F 77/ 130
l4) 1A US RA A
FOR PRESS 6 JUNE 1977
SPEECH BY THE PRIME MINISTER AT MANSION HOUSE, LONDON, 2 JUNE 1977.
I am most grateful for the invitation from Mr. Callaghan to visit
the United Kingdom. This is my first official visit to Britain as
Prime Minister, and I am enjoying my discussions both with Prime
Minister Callaghan and his colleagues, and I am looking forward to
participating in the Commonwealth Heads of Government meeting
next week.
My visit is also timed to enable me to participate in the Silver
Jubilee celebrations. As you know, for us, these began in March
when Her Majesty and Prince Philip had a most successful visit to
Australia. The visit reaffirmed once again the warm affection in
which Australians hold Her Majesty and all the Royal Family. Do not
pay too much heed to stories about republicanism in Australia. There
is no doubt about our feeling of independence, but neither is there
any doubt that most Australians still favour our current constitutional
position.
After the recent hectic years of Australian politics with seven
Prime Ministers in the past decade you might well ask what of
Australia today? And where is it heading as a nation? our major
domestic objective has been to put the economy back on a sound basis.
On the international scene, our objective has been to restore
relations with close friends and allies.
I would like to take a few moments of your time to talk about the
economy, international trade, and relationships, and some of our
perspectives on the world.
First the economy. There has been of course a recession in all
economies. In Australia, however, domestic factors played a larger
part in the recession than they did in most other countries. These
factors were: a rapid expansion in the size of the Government
sector. In one year ( 1974/ 5) Government expenditure increased
by 46%. monetary policies which fuelled inflation; utterly
unrealistic wage and salary increases wages in manufacturing
industry went up by 53% in two years; a more interventionist
Government role, which restricted the ability and confidence of
the private sector. Clearly, we needed a change of direction.
In the view of my Government a lasting economic recovery will only
occur if we can defeat inflation. / As your
-2-N.
As your Prime Minister said at the Labour Party Conference last
year, it is not possible to spend our way out of unemployment at
a time when inflation is still high. It would lead to further
inflation. We have directed the arms of economic policy towards
defeating inflation. We have restrained Government expenditurecutting
Government spending by $ 3 billion in our first nine months
in office. We have established a responsible monetary policy one
which treads the narrow path of providing adequate funds for real
growth without adding to inflation.
We seek to improve the private sector's profits so that investment
can be encouraged and incentives have been introduced to achieve this.
We have used all the avenues open to us to restrain wage increases and
we have adopted other policies making it reasonable for wage earners
to accept restraint. We have restored the competitiveness of Australia
industry by devaluing the exchange rate. We had maintained an overvalued
exchange rate until all the instruments of policy were
effectively focussed on fighting inflation. And we have strengthened
our anti-inflationary policies since devaluation.
There has been a change of direction, substantial progress has been
made. During 1976, inflation was reduced from an annual rate of
16% down to around 10%. Real gross domestic product resumed moderate
expansion, compared with an actual decline in 1975. The growth in the
money supply remains on target for this financial year at about 10-12%.
The effects of devaluation on the internal price structure have been
small and the underlying rate of inflation has continued to fall.
Company profits, particularly those in the export industries, have
continued their striking recovery from an appallingly low base, and
private investment is growing again in real terms.
Recovery is necessarily a gradual process but that is accepted. You
will be aware of the importance of mineral development to Australia,
and also its importance to other economies which we supply.
The value of mineral production over the decade increased sixfold to
over $ 3 billion, of which by far the greatest part was for export.
Exports of iron-ore, alumina, mineral sands, lead, bauxite, zinc,
coal and nickel are all very substantial. Collectively over the last
ten years they rose from 11% to 29% of total export earnings. As
part of this development, 22 new towns and 11 new ports have been
built. Total capital expenditure on mining, processing, smelting
and refining through the decade compri-sed a quarter of all new capital
expenditure. This development peaked around 1971/ 2. Although the
value of exports continued to surge ahead strongly after that period,
both capital investment and exploration fell away, discouraged by
Government policies and world recession.
However, now I am confident that another decade of major mineral
development is unfolding. This calendar year I expect investment
in the mineral industry to be about 40% up on last year with the
momentum building up as the year progresses. Exploration drilling
for oil and gas will be approximately double last year's. / Base metal
-4
a more constructive role in world affairs. The policy objectives
of the Treaty of Rome were born from the highest motives and worthiest*
aspirations. The community has in fact made considerable progress.
But there are many people who believe that those original objectives
and aspirations have not yet been achieved.
It is easy to understand that in the early days of the Community
there was a preoccupation with internal matters. Nor was it surprising
that, at the outset, the Community should concentrate its efforts in
reducing barriers to trade within its own boundaries. However, internationally
the Communities have now acquired a distinct personality
which is being expressed with greater and greater coherence. In
international forums the nine member states have developed, and
continue to develop, common proposals, common positions, and have
common purposes. It is therefore a matter of regret that in some
aspects of Australia's relations with the European community we still
have significant problems which seem to us to run counter to an outwardlooking
approach and which, if I may venture to say so, seem to us to
run counter to the longer-run interests of the Community itself.
This brings me to a subject on which there is a particularly strong
need for us to understand fully each other's perspectives. I speak
of our trade relations and the question of access to each other's
markets. First, let me deal with manufactured goods. The European
Commission has pressed Australia to reduce our tariffs on manufactured
goods. This pressure is understandable. With large markets at close
proximity and advanced scientific and technological resources, members
of the European Community have been able to develop a capacity for large
scale competitive exports of manufactured goods. Australia's
manufacturing sector is in a different position. The bulk of our
present industry was developed during and after the last war. Our
dependence on others for manufactured goods had become most evident
during the war, and we consciously set out to expand our manufacturing
sector in order to secure a greater measure of economic independence
and a more self-sufficient community.
The relatively small size of our market however has made some significandegree
of protection imperative. Yet Australian -tariffs have been
reduced overall. Since 1973 our tariffs have been reduced by about
Furthermore, Australian tariffs have not prevented E. E. C.
manufactured goods from gaining access to our domestic market. Even
though those imports adversely affect our local industry, between
1972/ 3, the year before the onset of the recent recession, and 1974/ 5,
at the height of the recession, the share of the Australian domestic
market in manufactured goods accounted for by imports from all sources
increased by nearly 40%. The E. E. C. is today the largest single source
of imports to Australia, supplying more than one quarter of total
imports. Turning now to agricultural products, the situation is quite different.
In Australia's case, we excel not only as an exporter of mineral ores
and metals but of agricultural products. We are able to produce at a
lower cost than yourselves, beef, butter, wheat, flour, dairy products,
sugar. In short, almost every product you eat. Europe however has the
same problem in agricultural production that we face with manufactured
goods. Europe has a traditionally high cost agriculture which cannot
/ survive
-3
Base metal exploration is under way once more, and there have been
encouraging discoveries in Western Australia and South Australia.
There are no less than 19 mining or mineral processing projects under
construction, or which should commence this year, with a total estimated
capital cost of about $ 2 billion. There are, in addition, some
projects in Australia which are under consideration with a combined
capital cost running into very large sums. indeed.
This immediately raises the question of the availability of capital.
I have no doubt that as the investment projects are developed, overseas
capital will be required to supplement that which is available in
Australia. It is for this purpose that when, for domestic monetary
policy reasons, we introduced controls on overseas borrowings early
this year, we specifically exempted overseas borrowings for capital
development in mining and manufacturing industries. Moreover, the
Government has adopted a policy on foreign investment designed to
ensure that worthwhile projects go ahead and are not held up by
shortages of domestic capital. These policies are working well, but
if there are any difficulties, I would like to hear about them.
one mineral of particular importance is uranium. Australia holds about
of the western world's low cost uncommitted reserves. The Governmeni
believes that the export of uranium involves important considerations of
a kind not involvedin the export of othor commodities, and last week we
announced a comprehensive safeguards policy for uranium exports. Its
essential elements are: careful selection of customer countries, and
a two-tier system--of ensuring that customer countries adopt proper
safeguards. This involves applying firstly the international Atomic Energy Agency's
safeguards to verify that material supplied for peaceful purposes is
not misused, and secondly, establishing additional safeguards through
a bilateral agreement with each customer country. Australia will also
be actively involved in international effort to upgrade safeguards.
We will shortly be in a position to discuss with potential customers
the details of our safeguard policy. Final decisions will be made
concerning the first and second reports of the special uranium
environmental enquiry soon after my return to Australia.
I now turn to the question of relations between Australia and Western
Europe. Relations between Australia and Britain have of course always
been strong. our special relationship is founded on common history,
on shared political and philosophical ideals, and on the contribution
that British migration and investment have made to Australia's
development. These ties remain strong; despite the changes inevitably
brought by Britain's entry into the E. E. C. When Britain first contemplated
joining the E. E. C. there was some criticism and a general sense of
unease in Australia. In a debate in our Parliament in 1961, afterI
Mr. McMillan had announced that Britain would negotiate for admission
to the E. E. C. I recall being one of the very few Members of Parliament
who took a view contrary to that expressed by the Government of the day.
I supported wholeheartedly Britain's entry into the Common Market. My
only regret was that Britain had not entered into such an arrangement
with the original six members at a much earlier date. The signing of
the Treaty of Rome was accompanied by high hopes on the part of all
those interested in European and world affairs. The Treaty seemed to
offer Europe the prospect for the first time in centuries of unity and
cohesion; an end to internecine conflict which more than once
embroiled virtually the entire world; and the opportunity to fulfil
/ a more
6
It would seem to me that you can answer these questions in the
affirmative while still preserving the basic thrust of the Common
Agricultural Policy. It is clear that we look at these matters from
different perspectives. We need to understand each other's point of
view. I have spoken about our trade relations because of their
importance to both of us, but there is a whole range of other issues,
political and international, which are also of mutual concern.
We hope to see the European communities increasingly develop the role
which they are already playing internationally as a force for
stability. We have many shared interests which a developing international
role by the Communities can do much to enhance. Quite apart
from our agricultural products, our capacity to act as a long term
and stable supplier of raw material and energy resources clearly
provides a basis for such a closer relationship. Moreover, despite
our distance from Europe we are most conscious of the strategic
importance of Europe and the contribution which a strong European
Community makes to the North Atlantic Community and the present
global balance.
While we are all deeply involved in the regions nearest to us, we
sometimes overlook the identity of interest between democratic
communities. This is more than a regional matter. Despite the
doomsayers, those who speak of inflation and unemployment, of the
crisis of democracy, our societies have great internal strength and
resilience. However, because we are dispersed in large and small
groups around the world, the interdependence of the democracies is
seldom well understood. The common interests between us are rarely
sufficiently emphasised. Our strength does not lie exclusively in
the Europe or Japan or in any other single region in the world.
Our future is in a fundamental sense a collective one. We should not
allow ourselves to be isolated from one another commercially or
strategically. We need a global outlook and this is no less true
of Europe than it is of the South Pacific countries. Our societies
are pre-eminently ones which thrive on their interconnections with one
another and the rest of the world. They would wither without them.
You in Britain have much to contribute to fostering this recognition,
to help avoid narrow exclusiveness which corrodes a common purpose.
My Lord Mayor, thank you for your invitation to speak to this
distinguished gathering today. I am looking forward greatly to
the discussions which I will be having over the next few weeks in
London, Brussels, Paris and Bonn. Australia strongly desires a
closer and broader relationship with all members of the European
communities, complementing the strong relationship which we already
enjoy with Britain. I am most hopeful that these discussions will
be a start in securing that closer relationship which we seek.
survive open competition with producers such as Australia. The
European Community response, in contrast with ours in respect of
manufactured products, has been the Common Agricultural Policy under
which variable import levies are set at levels which severely restrict
or exclude utterly imports of important Australian agricultural products
So now we see two sides of the same coin. Each of us has our strengths,
each our weaknesses. In these circumstances there is a natural
tendency for each to wish to liberalise trade in the area in which
it is stronger, and s~ tore up protective measures in the sector in
which it is weak. But the responses to this problem from the E. E. C.
and from Australia have not been the same. Despite our tariff barriers,
Europe does have reasonable access to our markets, but we cannot get
reasonable access to European markets for important agricultural products.
Twenty years ago, exports to the nine member states of the
E. E. C. were virtually at the same level as our imports.
Today, largely due to the Community's Agricultural Policy, there is a
serious imbalance of trading opportunities between Australia and the
E. E. C. Last year, the value of imports from the E. E. C. exceeded that
of our exports to the E. E. C. by nearly 60%. Reduced opportunities for
Australian agricultural exports to the E. E. C. have had a direct effect
on Australian primary producers. For example, in the last six years,
one dairy farmer in three has left the Australian dairy industry.
In other areas of export opportunity, such as processed mineral
products,. Australia is often faced with escalating levels of tariff
in the E. E. C. as the degree of processing increases. For example, the
duty of bauxite is nil, alumina attracts a 5.5% duty, and aluminium
ingots attract up to 22%. This policy directly inhibits the development
of processing operations in our country, but the imbalance in our
responses to the problem of market access is even greater, for, under
the Common Agricultural Policy, the Community does not erely prevent
reasonable access for our goods to your domestic markets; it heavily
subsidises the export of primary products to other markets.
In some cases, the subsidy is greater than the final price of the
products. The subsidies have the effect of depressing world prices
and disrupting our traditional markets outside Europe. Let me give
you just one example of what has happened. Our largest traditional
market for flour was Sri Lanka. Our share of that market used to be
87%. It is now less than a quarter of that because E. E. C. subsidies
have enabled European exporters in recent months to undercut our produci
by up to $ 36 per tonne. The E. E. C. subsidy is in the order of
$ 100 per tonne. A similar story could be told for numerous other
products in other markets.
All of this raises some questions. Would it not be possible to find
a level of beef support and beef levy that allowed trade to flow
without damaging the European beef producer? Would it not be possible
to find a level of support for wheat and-grains and other foodstuffs
that also allows trade to flow and that allows the consumer the benefit
of cheaper food? Would not this also help you in the fight against
inflation? Would it not be possible to fix levels of export restitutions,
subsidies, that do not wreck other people's markets, that do not
depress world prices? These are questions I asked myself. / It would