135 Cabinet Submission by Chifley

Agendum 1019E (extracts) [CANBERRA], 15 August 1947



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(b) Australian Interests and Policy The existence of some international body to determine the lines on which international trade shall be conducted seems to offer considerable advantages to Australia. Such a body would almost inevitably increase the influence of small and middle-sized countries, giving them a voice in decisions and enabling them to play an important part in affairs from which they would otherwise tend to be excluded. Without it, important decisions would be made by the giants in concert or small countries would be grouped around and dominated by them. The embryonic I.T.O. Charter bears far more imprint of Australian ideas than other instruments of economic policy which also affect the whole world, like the U.S.- U.K. Loan Agreement.

From the economic stand-point Australia is highly dependent on international trade. Only through this medium can many of our industries be kept working and the living standards of our people maintained. Order rather than cut-throat chaos suits our purposes and our resources. Our interests lie especially along the lines of flexible multi-lateral trade. Our old markets are located mainly in United Kingdom and Europe, the relative world economic importance of which are declining. The population of Western Europe will begin to decline sharply within a few years and this will limit its need for our foodstuffs. Our main avenues of development, particularly for the export of manufactured goods, point in new directions. Even in regard to foodstuffs the fiscal policies of the United States are likely to prevent their becoming a very large net importer of foodstuffs within a relatively short time. It would be foolish to allow old habits of thought to hide all signposts to the future. in such a changing world it is important for us to be able to meet our future customers regularly round the conference table to discuss our reciprocal needs and wishes.

We have a particularly strong interest in the maintenance of a high and stable demand for our export products. The employment provisions of the Charter, though necessarily somewhat nebulous, are an important psychological factor as well as an 'escape' clause. They underline the source of demand for exports and emphasise the bad neighbourliness of allowing preventable unemployment. The 'commodity' provisions of the Charter should also assist in removing some of the instability from which we have suffered in the past.

One of the main planks of Australian policy is industrialisation and full development of our resources. The original I.T.O.

proposals might have resulted in certain aspects of this policy being called into question but the Charter as it is now emerging stresses the importance of such policies in ultimately furthering world prosperity, subject of course, to reasonable safeguards.

Considerable publicity has been given to the question of imperial preference. From Australia's point of view this is probably much more significant psychologically than materially, especially when considered over the whole range of the Australian economy rather than from the standpoint of a particular industry. Preference is not to be abolished, however, but only reduced in respect of particular items as an offset to concessions granted by other countries. Apart from negotiated reductions the Charter permits its preservation intact.

Imperial preference is nevertheless to be frozen by the Charter against future extension, and the Charter will prevent preferences remaining after the conclusion of the present tariff negotiations from being increased. At first sight this may appear a concession by British countries. Actually the opposite is nearer the truth.

The status quo is to be preserved for us and no other member countries may initiate preference systems between themselves, except under the close supervision of the Organisation. As several South American and Middle Eastern countries have been considering such moves the Charter provisions are in essence a gain for us-a fact which they have not been slow to point out.

Another important interest of Australia is that of being able to protect her economy as far as possible against the impact of adverse world conditions when international measures fail, without incurring odium elsewhere or provoking retaliation. This is provided for by the Charter. The I.T.O. itself would moreover provide for a forum for expressing our views and explaining our position in such circumstances.

Membership of the I.T.O. would inevitably entail giving up our freedom of action in many directions until the Organisation had been consulted. In return other countries would have to do the same in matters affecting us. The whole process is essentially one of give and take in the evolution of some kind of order in international trading relationships. A number of parties in Australia could be adversely affected, though not, it is safe to say, seriously in the case of any important established industry.

Considerable criticism can be expected, however, and eventual decision as to membership can only be made by weighing up the pros and cons. For better or worse I.T.0. is likely to be the only attempt to establish an international body in the trade sphere in this generation. If it is set up Australian interests will be markedly influenced whether we go in or stay out.

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(c) Concessions Offered to Other Countries The value of Australia's import trade from the 15 other countries represented at the current negotiations in Geneva is equivalent to 87% of the total imports in 1938/39. No direct tariff negotiations will be undertaken with Canada and New Zealand, whose trade with Australia represented approximately 10% of total imports.

The requests for tariff concessions made by the remaining countries represented on the Preparatory Committee cover the whole range of the Customs Tariff. It has been necessary, therefore, to examine the probable effects on Australian industries of any reductions in existing tariff levels, and also the effects which any narrowing of preference margins now enjoyed by Empire countries may have in diverting trade from those countries to other sources of supply.

In meeting requests from other countries, it has been the aim of the Cabinet Sub-Committee to reduce extreme levels of duties, rather than to make big reductions in individual items. The reductions tentatively authorised will safeguard consumer interests and at the same time will secure reductions of duties against our exports.

The aim has been to offer reductions of duties in the most- favoured-nation column of the tariff to rates of from 40-45% ad valorem, with a top limit, unless in exceptional circumstances, of 50%. It is believed that the reduction of very high rates, which for the most part have remained unused, will help to direct Australian industry into economic channels.

Relatively few reductions have been made in specific rate duties, as their incidence has become less severe as a result of the big rise in world price levels.

As a general rule, rates of duty on United Kingdom goods have been reduced by 5% ad valorem, except where special considerations indicated the need for retention of existing rates. It is considered that, after taking into account the development in Australian industry over the war period, the slight reductions in the British preferential rates should be generally beneficial.

Australian costs to-day compare very favourably with costs in other countries and, while this position continues, the reductions authorised will make little if any difference. The removal of excessive duties will, however, tend to direct productive effort into those lines which can be produced in Australia without imposing extravagant costs upon consumers.

The tariff offers that have been tentatively authorised by Cabinet Sub-Committee are being provisionally negotiated only when reciprocal reductions on the duties operating against Australian exports can be secured. Care has been taken not to offer the binding of low rates of duty where it seems likely that industrial expansion will take place in Australia during the next few years.

In many cases, the requests made on Australia have been directed towards securing the elimination or reduction of the tariff margin of preference which operates in favour of the United Kingdom, Canada and New Zealand, as the result of trade agreements between Australia and those countries. In every instance where an offer is being made which has the effect of narrowing the agreed margin of preference, the concurrence of the British country affected has first been obtained.

Although at this date the tariff negotiations have not yet reached their final stages, most of the items under request by other countries have been dealt with in the various sets of negotiations which have taken place. In terms of tariff items and sub-items under consideration in these negotiations, the results may be summarised as follows:-

Reductions in ad valorem rates Offers of reductions ranging from 5% ad valorem 20% ad valorem have been made on 71 items under the British Preferential Tariff and on 132 items under the M.F.N. Tariff. Of these 58 and 91 respectively were under 10% ad valorem. In addition, offers of reductions between 20% and 25% ad valorem have been made on 3 items under the M.F.N. Tariff.

These offers would have the effect of reducing the margin of preference on 94 items.

Reductions in specific rates Small reductions for the most part, ranging in a few cases up to one-half the existing rates, have been made on 32B.P.T. items and 80 M.F.N. items. Offers of more than one half the existing rates have been made under both the B.P. Tariff and the M.F.N. Tariff on 3 items.

Binding of existing rates has been offered on 118 items.

Retention of existing rates, but avoidance of binding A response under this heading has been made on 64 items.

Primage duties With one exception, all offers affecting customs duties have been accompanied by an offer to eliminate any primage duties associated with the items.

No offer On 288 items the Delegation has advised the representatives of the countries making requests that Australia could make no offer of tariff concessions. In some cases the requesting country was not a principal or important supplier of the goods under request, and the items have been reserved for subsequent negotiations. In other instances, reductions or bindings of existing rates would possibly have exposed Australian industries to competition which they are not able to meet.

Note Offers in respect of 309 items have not yet been made by the Delegation. These items relate mainly to requests made by the United Kingdom. Reductions in the rates of duty on a number of the items have been authorised by Cabinet Sub-Committee.

Possible losses of Empire Preference The provisions of the proposed I.T.O. Charter would operate to prevent the granting of new preferences or the increasing of existing ones. Meanwhile, in the tariff negotiations now proceeding in Geneva, requests are being made by foreign countries for the reduction or elimination of Imperial Preference on some items of export interest to Australia. In a few instances we, on our part, have sought a reduction or the elimination of the British Preference in respect of some items in Empire countries where we do not enjoy the preference (e.g. on steel in South Africa).

In so far as possible losses of preference may provide any cause for concern to Australia the U.S.A. requests for the elimination or reduction of certain preferences at present enjoyed by Australia in the U.K., Canadian and New Zealand markets are of most importance. In this connection dried fruits and canned fruits are the principal Australian products which may be affected. Our preferences on important items such as meat, butter and sugar will not be under fire in the Geneva negotiations.

The first offers to the U.S. by the United Kingdom, Canada and New Zealand have been moderate and involve in fact less reductions in our preferential margins than had been anticipated here.

However the U.S. reactions to these first offers are not yet known.

With the exception of the items mentioned above, requests by other countries, including U.S.A. which may affect the preferential position of Australia in Empire markets are not of sufficient importance to provide any cause for concern.

Any reductions in the preferential margins which Australia at present enjoys in these markets will be provisionally agreed to for the purposes of the present negotiations only if appropriate benefits to Australia are offering to at least offset them.

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The foregoing report covers the major issues involved. The I.T.O.

Charter which emerges from Geneva will be tentative only and subject to change by the World Conference which meets in Havana on November 21st. In the meantime it will be open for consideration.

No decision to accept or reject it will be required till some time next year. The more immediate question is the General Agreement on Tariffs and Trade which will contain the schedule of tariff concessions. It is hoped that sufficient information will be available to submit the matter to the next meeting of Cabinet for decision as to what course of action should be taken. [1]

J.B. CHIFLEY Prime Minister Chairman of Cabinet Sub-Committee

1 A memorandum by Strahan on the same day recorded that Cabinet had noted the information in the Agendum.
[AA : A2700, VOL.22]