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Tuesday, 7 December 1976
Page: 3410

Mr HOWARD (Bennelong) (Minister for Business and Consumer Affairs) - by leave- The Government has reviewed the tariff structure prevailing in Australia consequent upon devaluation of the Australian dollar. As a result of this review, the Government re-affirms that there will not be any general or across the board reduction in tariffs. It has, however, decided upon action in selected areas either to remove temporary assistance or to reduce tariff levels where such reductions will not have adverse effects on local industry. In reaching these decisions the Government has had in mind the difficult competitive position of Australian industry which has developed in recent years due to a combination of escalating domestic costs, exchange rate variations and some ill-considered indiscriminate tariff reductions.

In determining the changes I am about to outline the Government has been particularly concerned to ensure that any undue inflationary effects from the tariff arising from devaluation are eliminated without adversely affecting the improved competitive position attained by Australian industry in consequence of the devaluation. Whilst for the reasons explained in this statement the Government has decided against general tariff adjustments the specific decisions taken and which I shall outline shortly affect approximately $2000m of Australia's imports and will make a significant contribution towards moderating import price increases following devaluation.

As honourable members will be aware, there were massive increases in wage levels in Australia in 1974 and early 1975 relative to increases in wages taking place in our major trading partners, and, in particular, the United States of America and West Germany. These increases have had the effect of significantly reducing the competitive position of Australian industry. By way of illustration, in the last 6 years wages in Australia's manufacturing industry increased by 130 per cent compared with 53 per cent in the United States and 70 per cent in West Germany.

In addition to the increases in wage levels in Australia compared to those occurring with our trading partners since December 1971, the value of the Australian dollar had prior to devaluation increased relative to that of the United States dollar, notwithstanding the devaluation by the Labor Government of 12 per cent in September 1974. Further, since December 1972 there has been also the 25 per cent across the board tariff cut of July 1973 and a number of other tariff reductions of considerable importance to particular industries. Taken together all these factors have resulted in a very considerable erosion in the competitive position of manufacturing industry since December 1972.

According to estimates made by the Industries Assistance Commission in its 1975-76 annual report, the general competitiveness of the Australian import-competing sector, which essentially means manufacturing industry- as indicated by movements in a combined index of changes in Australia's exchange rate, the inflation rate in Australia compared with that in other countries and reductions in tariff protection and other assistance- declined by 17 per cent between 1970-71 and 1975-76. The reduction in competitiveness has had a major effect on employment in manufacturing industry which fell by almost 100 000 between May 1974 and the end of June 1976. This reduction has been compounded by the tendency of some sections of Australian manufacturing industry to move offshore in order to minimise the cost disadvantages involved in local manufacture. Only when viewed against these figures and developments can the notional increase in protection resulting from the recent devaluation of the Australian dollar be seen in its true and correct perspective.

The Government is therefore firmly of the view that any attempt to offset fully the effect of devaluation in improving the competitive position of manufacturing industry by a general compensatory tariff cut would be unwise and very costly to industry confidence. In addition such an approach is not appropriate to a situation where the exchange rate is being administered on a flexible basis. The Australian dollar has already moved upwards since the new exchange rate arrangements were introduced.

Whilst the protective consequences of a partial compensatory tariff cut would be less severe it would nonetheless introduce an element of great uncertainty at a time when industry confidence is so critical to economic recovery. Nevertheless, the Government is concerned that in some areas existing levels of assistance are now more than is necessary to permit industry to be competitive with imports and that a contribution to restraining the rate of inflation can be made by reducing selected areas of assistance.

The Government has therefore decided to remove a number of temporary assistance measures. It is the Government 's intention that:

(1)   As from to-morrow 8 December 1976, quantitative restrictions on completely built up passenger motor vehicles and tariff quotas on completely knocked down passenger motor vehicles will be removed.

(2   ) The tariff quotas on galvanised steel sheet and the temporary duty on monochrome T.V. receivers and certain related electronic components will be removed as soon as the necessary tariff arrangements can be made.

In relation to motor vehicles circumstances now permit the temporary restrictions to be removed. However, the Government reaffirms its policy that about 80 per cent of the domestic market will be preserved for the local industry.

The Government is also satisfied that the other temporary assistance measures listed above can now be removed. However I should make it clear to the House that temporary assistance measures applying to footwear, clothing, textiles, and domestic appliances, files and rasps, fine papers, plywood and orange juice are not affected by these decisions. It was considered that removal of temporary assistance measures on these products at this stage might lead to a recurrence of disruption.

I would remind honourable members that under the provisions of the Industries Assistance Commission Act no action to remove temporary assistance measures flowing from an interim IAC report can be taken without receiving a final report from the Commission. This restraint does not apply in respect of temporary assistance measures imposed following reports by the Temporary Assistance Authority.

The Government has also decided to act on the IAC's report for Multilateral Trade Negotiations. This report was commissioned to provide a basis for possible tariff reductions in the context of those negotiations. It was received by the Government in January 1976 and has been under study in departments since then. It provides the basis for a wide range of tariff reductions which will have a cost saving effect. The IAC has stated in this report that, in making recommendations, its approach was not to recommend a reduction in duty if such a reduction appeared likely to have generally adverse effects on local industry. In its report the Commission found that:

(   1 ) The British preferential margin could be eliminated by reduction of the general tariff rate for about 700 items.

(2)   The British preferential margin could be reduced by reduction of the general tariff rate for about a further 100 items.

(3)   Both British preferential and general tariff rates could be eliminated for about another 100 items.

These tariff reductions will be implemented as soon as administratively possible but because of the wide range of tariff items covered, not all changes will be completed until 31 January 1977. Preliminary details of these changes will be available through customs houses as soon as possible. The Government has taken these concessionary measures as part of its economic package in order to modify possible cost increases and emphasises that the reduced rates are provisional. The rates may be confirmed or adjusted in the light of future circumstances.

Honourable members will be aware that the Temporary Assistance Authority machinery is available in the event of any unforeseen disruption caused to local industries as a consequence of these tariff reductions. In total, these changes will affect in excess of 900 tariff items out of a total of about 2,750 items in the Customs Tariff. Imports of goods covered by these proposals total about $ 1,800m. Details of the IAC's report on the Multilateral Trade Negotiations will be released as soon as copies are available.

The Government also considered the removal of primage duties. Primage duty is a customs duty separate from normal tariffs. It was introduced as a temporary revenue measure in the 1 930s and over the years it has been removed on an item by item basis as opportunities have arisen. Primage still applies to about 350 items in the tariff, generally at rates of either 3 per cent or 7 per cent ad valorem. Primage duty collected in 1975-76 was about $8.5m and it is estimated that total trade subject to primage is in the vicinity of $150m. Some primage duties will be removed as a result of the action now to be taken on the IAC's MTN report. The Government has decided to refer the remaining primage duties which are not covered by the actions outlined above or already under reference, to the IAC for study and report.

In addition the Government will immediately examine those reports of the IAC currently held, in respect of which no decisions have been taken to determine whether any of those reports should be returned to the IAC for reassessment in the light of devaluation. When this examination has been completed a further statement will be made. The by-law system makes provision for duties to be waived on imported goods for which suitably equivalent goods are not reasonably available from Australian producers. A considerable proportion of Australian imports of capital equipment and producer materials enters under the customs by-law system. The operation of the customs by-law system will help ensure that the price effects of devaluation are not unnecessarily inflated by the tariff.

I would like to point out to honourable members that, through the operation of the customs by-law system and because of the fact that a large number of tariff items provide for duty free entry, in excess of 60 per cent of Australia's imports enter duty free. In deciding against across the board changes in long term levels of assistance the Government noted that there were a number of areas where tariffs are considerably higher than the general level. As indicated in the Government's pre-election statements it is the Government's view that these areas of the tariff should be subject to close and continuing review. The Government, therefore, reaffirms that it will proceed with the tariff review program in accordance with the current timetable. This will ensure that those areas enjoying very high levels of protection will be subject to review. Decisions on tariff review reports will be taken in the light of the improved competitive position of Australian industry resulting from devaluation.

I should make it very clear that the Government would be extremely concerned if any sections of manufacturing industry were to apply the benefits of devaluation towards wage settlements outside indexation principles. If evidence emerges that this is occurring the Government will not hesitate to refer the industries concerned to the IAC for early review and report. This approach will complement the action I have already foreshadowed in respect of surveillance by the Prices Justification Tribunal of any unjustified price increases following devaluation. The Government considers that the devaluation of the Australian dollar combined with the actions I have announced in relation to the tariff should ensure that the competitive position of Australian industry is restored without unnecessarily adding to inflationary pressures in the economy.

I commend the statement to the House. I present the following papen

Tariff Structure Review- Ministerial Statement, 7 December 1976

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