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Wednesday, 2 December 1936

Senator A J McLACHLAN (SOUTH AUSTRALIA) (Postmaster-General) . - I move -

That the bill be now read a second time.

The tariff schedule now before honorable senators embodies the alterations of the duties introduced for the purpose of carrying into effect the proposals of the Government to divert a portion of the Commonwealth's import trade in selected commodities to sources of supply which the Government firmly believes will bring greater benefits to the Commonwealth. Before referring in detail to the various items, I propose to enumerate the considerations underlying the policy of the Government in this respect.

The merits of these measures will not be correctly appraised unless they are considered in relation to the general aims of government policy as well as the particular features of the international trading position to which they directly apply. These general aims, as set out in the policy speeches of the Prime Minister and consistently pursued over the last four years, were the rehabilitation of the national finances; the development of domestic industry in all desirable directions ; the expansion of export trade ; and such widening and fertilizing of the fields of primary and secondary employment as would not only provide for the speedy employment of all employable hands rendered workless by the economic crisis, but also create opportunities for immigrants to accelerate that increase of population which is essential to the national safety.

No one will deny that the progress towards the achievement of these aims has been considerable. Compared with our position during the depths of the depression and with the position in which many countries still find themselves, we must consider ourselves happily circumstanced. A good deal of leeway, however, remains to be made up before we can contemplate our position with complete satisfaction. There is still some unemployment beyond the normal among our people. Our condition does not yet act as a magnet attracting new population. .We still await the throb of a new growth. While the Government subscribes to the principle that in Australia the primary and secondary industries are essential to each other and should go forward together, it clearly recognizes that general prosperity at the present stage of our development rests largely on our rural industries. If the rural producer enjoys good seasons and a sufficient demand for his export surplus to maintain a profitable price level, his prosperity is reflected in every business and workshop. National well-being is intimately bound up with the welfare of the rural industries and their ability to maintain and expand their export markets. We are unable to view the expansion of the export trade in the confident terms of the middle 'twenties when the emphasis was on production and still more production. Now the emphasis is definitely on marketing, and the market problem is beset with increasing difficulties and perplexities. The prolonged and relentless pressure which the economic crisis has exercised on the economic structure of the world has destroyed the faith of many in the economic principles which had formed the basis of their policies for many generations. Revolutionary changes have occurred in the internal economy of many countries, as well as in their financial and commercial relations with the rest of the world. Management of currencies and re-organization of industry under government direction, and the substitution of international barter for the old selfregulating principle in international trade, have not only been widely adopted as emergency methods but also are being strongly advocated as economically sound and advantageous. The fact that several of the great States responsible for almost two-thirds of the world's industrial production have deserted the old principles in great or less degree implies that the way to recovery does not lie straight back along the familiar tracks.

A conspicuous feature of the period of economic crisis has been the spread of commercial policies aiming at national self-sufficiency and the canalization of trade. These policies, widely practised, have been responsible for rising tariffs, quotas, import licensing systems, clearing agreements, restrictions on dealings in exchange and numerous other types of trade barriers. Although the tide in favour of national self-sufficiency shows some sign of recession, history does not encourage us to anticipate a return to the conditions which formerly prevailed in international trade. Another feature of this changing order has been the trend of the great raw-material importing countries towards bi-later alison in their external trade relations. These developments have had their inevitable reactions in the raw material and foodproducing countries, which formerly found their largest markets in one group of countries, but obtained their import requirements from another group.

Since the world-wide adoption of arbitrary devices calculated to maintain and expand exports, and the now familiar practice of making an excess of imports the basis of a demand for special facilities for expanding their trade with a particular country, the countries producing raw material and food are finding themselves more and more obliged to abandon the principle of " triangular " - open market - dealing which formerly governed their external trading, and to direct their purchases to countries which offer the best field for their exports. We may lament the changed order but we cannot ignore the tendencies. As one high authority put it : " To try to combat the economic nationalism of the present day by the classical argument of Smith and Cobden is like trying to attack a tank with a sabre belonging to one of Napoleon's hussars ". These policies have inevitably had their effect on Australian trade overseas. In emphasis of this fact I need only invite honorable senators to recall the effect of these policies on our trade with such countries as Germany and Italy. In the case of Germany, direct exports fell from £9,500,000 in 1933-34. to £1,750,000 in the following year. At the same time exports to Italy fell from £4,500,000 to somewhat less than £1,000,000. These great changes reflect the repercussions on our export trade of the policies of self -sufficiency and bilateralism adopted by the two great industrial countries. The great deterioration of our exports to those countries has occurred at a time, when unlike most other countries, Australia was pursuing a policy of downward revision of its tariff. For the present, at least, and for so far ahead as we can at present see, we must accommodate ourselves to trading overseas according to the new rules if we would conserve the trade we have, much less effect the progressive expansion which means so much to our national development and well-being. So far as possible, we must trade most with those who are prepared to trade most with us. This does not mean that we shall aim at bilateral balances with particular countries; but that we shall endeavour to divert our imports into channels from which most benefit will accrue to our national economy. The schedule is designed to give effect in part to the policy of the Government to meet the changed conditions.

The commodities covered by the schedule fall within two broad categories -

(1)   Commodities which are imported principally from the United States of America, viz., tobacco leaf, lubricating oil, Oregon timber, and motor chassis.

(2)   Two commodities which until recently had been imported principally from the United Kingdom, but which are now being imported in rapidly expanding quantities from Japan, viz., cotton piece goods and artificial silk piece goods.

As the considerations which influenced the Government to amend the duties in both cases are not identical, I propose to deal with the two aspects of the matter separately. The condition in international trade to which I have referred earlier, particularly the tendency towards bi-lateralism, has made trading conditions more difficult than everfor those debtor countries which formerly carried on their overseas trade on the triangular trade principle. In Australia, we have heavy overseas interest commitments, both in public and private debts, which can only be serviced through the medium of a regular and substantial excess of exports over imports. We have on the one hand, the equilibrium in our balance of payments threatened by expanding imports from countries which offer a most indifferent market for our export products. On the other hand, if we seek to hold imports in check by applying restrictions generally and indiscriminately we must inevitably incur the displeasure of many good customer countries which are already dissatisfied with the long- standing disparity between our sales to them and our purchases from them.

The Government's policy aims at limiting imports from those countries where trade is impracticable on a reasonable basis of reciprocity. The policy is based on the principle that if any sacrifice is to be made in the interests of maintaining either our export trade or our balanceofpayments position, it should not be at the expense of export trade to goodcustomer countries, or of home industries, but at the expense of those countries which contribute most heavily to our great imports and at the same time find it impracticable to take our export commodities in return.

The measures taken against the American products aim either to encourage the production within our own boundaries of those commodities which we are capable of producing economically for ourselves, or alternatively, to divert the source of supply to countries from which we may look for some advantage in terms of reciprocal trade. The Government has not taken this action without long and serious consideration, nor until its efforts to redress a situation which it had found increasingly embarrassing had failed through the inability of the United States of America to offer us any prospect of ameliorating the position.

Wrapped up in the trade diversion proposals, although not entirely dependent on them, is the aim of the Government to bring about the establishment of the manufacture of the complete motor car in Australia. For the information of honorable senators, I should like to indicate the method by which the Government proposes to carry out the scheme. First of all, action has been taken to restrict the importation of motor chassis from all countries except the United Kingdom. Except for the special tax of . 7d. per lb. imposed on all imported chassis for the purpose of providing a bounty fund, the duties proposed in this schedule are not imposed for the purpose of encouraging domestic production. The sole reason for substituting fixed rates for the former ad valorem duties is to render the British preference effective. Although importations from the United States of America and Canada are now subject to quantity limits, importation is being permitted from those countries of the same quantities as were imported during the year ended April, 1936. To foster domestic production, the Government has announced its intention to offer a minimum bounty of £30 an engine, to be paid during the first two years of production, with a diminishing payment in subsequent years. The Government has referred the matter to the Tariff Board with the direction that its economic and national aspects be taken into consideration.

Senator Duncan-Hughes - When was that done?

Senator A J McLACHLAN (SOUTH AUSTRALIA) - Within the last few days. At the outset it is not anticipated that every part of the car will be manufactured in Australia. Certain parts which may present difficulty in the early stages of production will be permitted importation, as occurs in Canada at the present time. In order that the control of such an important industry shall not pass entirely out of Australian or British hands, it is proposed to make it a condition of bounty that every opportunity shall be given to Australian or United Kingdom investors to provide at least one-half the capital of any company undertaking manufacture of engines and chassis in Australia.

The specific reasons which have actuated the Government to encourage the manufacture of motor engines and chassis in Australia are -

(1)   the value of such an industry as an agent in trade diversion, coupled with the fact that the heavy annual drain on our overseas funds is not offset by reciprocal trade considerations;

(2)   Australia provides the market, has the raw materials, and the engineering skill necessary to carry the proposal to successful fruition ;

(3)   the employment factor;

(4)   the building up of a great additional force of engineering artisans so essential to defence;

(5)   its contribution to defence generally;

(6)   it will contribute to a sound and safe policy of immigration;

(7)   the more difficult part of the motor car is already being manufactured in Australia;

(8)   the effect of the policy in reducing the cost of parts already manufactured in Australia; and

(9)   the firm conviction that manuture can be accomplished without increased prices to carusers.

I donot propose to attempt to elaborate all those aspects, as honorable senators will have a further opportunity to discuss them; I shall refer only to certain objections which have been voiced against the proposals. It has been claimed that the manufacture of the complete car in Australia will involve greatly increased costs. Certain critics of the proposals, whose criticism is by no means disinterested, have pointed to the selling price of cars, measured in Australian money converted at the current rate of exchange, in support of their criticism. I hope that no honorable senators will allow themselves to be deceived by specious calculations of this kind. The question of economic production has been fully considered by the Government, which is satisfied from facts and data that production can be undertaken just as efficiently and economically as in many other industries. It is perhaps necessary to point out that only 20 per cent, of the gross selling price of the cars chiefly sold on the Australian market is represented by overseas chassis costs. The remainder of the selling price is made up of charges and costs incurred in Australia. The production of the complete car in Australia will affect only that 20 per cent, of the gross price. I shall take a 15-cwt. chassis as an example. This is approximately the weight of the most popular sellers in the Australian market. The gross duty paid in respect of Canadian chassis of this type is £22 6s., and £43 Ss. for a similar chassis from the United States of America. If we add to this the bounty of £30 which the Government proposes to pay in the initial stages of the industry, and allow £20 as a conservative estimate of the saving which it is anticipated will result in bodybuilding costs due to mass production under the new conditions, it will be seen that the margin available to cover additional costs in the manufacture of engines and chassis amounts to £72 6s. over the Canadian example and £93 8s. over the American example. It is not, of course, anticipated that the difference in prices in Australia and America will be so great as these margins, more especially when it is recognized that the overseas cost of the motor car engine is less than £30. These figures demonstrate that the cost of production in Australia must be exceptionally high in comparison with the cost overseas before the selling price of the motor car is- carried above the present level.

As an indication that production of this nature can be carried out in Australia at reasonable prices, I remind honorable senators that 4,700 internal combustion engines were produced in Australia during 1935 under normal protective duties, the British preferential rate on this class of goods being 33f per cent. These are pertinent facts which, I suggest, may serve to convince honorable senators that there is no justification for anticipating that the production of the complete car in Australia will involve consumers in the payment of higher prices than at present obtain. What is regarded by those qualified to speak as the more difficult part of the car to produce is already being manufactured in Australia. I refer to the body or the fashion side of the car. Bodies are continually changing in design and appearance. Contrary to popular belief, little alteration in engine design has occurred within the last decade. It will no doubt be claimed in some quarters that the manufacture of motor cars in Australia by two or three manufacturers will not permit production of all the types sought by Australian purchasers. The great variety in the types of vehicle now on the Australian markets is not so much due to the specific demand of the buyers as to the multiplicity of organizations competing with each other to sell only the very few cars of each type purchased. Eighty per cent, of the total Australian demand is met by cars of North American origin. Eleven different engines are responsible for 88 per cent, of the importations. Eighty-four different engines are listed on the Australian market, but if 67 of these different types are aggregated they account for only 15 per cent, of sales. It will be apparent that there is not a general demand for numerous types of cars. However, if a purchaser desires to gratify his fancy for a particular car, and demands an overseas product, he will be able to get it, just as some fastidious purchasers import the car complete with body. There is no reason to anticipate that a company undertaking the production of cars in

Australia will not enjoy access to overseas research and design. The Australian public should therefore be assured of their ability to obtain cars incorporating all new developments.

I shall refer to the action which the Government has taken in the matter of textile imports. The Government had viewed with concern the rapid changes iri the direction of trade in cotton and artificial silk piece goods prior to the tabling of the tariff proposals on the 22nd May last. The extraordinarily low prices at which most of the foreign textiles of these types were being imported utterly defeated the policy, as expressed by the tariff, of according a material measure of preference in the Australian market to textiles of United Kingdom origin. Honorable senators are aware of the preferences granted to Australian primary produce in the United Kingdom market under the terms of the Ottawa Agreement. As a partial offset to the preferences which we then obtained, the Commonwealth agreed to grant preferential treatment to cotton and artificial silk piece goods, which amounted to approximately £4,09S,000. These textilesaccounted for no less than 23 per cent, of the total imports into Australia from the United Kingdom in 1931-32 - that is the year in which the Ottawa Agreement was made. By 1935-36, notwithstanding the increased measure of prosperity compared with 1931-32, imports of these textiles from the United Kingdom had fallen to £3,571,000. In the present state of confusion in the currencies of the world, the trend of the trade is better indicated in terms of volume rather than of value. Between the years 1932 and 1935 exports from the United Kingdom of cotton piece goods to Australia decreased by 49,000,000 square yards, while the exports from foreign countries to Australia increased bv 50,000,000 square yards. In artificial silk the British exports to Australia fell from 8,000,000 square yards in 1932 to 7,250,000 in 1935. Imports from foreign countries increased by over 53,000.000 square yards in the same period, rising from. 15,000,000 to 68,500,000 square yards.

These figures, I think, reveal quite clearly that the margin of preference n greed to at Ottawa, which was based on ad valorem duties, and has been almost, if not wholly, destroyed by the heavy depreciation of the sterling value of the currency of Great Britain's chief competitor, was totally inadequate. Australia still enjoys the benefits of the United Kingdom preferences on the primary products which we export to that market, but was not, in fact, ensuring to the United Kingdom the market for textiles which was contemplated when the Ottawa Agreement was signed. J apanese textiles had made such inroads into the Australian market that Japan, in addition to supplying about 93 per cent, of the pure silk fabrics, had captured 87 per cent, of the market in respect of artificial silks, and 45 per cent, in respect of cottons.

The Government, after many months of deep and close consideration of the development of the trade in foreign textiles, and after very close investigation of the price factor, decided that it could no longer regard with indifference the effect upon Australian economy of the rapidly- increasing volume of imports of low-priced foreign cotton piece goods and artificial silk piece goods. The Government was forced to the conclusion, based solely upon the necessity to' grant protection to British industry, in view of our complete reliance on the market provided by the United Kingdom for the absorption of our exportable surplus of all difficult selling commodities, that the imports of foreign textiles at such disturbing price levels could not go unchecked. Under the double advantage of low production costs and a heavily depreciated currency, Japan has become, virtually, the only foreign supplier of cotton and artificial silk piece goods. The extremely low prices of Japanese textiles rendered the ad valorem preferences accorded to the United Kingdom totally ineffective. The position during 1.935 and the early part of this year was further aggravated by a series of drastic and seemingly unnecessary reductions of prices on the part of Japanese exporters, bringing their prices to a level which completely defied competition from other countries. It became clear that it was only a question of time before practically the whole of Great Britain's textile trade with Australia passed into Japanese hands. Whatever claims Japan may have had for special consideration because of its extensive purchases of Australian wool and wheat, the claims of Great Britain were many times greater. For many months the Government engaged in negotiations on the subject in an effort to reach a friendly arrangement with Japan whereby the volume of Japanese textiles exported to Australia would be curtailed to an agreed limit. Unfortunately, these efforts to adjust the matter by friendly arrangement failed, and left the Government with no alternative but to proceed by uni-lateral action to redress a position which had become intolerable.

The duties proposed in the bill are based on an exhaustive price survey which included an examination and comparison of invoice prices of all imports of these textiles during the month of February. They are designed to limit the importation of the cheapest grades of textiles into the Australian market. They are neither discriminatory nor prohibitive. I should like honorable senators to appreciate that Australia has been almost the last country to impose a defensive restraint on the importation of excessive low-priced Japanese textiles. In consideration of the fact that Japan was a good customer for Australian wool and wheat, Australia has displayed a degree of forbearance in facing the problem of Japanese competition which has not been practised by other countries similarly affected. An appreciation of the extent to which the prices of Japanese textiles have been reduced may be gained from the fact that, although our imports of Japanese textiles last year were more than three times the quantity imported prior to 1930, the value of imports in the later ye,ar was only about three-quarters of the value of the smaller imports prior to 1930.

By a remarkable coincidence the United States of America gave notice, also on the 22nd May, of its intention to increase the duties on Japanese cotton piece goods by 42 per cent. The reason for that action affords a striking parallel to the reasons advanced by the Commonwealth Government on the same day, and was reported in the following terms : -

Japan's position is quite understandable. The State department recognizes as well as Japan the importance of American-Japanese trade, and it is for this reason that, despite the fact that petitions or recommendations for restrictions on as many as 200 items of Japanese imports have poured into the State department, the Government is doing the best it can to placate them. The State department is not so narrow-minded that it would immediately set about curbing Japanese imports merely because there has been some increase, but Japanese exporters themselves must realize the injuries resulting to American industry if, in spite of the ability to compete effectively with American goods on the American market without excessive price-cutting Japanese exporters pour preposterously low-priced goods into the market ir. large quantities all at once, instead of endeavouring to expand their markets, little by little, as they should.

The case of the Commonwealth Government rests on the disturbing effects which the tremendous influx of excessively cheap textiles has on our trading relations with other countries, and on the business community within Australia. I emphasize that the desire of the Government is to limit the volume, not necessarily the value, of textile imports from Japan. Having regard to comparable qualities of piece goods, an ample margin exists between Japanese prices and those of Japan's nearest competitor, to enable Japan to be compensated for a reduced volume of textile exports to Australia by an increase of price. A supplementary factor which weighed

Avith the Government was that it could not allow any great section of the Australian market to be entirely absorbed by goods of relatively low and completely non-competitive levels. Regardless of the country of origin, wc could not observe these import levels without serious thought for our Australian standards. If such price levels in a competitive sense could be adopted for any one industry they may at any time be adopted in others. It appeared to the Government that the stand it is making would have to be taken sooner or later, and it would be lacking in courage and in its duty if it failed to take it now

The trouble with these low-priced textiles is not peculiar to Australia. Australia has been one of the last countries to move against them. Recently the Japanese Textile Guild announced that 76 countries had taken action either directly or indirectly to limit the importation of Japanese cotton cloths. The strength of the Commonwealth case lies in the fact that it is impossible for any country, working under western standards, to meet Japanese competition, particularly when Japan enjoys the supplementary advantage of a very heavily depreciated currency. The advantages of these factors are appreciated in wellinformed quarters in Japan, and in this connexion I invite the attention of honorable senators to certain extracts from a recent research survey by the Mitsubishi Economic Research Bureau in Tokio. Speaking of the rayon industry the survey said -

In view of the late start and up-to-date equipment the improvement in Japan was even more thorough than abroad; but the low cost of production must be chiefly ascribed to the exceptionally cheap labour cost.

Japanese articles have invaded every corner of the world market under the double advantage of low exchange rates and production costs. It is easy to understand why import restrictions should be particularly directed against Japanese goods.

Although the Government has been compelled to move for increased rates of duty as a defence against low-priced foreign textiles it has always been prepared to consider modifications, provided the Japanese Government is willing to co-operate in imposing restraint on the quantities exported to Australia at such devastating}? low prices. Negotiations to this end are in progress at present. I have justification for anticipating that a solution of the difficulty acceptable to both parties will be found.

Meanwhile I ask the Senate to accept the duties and the proviso contained in the schedule.

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