mr Maisey) for the careful way in which they have taken up the important duly of analysing Tariff Board reports during what might be called my sabbatical leave. In the Senate, Senator Bull and Senator Sim have done equally well. There has been a change of interest on the Government side. Honourable members now realise that something important to our economy has been going on for years. I do not know whether there has been a change in the thinking of honourable members of the Labor Party opposite. 1 have never been quite certain what the honourable member for Lalor, who leads for the Opposition on tariff matters, really thinks. He used always to support me but then I understand he got the message from Caucus stating that that was not the way to behave and that he must toe the high protectionist line. Then he changed. Almost everybody has changed in this field of protection. Almost everything has changed. The field has changed. But no-one has changed more frequently than the Labor spokesman on tariff. The former member for Lalor. Mr Reg Pollard, used to lead for the Opposition on tariff matters. I was never quite certain whether he knew the fundamental details of tariff but one thing we did know was that Reg Pollard said what he thought. The present honourable member for Lalor has the advantage over me in this regard. I am never quite certain whether he is saying what he thinks or what he has been told to think. I am certain there is going to be a very great change in the Labor policy. There must be. There is too much intelligence coming into the Opposition side as a result of the last intake to continue with the old outworn theories, if one could call them that, or practices. There must be a change as there has been a change in the thinking of honourable members on the Government side.

That change, however, is only a reflection of the change that has happened outside. The change outside really started or became vocal when the Report of the Committee on Economic Inquiry, the Vernon Committee, was released. I will never forget the sense of excitement of getting the Report, analysing chapters number 13 and 14 and discovering that at last we had clear advice that as we became more industrialised our tariff had to become firmer based; that we had to have a more exact or more sensible use of our resources; that someone has pointed out that we had a greater percentage of our work force engaged in secondary industry than in the United States of America. Because of these things, because of the development and because we were becoming more industrialised we had to have a more responsible attitude to tariff making.

The Vernon Committee urged the Tariff Board to use the bench mark technique not as an exact measurement but as a measurement of whether high tariff industries should be looked at with more care. The Vernon Committee Report, having broken the ice, having made the subject almost popular - the point of view I had been propounding for some time had been generally accepted by the Committee - then everybody else, the academics, Sir Leslie Melville, the

Chairmanof the Reserve Bank of Australia, Sir John Crawford in particular, even the Secretary of the Department of Trade and Industry, Sir Alan Westerman, came out with a first class statement on how there had to be a more careful examination of tariffs, saying that industries had to expect to export and that if they expected to export they had to be conscious of rising costs.

Then came 2 annual reports from the Tariff Board that set out quite clearly for all of us who were interested in the subject that there had to be a different way of looking at tariffs and that we had to be more exact in our measurements and understanding of tariffs. Mr Rattigan, the Chairman of the Tariff Board, followed this with an exact analysis of the task of the Board and how it intended to tender its advice to the Minister. People say: These are theorists and academics. What about the real world?' We found, as I knew we would find, that those who had to use highly protected raw materials in their industry were adversely affected by a high tariff policy. When I used to go to address meetings, it was this group, even more than the export industry groups, which would come to me and say: 'Why did someone not tell us about this before? We did not know that a high tariff on our raw materials would make our position as manufacturers more difficult'. More importantly, the manufacturers who hope to export, or who have to export, began to understand, as we exporters had always known, how important excess costs were.

During the 1940s and the 1950s it was Mr Chislett of the United Graziers Association and Mr Jilek from the Australian Wheatgrowers Federation who shouldered the burden of giving advice on how high tariffs on their products were affecting the export industries. They did what they could. The financial position of the rural industries has never been handsome and perhaps they have never been able to buy the kind of advice that the big manufacturing groups could buy. But these people kept the flame alive. The mining industry gradually realised that it lived by exports and that it would have to carry excess costs if a high duty were imposed on conveyor belting. It realised that if the general cost structure within the whole economy got out of kilter with that in the countries to which it exported it would have to pay the price of excess costs caused by high tariffs. Consequently it became a vocal and powerful pressure group.

One of the most exciting stories in our development is the story of how manufacturing industry is gradually, and indeed now rapidly, increasing. The industries which hope to export and which can export became acutely aware that the price of protection could be too high because of the excess costs it would have to bear. So we have this remarkable change of emphasis. The old free trade dogma has gone. As I have explained to the House on many occasions, I am not a free trader and never have been but I am interested, as I have always been, in trying to keep the costs of protection at a reasonable level. An exercise that in the past years was a lonely one - new members in the House will never know quite how lonely it was - has now become almost respectable. In fact we find now only a few diehards, if 1 might call them that, speaking for the other side. Even the Associated Chambers of Manufactures of Australia, that high tariff lobby, now realises that manufacturers have to expand into the export market if they are to be a viable group and, indeed, if the Australian economy is to be viable.

Then, almost at the end of the line, the Australian Industries Development Association started to think. This was an experience that had been foreign to it for some time. I remember making a speech on 14th August 1963 about a statement prepared by AIDA, and representatives of that Association did not appear above the surface for some time after. Since then, as one would expect with a man like Bill Callaghan as the executive officer, it is beginning to face up to its problems and to realise that protection can be too high in some industries and that it must be based on principle. It is true that its thinking may be a little puzzled at the moment and that it may be sometimes asking the Government what AIDA ought to think. I think that the last bastion of responsible - I say this because it has always been recognised as responsible - high tariff lobbyists has almost fallen leaving only, I suppose, the textile council. I think that the textile council will also split in two because it is subject to very great pressures the other way. 1 have traced the gradual changes that have taken place and that had to take place as we became more developed and as we realised that we were a country with limited resources and that it was proper to try to guide these resources in the most economic way. I resent very much the criticism that the honourable member for Lalor made of the Tariff Board. 1 shall defend it during the discussion on the Tariff Board Report relating to man made fibres. I say that the chief credit for the change in thinking on tariffs goes, firstly, to the Vernon Committee, and secondly, to the Tariff Board for pointing out with courage and independence of mind the way we had to go and the way that all thinking people know we have to go. Not only academics, not only those who in Parliament represent rural industries, but also those thinking people in industry now know that high tariff protection, if not carefully measured out, is a handicap and not a help to the industrial development of. a country.

But still there are things that have not changed. I inject these things into the debate as a kind of warning to people that I am still about. One of the basic things that worries me is that people say: 'What do exports matter? What does protection matter?' Let me give a simple example We export from Australia a lot of goods. We export 50,000 tons of cartons wrapped around our exports. Those cartons carry a duty of between $50 and $60 a ton. This is costing the export industries, because they cannot obtain drawback on them, $ annually. I know that there are reasons for the inability for us to obtain drawback. Goods such as cartons are imported. If th»y are re-exported we should be able to obtain drawback. So the exporters would pay the penalty for high duties. In 1963 I spelt oat the arrangements that seemed to affect this situation. I am not quite certain whether they are still the same. I shall find that out. The fact remains that there is an excess cost which the exporters pay for the 50,000 tons of cartons. I want people to know that we must still take a lively interest in these excess costs.

One other fact that ought to be spelt out is that one of the fundamental problems of protection is that by over protecting an industry we get a proliferation of plants. That can be found to an acute degree in the Australian chemical industry to which

I wilt refer later. Honourable members and the General public should realise that in Australia with a population of about 121 million people we have 4 manufacturers of motor cars - we used to have 5 but Volkswagen fell by the wayside - and we have 4 or 5 assemblers. In Australia there is a 45% duty on cars. America which has a population of 200 mil'lion people has 5 manufacturers of cars and no assemblers. In that country the duty on cars is 4.5% and this will come down shortly to 3%. In this country we have one-sixteenth of America's population and just about twice as many manufacturers or assemblers of motor cars. This is what unwise protection is all about. It creates a proliferation of plants and makes it difficult for industries to be competitive. The car industries demand protection by way of a 45% duty. Those of us connected with rural industry know how heavily this falls on us every time we have to buy a motor car or a utility.

Although changes have taken place, even more changes are necessary. One thing that worries me is the attitude of the Department of Customs and Excise. Whether my concern is justified, I do not yet know. I have a tremendous amount of respect for and trust in the Minister. I know that he thinks he is doing the right thing. In the Senate on 16th April 1969 Senator Murphy asked the previous Minister for Customs the following question:

Why has your Department without the recommendation of the Tariff Board adopted a new hard-line approach to by-law policy which will compel Australian manufacturers to inflate costs by adopting a local content similar to that which disrupted the vehicle industry?

Senator Scott,the then Minister for Customs and Excise, replied:

The Department of Customs, of which I am the Minister, is anxious to establish industries in Australia.

Mr Chipp - I thought that the honourable member received an answer from me last week.

Mr KELLY - I am sorry. I know what the Minister thinks. Whether that applies in the Department. I just do not know. There is tremendous anxiety throughout the community about the way that the by-law system is operating. I am not going to say that it is operating badly. I do say, however, that there is considerable uncertainty and anxiety about the matter. As the Minister would know, a committee has been working on this and it hopes to make specific recommendations later. Knowing the Minister as J do, I know that those recommendations will be listened to. I understand that 70% of by-law uncertainty comes into the chapter 84 area. The Tariff Board has twice asked the Minister for Trade and Industry for a reference on this problem, lt has npt been examined for many years. The substantive duties are very high. If this area was examined, even if the duties were not lowered, although it is difficult to imagine that they will stay as high as they are, I am certain that the Tariff Board would give clear guidance as to what should be the bylaw policy. There is concern in the country that by-law policy and the Government's protective policy might not necessarily go hand in hand. 1 repeat that I am not being critical of the Minister, nor yet of his Department. I am voicing the well known concern about what is called the new hard line policy. I am not yet being critical and I will not be critical until I get the facts and figures. The concern I have mentioned ought to be set at rest. One of the ways to do that would be to have some kind of appeal procedure so that appeals could be reported to Parliament, and honourable members and the public would know what principles were guiding the by-law administration. Even more importantly they would know how those principles were being put into practice. The real concern of the public lies in the fact that not enough information is made public. I do not say there is undercover work; I do not pretend that there is anything improper about it. I say to the Minister that there would be greater benefits if this uneasiness could be put at rest.

When we come to the Committee stages I shall deal with 5 particular matters. My main reason for rising tonight was to trace the difference in the way the subject has been looked at and the way it should be looked at. I congratulate the Government particularly on the man made fibres case. I congratulate the Tariff Board for the courage that it has shown. I congratulate, if I may, the Vernon Committee for the quality of its 2 tariff chapters. I express the hope and the expectation that we as a Parliament will realise that as the country becomes more industrialised so will our need for a careful measure of tariff protection be even more important than it is now.

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