TARIFF COMMISSION.

Press, Volume LVII, Issue 17320, 5 December 1921, Page 9

TARIFF COMMISSION.

FULL TEXT OF THE REPORT. The following is the full text of the Report of the Tariff Commission, some extracts frr>m which have been published This tariff will, of course, be subject to r vision and alteration at- the direc- • the Government. lv-fore- being fini~l.Y submitted to Parliament. It '? assumed that the purpose for which the Commission was appointed will be best served by reporting as shortly as possible, and by proceeding in submit tho legislation considered to be necesgarv. This legislation will embrace- a proposed Customs Duties Bill and the schedules to that Bill setting forth a new tariff. Many requests for extreme protection have been received, and the Australian tariff has been held up as a model of perfection by several of the principal industries. The industries desiring protection in New Zealand may bo. roughly classified into three groups: (1) Tho*e already - established and already proterted: (2) those established hut not, protected: (3) prospective industries desiring protection. Each of these groups might be again divided into (a) those using mainly New Zealand materials, and (b) those using mainly imported materials. As a general rule, we are of opinion that the protection now afforded established industries should not be reduced, for on the basis of this protection a considerable number of people and a large amount of capital rely for their employment. Whether it. is desirable or otherwise to encourage industries by Customs protection is a moot point which - has been discussed freely for many centuries, but there appears to he no justification at present for the arbitrary removal of duties from industries protected; in this country. It may be said that we have ; already adopted th«> policy of protection, and therefore free trade —however desirable it may be in theory—appears to be out of. the question at the present time. Vested interests have been created under the shadow of protection , and subject to certain conditions these have a right to permanence. In I any .revision of the tariff the vestedinterest or established-industry argument is all-important, although it would not apply against the gradual reoessidn from the protective system., ' and in. industries proved unsuitable to New Zealand conditions the progressive removal (or the removal after no- ' tico) of duties would he justified.. Tfe would , lay down the following principles regarding the protection of industries in New Zealand: — (a) Any protection given ' should he well devised, and not more than .• sufficient for the welfare of the industries, concerned. (b) In addition to ordinary pro- . tection tinder the tariff, effective provision should be made against dump- . , ing.-- Anti-dumping, duties on t° e lines of the. Canadian policy appear to be satisfactory, and are recommended by the Commission. (c) The profits of those engaged in : protected industries should be subject to. periodical investigation by an authority .such as the Department of' --'llndustries and Commerce: (d). .Encouragement through protection should be directed mainly to those industries- which obtain their > .raw. materials wholly or principally! ; in New Zealand. (e) Special steps should bo taken by the. Government tojpnumpte .scientific researoh and . dOTelopmeiit in protected industries, aid to provide for adeqiiate'.education' of (mechanics, engineers, and skilled workmen, I (f) Arrangements., shottld be made forgiving idu'e notice of several years : . . ctfj 'the .removal of protection -to- in'f.dusfcfies'/.and as'far-'as possible the. v protection given to industries—«.part ' fnjtnanti-dumping provisions—should' . be, regarded as a temporary-measure . period long enough to en- : vsutb - the due development of the in- i - -industries concerned. We 'believe that all ties© principles ' ctt be followed by the New Zealand Goyernmmpnt with the official organisations 'tft present at its cpmmand—the Customs Department, the Department of Industries and Commerce, the- Education' Department,! the. Labour Depart'ment, and'the Dominion Laboratory, i-'Jni reviewing the priiyipal economic I literature regarding the* age-long conof free trifle. versus protection, we con' fihtbno. stronger argument fipr ■ the polfcy pdrsned in ;New Zealand than the- doctrines of Friedrich List, - who •dedajed tliat in. the initial .stages of ' a'ctraritry's evolution, when ' it - was purely ..agricultural v and'.-pastoral, free trade was the right policy; and that Si 5 the second stage, wtan; the country striving .to develop manufactures, ■protection was necessary; and that in the third stage, when the country's industrial development was more or less complete,' the/free: trade policy should V ]^xeverted ( to. List has often been. "quotSd'M*tKe'greatest advocate of profteeti6n,'t,but it. is ..important to remem4>eri that .he recommended . protection iji. the seoond stage of a country s '-"evolution," and - for the development of predtictive- power.List's doctrines ftrevwell summarised by- Dr, Marshall

and Trade" (1916, page ' In the first stage the people are y f ? r tlle 'higher' forms 'of industry; they buy manufactured goods with raw products, and axe strengthened- and educated by their purchases. In the second they are ready for the simpler forms of manutactunng industry, and by resolutely practising these they can educate themselves for more difficult work. If they do this they reach the third stage, in which manufacture predominates, and" hare some share of industrial leadership. Ou this basis he founded his great practical precept that in the first stage commercial intercourse with more advanced nations should be welcomed without stint for the sake of its educative influence, and because it supplies the machinery, etc., needed for further advance; in the second stage the nascent manufacturing industries of the country should be fostered by import duties on things which they are beginning to be able to make; and in tho third stage, protection, having done its work, should disappear. Although it is not always to trace clearly the distinction between the I three stages in a nation's development, I it is clearly evident that New Zealand comes within the scope of List's •argument for protection. For many years it has been argued that the New Zealand labour conditions are not suitable for the development of manufacturing industries, because the wages are so high and the conditions of work so good. This contention is, in our opinion, qnito unsound, a.nd it would be more correct to urge that tho existence of such well-regulated labour conditions is a satisfactory basis for an industrial structure. If wo were to revert to bad conditions of labour in order to establish our industries, then by all mear. s we should avoid industrial development; but a comfortable standard of living for the working-man is not incompatible with the process of manufacturing industries suitable to be fostered in New Zealand, and therefore wo believe that the argument as to labour conditions should not be an obstacle to the establishment and encouragement of these industries. Moreover, the remarkable development of industrial technique is fast eliminating the necessity for exhausting and degrading toil, and in New Zealand the manufacturers have ■been compelled, owing to shortage of laibour, to make full use of mechanical devices. There appears to bo no doubt ■that much of tho shortage of sin lied labour in New Zealand oould be remedied by a selective immigration policy, and hy the systematic _ training of engineers and skilled artisans. Already we produce a great variety of goods in this country, "but a glance at the report of the Parliamentary Committee of Industries, 1919, gives us convincing evidence of the scope for further industrial development in this Dominion. Although . it is tine — theoretically at least—that direct encouragement by means of education, bounties on production, and other as-. sistance would be more satisfactory than the indirect method- of Customs protection, there appears to be no doubt thait, under the present circumstances, the tariff is the most effective weapon. The principal reason is that the protective policy has such a strong hold in other parts of the world. In the encouragement t>f manufacturing industries a moderate tariff is recognised as satisfactory, and as necessary in the earlier stages of development. The objects of. protection to young industries Bxe well summarised by Professor Taussig in Principles of Economics," Volume 1, page 526: "An industry really advantageous to a country may be prevented from rising because of ignorance, lack of experience, and all tho obstacles that impede success in uufamiliar undertakings. Stated in another way, tho argument is that while tho price of the . article is temporarily raised by . tho duty, eventually it is lowered. V .'" This reduction in domestio price pomes only with : a lapse of time.- At .the outset the local producer has and oanhot meet foreign competition. In ' the end he' learns how to produce to best advantage, and then can bring • ■ the article, to , market as abeaply as the foreigner--~Gveri more, cheaply. Most persons who use this second form of tie. argument (as . to. the eventual lowering of. the domestic price) are but dimly-aware of its identity witht that of protection to young industries, but the two arguments , are one and the same, resting on the premises of temporary obstacles . and eventual success." In a later section of his work Professor Taussig concludes, however, that:— "Making all possible allowances for the various-ways in which the initial burden' lias been offset in tho United States, there probably remains a heavy debit balantje against protection through the creation of industries dependent upon it." Theoretically the arguments for free trade are overwhelming, but we are faced with the position that all other countries of the world are pursuing the protectionist.policy, and_ we cannot see how it is -possible for this Dominion to follow a free-trade policy and to prosper as against other protected countries. Thus, on the principle of the standardisation of the plane of competition, we are forced to a certain extent into a protective policy by the tariff measures that have, been enacted in . other countries; One country cannot go far ahead of others 'or lag behind in matters of protective legislation. It may be said that even the United Kingdom is moving towards a policy of protection, and

the first step was the imposition in 1915 of an import duty of 33 1-3 per cent, upon foreign motors and some other articles. The next protective measure was an import prohibition specially directed against German dyes. Later in 1919 a system of Imperial preference was applied to such articles as tea, coffee, sugar, spirits, wines, and tobacco Then, in January, 1921, the British Government introduced a Bill to protect many other industries by imposing a tariff' of 33 1-3 per cent, on imports ''dumped" into England, and also to check the importation of goods from countries with heavily depreciated currencies. Moreover, provision has been made for tlio protection of certain key industries. Thus it is obvious that tho United Kingdom has to a considerable extent d°v>3ru'd from tho treetrade policy for which she was world famous.

Sew Zealaud, in adhering +o the policy of protecting her industries, i> but conforming to the set policy of other nations, and the protective duties have pnrtly helped towards the prevention of dumping—a trade practice which is apt to cause serious disorganisation and unemployment in a freetrade country. Indeed, in some c.iroiyaistances a modicum of protection towards the right industries can be re-, garded as a premium towards a. national unemployment- insurance scheme. In the decision as to which industries need protection, and the amount ot protection required in each instance, the ooinion of the Department of Industries and Commerce should be valuable to the "Government, because that Department has investigated a largo number of the different branches of production, and has the statutory -cower to make a financial survey and investigate trio profit* of any class of business. For ex ample, while controlling the j sugar supplies it became evident that protection should be afforded against sporadic competition when definite forward arrangements must be made to ensure an adequate and continuous supply of a con-modity on which co-related industries are dependent. But any such protecii'in rhould be contingent on a limitation of profits. With regard' to the contention that freight and other charges on imported good, are sufficient protection for the iocal producer: In the fust piace the amount of protection which the manufacturer enjoys from these charges must be measured by the freight from the njarest source of supply—generally Australia—aud it must be recognised that on the majority of articles the sea freight is not much more considerable than th e inland freight which many manufacturers.have 1o pay to get-their goods on the market. It also must not be overlooked that most of the machinery. and m some industries a portion of the process must be imported. Thus the. freight, on these imports discounts to some degree the freight protection on th e .finished product. Moreover, the development of a mass production makes it possible, and good business, for a firm to quote lower rates for export than for hom© consumption. This applies particularly in protected countries wiero the manufacturer has his home market sure. This practice of quoting special rates for manufacturers' trade is almost universal in protected countries, and, as.already .pointed out, protection is almost universal throughout the world, and consequently we are of opinion that freight ana" other charges do not alone mean a satisfactory protection far the average manufacturer in this country. Therefore, the amount of protection necessary for the local manufacturer should be gauged mainly on such points as (1) whether the industry is a useful one, absorbing (as its principal raw constituent) local materials and assisting other industries in. the Dominion; and (2) what are. the conditions necessary to ensure a fair reward to labour, capital. and business enterprise. A thorough investigation of profits and full use of publicity powers (vested in the Department of Industries ' and Com-: merco would he of .great assistance in this connexion. . . t ; The Commission, is of opinion tEat the lowest" schedule'of duties-as heretofore charged upori goods-from British Dominions should not he increased except in a few, special cases, and in the . case •of goods from Australia, .which country 'has so far refused to treat goods from New Zealand otherwise than as. from a. foreign country, while New Zealand has since 1903, granted the same preference to ■ all British Dominions as to Great Britain. There is, however, a prospect that Australia will, in the near future, be prepared to enter into negotations to modify her tariff against New Zealand in return for benefits received from this country, and 'special powers are Provided in the proposed. Customs ►uties Bill to enable reciprocal relations to be established with any conn trv as policy may direct. The extraordinary economio conditions prevailing throughout the world at the present time make it'impossible to judge very closely of the relative conditions of production and' competition ao -affecting industries in this country compared with those operating abroad. The enumeration of some factors'governing the price at which goods can. be placed on the market will make this clear. These factors are, — (a..) Rapid fluctuations in the prices of raw' materials and of manu- . lectured goods. : (b.) The existence within some of . the countries of production of bounties on' cer.tain .'classes of goods. ' _ (c.) The. restriction imposed upon New Zealand manufacturers in the matter of trade- with Germany and other late enemy countries.(d.) The cost of production of goods ,for export in countries having a greatly depreciated and rapidly fluctuating rate of currency-conversion, (e.) The difference in the hours of I labour expended per week in .various countries, the rate of wages paid, the enforcement- or otherwise of labour laws relative to the proportion of apprentices or of boy or girl labour to skilled or adult labour, and regulations governing air-space and wholesome conditions as affecting the health of employees. • (f.) The amount of taxation bofh by way of Customs and'land and income taxes and.local taxes to which . the various industries are subjected.

An example to illustrate (a) is the recent fall m the price of-wool, accompanied by decreased, demand and the inability of merchants and of the public to purchase tweeds at high prices owing to more stringent financial conditions. These conditions have caused a grent decline in the price of woollen cloths, and New Zealand manufacturers .who made up stocks from wool purchased at "requisitioned'' prices are' now faced with the necessity of competing with tweeds imported at prices far beTow the cost of production. A peculiar effect of the high protec- ( tire duties in Australia is disclosed by the competition of Australian warehousemen in tweeds. It is found that they make a smaller loss, now that prices have declined, by selling to New Zealand and by obtaining a drawback of the duty paid when prices were high than by selling in their own markets. It is not to be expected that this state of affairs can lone continue, but the effect upon New Zealand merchants has, up to the present, been disastrous. Another instance is the violent fluctuations in the value of iron and steel. "Finished ircn" is 6tated in the cable messages of the 6th instant to have fallen £l3 per ton. New Zealand manufacturers who have stocks of iron purchased at the old prices aro liable to be undersold by ironfounders abroad who have early access to raw material at the reducea prioes. . (b) may be illustrated by pointing to the fact that Australia has granted a j bounty of £2O per ton upon sugar used in making jam and preserves for export. As it would be impossible for New Zealand manufacturers to compete against such a handicap, the New Zenland Government was faced with the necessity i>f cither granting a. similar

bonus or of prohilyr.inj: tlio importation of Australian iam and preserves. In the interests of the jam and preserve makers and of the fruit industry of the Dominion the latter course was adopted. It is not known to what extent bounties for export may affect the prices of goods imported frcm Continental countries, but there is strong ground for belief that extraordinary means will be tafcen by those countries to regain the trade lost during the war.

As regards (c) and (d), it may be remarked that, while New Zealand has heretofore refused to trade with late enemy countries, her factories are in competition with Great Britain, I hited States, and Continental countries, which all trade with Germany and Austria. British and Continental factories can take advantage ot the lowest prices quoted by Germany tor raw-ma-terials whereas thnso in New Zealand are debarred from doiug t>o. Bar steer for instance, was lately quoted at £t> 4s 3d per ton from Gemiany. while the same article in Britain eost. £lO per ton; and there arc doubtless man} ether commodities obtainable at> low prices for manufacture in England and elsewhere which cannot be obtained by New Zealand factories except at a greatly i net eased costIt is difficult to arrive at, any satisfactory comparison of the conditions in New Zealand as against the lest of the world under items (e) and (D, but it seems certain, from information fuinished by the "Overseas Labour Journal" from time to time, and from evidence given to the Commission, that the hours of labour are much longer in India, China, and Japan than in >ow Zealand or in European countries, ana ■that the remuneration is very much less. According to the journal quoted, the wages for adult male workers at Kobe, in July, 1920, were Cot tonspinners, 1.59 yen; watchmakers, l.<w ven; flourmillers, 1.50 yen; steel-mill workmen, 1.G6 yen; furniture-makers, 2.10 ven; stevedores, 2.20 yen; tailors, 2!30 ven; blacksmiths, '2.3-1 yen; compositors 2.60 yen-, carpenters, 3 yen; plasterers, 3.10 ven; shooinakers, o.oU ven; s.ilverworkers, <> yen; bricklayeis, if;.4o ven; painters, ft.so yen. This scale is equivalent to a minimum wage of 3s and a maximum wage of 7s per day. , , , , The hours of labour are not stated except in the case of silk-workers, who average eleven to twelve hours pei day. In the Chinese cotton industries the daily normal working hours are twelve, while the labourers' wages are only 40 to 50 cents —i.e., about Is per day. In the printing industry iho nioximum for lonrneymen is quoted at 30 dollars per month. This is equivalent to about £3. The hours of work in thi9 trade are normally fifty-four per The hours of labour in the Indian bag and «ick factories vary from nine to thirteen and a half, and the rate oi pay for machinists is 25 rupees (equivalent to 7s 6<l) per month. Were the brushwiivo and bag ana sack-making industries efficiently run in the countries referred to, it would be manifestly impossible for industries in New Zealand to compete with these conditions and at thei same time ..o enable their employees a to maintain European standards of living. \\e do not however, know the relative value or productivity of the labour in Eastern countries aw compared with our own, although it might be fair to assume ■ that, where the operations Are simple and mainly confined to .handwork or simple machine-work, as m the case of baskctmaking or hag.and sack making, the country working long hours and at low wages must generally have the advantage. ... In the evidence submitted to tlie Commission there are numerous references to Uhe need foT protection against, the products of cheap labour. Many manufacturers contend that the products made by coloured labour come into unfair .competition with goods made in New Zealand under labour conditions regulated bv_ the Arbitration Court. In our opinion there is y an effective argument for some measure or protection, and it should be recognised that, while the State takes a prominent part in regulating labour conditions in order to keep • the standard of liv iug high, the industries in this country iequire some compensating advantage, such as tariff . protection. We tlunk there is every justification for maintaining tho high standard of labour conditions. Directions as to Policy. '•7%e following directions as to procedure have received the approval of the Government: — (1) To extend, r wherever possible, the preference to.British Dominions. (2) To provide machinery to enable the modification of the operation ot the schedules of the tariff, imposing preferential surtaxes in respect tc> countries willing to reciprocate with New Zealand, and-to provide power to impose special duties upon countries which are held to have. unduly penalised or discriminated against ex!ports from New Zealand or against New Zealand trade. (.3) Not to withdraw any protection hitherto' granted to industries established in New Zealand except for the most cogent reasons and with the approval of the Government. (4) To. indicate where duties might • be remitted to reduce the cost- of ing.(o) To indicate what luxuries might, if necessary, bear higher taxation. (6) To place upem tiho free list all raw materials which cannot lie economically obtained or produced in, New Zealand. (7) To refrain as far as possible) from placing duties upon machinery peculiar to any industry, and especially the. primary 'industries of the country. (8) To provide power to suspend and . t(0 impose duties froni time to time on the recommendation of the Department of Industries and Commerce, or any body duly authorised by Parlia- \ ment, euch suspension' or imposition) of duties not to nave effect until ratified by Parliament. (9"i To provide ma dhinery to prevent dumping or unfair competition with I . industries established in New Zealand. I (10). To grant protection to new industries only where it can be , that a substantial amount of 'is invested, that the industry is'fully equipped with the most modern appliances, that its output is likely to form a reasonable proportion of tJhq total needs of the Dominion, and that the goods produced are reasonably . comparable with • those produced abroad. <o Price Control. • Although in many instances it has been claimed that an increase in the tariff will not raise prices, we do not think that-,' as a general rule, there is any justification for this contention, as, if - true, it would mean that the Customs taxes would be borne by the foreigner. In exceptional instances it may happen that the foreigner temporarily bears the duty, but this would be only under rare conditions. The following extract from Gide's ''Principles of Political Economy," page 860, states the position well:— "It would really be too convenient if a oountry could obtain its revenues by. taking them from the profits of neighbouring States. Even if protection had this magic power, each country in turn would-hasten to profit by it and make its neighbours pay its taxes. Thus it is evident that none would be better off in the end." Many years before, J. S. Mill : had stated that before foreign producers resign themselves to the of paying Customs taxes two conditions are necessary: (1) Ths&r their cost price must admit of their doing so, and (2) that they must have been una ole to find another market for their goods. In the case of agricultural implements and rubber tyros in Australia, it is

probable that the foreign producers were operating in a. very large way, and were faced with the alternative of reducing tho number of sales or making a sacrifice" in the price. In order to maintain a large turnover with all its advantages, it .may pay the foreign producej, temporarily at least, to dump his surplus abroad at any price. Thus it is that agricultural implements and rubber tyres—both manufactures subject to the law of increasing returns, and controlled by large monopoliesare sold at lower prices in Australia because of the high tariff. It might bo added tlw.t., even admitting that the foreigner pays tho duties, it means that prices would not be raised, and hence the tariff would not protect. The competition of the imported goods would remain just as keen aaever, and the home industry would gain neither by tlie exclusion of foreign goods nor by a rise in prices. As a general rule it may be confidently expected that any addition to the rates of duty will, at the outset, and for probably a number of years, mean higher prices by approximately tho amounte of the duty. If, however,_ the local industries become well organised, it is possible that, after the lapse of several years, their increased efficiency may enable them to place the goods on the market at prices lower than those ruling in the initial stages of protection. ' As it is evident that increases or decreases in the rates of duty will be reflected in the prices of goods on the local market, it will be necessary for some official organisation, such as the Department of Industries and Cornmerce, to exercise caro that no unnecessary addition is made to the prices of Jocallv-manufactured goods. Increased protection could, therefore, reasonably bo followed by -more detailed supervision and control of the industries concerned. In the evidence it appears repeatedly that the industries themselves welcome such measures of control rather than face the uncertainty or Dtianess operations under the existing taxi". It is true, however, that much of thiß uncertainty would disappear without increased protection, provided .adequate provison could he made agamst the ion that, if protection is granted to them, they would at the same time be prepared to submit to some form, of price-control. Power to achieve this is provided under tho Board of Trade Act and the Department ot Industries and Commerce could, if required, regulate the prices of goods produced by the more important industries or the country which receive protection. Une benefit of such control would .be the abilitv of the Department to indicate those industries which oontmue to subsist soleiy upon the amount of protection granted, and which are unsuitea to be continued In existence. In such cases notice of removal of the duty within a stated time could be given to enable them to wind up their affairs with the least possible inconvenience. We consider this an important matter, and strongly urge that every _ en vour b© ina.de to prevent industries from becoming conservative bv reason of the protection afforded by the tariff. We must keep them progressive, so that in. time to, come it may be possible to have the protective tariff gradually removed or considerably reduced, leaving only the anti-dumping provisions on tho Statute Book. - If the industries are made secure from foreign competition there must inevitably he a tendency for them to lapse into obsolete methods of production, and it is essential that "this tendency should be counteracted by (1) direct encouragement of scientific research and efficient business organisation, and (2) close supervision by the Department of Industries, and Commerce to ensure that the protection afforded by the tariff is not moro than necessary, i Dumping'. Very many complaints _ of dumping were heard by the. Commission, but in cross-examination it was generally found that the term had been used loosely to cover surplus manufactures : or goods sold at the end of the season, and not necessarily at prices less ! than those demanded when offered for sale, in the markets of the oountry of i exportation. At the same time certain genuine cases of dumping were submitted, and to meet such conditions of unfair competition it is . recommended that an attempt he made to stop this practice. A clause based on the Canar dian law has accordingly been introduced into the proposed Bill to be brought I down along with the tariff. Basis of Ad Valorem Valuation. Owing to difficulties of administration which have arisen since the passing of the Customs Act, 1913, the Commission recommends that there should be some amendments to section 114 of that Act.. This section governs the valuation of goods. It is further recommended that the findings of the London Conference on Customs matters should be adopted by New Zealand, viz. (1) To substitute the words "current domestic value" for "fair market value' wherever the same occurs. . (2) To allow rebates or discounts which are allowed off the domestic price only to those customers 'who subscribe to exclusive trading agreements; provided that, in the ordinarycourse of business, no person in the trade is debarred /rom entering into such agreements. (3). To allow the deduction from the current domestic value of any drawback allowed or to be allowed on ingredients, materials, or parts used in the production of goods exported to New Zealand. (4) To arrange that,, in the case of goods not sold wholesale, or in such large miantities as they are sold for the basis of current domestic value should include provisions to admit of the allowance of such re-

bates or discounts as the exporter would allow if identically .similar! goods in equal quantities were sold tor domestic consumption: Provided, ' in every case, that the Customs Department. is satisfied as to tlie facts. (3) To introduce anti-dumping legislation. (6) To agree to a. combined certificate of value and origin, to be written, printed, or stamped on invoices for goods for exportation to British Dominions. (7) To agree to the form of invoice proposed by the London Conference. The forms of certificate of origin and of the invoice referred to under (6) and (7) are set forth in the appendix , to this report and numbered 4 and o. An explanatory memorandum for the guidance of exporters in the use of standardised form of certificate and invoice is also attached, and nuoibered 6. _ . (8) To agree that, in ordinary circumstances, the date of the iuvoice should bo regarded as the date of exportation, but that, where any alteration in value occurs as between that date and the actual date oi exportation, the responsibility should be. upon the exporter of showing such change in the current domestic valui. Goods of British Origin. As regards the amount of labour and material of British origin which should be included in qualifying goods to be! entered under tne British preferentai | tariff, the Commission is of opinion j that the practice at present adopted in ; New Zealand should continue. This practice is in agreement with the policy followed in Canada, Australia, and South Africa. It is—(a) To admit the value of British labour and material: expended upon, goods notwithstanding! that partial manufacture has taken place at an intermediate stage in a foreign country prior to final completion of manufacture in and exportation from a British Dominion—provided, always that there is a total of 25. per cent, of British labour and material in the factory or works cost or the completed goods; Co) to admit to the British preferential tariff all goods , where the total British labour and material amounts to 25 per cent, of the factory or works cost of the finished article; (c) to admit to the British preferential tariff all goods made wholly in Great Britain or British Dominions from raw materials imported from abroad, notwithstanding that the value of labour and material in the factory or works cost of the finished article does not amount to 25 per cent. N<Sw Zealand is so far the only country which has adopted the conditions governed by clause (o), but it is noticed that the London Conference has adopted this olause, and recommended that other British Dominions should do likewise. South African Treaty. The Commission recommends that the sehedule of duties arranged under the treaty entered into with. South Africa in 1907 should he abolished from a date to be arranged, and that the ordinary duties as between British Dominions should thereafter prevail. Returns furnished bv the Comptroller of Customs and shown , in the appendix hereto (numbered 7 to 9) indicate that in 1920 New Zealand remitted £'18,491 in duties on South African goods,- £17,948 of this amount being remission on South African wine, the duty on which is 2s per fallon, as compared with the ordinary uty of 6s per gallon. Australian wine is admitted at 5s per gallon, and tho conoession to South Africa has very seriously affected the interest of Australian producers. The total duty remitted on New Zealand g9©ds when entering South Africa during 1920 was £64. Depreciating and Violently Fluctuating Exchanges. It i 6 found that the condition's of production of certain commodities withm countries having a greatly depreciated rate of exchange, and especially where such rates are subject.to violent fluctuations, may be such that they can _ be sold to Great Britain and in the world s markets at prices far below those at which they can be produced elsewhere. For the protection of her industries Great Britain has accordingly imposed a special duty of 33 1-3 per cent, in addition to any other duties that may he leviable upon a large assortment of gpods made on the Continent. Canada has moved in the same direction by passing the following amendment to Section's 9 of her Customs Act: — "Notwithstanding any of the provisions of this section, in computing the value for duty of the currency of and invoice no reduction 6hall be allowed in excess of 50 per cent, of the value of the standard or proclaimed currency of the country from whence the goods are invoiced to Canada, irrespective of the rate of exchange existing between such country and Canada on the date of the shipment of the goods; and in respect of goods shipped to Canada from a country -where the rate of exchange is adverse to Canada the value for dutv of the currency of the invoice shall be computed at the'rate of ex- ■ change existing between such country and Canada at the date of the shipment of the goods." As applied to British currency this means that, if the German mark is taken to be worth 20.43 to the pound sterling at par, no reduction is to be allowed oil account of depreciated exchange beyond 30.64 to the pound. As a matter of fact, the value of the German "mark for purposes of exchange on the 7th June, 1921, was 250 to the pound—i.e., rather less than Id. If French francs were valued at 25.22 to the pound at par, the value for conversion of goods invoiced at 4S to the pound would be 37.83. Fixed rates of'duty, as in the cose of the 33 1-3 per cent, imposed by I Great Britain, and the limit of .50 per | ctfnt. in reduction of valuation from the standard allowed by Canada, must- be i entirely arbitrary, and can bear no

! fixed relationship to the variations in > the price of any miscellaneous range of goods as compared with pre-war standards. Although we are nrco&arily somewhat in the dark in dealing witii these matters, it. is thought, that a fairer plan would be to make a. sliding scale of duties against countries with depreciated exchanges, especially as thqso countries having the greatest depreciation are subject to the widest fluctuations. It is held that the dangerous element so far as export trade is concerned consists more in the fluctuations than in the actual amount of depreciation. If the latter could be stabilised at a fixed rate over a period of years the danger of abnormal competition in the export trade would probably disappear. A resolution ■ dealing with the matter is submitted for the consideration of the Government. •