Ca.~ 8 U .16
FOR PRESS:* U 8N 1967
L18 R A9
STATEMENT BY THE RT. HON. J. McEWEN, DEPUTY PRIME INISTER
AND MINISTER FOR TRADE AND INDUSTRY, ON HIS RETURN
FROM OVERSEAS ON 26TH MAY, 1967.
1. KENNEDY ROUND GENERAL
The Kennedy Round started as a proposal that practically
all world tariffs of the GATT countries should be cut in half.
Very early, less developed countries were excluded from this
proposal. There is quite a wide range of trade in which countries
deliberately ensure that they do not increase their cost of raw
materials and food, by imposing import duties. Australia is a
predominant exporter of these items. Therefore, under the original
Kennedy Round proposal, Australia was invited to cut her protective
tariffs in half but with no balancing tariff reductions on what
she exported. You can't cut a nil tariff in two.
In 1963 I visited the United Kingdom and told the British
Government that Australia would prefer to continue its reciprocal
Trade Agreement with Britain, to whom we have exported so much,
rather than go into the Kennedy Round with all its doubt and risks.
The British Government intimated they had firmly decided
to go into the Kennedy Round, and would offer a general 50% cut
in practically all their tariffs.
For the things we export to Britain, the Australia-United
Kingdom Trade Treaty mostly gives us duty free entry, with an
obligation on Britain to impose a tariff on our foreign competitors.
For-this benefit we, in return, impose higher duties on Britain's
competitors in our market. In 1965-66 90% of Britain's total
exports of SA759 million to Australia benefited from these
preferential tariff arrangements in our market.
The British Government's position amounted to leaving
Australia's right of free entry unaltered but to halve the tariff
obstacle raised against our foreign competitors.
Upon this British declaration, Australia said she would
enter the Kennedy Round discussions constructively, and examine at
the end of the day, . wh ether there were sufficient benefits left
for Australia in the British market, to justify a new trade treaty
with Britain. That was the situation when we entered the Kennedy
Round of negotiations. The next step in 1963 was for me to argue before the full
assembly of the Kennedy Round countries, about 80, that it was
unreasonable, and impossible, to ask a country circumstanced as
Australia was, to cut all her protective tariffs by half, for the
very doubtful prospect of being given advantages in the export of
her primary products and raw materials.
It was a very important part of the Australian case that
because of the great variety of barriers other than tariffs to
improved trade in agricultural products, and because of the ling
history of unsuccessful negotiations to reduce or limit those
barriers, agricultur2al exporting countries should only be expected
to pay in tariff cuts, for overall advantages accorded their
agri cultural trade.
I intimated that if at the end of the day we had been
given important new advantages for our commodity exports, we would
give balancing advantages by appropriate tariff reductions to those
who exported manufactured goods to us, This was accepted, and
it is on that basis that since 1963 we have participated as a big
importer and exporter in the Kennedy Round discussions.
It wNas always made clear that Australia would not destroy
its existing manufacturing industries by cutting their protective
tariff in half. However because of the fact that Britain had
offered to foreigners to cut our preferences in half, we would be
entitled to pay in part for whatever advantages we gained, by some
balancing diminution in the preferential advantages accorded to
British exports in our market.
We also have a very wide range of imports of items
which we do not manufacture but on which customs duties already
exist. Many of these Customs duties are there for some
historical reason of the past. On two occasions I have asked the
Tariff Board to advise, whether, in respect of a very great range
of items we could reduce duties without detriment to Australian
industry. This advice of the Tariff Board has been available in
the selection of items for which we have offered tariff reduotions.
This sets out the general history and nature of Australia'w
position in respect of the Kennedy Round from before negotiations
commenced, our consultations at that pmint with Britain and right
through to the near-final situation of today.
2. KENNEDY ROUND WHTEAT AND WHEAT AID
Mr. MoEwen said: " The major achievement for Australian
agriculture was the negotiation of the basic elements for a new
international agreement of wheat."
It is intended that the new Agreement reached in Geneva
between the world's major grain exporters and importers should
in due course, take the place of the existing International Wheat
Agreement which has been " carried on" with a number of temporary
extensions while the GATT negotiations have been going on in
Geneva. The major objective of this new GATT agreement on grains
is to put a floor under world wheat prices. This was a concept
within the old International Wheat Agreement.
However, the new Agreement will not only establish the
floor at a higher level than under the but will establish
a floor that is really firm, a floor below which prices do not fall.
The old International Wheat Agreement has neve~ r been
really effective on this major objective. That Agreement set the
minimum price only for Manitoba No. 1 the highest quality wheat
commercially traded. The great number of lower quality grades of
wheat below Manitoba Nn. 1, were left without specific minimum prices,
and without " agreed differentials" of price a very lmose, unfirm
situation. The minimum or floor price that had been finally agreed
in Geneva for a middle grade of American wheat known as Hard Red
Winter No. 2 ( ordinary) wqs $ IJS1.73 per bushel the price being
fixed on the basis of shipping from ports in the Gulf of Mexico.
This is an increase of some 19 U. S. cents per bushel over the
equivalent I. W. A. minimum for this grade of wheat.
Around this central minimum -price for the " base" wheat,
as it is known minimum prices for other wheats have been
determined by establishing firm " differentials for quality" for
wheats higher in quality and lower in quality than U. S. Hard
Winter Ordinary. In this way minimum prices have been arrived at for a
number of the important wheats that are traded internationally
and a schedule of minimum prices is set out in the agreement.
This innovation of establishing a schedule of minimum prices for
a number of wheats will help greatly in making the new floor
price for wheat firm and effective.
In Australia's case the minimum price for f. a. q. wheat
has been set at 5 U. S. cents below the minimum price of the base
wheat. This is accepted as a satisfactory margin.
All the minimum prices are expressed in the Agreement
f. o. b. Gulf of Mexico to put them on a comparable basis. It
should be noted that they are not the c. i. f. prices which customer
countries pay for their wheat delivered, nor are they selling,
or offering prices at which wheat must be sold. They represent
the prices below which wheat cannot be sold or bought.
Mr. McEwen went on to say: " The new floor prices represent
a substantial improvement on existing floor prices. The
new floor price for f-a-q. wheat will not be high enough to
cover the present Australian " cost of poutn" under the Wheat
Stabilisation Plan while prices are at the minimum but actual
selling prices of wheat will vary from time to time depending on
supply and demand.
" These prices may fluctuate above, but cannot fall below
the new agreed minimum price of $ US 1 .73 at Gulf for U. S. Hard
Winter Ordinary Wheat.
" In the opinion of the experts from wheat exporting and
wheat importing countries gathered at Geneva, the establishment of
a new minimum at substantially higher levels than the old minimum
would substantially lift " market" prices.
" The opinions of these experts on the extent of the
likely increase in market prices ranged from about 8 US. cents tn
16 U. S. cents a bushel. On the basis of 300 million bushels of
6.
exports from Australia, which we should be able to count on for
our exports in the future, each additional cent increase in price,
increases our export earnings by $ US 3 million a year. An 8 cent
increase on 300 million bushels exported would increase our
earnings by $ US 24 million and 16 cents by $ UJS 48 million.
If one assumed that the increase would be between these
two extremes, at 12 cents, Australia could look forward to increased
export earnings of ZUS 36 million a year on such crops. This will
be a net increase in the Wheat Board's sales.
Another new and important feature of the Agreement
negotiated in Geneva, is a commitment on member Governments, both
exporters and importers, to provide developing countries with food
aid equivalent to 4T1 million metric tons of grain a year. Australia's
contribution to this new programme is 225,000 metric tons which
compares with aid given by Australia in the form of wheat over the
last 3 years at an average rate of approximately 150,000 a year.
Mr. McEwen said: " The new food aid provisions in the
Agreement are important in a number of ways. They are a recognition
by the affluent countries of the great need to provide more food
for the hungry people of the world. This is of enormous importance
in a world in which millions of people are on the -erge of
starfation, with consequent political instability.
Moreover, the food aid provisions are a great step
forward in winning acceptance of the principle that affluent
countries as a whole, should share equitably the responsibility, and
the cost of supplying food aid, and not leave food aid to those
countries which produce wheat in surplus to their own iequirements.
" I am sure that Australians everywhere will be pleased
to see Australia doing its bit in this new programme for. feeding
the hungry. I am personally very pleased also that the principle
of joint responsibility for food aid, a principle which I have
advocated for at least 10 years, is at last gaining recognition."
3. KENNEDY ROUND MEAT
Australia had been negotiating on a number of other
important primary products. Originally it was hoped that negotiations
similar to those for grains, could be undertaken on both meat
and dairy products. Negotiating groups similar to the Cereals
negotiating group were set up for these other two commodities.
It proved impossible to negotiate world arrangements
for meat. However, Australia has meat arrangements with its two
major markets, Britain and the United States.
At Geneva we have been in intensive bi-laterial
negotiations with both the European Common Market countries and
Japan in an effort to improve trading opportunities in those tw')
markets. A reasonably successful result for beef and veal with
these two countries is expected.
An arrangement is being discussed with the Common Market
countries on beef that could allow Australian exports of frozen
beef to have access to the E. E. C. markets with a modest customs
duty, and without payment of import levies for a 5 month period
from mid-April to mid-September. During the remaining 7 months
of the year it is proposed that import levies lower than at present
will be applied. Such an arrangement would be a-signi~ ficant
break-through into the very large and affluent European market.
Discussions have taken place also with Japan in the hope
of securing improved access to that market. The results of thqdiscussions
have been encouraging.
If within the Kennedy Round we succeed in getting access
improvements, permitting a steady expansion of Australian exports of
frozen meat to these markets, this will provide the added safety of
greater diversification of our meat markets.
4. KENNEDY ROUND WOOL, DAIRYING OUR GAINS AND OUR LOSSES
Referring to negotiations on wool, Mr. McEwen said that
he had entered the Kennedy Round confident that Australia would
be able to negotiate a reduction in the duty which the United
States maintains on imports of raw wool. The United States is
the only country to have a substantial duty on raw wool and had
indicated willingness to cut the duty in the course of the
Kennedy Round. It was a matter of immense disappointment that at this
stage Australia has not secured from the United States improved
access to the American market for wool or for that matter, within
these negotiations, improved access to America for any product
of important trade interest to Australia.
On dairy products, the Kennedy Round negotiations were not
successful. This had been a great disappointment not only to
Australia but also to New Zealand which is the largest exporter
of dairy products.
Mr. McEwen said: " The Agreement on cereals and the prospect
of improved arrangements for beef prompt me to say that it is
the wheat and beef industries that will gain most directly.
" It is not just the farmers who will benefit from this..
The benefits will flow to the whole community as a result of the
higher earnings of foreign exchange, and greater spending power
in the hands of the wheatgrowers and beef producers. To the
extent that wheat prices rise, there is a reduction in the costs
to the Commonwealth Treasury arising from the obligations under
the Wheat Stabilisation Act, which guarantees that Australian
wheatgrowers shall not receive a lower figure than the
guaranteed price for 150 million bushels of wheat exported."
" Australia will suffer losses as a result of the British
decision to make a 50% cut in tariff items which had been designed
to establish Australia's preferential position, under the U. K.-
Australia Trade Treaty.
The list of products on which Britain originally proposed
to make a 50% cut in the duty paid by foreign countries and
hence at the same time reduce Australia's preferences in the
United Kingdom, covered a great many items of Australia's export
trade. Some of these offers have now been withdrawn. Amongst
those which now stand to lose 50% of their preferences in Britain
include raisins, sultanas and currants, canned peaches, canned
apricots ( but not canned pears) and canned pineapples, unmilled
rice and leather.
The effect of the cut in preference is of great
importance to the industries concerned.
Looking at the negotiations overall, 4ustralia's gains
will much more than offset her losses.
When the Government is considering adverse effects on
particular industries, from the cut in their Commonwealth
preference arising from the Kennedy Round, the overall National
gain will be weighed in relation to particular industry losses."
BRITISH APPLICATION TO JOIN COMJMON MARKET
UNITED KINGDOM AUSTRALIA TRADE TREATY
Mr. MoEwen said that his visit to Europe provided an
opportunity to discuss matters of common interest with British
Ministers. There was discussion related to the Kennedy Round
which was approaching the criticial negotiating -period at that time.
At the time of Mr.. McEwen's visit, British Ministers
were considering whether to apply to join the European Common
Market, and this topic was discussed.
Australia's attitude to British entry of the European
Common Market is the same as it has always been. The decision
to apply for membership is one for Britain alone. The British
Prime Minister has said that safeguarding essential Commonwealth
interests is an essential prerequisite to British entry and has
promised also to consult fully with Commonwealth countries during
the negotiations for British entry.
Australia's trade relationship with Britain is based
on a contract, the United Kingdom-Australia Trade Agreement. As a
result of that contract each country has built up a substantial
trade interest in the other country.
Britain's exports to Australia amounted to $ ZA759 mil. in
1965-66 and about 90% of those imports receive preferential
treatment in the Australian tariff. That is to say, about
of British exports to Australia entered Auetralia at lower rates
of duty than were charged on the same products from other countri., s.
The Department of Trade and Industry has made a
calculation of the value of the present Preferences the
United Kingdom has in Australia, by comparing the United Kingdom
share of the Australian import market, with the share the
United Kingdom has of non-preferential markets such as the U. S. A.
This comparison has been made on a farily detailed productby-
product basis. The calculation suggests that if the United
11.
Kingdom lost all its preference in Australia on entering the
European Common Market then it could, in the long term, lose
about $ A400 million of its trade with Australia.
This kind of figuring makes it pretty plain that Britain
has a very big stake in the Australian market.
Australia also has a very big stake in the British
market. The view is widely held in Europe that because Australia
has diversified its trade so much in recent years, the effects of
British entry will be very much less than they would have been in
1961. It is quite true th-at Australia has diversified its trade
but in spite of this the value of our trade " at risk" if Britain
enters the E. E. C. has actually increased in total since 1961.
Since 1961 Australia's exports of wool to Britain have declined
markedly. Wool is one commodity which would almost certainly be
unaffected by British entry, but it is now relatively less important
in our trade with Britain.
The value of our trade " at risk" has increased from
$ A 310 million in 1959-60 to about 3$ A 375 million now. Nor is it
much comfort to the dairy industry faced with the loss of
important preferences in the United Kingdom, to know that Australia's
sales of iron ore to Japan have increased.
The threat to Australia's trade, if Britain enters the
European Common Market does not come only from the loss of
preferences on our important export commodities. It comes also
from the " reverse preferences" that will be created against
Australia when Britain enters the E. E. C. A product such as
dried fruit, not only faces the loss of important preference in
the British market, it also sees the creation of a new Preference in
favour of Greece and Turkey by reason of their associate membership
of the E. E. C.
12.
Possibly an even greater threat than the loss of
preference comes from the overall agricultural policies of the
Common Market. Under many of the agricultural policies of the
E. E. C. the European farmer is insulated from outside competition
by a water-tight system of variable import levies on agricultural
imports. The Common Agricultural Policy, of the E. E. C. provides
very high internal supports, and with the water-tight import
protection E. E. C. agricultural production has increased enormously.
From being a net importer of wheat a few years ago the
E. E. C. has now become a net exporter. Large surpluses of butter
exist in Europe. Meat production has increased rapidly. We
know that agricultural production in the E. E. C. has further
potential to increase, and that if Britain joined, the agricultural
policies of the applied to British agriculture, could
expand production considerably to fill a large part of their
existing import market.
Mr. McEwen said: " These were the kind of issues that I
discussed with British Ministers in the course of a very frank
exchange of views."
Mr. McEwen also said that now that the shape of the
final Kennedy Round package was becoming clear, Britain and
Australia would shortly be holding talks to discuss the
future of the United Kingdom/ Australia Trade Agreement. Mr.
MoEwen recalled that review of the Agreement had been deferred
pending the completion of the Kennedy Round negotiations.
13.
6. TRADE TREATY SIGNED WITH ROUMANIA
Mr. McEwen said that from Geneva he went to Bucharest
to conclude a trade agreement with Roumania.
Czechoslovakia alone of the countries of Eastern
Europe is a member of the GATT. Many Western countries have in
recent years negotiated Trade AgreemenTs with the countries of
Eastern Europe in order to provide a formal basis for trading
with those countries.
Mr. McEwen said that over the last two years Australia
had written Trade Agreements with the Poland and
Bulgaria in addition to Roumania. In all of these agreements the
central provisions were a mutual undertaking by each country to
extend to the other " most-favoured-nation" tariff treatment.
In fact, Australia has extended " most-favourednation"
tariff treatment to Roumania for many years. The
Trade Agreement formalises and guarantees conditions of trading
that already exist.
Mr. McEwen said that the new trading links that had
been established between Australia and Roumania were designed
to be mutually beneficial. Trade between the two countries had
increased markedly over the last twelve months. Australian
exports to Roumania totalled :' A433,000 in the first seven months
of this financial year, mainly cattle hides, rutile concentrates
and wool tops. Imports totalled A119,000 mainly specialty
cheeses and wood and cork manufactures.
The potential for increased trade clearly exists,
given the assurance of established access conditions as provided
in the new Agreement.