TARIFF PROTECTION IN AUSTRALIA
by
The Hon. C. R. Kelly, M.P.

Speech given to the
FINNISH CHAMBER OF COMMERCE
Sydney, December 4, 1970

Most of this talk will describe the methods (and their effects) by which we in Australia protect our industries. But as I am talking to the Finnish Chamber of Commerce, it is worth remembering that Finland bought from us $4.3m worth of goods last financial year while we bought from Finland 17.7m (nearly four times as much). So the trade balance between our two countries is rather one-sided. I am not one of those who thinks that trade between two countries should balance, but there is no sense in not recognising the magnitude of the imbalance.

I will be describing the barriers that we place in the trade channels to protect our industries, often with injurious effects on both trading partners. But I am well aware that Finland places barriers in the way of our trade with her. They may not be the same steps as we take, but they may be even more effective.

How do we in Australia protect our industries? First, and most important, by the imposition of customs tariff duties. These are only imposed following a report by the Tariff Board, which recommends to the government the rate of duty necessary to protect an industry that is thought to be economic and efficient. The government usually follows the Tariff Board advice, but not always.

The Tariff Board hearing and the preparation of the report takes a considerable time — often over a year. Sworn public evidence is heard from all interested parties, and, if necessary, confidential evidence is submitted. Often the public evidence fulfils a valuable educative function and so helps prepare the industry and the public for the recommendations that follow. It brings things out into the open. I wish Finland treated us in the same way.

The Tariff Board has, over the years, acquired a world-wide reputation which has been enhanced by its performance in recent years, when it has acquired the experience and expertise to enable it to measure the effects of its recommendation more accurately. It is also becoming increasingly conscious of the adverse effects on the well-being of the economy of unnecessarily high protection. So I would say that, provided the government continues to recognise that it needs independent and expert advice on tariff matters and continues to sustain the Board with money and men, and continues to generally follow the recommendations, then we will move steadily towards a more moderate and sensible level of tariff protection.

I think the government will be glad to generally accept the Board’s advice for four main reasons. First, rural exports still make up about 50% of our exports. The position of the rural exporter is grim and he is in no mood to have unnecessary burdens placed on his bent back. Secondly, the mining industry is becoming an increasingly important exporter and it speaks with a clear and powerful voice when its costs are increased by unwise tariff protection. Thirdly, secondary industry itself is becoming increasingly export conscious and high tariff usually hurt their ability to export. Fourthly, all the advice of economists and treasury officials point authoritatively to a policy of lower protection.

That this movement will be resented and resisted, I have no doubt. Sometimes the resistance will be rather puerile and appear as naked self-interest, as in the man-made fibre diatribe. Sometimes it will be better mounted, as when A.I.D.A. talk economic jargon. Sometimes the resistance comes from a Member of Parliament in whose electorate a factory is damaged. But gradually, as we become more mature and more industrialised, the realisation that unwise tariff protection hinders gainful employment and development will be more widely accepted.

How will the political parties regard this? It will be generally accepted by the Liberal Party, though there will be pockets of resistance. From now on, the Country Party will probably revert to their old lower protection policy as the tariff becomes increasingly resented by their constituents. I do not know how the Labor Party will end up. They have been for many years a high protectionist party and their spokesman in this field, Dr Cairns, has, after trying the other side of the fence for a while, finally came down as an advocate of protection at any price. Yet Mr Whitlam, the Leader of the Opposition, has recently adopted a low protection outlook. My guess is that, if they get government, the logic of events will force them to follow the path of economic sense, though I would not be certain of this.

So much for customs tariffs. What other methods of trade protection do we use? The next one on the list is dumping duties. The justification for the imposition of dumping duties is to protect Australian industry from overseas competitors who may sell goods cheaper in Australia than they do at home. This may be done simply as a marginal pricing exercise in order to get the economics of scale that spring from greater through-put. We are always advising our manufacturers to do this. But also dumping has been used to prevent an Australian competitor getting started and this is a dangerous use of commercial power.

There is considerable difficulty often in establishing what is the domestic price in the overseas country and I am afraid that we in Australia have often taken the easy way out by using the most common price. To take a case which you Finns will understand, there is in Finland and Scandinavian countries a common “Scanfin” price which is the common price which is a closely controlled paper industry insists on. But we know that it can be breached on occasions by competent merchants. What is the good of getting a cut price if, as soon as you do, you incur a dumping duty that makes the price the same as if it had been bought at the “Scanfin” price? A merchant in Finland says to his Australian buyer, “Why not pay us the full price? If you pay less you only pay it to us. The cost will be the same.” So we end up paying more than we need for our paper. It doesn’t make much sense.

This kind of action is even worse with the “support values” method of arriving at tariff duties. This, fortunately, has so far been confined to the chemical industry. But this whole business is dangerous. It may be administratively convenient, but it seems queer that we should be going through the motions of trying to prevent restrictive trade practices against the public interest in Australia, while we encourage their operation in our overseas competitors.

The next protective device we use is the emergency protection imposed by a Special Advisory Authority. To get emergency protection an industry goes to the Department of Trade and, if it can prove a rapidly deteriorating position caused by imports, it can be granted a hearing before the Special Advisory Authority who usually awards emergency protection. The case then goes to the Tariff Board for full report in due course. I have been very critical of this process in the past. First, the level of examination by the S.A.A. is often lamentably low. And second, the process has been abused in the past by emergency protection being awards immediately following a Tariff Board report. The case then goes back to the Tariff Board for a full report. This led to the “shuttle service” with reports from either the S.A.A. or the Tariff Board following in bewildering succession.

Fortunately, this process is not so often used now that we are becoming more mature industrially. I grant that there should be some emergency machinery, but I am anxious that it not be abused.

There is another weapon in our protective armoury. Goods may be admitted into Australia at non-protective rates under customs by-law if it can be proved that there are no suitably equivalent goods made in Australia that are reasonably available. The ability to import under by-law is valuable, but I cannot be confident that the system is not being abused. The decision that an article is suitably equivalent and reasonably available is made by Customs officials and it is difficult for the ordinary citizen to find out what is going on. And, indeed, it is difficult for a Member of Parliament, also. And the decisions themselves are difficult. Is an open front header, which is capable of dealing with really heavy down crops suitably equivalent to a standard Australian header good at handling ordinary crops? Is a very light rotary stationary engine suitable for being carried in spray equipment, suitably equivalent to a much heavier reciprocating engine? I repeat, they are difficult decisions and it is difficult to find out on what grounds they are made.

What is reasonably available? Say, a company in Australia had the equipment to make machines. It hasn’t made a model like the one that is being asked for, but it feels sure it could. But it would take some time — probably six months. It is not an easy decision to decide what is a reasonable time to wait for delivery, particularly when the overseas machine can be bought off the shelf and its performance is known.

I think we would all be much happier with the by-law system if there were public knowledge of what by-laws were granted. I know the by-laws are published in the Commonwealth Gazette, but it is difficult in many cases to identify the product precisely and almost impossible to find the reasons for the decision.

I think we should have more light thrown on this part of the protection process. There is certainly a great deal of suspicion that the system is being used to award higher protection than is wise. I have a great deal of confidence in the Minister for Customs, but I also think that the Customs Department is biased towards protection and I know that the commercial world would be glad if some method of exposure of the true position could be evolved. It would be difficult, but I think it is important.

The by-law position is made worse because there are sections of the tariff that have not been looked at for many years. A clear case is that part of the tariff dealing with machinery and manufacturing of metal. This contains many duties which are very high, often 55%. About 70% of the by-law applications come within this group. If the duties were more sensible it would not matter so much if by-laws were granted or not. As it is now, it is often a matter of great importance to the importer whether or not he can get by-law entry. If he can’t, it may very well mean that he cannot economically afford to buy an essential tool of trade.

The Tariff Board is continually asking for this group to be referred to it by the Minister for Trade. Why this has not been done, I simply cannot understand. To think that the competitive position of Australian manufacture in this area has not changed since the depth of the Depression, when many of these goods were last reviewed, is impossible to believe. To penalise Australian manufacturers by forcing them to pay prohibitive duties for essential tools makes their competitive position against imports much more difficult. So I hope we will soon see this area referred to the Tariff Board.

To sum it all up, I am certain we can look forward to a gradual easing of our protective industries. We know now that we have a greater percentage of our work force employed in secondary industry than has the U.S.A. We now are an industrialised country. We know that high duties are always paid for by other user or exporting industries. I think that the protection honeymoon is over, but it would be too much to hope that the path to a wiser protection policy will not be rough in parts. But we will gradually get there. The way would be a lot easier if other countries were not more misguided than ourselves. That is why the projected new legislation in the U.S.A. is so frightening. If they start to put the shutters up, the world is likely to embark on a trade and tariff war as we did in the 1930s. This will not only make another world war almost inevitable, but it will also mean that living standards will be unnecessarily low in our country and in others.

God save us all from economic nationalism run mad!