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Review of tariff structure



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MINISTERIAL STATEMENT BY THE MINISTER FOR BUSINESS AFFAIRS, THE HONOURABLE JiW. HOWARD, M.P.

The Government has reviewed the tariff structure 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 to either remove temporary assistance or 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 detail shortly affect approximately $2000 million 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 and West Germany. These increases have had the effect of significantly reducing the competitive position of Australian industry.

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By way of illustration, in the last six years

wages in Australia's manufacturing industry increased by 130% compared with 53% in the.United States and 70% 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 $US, notwithstanding the devaluation by the Labor Government of 12% in September, 1974.

Further, since December 1972 there has' also been

the 25% 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 IAC 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% 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 off-shore in order to minimize the cost disadvantages

involved in local manufacture.

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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 perspective.

The Government is therefore firmly of the view that any attempt to fully offset 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 8th December, 1976 .

quantitative restrictions on C.B.U. passenger motor vehicles and tariff quotas on C.K.D.

passenger motor vehicles will be removed.

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(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% 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 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 I.A.C. Act no action to remove temporary assistance measures flowing from an interim I.A.C. 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 T .A .A .

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The Government has also decided to act on the I.A.C.'s report for the 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 I.A.C. 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 -. The British Preferential Margin could be

eliminated by reduction of the General .

Tariff Rate for about 700 items.

. The British Preferential Margin could be reduced by reduction of the General Tariff Rate for about a further 100 items.

. Both British Preferential and General Tariff Rates could be eliminated for about 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 31st January 1977. Preliminary details of these changes would 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.

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Honourable Members will be aware that the Temporary Assistance Authority machinery is available in the event of any un-foreseen disruption caused to local industries as a

consequence of these tariff redactions.

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 I.A.C.1s report on the MTN 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 1930's 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 $l50m. Some Primage duties will be removed as a result of the action now to be taken on the I.A.C.1s 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 Industries Assist­ ance Commission for study and report.

In addition the Government will immediately examine those reports of the I.A.C. currently held, in respect of which no decisions have been taken to determine whether any

of those reports should be returned to the I.A.C. for re­ assessment in the light of devaluation.

When this examination has been completed a statement will be made.

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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% 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 Government1s 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 programme 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 I.A.C. tariff review reports will be taken in the light of the improved competitive position of Australian industry resulting from devaluation.

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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 I.A.C. for early review and report.

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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. .