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Tuesday, 2 October 1906

Senator CLEMONS -I have read the whole of the agreement, which. I think, is a very interesting document. It was the chief operative means of keeping up the price of stripper-harvesters for a certain period in Australia to a minimum of £85. That agreement was broken, but not by Mr. H. V. McKay. It may interest honorable senators to know that the people who were the one cause of the agreement coming to an end were not Australian manufacturers, but were the two chief importing companies - the Massey-Harris Company and the International Harvester Company. Those two companies signed the agreement, but they have the redeeming grace of having broken it.

Senator Guthrie - They repudiated the agreement they signed.

Senator Trenwith - As a matter of fact, that is not quite correct.

Senator CLEMONS - I think it is.

Senator Trenwith - If there is any virtue in breaking the agreement, it was first broken by Australian manufacturers on a promise of the Minister of Trade and Customs.

Senator CLEMONS - An underhand promise ?

Senator Trenwith - An open promise, made in the light of day ; and, in consequence of that promise, the International

Harvester Company and the MasseyHarris Company withdrew.

Senator CLEMONS - This is very interesting to me.

Senator Trenwith - The honorable senator knows that that is so.

Senator CLEMONS - I should like to know more details about the promise - how it came to be made.

Senator Trenwith - It was made in public, and was reported in the press.

Senator CLEMONS - I should like to know whether it was a promise with an implied consideration.

Senator Trenwith - It was a contingent promise, and the Massey-Harris Company and the International Harvester Company took it as a breach of the agreement, and withdrew.

Senator CLEMONS - And well they might. I can understand from Senator Trenwith's interjection what took place.. We are told that some Australian manufacturers went to the Minister of Trade and Customs - we can supply what is left out - and said - " If you give us £25 as a specific duty, or some other protection, to enable us to keep up the price, as we do now by the agreement, we will let the agreement go by the board." It is easy to understand that arrangement. No doubt Mr. McKay thought that if he could secure from the Minister a protective duty of £25, he would make more profit than even under the agreement - he would shut out the importers as well.

Senator Fraser - Doesthe honorable senator not mean a duty of 25 per cent.?

Senator CLEMONS - I mean a specific duty of £25.Senator Fraser cannot expect me to be in the confidence of the Minister of Trade and Customs or Mr. McKay.

Senator Fraser - Was there any mention of £25 per machine as a Customs duty ?

Senator CLEMONS - I refer Senator Fraser to the evidence. The complaint in regard to stripper-harvesters was based on the ground that a specific duty of £25 per machine was requisite in order to place the Australian manufacturers in a position to make a fair profit.

Senator Guthrie - That was when Customs duties were being paid on a value of £26.

Senator CLEMONS - No.

Senator Guthrie - It was when the

Reid-McLeanGovernment took action.

Senator CLEMONS - It was at a time when stripper-harvesters were being introduced at an invoiced price, not of £26 or£28, but of £38.

Senator de Largie - Before the honorable senator leaves the matter of the agreement will he tell us the reasons given by the importing companies for breaking the agreement ?

Senator CLEMONS - I should like to refer Senator de Largie to the evidence, and I hope to be able to do so later on if he will remind me. I cannot place my hand on the evidence just now, because, as honorable senators know, the testimony is most voluminous.

Senator Trenwith - That which has been read by the honorable senator is said to be an authentic document ; how did the honorable senator become possessed of it? Was it produced in evidence?

Senator CLEMONS - Does Senator Trenwith think that I am reading a document that is not authentic?

Senator Trenwith - No ; I merely wish to know.

Senator CLEMONS - I do not think that at present I can completely answer the question. It is perfectly open to Senator Trenwith to verify the document - no doubt he could get at a source of information quite as original as my own.

Senator Trenwith - I do not hint or suggest that the document is not authentic, but I think the Senate has a right to know how the honorable senator became possessed of it.

Senator CLEMONS - I cannot answer completely, but will begin a series of exclusions by at once saying that I did not get the document from Mr. McKay.

Senator Dobson - The document is not in the evidence given before the Commission?

Senator CLEMONS - I do not think the document will be found in the evidence. Before I ask honorable senators to follow me in any details, I should like to refer to some of the main factors which ought to govern us in dealing with this matter. It is hardly necessary for me to repeat that the members of the Tariff Commission, free-traders and protectionists alike, had no trouble or difficulty - and, certainly, without any concession on the part of the protectionist members - in coming to the conclusion that the total cost of the manufacture of a stripper-harvester in Australia may with complete safety be put down at £41.

The evidence on this point is very voluminous, but I think the mere statement that the eight members of the Tariff Commission were of opinion that £41 was a liberal allowance ought to be sufficient for honorable senators. The proof is to be found in the evidence. There is ample corroboration in the evidence of half-a-dozen witnesses.

Senator Fraser - The evidence of manufacturers.

Senator CLEMONS - Undoubtedly.

Senator Trenwith - Did any manufacturer state that the cost was £41 ?

Senator CLEMONS - No, we could not get Mr. McKay to say that it was.

Senator Trenwith - Why specially select Mr. McKay ? Did any manufacturer say that the cost was only£41 ?

Senator CLEMONS - I do not think that we could induce any manufacturer to say specifically that that was the cost. I shall be very glad, if necessary, to point out the grounds on which the Commission arrived at this conclusion as to the cost. In paragraph 10 of the report, signed by the four protectionist members of the Commission, it is stated -

That the evidence shows that the factory cost of stripper-harvesters, plus wholesale profit, in the principal markets of Canada and the United States of America, is about£38, and that upon invoices so framed the duty collected amounted to £5 4s. 7d.

Senator Trenwith - That is to say, all the evidence the Commission had before them was to that effect.

Senator CLEMONS - What does the honorable senator mean by that interjection ?

Senator Trenwith - The Commission had exactly the same evidence from the American manufacturers as it had from the other side. No books were presented.

Senator CLEMONS - But an offer was made by the Massey-Harris Company and the International Harvester Company to allow the fullest scrutiny of their books if Mr. McKay would do the same.

Senator Trenwith - Why did not the Commission accept that offer? They would have accepted a similar offer on the part of the other side.

Senator CLEMONS - We made every effort to induce Mr. McKay to make a similar offer, so that his books, as well as those of the Massey-Harris Company and the International Harvester Company, could be subjected to an examination by a skilled accountant appointed by the Commission.

Senator Trenwith - If Mr. McKay would not produce his books, why did not the Commission ask the other companies to hand in their books ?

Senator CLEMONS - Because it would have been unfair to them.

SenatorPlayford. - The Commission proceed to point out that -

It is necessary to draw particular attention to the fact that the above-named factory cost of the Australian-made stripper-harvester is merely, an estimate, based upon a deduction from facts.

Senator CLEMONS - I intend to read the paragraph which the honorable senator is quoting. Paragraph 10 continues -

That the Minister of Customs, being dissatisfied with such invoice valuation, in July, 1905, re-assessed the invoice value of stripperharvesters under the Customs Act 1901, section 160, and fixed such value at£65 ; with the result that the duty was raised from £5 4s. 7d. to £8 2s. 6d., being an increase of £2 17s.11d. That the question of the legality of the Minister's decision being at present the subject of a suit in the law courts, we feel precluded from expressing any opinion on the question of such invoices valuations.

Senator Col Neild - Has that legal contest eventuated?

Senator CLEMONS - No. An attempt was made, eitherby the Minister of Trade and Customs or the Attorney- General, to stop it, but proceedings are still going on. This attempt to burke inquiry reflects very little credit on the Commonwealth.

Senator Trenwith - Is there any evidence that such an attempt was made ?

Senator CLEMONS - The honorable senator can inform his mind by looking up the reports. Paragraphs on the subject have also appeared in the press. Paragraph 11 of the Commission's report reads -

That the manufacturers of stripper-harvesters in Australia declined to give the Commission information respecting the factory cost of making stripper-harvesters in this country, but from data submitted to the Commission by such manufacturers, viz., that the. cost of the material of a stripper-harvester amounts to about £26, and that the wages paid in its manufacture amounts to 30 per cent. of the cost of the finished article, the inference has been drawn that the total cost of a locally-made stripper-harvester is about£37 3s.

We had abundantly clear evidence, which justified the Commission in arriving at the conclusion that the cost of the material in a stripper-harvester is £26.

Senator Col Neild - What about the cost of labour?

Senator CLEMONS - Our conclusion in that regard is based upon evidence, as to the total cost, that we had to piece together. We took the evidence of, I dare say, half-a-dozen witnesses as to the cost of labour employed in producing the finished article, and made the very generous estimate that it was equal to 30 per cent, of the cost of the finished article. Personally, I do not think that it is more than 25 per cent. ; but we all decided to err largely on the safe side, in order that no one should be able to cavil at our finding.

Senator Trenwith - What were the factors which led to that deduction?

Senator CLEMONS - We ascertained, first of all, to our complete satisfaction, that the total cost of the material in an Australian stripper-harvester amounts to about £,26.

Senator Trenwith - Then you required another factor as to the cost of the finished article.

Senator Fraser - The evidence as to wages ought to be sufficient.

Senator CLEMONS - I cannot, without referring to the evidence, point out how we arrived at that estimate of 30 per cent., but I can assure Senator Trenwith that it is a generous one, based on reliable evidence.

Senator Col Neild - Was any opportunity offered to McKay Brothers to question the Commission's estimate?

Senator CLEMONS - We repeatedly questioned Mr. McKay on this point. We not only urged him to give us full evidence on this point, but on more than one occasion these facts were submitted to him, and he was asked whether he could deny them. Mr. McKay sent a witness to controvert certain other evidence that had been given before us, but that witness carefully, and almost with emphasis, refused to touch the question of cost. Whilst they were prepared to contradict other witnesses as to conditions of labour, they scrupulously avoided any repudiation of the evidence given by this particular witness and others as to the cost of these machines.

Senator Playford - All the other manufacturers did the same.

Senator CLEMONS - That does not make McKay's position any better.

Senator Trenwith - Why not mention James Martin, May Brothers, or Nicholson and Morrow ?

Senator CLEMONS - Because we know, if Senators Playford and Trenwith do not, that the whole complaint originated with Mr. McKay.

Senator Col Neild - That is a matter of common notoriety.

Senator Trenwith - It is not true.

Senator CLEMONS - The notoriety is well justified. The report goes on to say -

Assuming this statement and the inference therefrom as being correct, and adding to the cost of machinery and the cost of wages another 10 per cent, to represent general expenses of manufacturing, management, lighting, insurance, &c, the cost of a complete machine in Australia should work out at about £41.

That is the conclusion arrived at, not by the free-trade members of the Commission, but by the whole of the members of the Commission. It was arrived at by the four protectionist members without any concurrence of the free-trade members. In other words, they originated this expression of opinion, and they not only believed it firmly, but believed it first. We were all of opinion that that conclusion was justified by the evidence which came before us. I desire to emphasize the fact that this conclusion does not represent any compromise on the question between the protectionist and free-trade members of the Commission. In paragraph 12 of their report, the protectionist members of the Commission say -

That the American and Canadian manufacturers say that they can produce stripperharvesters much cheaper in North America than they can be produced in Australia, and that the invoice price of ^38 represents not only factory cost, but manufacturing profits for the head establishment in Canada, and in the United States before the machines are transmitted to Australia for sale.

The evidence on that point was fairly broadcast ; but I think no one will say that a manufacturer's profit in America or Canada represents more than £5 per machine. I omit paragraphs 13, 14, and 15, and come to paragraph 16, which again is a part of the conclusion arrived at by the protectionist members of the Commission, and includes, a tabulated statement concerning the question of cost of manufacture and profit made. These are the figures given -

Landed cost, including duty, Massey-Harris, £60 is. 4d. ; International harvester, ^55 18s. nd.

I stop for a moment to point out how these figures compare with the valuation imposed upon these articles bv the Minister of Trade and Customs. The protectionist members of the Commission found that these figures represented the landed cost, including duty, of the machines referred to - that is to say, all the cost of manufacture and shipment from the United States until the machines were landed in the Commonwealth, duty paid. The landed cost, including duty, of the Australian-made harvester, is given at £41 -

Selling expenses, Massey-Harris, £17 16s. 11d., International harvester, £12, Australianmade, £21 17s.5d.

It will be seen that a considerable difference in cost of distribution has been allowed for by the protectionist members of the Commission. They have, I think, dealt with the matter generously in agreeing that the Australian manufacturers are at a cost of distribution largely exceeding that entailed upon the competing foreign firms.

SenatorCol. Neild. - £21 in one case, and , £12 in another.

Senator CLEMONS - Precisely. It is alleged that Mr. McKay, with all his organization and capital, had to spend . £21 on the distribution-cost of an Australianmade harvester, as against £12 spent by the International Harvester Company, and £17 by the Massev-Harris Company. I have only to repeat that this is a liberal and generous estimate for the Australian manufacturer. If it is accurate, there is no doubt that the distribution-cost of the local article is too high, and should be lowered. I might mention here that the Tariff Commission found that, in connexion with many other items, the cost of distribution in Australia is a great deal too high. That was the opinion formed by every member of the Commission. We were asked to increase duties in order to allow of a fair profit to the manufacturer, andwe felt that, in many cases, a large amount of the profit was leaking ; that the distribution-cost was a great deal too high, andseriously affected both manufacturer and consumer.

Senator Col Neild - The report makes an allowance of over 50 per cent. for distributioncost - £21 on a machine valued at £41. That seems to me to be preposterous.

Senator CLEMONS - I say that it is an extremely generous and liberal allowance; and, if it is not, it only proves that there is something radically wrong with the distribution of Australian-made goods.

Senator Trenwith - It is not an allowance at all. It is merely a statement of evidence presented.

Senator CLEMONS - I take the interjection, and ask Senator Trenwith whether he thinks that the allowance is too high or too low.

Senator Trenwith - I do not say anything about it, except thatit is a mere statement of evidence presented.

Senator CLEMONS - It is a part of a serious conclusion, and I am willing to allow Senator Trenwith to say whether he thinks£21 17s. 5d. is toohigh or too low a figure at which to set the distributioncost of the Australian-made machine?

Senator Trenwith - I express no opinion about it.

Senator CLEMONS - If the honorable senator regards it as too high, then the profit made by Mr. H. V. McKay is even more than the tabulated statement shows. If he says that the figure is too low, then I say that, instead of asking for protection not only for stripper-harvesters, but for a hundred-and-one other articles, the honorable senator and every one who is concerned for the welfare of Australian industries should bend their energies to the reduction of the enormous cost of distribution of Australianmade goods. If the honorable senator will do that, I shall be with him, because I feel that, not only in the case of stripper-harvesters, but in the case of many other articles, the cost of distribution is unjustified, and does great injury to manufacturer and consumer alike.

Senator Givens - The high cost of distribution of the Australian-made machine is the result of keen competition, which makes it necessary for the manufacturers to have so many travellers employed.

Senator CLEMONS - The objection applies equally to a hundred-and-one other articles, and I point out that the members of the Commission have no doubt whatever as to the cost of distribution of the International Harvester Company's and the Massey-Harris Company's machines, and that it is much lower than the distributioncost alleged to be incurred by the Australian manufacturer.

Senator Givens - Are not the. MasseyHarris costs alleged in the same way as the costs to the local manufacturers ?

Senator CLEMONS - I do not think they are, because we had the fullest information on the subject, and I believe the figures stated cover the cost down to a penny.

Senator Givens - Why should not the honorable senator believe the statements of the local manufacturers in the same way ?

Senator CLEMONS - Because we did not get evidence from them in the same way. I point out that the landed cost and selling expenses affect the merchandising profit, which is at the root of the matter. The merchandising profit in each case agreed to by the four protectionist members of the Commission - it is still with their report I am dealing - was, per machine : Massey-Harris, ,£3 is. od. ; International Harvester, ;£i3 is. id. ; and - under existing circumstances, without any alteration of the Tariff - Australian-made machine, 2s. 7d. The latter figure is given in spite of the fact that the selling expenses of this machine are put down at £21 17s. sd., or £9 more than for the International Harvester Company's machine, and £5 more than for the MasseyHarris Company's machine.

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