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Industries Assistance Commission report on potatoes and processed potato products



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PRESS RELEASE

*V

77/139 BACA

INDUSTRIES ASSISTANCE COMMISSION REPORT ON

POTATOES AND PROCESSED POTATO PRODUCTS .

(Joint Statement by the Minister for Primary Industry, Mr Ian Sinclair, the Minister for Industry and Commerce, Senator Robert Cotton and the Minister for Business and Consumer A f f a i r s , Mr W a l . Fif e ) .

The Minister for Primary Industry, Mr Ian Sinclair,

the Minister for Industry and Commerce, Senator Robert Cotton

and the Minister for Business and Consumer Affairs, Mr W a l .

Fife today announced the Government's decision on the

Industries Assistance Commission's report on Potatoes and

Processed Potato Products. A copy of correspondence with

the Commission on this report is attached.

..... The.Government has decided not to accept the

Commission's recommendations concerning the levels of tariff

for processed potatoes.

The Ministers said that the Government considered

the level of duty recommended for processed potato products

would not provide assistance to the local industries against

prospective import competition. . . ■ · ' .

Instead, subject to international commitments, the

goods under reference would be subject to varying rates of

duty, Raw p o t a t o e s , as recommended by the Commission,

would be subject to a 10% duty. However, frozen and canned

potatoes would be subject to a 20% duty, while dehydrated

potatoes, fl o u r , meal and flake of potatoes would be subject

to a duty of 50%. An exception to these rates would be the

continuation of duty-free access for imports of dried,

dehydrated or evaporated potatoes of New Zealand origin and

most goods of Papua New Guinea origin.

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The Government has decided to continue the existing

embargo provisions on imports of raw potatoes. The Ministers

said that the embargo should continue to minimise the risk

of the introduction of e xotic.potato diseases.

The Government has also decided to adopt the

Commission's recommendation that there be no special

arrangements for the concessional import o f ·the goods

concerned in times of production shortfall. However, the

Minis ters added that normal by-law criteria would apply

to potato products. .

Copies of the Commission's report will be available

shortly from Australian Government Publishing Service retail

bookshops in each of the capital cities.

C A N B E R R A A.C.T.

24 Oc tober 19 77

DFLiCMM

1 Ο. ι · . . · jljL

Dear Mr McKinnon, .

The Standing Committee on Industries Assistance is currently considering the Commission's report on Potatoes and Processed Potato Products» .

The Committee notes that the Commission's recommendations for duties of. 10% and suggestions concerning duties on imports, of New Zealand origin are not in harmony with "Australia's trade policy and invites the attention of the Commission to the provisions governing Australia's

formal trade relations with New Zealand,

On 3 August 1973 the Acting Prime Minister of the day in a letter to the Chairman of the.Tariff Board formally asked the Bear'd to follow the criteria set out in paragraph 4(a) of the.Exchange of Letters with New Zealand of

7 May 1977. Paragraph 4(a) of the Exchange of Letters states3

”A Member State, in determining the substantive rates of import duties to be applied to goods imported from the other Member State, shall request its tariff advisory bodies to recommend in respect of manufactured . . goods the lowest, rate of import duties which is ■ consistent with the need to protect its own producers of

like or directly competitive products and whi&h will at the same time permit reasonable competition in its market between· manufactured goods which are produced in its own territory and. imports of like goods or directly

competitive good».from the other Member State·"

The Committee also«draws the attention of the Commission to the listing in Schedule A of the Hew Zealand/ Australia Free Trade Agreement (NAFTA) of certain goods (including potatoes) - falling within tariff item ex 07·04·900, In. accordance with consul tments under this agreement Australia

is obliged to accord these goods duty free entry unless such compelling circumstances exist that the safeguard provisions of NAFTA might be invoked.

Regarding margins of preference for goods of New Zealand origin, sub-paragraphs 5(c)(i) and 5(e)(i) of the Exchange of Letters of 7 May 1973 state

"5(c) The Government of Australia in setting its substantive rates of import duties, whether under its tariff restructuring programmes or as a consequence of action taken by it on a recommendation of a tariff advisory body shall maintain for New Zealand;

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(i ) in respect of items in the protected area and subject to the provisions of sub-paragraph (e) of this paragraph a margin of preference of at least 15% ad valorem, except that where the margin of preference at 31 January 1973 was lower than 15% ad valorem then that lower margin of preference shall be the minimum margin";

"5(e)(i) Where a tariff advisory body in either Member State is requested to recommend protective rates of duty, it shall also be requested to make a recommendation as to the rate to be

applied to imports from the other Member State in accordance with the criteria contained in paragraph 4(a) of this Letter. In cases where the difference between -the recommended MFN

rate and the rate recommended for imports from the other Member State is lower than the margin of preference specified in sub-paragraph (c)(i) or (d )(i ) of this paragraph as the case may be, the relevant tariff advisory body

shall be asked to state the basis for its recommendation." · .

To assist the Committee in its consideration of this Report it would be helpful if the Commission were to specifically recommend appropriate rates of duty for goods of New Zealand. origin covered by the Report. Should such ·'- recommended rates of duty have the effect of reducing the margins of preference below the levels provided for in

sub-para graph 5(c)(i) of the Exchange of Letters of 7 May 1973, it would be appreciated if the Commission could indicate the basis for its. recommendation, as provided for in paragraph 5 (e)(i) of the Exchange of Letters of 7 May 1973.

It is also noted that the Report makes no reference to the rates of duty to be applied to imports of Canadian origin. It would, therefore, be helpful if the Commission were· to advise whether it intended the General rate should

apply to Canadian goods, subject to international commitments. In this regard, the Report covers two items of significant . trade interest to Canada, items 07.02.900 and 11.05.000.

Yours sincerely,

f_^ (D. T. Charles) First Assistant Secretary Industries Assistance Division

Mr W. A. McKinnon, C h a i r m a n , .

Industries Assistance Commission, BARTON A.C.T 2600

Industries Assistance Gcmmission

All correspondence to be addressed to: The Secretary, Industries Assistance

Commission, P.O. Box 80, Canberra. A.C.T. 2600. Telephone: 73 0415 In reply please quote:

Kings A venue, Canberra, A .C .T .

LI August 1977

Dear Dr Charles,

. I refer to your letter of 18 July 1977 concerning (a) the lowest rate of duty needed to protect local producers against imports of processed potatoes from New Zealand; and (b) the appropriate rate of duty for goods of New Zealand and Canadian origin. Where the duty recommendations have the effect of · · reducing the margins of preference accorded New Zealand goods below the levels provided for in sub-paragraph 5(c)(1) of the Exchange of Letters x-zith New

Zealand of 7 May 1973, you further ask the basis for the recommendations.

In answer to (a), the rate of duty needed to protect local producers against imports of New Zealand goods - as -with processed potato imports from General sources - changes over time. In a market x^here imports are largely responsive to local prices of raxq potatoes and market shares (both by product and origin) appear to be responsive to relative prices, this rate varies

largely with changes in Australian market conditions. It is also influenced . by other factors .such as changes in the level of protection available elsewhere in the economy and movements in the exchange rate. .

Import clearance statistics shox* that, from time to time, Australia has been an outlet · for New" Zealand processed potatoes - mostly in - frozen form - _ · (item 07.02) and, to a lesser extent, in canned form (item 20.02) - during . · . the five· years reviewed. In addition to these goods', the Commission notes' the" existence of■vegetable' processing plants in New Zealand which produce, or are capable of producing, other kinds of processed potatoes covered by this inquiry.. However,, the - Commission was no.t. able to comment on the range, or the extent., of- ■ production in New Zealand. The loc^l producers’ price disadvantages against

imports from New Zealand (based on ex-factory selling prices) ranged from nil up to about 25 per cent on frozen potatoes during the period rex'iewed.

. The Commission pointed out, on page 32 of its report, that '...it would be misleading to predicate assistance on the basis of these price disadvantages reflecting as they do quality differences, and processing capacity utilization as well as spot market circumstances at a particular time...1. It considered, on resource, allocation grounds, that '...the total level of assistance for potato grcxving and processing should be maintained at about the levels xvhich

prevailed in most recent years and that disparities in assistance x^ithin the industry should be reduced.1 It recommended that a duty of 10 per cent ad valorem on all goods under reference would be the appropriate level of assistance for local production. On these grounds - and in answer to (b) above τ the Commission considered the recommended duty to be the appropriate rate to be

applied to imports from all sources, including New Zealand and Canada.

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In making its recommendation, the Commission was aware that a uniform duty.of 10 per cent would not accord New Zealand goods a margin of preference. It notes, however, that in the case of frozen potatoes (item 07.02) the specific rates of duty applying at 31 January 1973 appear likely to have . accorded New Zealand goods a margin substantially below 15 per cent ad valorem. For instance, in the financial year immediately preceding January 1973, the difference between the ad valorem equivalent of the duty collected on imports from New Zealand and that on those from the major General source (ie,.the United States) was less than one percentage point. For raw potatoes (item 07.01)

and processed potatoes of a kind falling within items 07.04, 11.05 and 20.02, . the margin of preference accorded New Zealand goods could not be assessed from available data.

As noted above, the recommendation that a common duty apply to imports from all sources (including New Zealand and Canada) is based on resource allocation grounds. If New Zealand or Canadian goods were accorded a margin of. preference, it could reduce the total level of assistance for potato growing and processing below the low levels which prevailed in recent years and this could lead to a withdrawal of resources from these relatively low cost activities. Alternatively, it could raise total industry assistance, that is, if the General

rate were determined by adding the preferential margin to the recommended duty of 10 per cent.. In this event, the resultant increase in. aggregate assistance could attract more resources into the potato industry and these resources could

be drawn possibly from lower cost activities.

The significance of the difference between the rates which would accord agreed margins of preference to Canada and New Zealand and the rate which the Commission considers appropriate on resource allocation grounds would depend upon the size, and the direction,, of the margin to be applied to individual

items as well as the resulting pattern of assistance between products. As noted above, the Commission is not in - a position to assess for all items the size, of _ the margin referred" r.o in the Exchange of Letters with New Zealand. For both Canada and' New Zealand;the -difference appears to be insignificant for frozen .potatoes (item 07.02) "but could be significant for other.items covered by the

inquiry. It. would,· h o w e v e r b e largely hypothetical for raw potatoes '...given tha-t New Zealand appears likely to be the only source. .. under the existing quarantine regulation!;1. · ·

The Commission also notes that potatoes of a kind falling within item 07.0O.9 are included in Schedule A of the New· Zealand Free Trade Agreement. It is aware that, in order to implement the- recommended duty, the Australian Government would need to negotiate a suspension of obligations in respect of

these goods, but is not in a position to offer advice as to whether the Australian Government should institute negotiations on this matter. ·

The Commission was aware that the implementation of the duty recommendations could pose some difficulties with respect to trade commitments and, on page 35 of its report, commented that 1...continuation of the embargo and the margins of preference to apply to New Zealand would be a matter for negotiation*. Section 22(1)(f) of the Industries Assistance Commission Act 1973 notwithstanding, the Commission is not in a position to assess the relative

importance of the protection and the trade policy considerations involved in this case. This arises partly because of the lack of information on the preference commitment to New Zealand and on the importance which New Zealand might attach to the removal of the current embargo, but more importantly because of the apparent conflict between protection and trade policy considerations which would need to be resolved against the totality of current trade relations with New

Zealand as well as Canada.

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The Commission assumes that, in accordance with established practice, this exchange of correspondence will be published. The Commission believes that consideration might usefully be given to the desirability, in any future cases, of The Standing Committee on Industries Assistance or its member departments using the opportunity provided by the draft report hearing to raise any aspects of the matter under inquiry - in particular, but not solely, technical aspects

such as treaty commitments - which in its (their) view were inadequately treated in the draft report. This would have the advantage of enabling the Commission to explore publicly the aspects raised. It would also tend to reduce delays

after the Commission's report was.submitted to the Government. . . ‘

Yours sincerely,

■ ■ , . . - 3 - . ' .

-e-7

W.A. McKinnon

Lc^-C^

Dr D.T. Charles, First Assistant Secretary, Department of Business and Consumer Affairs, BARTON · A.C.T. 2600