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Tuesday, 7 December 1971
Page: 4217


Dr J F Cairns (LALOR, VICTORIA) This Bill seeks to make some minor changes in the way in which the Tariff Board will be doing its work. I make no apology to the House for taking up some of its time at such a late hour, particularly as 1 have taken only 70 minutes of its time in the last 5 weeks, because this is a very serious matter and the amendments to the way in which the Tariff Board is functioning should be very much more considerable than this Bill proposes. Indeed we should before the end of this session examine the whole work of tariff making. I sought to ask a question of the Minister for Trade and Industry (Mr Anthony) at question time the other day which would have focussed this point. I intend this evening to go in for a fairly thorough review of the question and to submit the general outlines of policy of the Opposition. I expect that the Minister will, if not tonight, at a very early opportunity make a reply on behalf of the Government to my comment.

Tariff making in Australia did not begin with the formation of the Tariff Board. Australia had become protectionist by 1908, although Victoria had been so long before and the principles of tariff making for Australia had been in fact laid down in the Interstate Commerce Act of 1914. These were protectionist principles and left no doubt that Australian industry would come first and positive action would be taken for its development. It was not until the famous Scullin tariff of 1930 that any opposing tendencies emerged. Protection by tariffs was then to be given only to industries in Australia up to the point that would allow producers in the United Kingdom ample opportunity to export to Australia. The 1932 principles did not put Australian industry first. They were set out in the interests of industry in the United Kingdom. That is what one would have expected from the times. Australia was in pawn to the United Kingdom and went cap in hand to the British bankers, and the Australian business establishment was ready to do whatever it was told. Although the Scullin tariff is often believed to be the foundation of Australian secondary industry it was only so because the Government acted independently of many of LF.ese pressures and kept the tariffs up. But in the main Australia's recovery from the depression and development of secondary industry, at quite a slow and unimpressive rate in the 1930s, was not a government induced one. and it did not anticipate Keynes in any way. It was purely free enterprise, influenced by conservative minds in business and the universities. The Tariff Board did not have much to do with what happened. Furthermore, in later years there can be no doubt that World War II import controls had far more influence on industrial development in Australia than anything that happened in the 1930s or anything that tariffs had done. The Tariff Board was an amateur body, if anything, with a free trade bent, and it was only the need of secondary industry for protection that maintained effective tariffs at all.

The influence of import licensing went on through the post-war years and these controls, and not the tariff, determined the level of imports as well as much of their composition. The removal of import licensing in 1960 led to a flood of imports and an economic crisis which almost dislodged the Government. Now the Government was forced to do something about what it was that would replace import controls. The answer was to ask a committee of experts to deal with the problems, the Committee of Economic Enquiry, the Vernon Committee. Tariff policy, of course, was included in the Committee's area of enquiry. Despite the secondary role of the Tariff Board during all these years we can say that throughout this time industry and the trade unions were left in no doubt that any industry that was efficient, even if not economic, on Australian standards could expect effective tariff protection. But the report of the Vernon Committee was to be the first factor leading towards a change. Whilst the Committee warned that it had not made an exhaustive examination of tariff matters there could be no doubt that the substance of its message was that tariffs were too high and complicated. There are many statements in the Committee's report, which I will not detail, to show that this was the case.

The Committee went much further in some other directions. It considered that a request about price policy would not be unreasonable when high protection is given. There was a warning for care about industries usually marked by rapid technological advance for which the market may not be large enough. The Committee thought that there was scope in the case of high protection for price undertakings for a 3 or 5 year period, to allow large undertakings of this kind to become consolidated. In its summing up the Committee must have disappointed the free traders a little. The tariff, it said, had played an important part in creating the climate for investment in economic and efficient industries. Whilst it cannot be demonstrated that both total income and incomes per head were higher than they might have been under some alternative system, however, under some alternative system some substitute for the tariff would have been necessary to ensure an industrial structure which, although different in pattern, would have sustained the population increase that occurred and provided both full employment and external economic balance. The Committee then turned away from the concept of a uniform tariff and stressed that the Tariff Board needed a statement from the Government of national objectives and a clear acceptance of the Board as an independent adviser. The Board itself should examine many more industries and should look more closely for evidence; references should require it to examine entire industries and feel free to recommend structural adjustments to be undertaken when an industry has ceased to be, or shows no promise of becoming, economic and efficient.

But in September 1965, the then Prime Minister, Sir Robert Menzies, gave the Vernon Committee's report a very cool reception. Among other things Sir Robert Menzies said the Government had the firmest intention of preserving the full independence of the Tariff Board but he stressed that the Board was an advisory body and that tariff policy as such was the responsibility of the Government, that only Parliament can enact tariffs and that only the Government proposes tariff legislation to Parliament. It was at this point that the Tariff Board began to show its hand and it first looked like a strong hand.

The Annual Report of the Tariff Board for1966-67 showed a Board that was preparing for a change towards lower tariffs. The Board reported that there'has never been an examination ofthe Tariff as a whole ... as a result large sections of the Tariff which may involve substantial over-protection have not been examined for many years.' The Board now proposed a 'progressive and systematic review of the Tariff consisting of an internal examination by the Board of the structure and levels of protection in the Tariff, together with public inquiries into the main areas of production where there has been no recent public inquiry and where the levels of protection are in the medium to high range.' No matter how much this was needed the Board could do little to put into effect any progressive and systematic review because of the shortage of staff and the shortage of other means, and it was to remain so.

The Board proposed 'an initial classification' of industries into high level protection, medium level protection and low level protection in relation to the overall structure of assistance under which Australian import competing industries operate. The Board was to aim at duties which would 'contain industries in the high cost area other than those demonstrating clearly compensating external benefits and those which can show beyond reasonable doubt prospects of operating with substantially lower levels of protection within a reasonable time.'

In its report for 1967-68 the Board laid down that high, medium and low rates respectively were effective rates exceeding 50 per cent, 25 per cent but not exceeding 50 per cent, and 25 per cent or less. Effec tive rates of protection are stated by the relation ofthe tariff to that portion of the product that is actually protected. For example, if unprotected raw materials are left out and if, say,thetariffwas50per cent and half the product's cost was that of raw materials, the effective rate would be 100 per cent. Effective rates always are higher than the normal rates.


Mr Anthony - Not always.


Dr J F Cairns (LALOR, VICTORIA) - No, not always higher but generally speaking that is the effect of the effective tariff concept. The Board indicated its intention of making its initial inquiry review in the areas of protection 'in which a large part of the output is protected at nominal rates over 50 per cent and most of the products concerned have not been a subject of Tariff Board inquiry in recent years.' The Board would explore this area and would not recommend protection for industries found to have little prospect of operating with an effective rate below 50 per cent. That is clearly set out at page 5 of the1967-68 report. In the case of indus tries requiring an effective rate exceeding 25 percent but not exceeding 50 per cent the Board would be influenced by the likely effects on other industries and their prospects for more competitive production.

By the time the 1969-70 report was made the Board had gone a little further. This was perhaps the most informed report the Board had made up to date, although much of its statistical material had been readily available in other sources for many years. The Board had decided by now that the average rate of protection in Australia was 46 per cent and the range was from zero to 120 per cent. This average rate of effective protection is said to be equivalent to about$2,700m a year. There has been a great deal of misunderstanding of this figure of$2,700m and a great deal of misuse of it. In an endeavour to clarify the positionI seek leave to incorporate in Hansard about one column of the 1969-70 report so that honourable members and other people may read it for themselves.


Mr DEPUTY SPEAKER (Mr Scholes (CORIO, VICTORIA) - Is leave granted? There being no objection leave is granted. (The document read as follows) -

Structure of protection in Australia

37.   In its 1967-68 report, the Board included some information on the nominal rates of duty on final products in the Australian Tariff. Since then it has undertaken a more detailed study of the effective rales of protection afforded manufacturing industries in Australia. The results of this stud);, together with an explanation of the methods used and the assumptions made, are given in Appendix 2 to this report. While the data for individual industries contain some approximations, the Board is satisfied that these would not significantly affect the conclusions reached.

38.   According to the study, the average rales of effective protection available to individual Australian manufacturing industries in 1967-68 ranged from (J to 120 per cent, and the average rate for manufacturing industry as a whole was 46 per cent. This average nile of effective protection is equivalent to about $2,700m per annum. That is, if all tariff protection available to manufacturing industries in 1967-6S had been fully used, the total cost of the manufacturing processes would have been $2,700ni greater than with the same pattern of manufacturing and no tariffs (see para- 42 in Appendix 2). In interpreting these and other results of the study it should be kept in mind that the figures are averages of the protection available lo industries; that such averages conceal wide variations in the rates for activities comprising each industry; and that the protection available is nol always fully used by. the protected industry.

39.   The average effective rate of protection needed by manufacturing industry to compete profitably against imports is below - and probably significantly below - the average effective rate of protection afforded by the Tariff. This conclusion is suggested by estimates made by the Board of the extent to which different industries utilise the protection available to i hem (see para. 19 of Appendix 2); and it is consistent with the history of protection for many, industries in Australia (including two of the largest, Metal Manufactures and Machinery). Between 1929 and 1932, the Government introduced a number of emergency duties which substantially increased the protection for a wide range of products against import from both General and Preferential sources. Most of the Preferential rates were reduced as a result of Tariff Board inquiries following the United Kingdom-Australia Trade Agreement in 1932. and of the Exchange Adjustment Act of 1933: but the General rates tended to remain at the higher levels, lt has been estimated that, as a result largely of the tariff changes made between 1929 and 1932, the average level of the General tariff in 1938-39 was 54 per cent higher than in 1928- 29; the average level of the Preferential tariff, on the other hand, was estimated to be only 9 per cent higher. During the last 30 years the General rates on many individual products have been reviewed by the Tariff Board, and some of the duties imposed between 1929 and 1932 have been reduced. But large sectors of the Tariff have not been reviewed, and the industries concerned still have today essentially the same tariffs as those imposed for emergency reasons in the early 1930s.


Dr J F Cairns (LALOR, VICTORIA) - I think that if honourable members examine that extract they will find that if all tariff protection available to manufacturing industries in 1967- 68 had been fully used the total cost of the manufacturing process would have been $2,700m greater than with the same pattern of manufacturing and no tariffs. I point out firstly that the reference to the same pattern of manufacturing without tariff is a totally unreal basis of comparison. It is simply imaginary. Secondly, I think the Board is saying that the protection available is not always fully used by the protected industry and, thirdly, that large sectors of the tariff have not been reviewed and the industries concerned still have today essentially the same tariffs as those imposed in the early 1930s. Fourthly, it is saying that the average effective rate of protection needed by manufacturing industry to compete profitably against imports is below, and probably significantly below, the average effective rate of protection now afforded by the tariff. If this is so the Board is not saying that the cost of tariff protection in Australia is $2,700m; it is saying that actually the figure is much less than that. There are estimates that the cost is as low as $l,000m.

But this is not the strong point of this statement; this is the weak point of this statement. The strong point of the statement is that large sectors of industry are protected by tariffs that have not been reviewed since the 1930s and that average effective rates of tariff needed by manufacturing industry to compete profitably against imports are probably significantly below the average rate actually afforded by the tariff. If this is the case the Board must be equipped to inquire quickly into those large sectors of industry, and others too, and set out clearly, even beyond probability, which tariffs there are which actually give manufacturing industries protection significantly above that which they need to compete against imports. The Tariff Board is much at fault for publishing statements of this kind and the Government is at fault for merely receiving them. If the situation is as the Board says, action must be taken to find out where the tariffs are significantly too high, and reports and recommendations must be made and acted upon without delay. The Minister knows as well as we all know that the Tariff Board, equipped as it is, can never do this. He knows that at its present rate of working it will take years and years to do this, and we will be saying in the 1990s that we still have large sectors of industry that have been protected by tariffs that have never been reviewed since the 1930s.

To retain tariffs which are significantly higher than are necessary is indefensible, if that is what we are doing, and a tariff board that says that they are significantly higher than necessary and a government that accepts that statement and still does nothing about it are equally indefensible. 1 say to the Tariff Board and the Government: Get to work and show us the tariffs that are significantly higher than they should be and take appropriate action. The second main proposition of the Tariff

Board is that it would not recommend protection for industries found to have little prospect of operating with an effective rate of tariff protection below 50 per cent, [t says: 'If you need a tariff over 50 per cent you will be put out of business unless there are special circumstances'. The e\ eni of this tariff is indicated by the table on page 86 of the Board's 1967-68 report. It is a short table and I ask leave to have that table incorporated in Hansard.


Mr DEPUTY SPEAKER (Mr Scholes - Is leave granted? There being no objection, leave is granted. (The document read as follows) -

 


Dr J F Cairns (LALOR, VICTORIA) - It will be seen from this table that industries with an output of at least $1 ,000m are in the category having protection of over 50 per cent. This is a low estimate. Industry in this category would include over 20 per cent of total manufacturing industry and over 20 per cent of employment in manufacturing industry. The 50 per cent and over category includes 34 per cent of paper and paper products, 35 per cent of metal manufacturing, 58 per cent of man-made fibres, 70 per cent of apparel, 70 per cent of cotton textiles and 100 per cent of confectionary. These are all in this category and presumably they would not be able to continue in business if the Tariff Board's plan was put into operation. Recently Sir Robert Webster had something to say about this matter which, as far as one can bee, the Government has not noticed, and certainly has not answered. On 20th September 1971 he staled:

New industries are not to be encouraged and existing industries are not to be permitted to expand if duties in excess of 50 per cent of effective rate arc required.

In conclusion, 1 would like to say that I have no feeling that industry will be destroyed because of this policy, but sections of it will be seriously damaged and this will spread and continue until it reaches an unacceptable stage. When this occurs something will be done to bring about another change. No government can stand up to the less of employment which would follow from serious damage to such a big and important sector of the economy.

What will the Government do? What does it have to say about this matter? We are in the dark. The Government has been ambiguous and has prevaricated. 1 shall outline now as quickly as I can what the Opposition will do in these cases. Firstly, we will fully equip those who inquire into tariffs to discover and report, without delay, any tariff which is higher - not merely significantly higher - than is needed. Secondly, we will not support the proposition that merely because a tariff is in excess of 50 per cent or higher it is excessive. Indeed, I now want to set out the broad pattern of what the Opposition will do about tariffs and industrial development when it becomes the Government. We will establish a ministry of manufacturing industry which will be concerned with the development of manufacturing industry, the processing of minerals and She export of the products of secondary industry and of processed minerals. We will have a ministry of primary industry which will do the same for primary industry. We will expand and develop the Tariff Board, or whatever it may be called, to:

(a)   Fully and expeditiously inquire into existing industry as to its supply, methods, costs, profits, prices and its relations with other manufacturers, wholesalers and retailers;

(b)   Report as to existing efficiency and economies and upon changes likely to improve efficiency and economies, including the scale of operations;

(c)   What, if any, provision should be made for the development or maintenance of the industry. Such provision would extend beyond tariffs or subsidy and would include such things as loans to carry over seasonal and other terminating disadvantages and assistance in exporting such as long term credit, shipping and insurance which would have meaning and reality;

(d)   Research and introduction of new machinery and techniques;

(e)   Factors and conditions other than efficiency and economy which .should be taken into account and the effect of them. 1 emphasise these other factors and conditions. To me there is not only one test about what we should do in Australia - the test of what is efficient and economic. We have also been concerned in Australia with a standard and quality of life which is not, if we can prevent it, to be left to the pressures of the economic jungle. I agree substantially with what Sir Robert Webster said in another part of his speech when he staled:

The chief reason for the inability of Australian manufacturers to compete generally with imported goods is the high standard of living which we enjoy in this country, which follows from our hours of work, rates of pay, holiday, sick leave and other fringe benefits of various kinds - all prescribed by law.

I agree with all those matters provided that Sir Robert includes them for the owners and managers of industry as well. He appears to be thinking only of workers. The Australian Labor Party will not accept any reduction of tariffs or any change of policy which will cause unemployment if those unemployed are to be left to the capitalist market - national or international. We will not accept tariff or policy changes which cause unemployment which is unfair or unreasonable, or if ample provision is not made for those who may become unemployed. In order to put such a policy into operation the Australian Labor Party will act along lines similar to these:

1.   When it is recommended that action should be taken to reduce tariffs or subsidies or other assistance so that it might be expected that an industry or part of an industry would be limited or terminated so as to cause unemployment the recommendation must include indications where more efficient employment, if any, is available.

2.   A re-employment, retraining and compensation commission will be established to administer the following provisions: (a) Where any person has been employed in any industry that is limited or terminated as a result of public policy such person will receive a disemployment allowance equal to the pay he received when employed in the limited or curtailed industry until he obtains employment comparable with that lost, (b) Where any person has been employed in any industry that is limited or terminated as a result of public policy such person shall be entitled to retraining on a part or full-time basis and an appropriate retraining allowance will be paid to such person during retraining.

Existing standards and qualifications will be met fully in any retraining that takes place, (c) Any person who is an owner or shareholder in an industry normally receives profits and other returns which assume that such person acceps the benefits and losses of risk-taking, but compensation may be paid to any such person who is an owner or shareholder of any industry limited or terminated as a result of public policy if he has not received profits and/or other benefits from that industry which have given such person a reasonable return from his actual investment, but not in such case if the income and/or wealth of such person is such that any loss he may have suffered is reasonable.

3.   lt would be the responsibility of the Ministry for manufacturing industry to ensure, inter alia: (a) That no unreasonable price or restrictive condition is charged or imposed by any assisted or protected industry, (b) That control of manufacturing and processing industries in Australia is maintained by Australians, (c) That imports are increased from developing countries and from countries that have for them a marked unfavourable balance of trade with Australia. This policy would result in a number of conditions, lt would result in the more efficient and economic use of resources. Tt would result in greater mobility of resources and quicker movement to more efficient and economic employment. It would result in a reduction or prevention of unreasonable losses by individuals who cannot afford such losses as a result of any industrial change to give effect to public policy. It would result in an advance in research and in its application. lt would result in improvement in skill and capacity as a result of retraining and education.

It would result in an increase in exports and imports, in particular with developing countries and with countries whose trade with Australia is in excess of Australia's trade with them. It would result in the maintenance and advancement of the Australian standard of living and the quality of life which would continue to be protected to the full extent of our ability from standards set in low wage and capital intensive countries where the working class is ineffective and unorganised. These standards will not become the determinants of Australian standards as long as we have the will and capacity to prevent it.

If economic pressures ever become so great that the Australian fair and reasonable standard cannot be maintained then some government other than a Labor government can go ahead and impose the resultant conditions upon Australia. It will not be a Labor government that consents to that policy. I have faced the serious problems that are involved in the making of tariffs and in the development of secondary industry in this country. If not only the level of employment but also problems like decentralisation are to be handled satisfactorily in this country they must be handled by further development of manufacturing industry. We cannot decentralise in this country if we rely or seek to rely upon rural industry. As the years go by a smaller proportion of our people is being employed in primary industry, and that trend will continue. If we are to have anything like decentralisation, if we are to have anything like the establishment of new and better urban areas, we can have them only by the development of manufacturing industry. I suggest that we must have a policy which is far in advance of the horse and buggy type of tariff making policy which still prevails in this country and which has prevailed almost unchanged since the 1930s.

I have set out in some considerable detail a policy which 1 think is the approach that would be made by the Australian Labor Party. I do not put it forward as a blueprint that would not be changed in certain respects. But I put it forward as an indication of a policy of a party that understands the necessity for a Parliament to exercise primary responsibility in the development of industry in the interests of those who take part in it. lt is a challenge to those who look forward to a continuation of this haphazard kind of uninformed intervention that has been the policy of Liberal-Country Party governments for 20 years - a policy of uninformed, unplanned, haphazard, after the event intervention without proper anticipation. The only alternative to this policy which comes from spokesmen on the Government side involves a return to greater and greater laissez-faire, lt involves greater and greater reliance upon the market to do whatever it will to sweep aside employment, if this is done in the name of efficiency, without any proper regard being paid to what will happen to the people who might be swept aside. The Australian Labor Party will accept neither of those 2 alternatives. I have put forward tonight a third alternative which is, in my opinion, the direction in which the development of a government's relations with manufacturing industry in this country should go. I am waiting for the Government to give us its reply.







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