FREE TRADE

Timaru Herald, Volume CXXXVII, Issue 19625, 20 October 1933, Page 11

FREE TRADE

BRITAIN AND NEW ZEALAND MEAT BOARD’S PROPOSAL The members of the New Zealand Meat Producers’ Board are convinced that the only safe course open in the present crisis is to give free entry into New Zealand to all British products that contain an agreed-upon percentage of British labour and materials. Tills opinion was expressed in a statement on behalf of the board submitted to the Customs Tariff Commission by Sir William Hunt at Wellington on Wednesday. The elucidation of that belief comprised a large portion of the board's evidence. The evidence stated:— “The only way to bring a return to prosperity is to restore profit to industry. The basic industry which forms the foundation of the whole economic life of this country is farming. Until profit is returned to our farming industry, or until some other basic industry to largely take its place is discovered and placed on a profit-earning basis, our subsidiary industries and economic life generally cannot prosper. The only way to restore profit to our farming industry is to bridge the gap between farmers’ costs and farmers prices. We in this country can do little to increase the value of our export products in oversea markets, but while we are waiting for these to adjust themselves, we must do all we can to bridge the gap between our internal prices and costs. It is a narrowing, not a widening of the gap that is needed. Anyone advocating an increase in the value of our Internal currency to-day should be able to show how simultaneously a corresponding reduction in costs can be brought, about. We do not think this can be done. It could only be done by drastic reduction in wages and salaries of all kinds. Experience of other countries has shown this method to be unworkable, and every country, with the exception of Holland and Switzerland, has already had to ease the situation by a reduction in the value of its currency. “It is becoming increasingly recognised that the value any country places upon its currency is a purely internal matter which concerns no other country except itself. Its chief and only permanent effect is to adjust its internal debtor and creditor and price and cost positions. Any effect upon its oversea trade is of a temporary nature. To state, as some have done that a decrease in the value of the currency is equivalent to a permanent addition to tl.e tariff, is equivalent to saying all countries in the world, except Holland and Switzerland, have, in recent years, put permanent tariffs against the rest of the world to the extent to which they have depreciated their currencies. Such a statement carries absurdity on its face. Need for Internal Adjustment. “The two great problems to be dealt with in restoring the economic equilibrium of this country are—(l) The internal cost and price position; and (2) the internal debtor creditor position. Every country is faced with the same two problems. With the exception of Holland and Switerland, every country has found it necessary to so alter the composition of its currency as to put a check upon the continual appreciation of its command over goods. To put it in the words of President Roosevelt: ‘To maintain conditions that will enable the debtor to repay his loan with the same dollar that he borrowed.’ “To adjust the internal cost and trade position and the internal debtor creditor position in this country, we must utilise the currency in the same way as every other country in the world, bar two, has done or is doing. Costs in this and every country have proved very inelastic, and it has been found everywhere impossible to work from the cost end alone. The currency end must also be used. The mere fact that every country in the world except two small ones has had to depart from its old currency base, is • clear indication that we are dealing with no ordinary slump that can be cured by ordinary methods. What we are now dealing with is an economic revolution. The failure or partial failure of conference after conference is making it fast dawn upon the world that the situation can be best dealt with by each country attending to its own affairs and putting its own internal house in order by making the necessary internal adjustments. That is what we must do in New Zealand. New Zealand Export Markets. “In order to maintain her financial arrangements with the outer world, New Zealand depends upon a very narrow range of exports. She depends upon an even narrower range of markets in which to sell her exports. Wool is the only main line produced that has a world market. For almost every other line we export Britain is our only market. With New Zealand approximately 70 per cent, of her exports can practically, under present conditions, be marketed nowhere else than in Britain. In Australia only 17 per cent, of her exports are in this category, in Canada le:; than 6 per cent., and in South Africa less than 8 per cent. These figures show that the British market, economically, is a matter of life and death to New Zealand, but of very much less importance to the other Dominions. The Position To-day. “We find to-day we are a country with practically only one market to which we can export, and that we are only assured of the free and unlimited entry to that market for two years longer for part of our exports and four years for the remainder. From the happenings at Ottawa and the published addresses since of the British Minister for Agriculture, Major Elliot, the Dominions Secretary, Mr J. H. Thomas, and other members cf the British Cabinet, and also the attitude of the British press, it is evident that when the Ottawa agreement comes to be renewed, the manner in which we have dealt with British imports in the interval will have an important bearing upon the further trade arrangements with Britain we will have to make. The British market is so vital to us that we cannot afford to have it even impaired. A failure to find a remunerative outlet for our surplus farm products would be a national calamity that would leave no part of our economic structure unaffected. It is a vital question to every person in the Dominion, city dwellers as well as country dwellers. “Only One Safe Course.” hat are we going to do about it? The members of the Meat Board are convinced that there is only one safe course open, and that is to give free entry into New Zealand to all British products; that is, to all products j exported from Britain that contain an j agreed upon percentage ol British laI hour and materials. We think this change should be brought about in steps. The first step should be the carrying out of the tariff rlauses of the Ottawa agreement in a manner liberal to British interests. Having done this, the remaining tariff should be reduced ! at the rate of, say, 25 per cent, a year.

so that it would be finally rim out at the end of four years, when the existing agreement will come up for consideration. “Britain is the only country in the world which gives us free and unlimited entry for our goods. We have now the option of free trade with Britain. We have not this option with any other country, and in four years’ time, and possibly in two years, we may not have this option with Britain. If once our products are only permitted to enter Britain under either a tariff or a quota, vested interests will be created desiring the maintenance of the status quo, and we may not have our present free trade option again for generations. Shut off from the rest of the world by tariff walls, and left to ourselves with our little market of one and a half million persons, with outside markets only available after paying costly duties we would have a poor future. Joined up with Britain we have a market of 46,000,000, and can march forward on level terms with the best of other nations. There is no British country that depends more on the rest of Britain than does New Zealand. Our aim should be to make New Zealand another British county. New Zealand's position cannot be compared with that of any of the other Dominions. They all have a wider range of products and a much wider range of markets than this Dominion. Whatever may be New Zealand’s fate in the more distant future, her immediate future depends for its prosperity in the closet possible contact with Britain. New Zealand solvency is not a matter that concerns our farmers only. It concerns every man, woman, and child in the Dominion. “We wish to make it quite clear that it is only free entry of British products that we are advocating, not the free entry of the products of any other country, including British Dominions. None of these other countries or Dominions import New Zealand products, except to a very limited extent. We do not wish to disturb existing tariff arrangements with other British Dominions or foreign countries in the meantime. Any future changes in our trading relations with countries other than Britain should be the subject of reciprocal trade arrangements. In any future arrangements of this nature the interests of Britain, as well as the interests of New Zealand, would have to be considered. Britain is our only market of consequenc'e in the meantime, and our first necessity is to keep in step with her. “The policy we have advocated involves a close examination of its effects: (a) upon our secondary industries; (b) upon the public revenues. We will take the effects on secondary industries first. Effect on Secondary Industries. “It must always be remembered that even under free imports from Britain local industries still retain a doublebarrelled protection in their Home market. The one is the transport protection and the other is what may be called the stock protection. The distance and time from British markets make the stock protection a very real one. Purchasers of goods f local manufacture can get their requirements just as they require them, whereas importers must purchase <n large quantities. This means carrying large stocks, with the consequent interest and storage costs, and in the case of seasonal goods, increased loss in jobbing sales to clear up balances left on hand. "We think it can be taken for granted that the free entry of British goods into New Zealand means lower costs to all New Zealand industries of every kind, This gives a direct benefit to every industry, regardless of whether it is now depending on or benefiting from exisitlng duties on Britsh goods. If these lower costs enabled some secondary industries to te established in this country upon an export basis it would further reduce costs here because all consumers of these particular goods would be able to buy them at export parity, instead of import parity, thus giving consumers of these manufactured goods the same advantages with regard to them that they now possess in regard to their requirements of farm products. “We recognise that in advocating free entry of British goods into New Zealand we are putting forward a proposal that from an administrative point of view will not be simple and easy to arrive at. Other world powers, such as the United States, Japan, etc., have free trade with their colonies, but in these cases there is only one tariff for the central power and its colonies, and in the framing of this tariff the colonies have practically no say. In Britain and New Zealand, we have two separate tariff-making authorities, and the general tariffs of the two countries are quite different. Our exports to Britain are simple. They are primary products produced entirely within New Zealand. Our imports from Britain, however, are not simple. They are mainly manufactured, or partly manufactured goods, in many cases with a morf or less foreign content, and this foreign content, if sent direct to New Zealand by the country of origin, might be dutiable.

“The ideal that we want to aim at is that all goods coming to New Zealand from Britain, should enter free cf duty, as far as the material supplied and the added values given by Britain are concerned, and that the foreign content should pay the same duty, If any, that would be payable if this content had been sent direct to New Zealand by the country of origin. Even this would apply only if the dutiable fc eiin content was something used in a New Zealand manufacture in competition with the imported British article. The foreign content in a British motor chassis, for example, need not be considered, because New Zealand does not manufacture these. We recognise that from an administrative point of view, the Customs Department might not be able to establish it, or would only be able to do so at too great an expense. While 100 per cent, of our ideal, therefore, may be unattainable, we are aiming at as near this as is economically practicable. The methods of carrying out our proposal must necessarily be left to the Customs Department, and we recognise that these methods must be reasonably simple. Secondary Industries.

“We have made a detailed examination of each industry, with a view to seeing in what manner and to what extent it would be effected by the free entry into New Zealand of goods produced in Britain. We have divided the industries into four classes, according to the manner in which it seems to us, they would be affected by free imports of British goods:—(1) Industries which will benefit directly or indirectly through the lower costs that would obtain under free imports from Britain, employees 27,695, wages £6.469.024; (2) industries which we consider should not require protection from imports from Britain, because one or more of the following conditions apply:—(a> No imports from Britain and no likelihood of such; (b) advantages gained by free imports from Britain balancing disadvantages; (c> use of local raw materials, giving substantial freight protection; (d> large freight protection through bulky nature of products: Employees 21,445, wages £4,496.992. "(31 Industries which we consider would only be partially affected because: (a) A considerable portion is repair or installation work; or (b> a considerable portion is bespoke work, or articles made to order to meet special requirements: Employees 16.291. wages £3,309.889. "(4) Industries, which through loss

of protection by free imports from Britain, we consider would have to meet the loss of their sheltered position by reorganisation and rationalism, or cease operation: Employees 17,430, wages £2,570,381. “It is interesting to note that the industries which not only receive no benefit from protection, but are handicapped by it, pay the highest wages, while the highly protected industries pay much the lowest wages. The large proportion of female labour employed in class 4 industries will probably account for their poor showing as wage payers. It does not necessarily follow that these class 4 industries would be eliminated by free imports from Britain. The largest industries in this class are the textile industries (chiefly woollen mills and clothing making) and the boot and shoe industry. They would almost certainly require reorganisation to meet the new conditions, but in the end, when reorganised, might easily become greater than ever. Under our proposals they would have four years of gradual duty reduction to ease the position. It might be reasonable to help them further through their reorganisation period by giving some subsidy which would have the effect of helping them for a further period beyond the four years mentioned. The subsidy to be gradually reduced until it finally disappeared in, say, eight years, or some other reasonable period.

“Probably most of,the industries now getting tariff protection will protest that they cannot meet British competition with only transport and stock protection, and it will be quite impossible for them to get their costs down sufficiently to enable them to do this. It is only human nature to take the easy course, and it is easier to work with tariff protection than without it. No one knows what they can do until they try. As we have pointed out, our primary industries have had their income reduced by 60 per cent., and they have to face this position and meet it whether they like it or not. What we have asked the protected secondary industries to do is a small thing compared with what the primary industries are being compelled to do. On Public Revenues.

“We now come to the question of the effect upon the Customs revenue of free Imports from Britain. In order to show clearly how we arrive at our estimate and to make a comparison with the duty collected under the present system we give the 1932 imports from Britain, balance of the empire, and foreign countries, showing separately the estimated duty, primage, and surtax collected from each source. In this return we have divided the dutiable imports from balance of the Empire and from foreign countries into those ‘in competition with Britain.’ It is obvious that the amount of duty will not be affected by the free entry from Britain of goods that Britain does not produce on an export basis and in which she would not, therefore, be a competitor with goods from balance of empire or foreign countries. "We are now in a position to make a comparison of the amount of revenue which would be collected under our proposals, based on imports similar to 1932, as against the actual revenue collected in that year. The amount of revenue from duty, etc, collected on imports in 1932 was:— £ Import duty 4,200.000 Primage and surtax .. ~ 828,000 , Total duty collected .. 5,028,000 Prom this must be deducted surtax already waived under Ottawa Agreement 245,000 Leaving a balance of 4,783,000 The amount that would bo collected under our proposals from imports and Customs duties would be:— £ Import duty 3,302,000 Plus primage and surtax .. 348,000 Total duty 3,650,000 Of this total, petrol duty and surtax on petrol duty amounts to £954,000. This has already been budgeted for and would be £400,000 more than the amount collected in 1932 (£554,000) and must be deducted 400,000 Leaving a balance of duty that would be collected under our proposals .. 3,250,000 This leaves a loss of revenue 1,533,000 "While the. foregoing gives the estimated final effect upon the public revenues by our proposals, we would point out that this effect would not be immediate, but would come about gradually spread over a period of four years. The loss in revenue mentioned in the last paragraph would have to be made up from other sources. We think the proposals we have made for free imports from Britain are necessary both for the preservation and increase of our national income. This improvement in the national income over what will otherwise be the case will account for a considerable portion of the shortage which will have to be made up. Every million pounds up or down in the national income probably means £200,000 to the public revenues. The lower costs to the public, consequent upon the suggested reduction of duty means spending power available for use in other directions. This would bring in a certain amount of additional public revenue. “We suggest that the sales tax should be used to make up the shortage of income left after the above two influences have worked themselves out. Every one per cent, on the present sales tax means roughly £300,000 out. Every 1 per cent, on the prosperity that we are looking for and which we think our proposals will help to bring about, this productive rate of the sales tax will probably increase. If necessary the base of the sales tax might be widened.’’ Summary of Conclusions. The following is the summary of conclusions:“Farming is fhe basic industry of New Zealand, providing almost the whole of the country's exports and the only means of financial communication with the outer world. "New Zealand depends more upon the British market for the sale of its exports than any other country, and very much more than any other British Dominion. New Zealand’s position is, therefore, entirely different from that of any of the other Dominions. “Britain being the only market for about 20 per cent, of New Zealand's exports the loss of free and unlimited entry to that market will seriously impair* New Zealand's solvency nno iinjure every section of the community. “The speeches of British Cabinet Ministers and other public men, together with the statements of the British press, show that Britain is adopting a policy of restricting imports and fixing quotas with all countries. including British Dominions. This policy is fraught with very much greater danger to New Zealand than to any other Dominion. “The only way to be sure of securing free and unlimited entry for Now Zealand products into Britain is to give similar entry to New Zealand of British goods. “In accordance with the provisions of the Ottawa agreement an immediate substantial reduction should be made in the duties on British goods Under our proposals the balance of

the duty then remaining should be removed at the rate of 25 per cent, a year. “No change should be made in the tariff on goods from other countries, including British Dominions, except upon a reciprocal basis and in arranging any such changes British interests should be considered as well as those of New Zealand. “The commonly accepted idea that free entry of British goods Into New Zealand will largely destroy New I Zealand’s secondary industries is j wrong. Free entry of British goods ; into New Zealand will either help or leave unimpaired secondary Industrie: employing 79 per cent, of the employees and paying 84.8 per cent, of the wages. “The remaining secondary Industries employing 21 per cent, of the employees and paying 15.2 per cent, of the wages would in the first instance suffer from free entry of British goods. These could In a large measure meet the situation by reorganisation and should

receive assistance by way of bonuses for a limited period while doing so. "Free entry of British goods Into New Zealand will reduce costs to all New Zealand industries, both primary and secondary. “These reduced costs will enable those of our secondary industries with natural advantages to place themselves on to an export basis. This would reduce costs to all consumers of the products of those industries and thus help other industries to reduce their costs to the advantage of all consumers. j “Our standard of living in the past has been bolstered up by the expenditure of money borrowed in Britain In the future our standard of living will be such as we can earn, while at the same time repaying to Britain the money borrowed from her. Until this is done, we as debtors cannot expect to establish a higher standard of living than our creditor. “The cost to the public revenues of loss of duty on Brltslh goods can be made up.”