Canberra, 15 January 1969
Confidential
Trading arrangements—Australia and Papua and New Guinea
1. The purpose of this submission is to put before Ministers the case for further extending the long-established policy of providing favourable access to the Australian market for Papuan and New Guinean products.
2. Such an extension would aim to assist the growth of Territory industry, especially secondary industry. It would be in accordance with the view taken by Ministers in 1966 (Decision No. 138, 29/3/66)1 when Cabinet expressed willingness and desire to continue to assist the Territory’s development and felt that, whatever the political status of Papua and New Guinea might be in the future, there would be a trade and defence relationship as a matter of mutual self-interest.
3. Extension of the policy would also be consistent with the recommendations of the World Bank Mission in 1964. In its report, the Mission observed:—
‘It is clear that the economic growth of the Territory would be benefited by the liberalisation of entry of Territorial products into Australia …2 Policies which would permit the expansion of the market in Australia for products of the Territory could, over the years, indirectly decrease the volume of direct assistance from Australia, and the Mission urges sympathetic consideration by the Commonwealth Government for the adoption of such policies’.
4. The Interdepartmental Committee on Papua and New Guinea Trade Policies, set up by Cabinet Decision No. 1142 on 29th November, 1960,3 was reconvened to examine the question of access for Papua and New Guinea products to the Australian market. There was a consensus on the committee that aid by trade could provide significant assistance to the Territory in accelerating balanced economic development. The committee considered how far it would be practical to go by way of assisting the Territory in this matter and suggested that the Department of External Territories jointly with the Department of Trade and Industry explore appropriate measures. The present submission arises from discussions between the Departments and from my own discussions with the Minister for Trade and Industry. I have concluded that in the first instance Cabinet’s agreement to the principle put forward should be sought.
5. A brief summary of special assistance already accorded to products of Papua and New Guinea is set out on an attachment.4
6. Extension of the policy of providing special access to the Australian market for Papua and New Guinea products could do much to encourage private investment and bring new industries to the Territory; imports could be allowed in duty–free, under tariff quotas where appropriate, for amounts which would not damage Australian industry. It would have greatest application in the field of manufactures, most primary products of Papua and New Guinea already being admissible duty–free. Its particular advantage for the Territory would be in facilitating establishment of some industries much earlier than would otherwise be feasible.
7. The proportion of the Territory’s population involved in the cash economy is increasing. Substantial education programmes are under way and accelerated industrial growth in the Territory is essential in order to provide employment and business opportunities for increasing numbers of school leavers.
8. New industries are also needed in order to advance the Territory towards economic viability
• by reducing the burden of manufactured imports in the balance of payments; and
• by developing a more diversified economy with less dependence upon a restricted range of primary exports.
9. A bill to set up a Tariff Advisory Committee was introduced into the Territory House of Assembly at its last session. The Committee would replace existing ad hoc arrangements and would tender advice on tariffs (including anticipatory protection) and other measures for the purpose of promoting the growth of efficient Territory industries. A Pioneer Industries Scheme is already operating. Such measures, however, can only have limited effect in overcoming the major obstacles to the development of manufacturing industry in the Territory which are the small size and fragmented nature of the market. Over the last few years several promising proposals for the development of new industries have failed to make headway principally because the size of the local market was considered insufficient to justify an investment. In some of these cases industrialists indicated that duty-free access to the Australian market for a share of their production could make the project worthwhile.
10. For Australia, this proposal raises two issues:—
a. protection for Australian industry; and
b. international commitments.
11. Adoption of a general principle of providing duty-free, or special preferential, access for Papua and New Guinea products could raise the problem of protecting Australia’s own industries. Almost all existing Papua and New Guinea goods, including some also produced in Australia, are at present admitted duty-free without causing damage to Australian producers; the only significant import on which duty is levied is plywood in excess of the duty-free quota of 16m sq.ft. In considering extension of duty-free access to new items, the Government may wish to obtain the Tariff Board’s view when major propositions are involved. In most cases it may be sufficient for the examination to be made by the Department of Trade and Industry as in the case of the L.D.C. preference scheme.5 Safeguards for Australian industry could be determined and the Administration of Papua and New Guinea could ensure that exports to Australia would not exceed the levels set. Such a safeguard should be fully effective judging by experience with the Japanese Trade Agreement,6 the N.Z.A.F.T.A.,7 and the L.D.C. preferences scheme.
12. So far as Australia’s international commitments are concerned, existing GATT waivers cover most Territory primary products and products processed there from. For some items, it may be possible to assist Papua and New Guinea by making use of the L.D.C. preference waiver. Extension of the waivers to cover other products of secondary industries would, however, require specific approval of the GATT, which could be difficult to obtain.
13. Recommendation
It is recommended—
that Cabinet endorse a policy that in furtherance of Australia’s responsibilities to develop the economy of the Territory of Papua and New Guinea, every effort be made to supplement Australia’s existing financial aid by seeking to assist the development ofTerritory exports to Australia by the most comprehensive measures which are available, consistent with Australia’s international commitments and the need to maintain protection to Australia’s own industries.8
[NAA: A5868, 449]
1 Document 34.
2 Ellipsis in the original.
3 Not printed.
4 Not printed.
5 See footnote 3, Document 249.
6 The Australia–Japan Agreement on Commerce of 1957 accorded most-favoured-nation treatment in tariffs and provided reciprocal assurances of non-discriminatory treatment in import and exchange controls.
7 The New Zealand–Australia Free Trade Agreement of 1965 was described by John McEwen as following guidelines defined by the GATT; trade between the two countries was to be substantially free, but some items were allowed protection (Crawford, Australian Trade Policy , p. 419).
8 Cabinet approved the recommendation on 11 February. Cabinet also noted that assistance of the type outlined was already being provided on some products—and McEwen ‘assured the Cabinet that the administration of this trade policy would continue to have careful regard to interests of Australian industry and to ensuring that any industries in the Territory which are likely to expand on the basis of the assistance fully understand this position’. It was left to McEwen’s discretion ‘to report to the Prime Minister any potentially awkward case arising under this policy’ (NAA: A5868, 449).