Canberra, 1 January 1969
Trading arrangements: Australia — Papua & New Guinea
The proposal in the draft Cabinet submission2 is that consistent with the protective needs of Australian industry, we should extend preferential treatment to imports from Papua and New Guinea. The tariff [is] to be used as the method of granting the preference. Access to the Australian market for Papua and New Guinea would be more advantageous than that granted under the L.D.C. preference scheme.3
2. As we already have a non-reciprocal regime of this kind for primary products, the proposal would apply to future exports of manufactured or processed goods. On the face of it—and probably in substance—the proposal is sensible and reasonable and I do not imagine that we would wish to resist it. There are a few observations to be offered.
3. The submission and the record of conversation between McEwen and Mr Bames4 takes it as given that the according of preferential treatment is a good and desirable thing. While this is true for immediate trading and investment objectives, a preferential arrangement of this kind involves a special relationship and dependence and we should be aware of the problems which eventually come when the preferential arrangement has to be dismantled. I believe that the potential loss of the preferential relationship with the U.K. involved in that country’s application to join the E.E.C. had deep implications and consequences for Australia’s attitude towards Britain. We should be mindful of the possible effects on our relationships with Papua and New Guinea after independence and when for one reason or another we may not want or be able to continue preferential treatment. Finally there is a very reasonable economic argument that the recipient of preference is disadvantaged by the preference. Briefly this is that producers adjust their costs to the margin of the preference and finally reach a point in many cases where they cannot do without the preference; preferential industries are often high cost ones.
4. Of more practical importance and this is not touched on in the submission, is the possible consequences of the introduction of such a regime on our relationship with third countries. On page 4 it is stated that the proposal raises two issues:
(a) protection for Australian interests; and
(b) international commitments.
A (c) should be added dealing with relations with third countries.
5. It may be that developing countries will readily agree that Papua and New Guinea should have preferential access over them. In practice such access will probably be limited to a few items but some L.D.C.’s may bogle at the principle. Moreover, there are grounds for believing that the U.S. may have reservations or objections—particularly at a time when moves are a-foot for a generalised preference scheme. You may recall that the granting of the original waiver for preferential treatment for primary products of Papua and New Guinea had to be closely negotiated in GATT with the U.S.
6. The submission envisages export control from the territory of Papua and New Guinea, and states that ‘such a safe-guard should be fully effective’. This is no doubt true of present conditions but time has the habit of passing. It is not unreasonable to assume that at some point on the way to independence the Territory will become responsible for its own external trade policies and practices. We could have a problem from that time on about the limitation of exports.
7. In the record of conversation between Ministers it is recorded that: ‘Mr McEwen envisaged a four-tier structure of trading partners,
• General tariff countries
• British preferential tariff countries
• L.D.C.’s
• Papua and New Guinea (better treatment than other L.D.C.’s where practicable)’.
I only wish to draw this to your attention and to remark that we have moved a long way from our traditional post-war policy of gradual movement towards a single column tariff with diminishing exceptions.
I feel our comment to Territories should seek a recognition that we could have problems with third countries about the proposal. Moreover, I feel the recommendation is far too open ended and would justify all kinds of measures that could land us in trouble internationally and in our relations with third countries. Could we discuss please.5
[NAA: A1838, 936/14/2 part 2]
1 Laurence Corkery, Acting Assistant Secretary, Economic Relations Branch, DEA.
2 Final is Document 251.
3 On 19 May 1965, McEwen indicated to Parliament that Australia had ‘decided to accept new provisions of the G.A.T.T. designed to aid the trade of less-developed countries, subject to a reservation which will fully preserve our right to continue our own policies of using the tariff to assist Australian development’ (J.G. Crawford, Australian trade policy, 1942–1966 , Canberra, 1968, p. 192).
4 Not found.
5 In a marginal note of 2 January, Shann instructed Corkery to inform Territories that DEA ‘do not raise objections to [the] submission at this stage’, but that it would be writing later to Territories ‘about some of our longer-term reservations’. He also asked Corkery to contact the Department of Trade for a view before phoning Territories.