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Thursday, 4 April 1968

Dr J F Cairns (YARRA, VICTORIA) - The speech made by the Minister for Trade and Industry (Mr McEwen) to the House this evening is one for which we have been waiting for several weeks. It has been apparent that before very long some announcement of this sort would have to come but I must say that as I see the problems of the motor car industry this statement by the Minister is a very disappointing one. He has correctly pointed out that the motor car industry in Australia has become one of very great importance. He says:

It is the pace maker for secondary industry in Australia. It is the second largest employer of labour in the country. The import saving due to our motor vehicle industry represents a vast figure. It sustains a great many other industries by its demands for rubber goods, engineering products, textiles and so on.

This, of course, is beyond question. There is an investment in the industry today of well over $500m and wise it is to point out that of all that money only about $20m is Australian. Whilst this is a very large and a very significant industry it is almost completely owned by people outside Australia. It employs about 55,000 people. In this industry, we have been told for several months, there is a serious crisis, particularly in the production of smaller vehicles. The Minister tells us that recently the manufacturers have submitted tothe Goyernment that they are facing a crisis threatening their existence and future development. So there is no doubt about that. The Minister was quite frank. He recognises the extent and seriousness of the crisis threatening their existence and future development.

What I am concerned to know is whether the Minister thinks that this crisis can be dealt with by action taken against what he calls dumping. Is he suggesting to us that the only or main cause of the crisis in the industry is what he outlined in his speech? The investigations that have been made have revealed that there is clear evidence of a blatant and widespread conspiracy amongst Japanese motor vehicle exporters and some of their affiliated Australian importers. Practices have been going on, of which the Minister gives us details, in respect of cooked values, false invoices and dummy transactions, so that by avoiding duty the retail price of some cars is reduced by about $3, and this has been, apparently, the work of the Japanese alone.

Mr McEwen - Three dollars per $1 of avoided duty.

Dr J F Cairns (YARRA, VICTORIA) - Yes, $3 per $1 of avoided duty. This apparently is the work of the Japanese alone. It is suggested by the Minister that this is the cause of the difficulty. It is no more than a suggestion. Does the Minister intend to tell the House at this stage that this is the cause of the difficulty? I question that it is. No-one on this side of the House will question that if these practices are going on - and evidence of that already has been found - they should be dealt with. Of course they should be dealt with. The Minister correctly says that the solution is not to raise the duty but to stop the malpractices and bring about fair prices and fair competition. We all agree that where these practices occur they must be dealt with and fair practices must be ensured. This is the first thing to do. But I question whether the crisis outlined, admitted and recognised by the Minister is solely caused by these practices.

Recently there have been considerable pressures on the industry but these pressures have been at work for some considerable time and they showed up in a significant way before the volume of Japanese imports became as significant as it is today. In 1966 Japanese vehicles imported numbered about 20,000. They have risen to about 33,000 in 1968, an increase of about 60%, while total registrations have gone up by about 10%. The crisis that we are talking about now is not one that has recently come about but has existed for some time. It seems to me to be deeper seated and to be related to more things than merely the practices that have been adopted by the Japanese importers in recent times. The Minister looks at a number of factors which might give us an indication where the crisis originated. He looks first at the statements that there is a high level of protection and inefficiency in the Australian industry. He looks secondly at what he calls current Government arrangements. He looks, thirdly, at what he calls the evasion of present protection - these practices by Japanese importers to which I have just referred. The Minister dismisses completely the statement that there might be high protection and inefficiency in Australia. I do not think there is any doubt that the level of efficiency in the Australian motor car industry is not the same everywhere. Some parts of the industry are certainly more efficient than others. Also I think there is evidence that in some cases, if not in all cases, prices are a good deal higher than they might be.

The Australian motor car industry has been quite a remarkable one. It came into existence with a small amount of capital inflow buying the basis of an industry in Australia. It produced a motor car that was sold on the Australian market at a price which allowed sufficient money to be taken back by the producer to enable him to build up an industry out of the price he received for the car. It would be totally wrong for the Australian people to imagine that the motor car industry in Australia was established with capital which flowed in from outside Australia. A little capital came into Australia to provide a foundation on which to produce cars and sell them on the Australian market at a price high enough to allow the industry to plow back capital and build itself up.

Mr Bosman - Who made this arrangement in the first place?

Dr J F Cairns (YARRA, VICTORIA) - It does not matter who made the arrangement. The arrangement was quite sound, to begin with. But I am trying to point out to the honourable member for St George that something might have gone wrong since 1949 and that he and his party may have had something to do with that result, because they have permitted very high prices to be charged and very high profits to be made. I am not speaking about inefficiency. I am speaking about this process of exploiting the Australian market to get sufficient money to build up the industry. It might have been better if the capital had come in in some other way. It might have been better if a lower price had been charged for the Australian vehicle. At any rate, I think the Minister would have to agree that we have now reached the stage where perhaps something should be done about prices. The industry has reached the stage - at least those parts of it which are producing vehicles with a 95% Australian content - where it has much of the capital structure that it needs; but it will continue to charge similar prices, make the same kind of profits and prepare for the same kind of ploughback as in the past.

I think that we have a right to say to the industry: 'We expect you not to require as much capital as you did when you were building yourself into this position. Therefore you do not require the same kind of price policy that you needed in the early stages. We expect you to reduce your prices in the future.' I repeat that I am not speaking about inefficiency. I am speaking about the price policy of a monopolist industry - an oligopoly created by Government policy in which three large manufacturers have taken the greater part of the market. The Government created the oligopoly. It has the responsibility to say something about the prices charged by this oligopoly. It is not a question of inefficiency at all. It might well be that the Australian motor car industry, man for man, hour for hour, and unit of resources for unit of resources, is as efficient as any industry anywhere else. It may be inefficient. But the question, most significantly, is one of price policy.

Therefore I think that the Minister is wrong in simply dismissing this question by statements about high protection and inefficiency as though there was no need to give it any attention. Of course, the Minister also intends to dismiss the second question - that is, current Government arrangements. The Minister, in his speech, said:

Here, the first concern is not to think in terms of altering any existing arrangements, such as the small vehicle programme or the plan A or the duty rates.

That is quite correct as a first step, but the Minister must not leave it at that. Let us have a look at these dumping practices first. Does the Minister intend to tell us that he will not concern himself with having a look at the existing arrangements or, as he calls them, current Government arrangements? It seems to me that these current Government arrangements have contributed substantially to the crisis which the Minister now admits exists. It is not just a matter of a Japanese practice having contributed to this crisis. I think the evidence shows that current Government arrangements have also contributed something to it. I hope that the Minister, his Department and others will examine these current Government arrangements quite closely.

At this stage I do not intend to do more than give some indication of what these current Government arrangements are and how they may have contributed to the crisis which the Minister admits we now have in the industry. The current Government arrangements come about as a result of a plan by the Government to establish in Australia the production of motor cars having a 95% Australian content. Reference was made to the Tariff Board. The Tariff Board mads a report. The Board, by a majority decision, made certain recommendations about what should be done to achieve production of motor vehicles with a 95% Australian content. These recommendations were not accepted by the Minister for Trade and Industry. What he chose to do was contrary to what the Tariff Board had recommended.

Mr Irwin - There is no harm in that.

Dr J F Cairns (YARRA, VICTORIA) - The Minister might be right and the Tariff Board might be wrong; but the first point that I should like honourable members to note is that the Minister chose to adopt a policy different from that recommended by the Board. The Government chose to adopt what has been called plan 'A' with a supplementary 'SV, or small vehicle, plan. Under plan 'A', passenger type vehicles are required to achieve 95% local content over a period not exceeding 5 years. I think that three manufacturers have now achieved that level. However, at first ten different makes of vehicles were known to have been entered under this plan. The market for vehicles of the larger type produced under this plan is approximately 300,000.

The first problem is the scale of production needed to reach the most economic level. General Motors-Holden's Pty Ltd produce approximately 200,000 Holden vehicles as part of the total number of larger vehicles that can be sold on the Australian market. The other producers have to share what is left of the market. It is beyond doubt that under plan A there is not room for 10, 9, 7 or 6 producers. For a long time motor vehicle producers themselves have been saying that in order to produce economically an output of at least 30,000 vehicles a year is necessary. Therefore you cannot fit into this economy 5, 6, 7, 9 or 10 producers each manufacturing 30,000 vehicles. The Australian and export market is not large enough. One of the difficulties has arisen because the Government's current arrangements allowed a greater number of producers to enter the field under plan A than could possibly be fitted into it. This was one of the reasons why Volkswagen Australasia Ltd, which had invested approximately $50m in the manufacture of the Volkswagen mo'or vehicle, had to close down a few months ago. So there was a considerable misallocation and considerable waste of resources in a country that cannot spare such misallocation and waste. At least the Volkswagen company has admitted that it made a mistake. It should be obvious to the Government that it, too, made a mistake, but no admission of this kind has been forthcoming from the Government. The Government of this country never makes mistakes. The Volkswagen people were decent enough and humble enough to say that they had made a mistake, but not this Government: It makes no mistakes.

The fundamental weakness of plan A was that it was impossible to fit into it the number of producers who were trying to fit into it, remembering that at least 30,000 vehicles had to be produced by each one for operations to be economical. That is the first point. I do not care how many dumping procedures the Japanese adopt within the limits of 20,000 or 30,000 vehicles. This other aspect is an economic weakness affecting the whole plan far more fundamental than anything dumping can do.

At the other end of the plan, which was a departure from what the Tariff Board had recommended, was what was called the SV or small vehicle or small volume plan. Under this plan it was possible for people to produce 7,500 vehicles with not less than 60% Australian content. Here the key was the limitation to 7,500 vehicles. It was assumed that there would surely not be many separate producers each bringing into the country under this plan 7,500 vehicles, because if you had half a dozen of these you would have a quantity of cars that might fill the Australian market beyond its capacity to absorb them. What the Japanese have done is to proliferate their models under the SV plan. It was assumed that the SV plan would prevent them from bringing in 20,000 or 30,000 cars, but they could bring in 7,000 of each of four models, which in total would be more than 20,000. All of those multiplied models were competitive with the ones sought to be produced here. They would not be sufficiently competitive if there were only one model, but if there were three or four of them they would together be substantially competitive. The plan encouraged the proliferation of models so that each could be imported in the maximum quantity of 7,500.

What will happen now? Volkswagen had to go out of business in this country because it could not reach an economic level of production with an Australian content of 95%. It will produce outside Australia. Its products will be imported with an Australian content of 60%. [Extension of time granted.] I thank the House. I will not abuse its generosity. I will conclude quickly.

Volkswagen will import into this country' three separate models - the 1200. the 1500 and the 1700 - under the SV plan, each in quantities within 7,500. This will give the company more cars to sell here than it was selling in Australia when the cars were produced here. These cars will be a more competitive component in the market, whether they are dumped or not. So if the Minister is suggesting that the substantial thing that has caused this crisis is the dumping procedure, he is seeking to escape the consequences of his own plan A and SV plan. which have encouraged the very thing that they were in the first place supposed to prevent.

We welcome the Minister's statement that he recognises that a serious crisis exists in the motor car industry. We support him in having a thorough investigation into any improper practices that may have been adopted by the Japanese. But we are satisfied that unless he looks a good deal more closely at the pricing policies of Australian producers, and at the Government's arrangements to protect motor car production in Australia, he will be failing to tackle the cause of this crisis. We on this side of the House recognise the need for protection in this country, but the policy adopted by the Government has gone further than protection. It has become a kind of intervention in or a planning of the development of the motor car industry in Australia.

It seems to me that evidence exists to show that the position taken by the Government is not well informed. Broadly, the industry has done its homework, but I do not think the Government has. Its intervention has been ineffective. It has caused misallocation and waste of resources. What is needed is a more orderly, consistent plan, well informed to begin with and deliberate in its operation. What is needed is not more intervention and bureaucracy but thoughtful and purposeful Government action. I submit that we have not had this. We must plan for the development of key parts or main parts of industry and not encourage proliferation as has occurred under the SV plan, with consequent waste and misallocation of resources. If we want a motor car industry in Australia we must be satisfied that we have sufficient units to allow each unit to fit into the total so that it may produce a sufficient quantity to get the best results from economies of scale. There has been wasteful competition between the States. This, I submit, has resulted from the Government's current arrangements and cannot be hidden by histrionics or simply by removing the trouble caused by dumping.

It seems to me that the Minister for Trade and Industry may have other motives in emphasising the significance of what the Japanese have been doing. It may well be that improper practices are carried out by the Japanese in the importation of motor cars into Australia. If there are, let us have the evidence of them and let us get them cleared up. But it seems to me that the performances of the right honourable gentleman in the last couple of weeks in respect of Japan might have some other explanation. There is the mystery of Mr Newton, the secret Japanese agent.

Dr Patterson - A paid agent.

Dr J F Cairns (YARRA, VICTORIA) - A paid one. The Minister soon will attend the International Sugar Conference. Japan is a key country in this Conference. Perhaps the right honourable gentleman is using this type of treatment of the Japanese to promote his bargaining position in respect of sugar. There is a great need for his bargaining position in respect of sugar to be strengthened because the arrangements which he made previously with the Japanese concerning sugar are far from satisfactory. It seems to me that if we are to solve the problems of the sugar industry and the motor car industry we should keep our methods fairly separate. It may well be that the method adopted by the Minister for Trade and Industry in the House in the last couple of weeks is quite appropriate to assist him to get better results for sugar. This could be said to be a matter for debate. But it does not seem to me that his actions are sufficient to get the best results for the motor car industry. More is required. We have not got anything yet for the motor car industry. If members of the Country Party, who are interjecting, think that we have, they are quite wrong. So far we have been told that there have been some malpractices and that these are to be removed. Let us go ahead with this, but this must not be the end of it. But this does not indicate that the crisis, which the Minister admits exists, will be met. I have shown that in the Government's current arrangements and in the price policies of the Australian car manufacturers, there are factors that could have and must have contributed considerably to this crisis.

The Opposition is not satisfied with the position that the Minister has taken up. He told us that he will inform the House of further developments. We will wait very anxiously to be informed by the Minister of further developments, because we expect that they will be most interesting and much more substantial than the speech he made to us this evening.

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