COMMONWEALTH VIEWS ON OTTAWA AGREEMENTS

Press, Volume XCIII, Issue 28008, 30 June 1956, Page 8

COMMONWEALTH VIEWS ON OTTAWA AGREEMENTS

IMPERIAL PREFERENCE TODA Y

[Bv a Correspondent of the '‘Financial Times’] (Reprinted by Arrangement)

LONDON. June 20—The arrival ot I Mr Menzies, the Australian Prime I Minister, is a reminder that imperial preference is one of the main subjects that will be discussed while the Commonwealth Prime Ministers are in London. Members of the Australian Government have already expressed their dissatisfaction with the present operation of the system and are to ask for a review of the 1902 Ottawa Agreements. ~ , Of more than £600.000,000 worth of British exports which benefited last year from Imperial preference, more than £500,000.000 were accounted lor by Australia, New Zealand, and Canada. It looks as though New .Zealand and Canada may remain neutral over Australia's request, and it does not seem as if it will have much support from the newly independent DoApproximately half Britain s trade is with the Commonwealth, and Imperial preference applies to just under half Commonwealth trade. As a rule British imports are subject io a 10 per cent, duty under the Import Duties Act of 1932 and other duties apply under the 1921 Key Industries Duties Act Staple commodities such as wheat and wool are among the chief exceptions, to which no duty applies. As a general rule, wherever a duty applies, Commonwealth imports are allowed in either free of all duty or at preferential specific rates. Australia and New Zealand The proportion of United Kingdom exports enjoying preferential entry varies immensely from one Dominion to another. At the head of the list come Australia and New Zealand, where the proportion is about 90 per cent. At the bottom of the list come India and South Africa, where the proportion is about 30 per cent. Canada occupies an intermediate position. Similarly the average percentage margin of preference on all imports from the United Kingdom varies a great deal. Australia and New Zealand are foremost with about 16 per cent, and 13 per cent, respectively. Canadian margins probably average just under 10 per cent., while in the case of India and South Africa they are less than 5 per cent. Less is known about Commonwealth exports to the United Kingdom, but in many cases the proportion ol exports enjoying preference is much less, as so many Commonwealth exj ports consist of food and raw materials. In the case of India, for example, although textiles and tobacco are among the exports enjoying preference. the bulk of exports are unaffected.

Australia’s Grievances The basis of the Australian contention is that Britain gains far more than Australia from the present arrangements. British exports to Australia. which are mostly manufactured goods, benefit from preferential tariffs, while Australian exports to Britain consist to a large extent of staple commodities such as wool and wheat, which are sold in Britain at world prices. British preferences on .Australian fruit and wine are. it js claimed, comparatively less important. Anv increase in British preferential margins would be prohibited under GATT and are most unlikely to be considered by the British Government. Detailed negotiations with the Australians are likely to centre on the possibility of imposing countervailing duties on commodities such as French wheat and Argentine apples, which are, it is claimed, sold in this country at artificially low prices. British negotiators are, however, likely to be very hesitant about imposing any duties likely to raise the cost of living in this country. Another Australian complaint is that protection of British farmers is harmful to Australian agricultural exports. Half of Trade Affected

Behind these detailed Anglo-Aus-tralian dissensions lies the general consideration that Imperial preference is much less important for Commonwealth trade than it used to be. In rough terms Britain gives and receives preferential margins amounting to an average of 6 per cent, on all goods entering Commonwealth trade. Just under half the trade in either direction is affected.

Although the detailed operation of Imperial preference is extremely complicated, the basis of the system is simple. Imports of Commonwealth produce under the Ottawa Agreements of 1932 are admitted to this country either duty free or at specified lower rates in return for similar concessions from Commonwealth countries.

There are two main reasons why the Ottawa Agreements have lost some of their former importance. One is the deliberate reductions in rates of duty made under GATT and other trade agreements. Most of the important GATT reductions date from the immediate post-war years, although even the recently negotiated reductions should result in some further whittling away of preferences. The second and more important reason for the decline in the value of Imperial preference since the end of the war is that rising world prices have drastically reduced the ad valorem incidence of specific margins. Despite these developments, there is considerable quota and currency discrimination in the Commonwealth, especially in the Colonies, directed against dollar area and Japanese goods.

Broadly speaking, the Commonwealth countries fall into three groups in their attitude to Imperial preference. At the one extreme are Canada and South Africa, which are affected by preferences to only a

minor extent and are more Interested in the general liberalisaion nf world trade than in the strengthening of Commonwealth economic links. At the other extreme are Australia, and. to some extent. New Zealand, which combine strong sentimental attachment, to Imperial preference, with a wide variety of grumbles at Britain’s trading behaviour. In between come most of the other Dominions, which, despite minor grumbles, feel that both they and Britain benefit to about the same extent from the present system. Looking back over the 24 years which have passed since the Ottawa Agreements there have been too many other disturbing influences over world trade to isolate the effects of Imperial preference. The Ottawa Agreements were associated with a general movement away from free trade towards protection. Pattern of Trade

In so* far as the agreements exempted inter-Commonwealth trade from the high duties which were being raised all round, their effect was to maintain Commonwealth and. indeed, world trade at a higher level than would otherwise have been possible. Nevertheless those who hoped /or decisive changes in the pattern of trade have been disappointed. The Commonwealth is not a self-sufficient economic unit, and this puts obstacles In the way of all attempts at joint economic organisation.