1 potential applicants.

In document The control of imports : Australia 1952-1960 (Page 165-175)

‘The extent of this prescreening is unknown. It was thought by those administering the licensing system to have been quite substantial in periods of severely restrictive licensing. It seems reasonable to accept this view. The criteria used in considering applications for goods in this category became widely known amongst the business community. It was not the intention of the licensing authorities to hide from potential applicants, for example, that while licensing was at all s tringent, an application for a n import licence was unlikely to be successful if a more or less comparable product was available from local production not

greatly in excess of the comparable imported one. In many cases, there­ fore, where a local product was available under these conditions the appli­ cant would not find it worth while to apply for an import licence. Any incentive that existed would be offset by the knowledge that he would be involved in a substantial delay with small chance of s uccess. The practice of inflating requests is relevant, though to an unknown degree.

strated by the underusage of quotas of directly competitive imports, the procedure is of only limited use. The restriction may still be effective, even though the quota is not fully used. This may be because the existence of restrictions on imports enables the local producer to exercise some degree of persuasion on the importer; be­ cause the importer finds that he is able to maximise profits by

importing less than his quota; or it may be that geographical distances fragment the market such that some importers have unused quotas while others are undersupplied with importing entitlements.

It would be further complicated in individual cases by the sub­ stantial volume of changes of items from one method of control to another and by the fact that, at times, up to one third of specific quota items were included in ’B anks1 (see Chapter III) with some degree of interchangeability in the use of the licence.

Finally, data for specific quotas are, in general, not available

1

in a tabulated form for the years before 1957.

‘With the reorganisation of t he licensing system, which took place in 1956 and 1957, the methods of c ollecting and collating licensing statistics were substantially revised and the statistical staff considerably enlarged. Consequently, from late 1957 and early 1958 more accurate and comprehensive collection and tabula­ tion of statistics was possible. For a summary of some of the changes made see Report oT Activities for Collectors of Customs. 1957,58. Department of Customs and Excise, Canberra, pp.67-8.

A second approach to measuring the extent of the demand for imports frustrated by the controls could be through its reflection in prices. If for each item on which controls had been imposed, prices of both the locally produced and imported article were avail­ able in continuous series, changes in the margin between the two

prices could represent a reasonable indicator of changes in the inten­ sity of protection being received by local industries from controls on imports. The concurrent existence of tariffs would not present partic­ ular difficulties in this case, since the margin then to be considered would be that between the local price and the imported price plus the tariff.^

There are unfortunately two major disadvantages to this approach. The first is that there are only veiy limited sources of price data available in a published or otherwise accessible form in Australia. A certain amount of price data is available in trade journals but this tends to be largely related to building materials, domestic

" ‘Such an index would have a number of limitations. For example, if internal prices were not c ompletely flexible, and shortages,

unofficial rationing, long order lists, etc., were at all widespread, the resultant index could be misleading. Moreover, such an index, while it could be reasonably valid as an indicator in the case of individual products or industries, would be less valid in the aggregate, e.g., the difference in prices may be due entirely to higher raw material costs which resulted directly from the controls on imports, and in fact such a measure would be subject to the same criticisms which have been levelled at the concept of ’’excess costs”, in discussions of tariff protection. See M.W.Corden, ’’The Calculation of the Cost of Protection”, Economic Record. Vol. XXXIII, No.64,

pp.29-51; A.J.Reitsma, ’’The ^Excess Costs’ of a Tariff and Their Measurement”, Economic Record. Vol. 37, No.80, pp. 4-42— 455•

electrical appliances, foodstuffs etc., a substantial part of it being related to goods which are not important traded items. Series in trade journals also tend to be changed to a different basis at fairly frequent intervals. Further difficulties arise when attempt­ ing to identify many of the items in the import statistics or in over-

1

seas trade journals because of different trade names etc.

More importantly, the second difficulty is that the use of data for price changes obtained from such sources could be misleading. The data provided is normally the official price list of the trade association. Frequently competition between sellers takes place on the basis of discounts on the list price. Substantial changes could take place in the selling price for a product without being reflected in t h e index. For many items, particularly items of machinery and equipment, the selling price may or may not include a variety of non price factors such as free servicing, provision of technical advice, etc. Not infrequently the selling price might be substantially differ­ ent from the economic price. Similarly, comparisons of price movements of goods which are not more or less basic commodities can also be mis­ leading because of quality changes, etc. We concluded, therefore, that an index of protection was not a practical proposition.

■*'*Unit value data which are available from Secondary Industry Bulletins over a fairly wide range of commodities, while generally satisfactory for some purposes would not be sufficiently accurate for the purpose

of comparison of actual prices. This also applies to unit values of imports which would necessarily have to be a major source of import price data. The problem of identifying sufficiently c©mparable items would also arise.

16't

An index of import control in the United Kingdom from 1945 to

1

1958 has been produced , but this index, sometimes referred to as

2

an 1index of control’ , is essentially an index of the coverage of the controls on imports and does not measure their intensity. In a more detailed way the index reflects data analogous to that in Table III-3 except that adjustments have been made for discrimination by source of imports. The relationship of movements in the index, and its subindexes, generally bear only loose relationships to movements

3

in the volume and source of imports". It will be apparent from the discussion in Chapters III and IV and in the present chapter that such an index would have limited analytical value, at least in the context of the Australian licensing system.

The second way in which we could seek answers to the questions we are asking and the one we are forced to take is less direct. This involves an examination of what happened during the period in which the controls were operating and then attempting to assess the extent to which the observed changes may be explained by factors other than the controls on imports; the presumption may then be made that the unexplained part is in some way related to the controls on imports.

"■’M.F.W.Hemming, C.M.Miles and G.F.Ray, MA Statistical Summary of the Extent of Import Control in the United Kingdom Since the War", Review of Economic Studies. Vol.KXVI (2), no.70, (Feb*1959), pp.75-109*

‘National Institute Economic Review. no.S (March I960), p.lB. o

In part this is along the lines of the approach suggested by Dr. Corden who argued that, since it was not possible to separate the effects of tariffs and direct import controls, an approximate measure of the extent of protection provided by the two measures together would be obtained by observing the extent of output expansion which took place while they were both in operation.

There are a number of reasons why this would only be a vexy incomplete answer to the question of the effect of the controls on imports on the domestic industries concerned even accepting, as did Dr« Corden, that we would have to ignore the effects of the controls

on total demand. Even if we consider only the longer term movements, and thereby avoid the problems of the short term inelasticities of supply - which may in fact be of fairly long duration - the answers such a measure will provide would be very imperfect. First, it assumes that in the longer run competition within the industry is sufficiently active for the benefits of the reduced competition from imports to be taken out in terms of output rather than in higher profits per unit. This is clearly an assumption of some importance and one to which we shall give some attention.

Second, it assumes a situation in w hich no other factors of major importance change. An industry may, in fact, be prevented from declining. Although showing no increase, the level of its output

II

~

may be substantially above that which would have obtained in the absence of the controls.

It is also assumed in this type of approach that the important effects may be identified in directly competitive industries. The argument in Chapter VI will make it apparent that demand is redirect­ ed to all domestic industries; it is not necessarily the case that an import competing industry is an industry which produces an import-

1

able product. It may be reasonable to accept as a working hypothe­ sis, however, that products which are technically directly substitu­ table are also more directly in the line of demand substitution, but it is clearly subject to many qualifications.

Clearly, therefore, we could expect the response of the industries receiving incidental protection from the controls to differ from

industry to industry, even if the protective incidence of the controls were more or less uniform. We must expect further differences to arise from the variation, from product to product, in the severity of the controls on directly competing products. In addition, of course, each industry will be affected differently by changes in other factors determining the extent to which demand turns to overseas or domestic

supplies.

TT

For example, the closest substitute for imported weatherboard timber may be bricks or asbestos cement rather than domestically produced timber. Producers of woollen textiles would have been influenced indirectly by the restrictions on imports of cotton textiles and textiles of synthetic fibres.

Australian imports are manufactured goods* Imports of goods, which if available from domestic sources would be the products of Austra­ lian manufacturing industry constituted about 80 per cent, of total

1

imports over the period. Conseo±uently, the immediate effects of a general restriction on the supply of imports may be expected to be seen in the supply of, and demand for, manufactured goods. Moreover, it is inevitable that consideration of the effects of the direct con­ trol on import competing industries must be concerned largely with secondary industry. This does not mean that other sectors of the economy were not affected in an important way by the controls on imports. It simply reflects the fact that we are able to attempt to provide answers to only a few of the many questions which arise out of the experience of the direct controls on imports.

Before explaining in more detail the nature of our examination of the experience of secondary industry under the protection provided by the direct controls on imports it will be useful, as a means of placing the effects of the controls in perspective, to consider some aggregative aspects of controls on imports. It is also hoped to obtain answers to some questions which have arisen in our earlier discussion.

Table VTI-5« The notes to the table of market shares make it clear that this would under-estimate slightly the proportion which imports of this nature represent of the total.

No attempt has been made to estimate by how much demand for imports was effectively frustrated by the controls on imports. There have been no years in the post war period which could be regarded, in some way, as normal and consequently satisfactory as a basis for such estimates; using the pre-war experience as a guide would be basing estimates on conditions in what was virtually a different economy. Apart from this, assumptions would be necessary regarding the condi­ tions which would exist in the remainder of the economy in the absence of the controls. One might expect the controls on imports to have been of sufficient magnitude to affect the total level of demand and hence the demand for imports. One would, therefore, either have to make a ceteris paribus assumption or attempt to take into account the

effects of all other autonomous and induced changes in import demand. Any estimates of this nature would clearly be hypothetical. Some

indication of the probable direction and possible orders of magnitude of the effective restriction of imports may be helpful in placing the subsequent discussion in perspective.

As we have seen, none of the post war years can be considered ’normal' since all were affected to a greater or lesser extent by

import controls, inflationary pressures or depressed demand internally. Nevertheless, it is perhaps possible to argue that the effects of import

controls and the shortages of supplies and shipping space in 1950-51 roughly offset the effect of inflationary pressures internally. If we compare the ratio of imports to G.N.P. in 1950-51 with the same ratio

some 23 per cent, in 1950-51 to some 17 per cent, in 1960-61. If we assume the excessive imports in 1960-61 to be about £80m. f.o.b. a normal level of imports would have been about £

1139

m. or a little over

2

15 per cent, of G.N.P. for the year.

Suppose now that we draw a straight line between two points representing the ratios for these two years. Since the excess of expenditure of income that gives rise to the deficit on the balance of payments we shall calculate the level of imports indicated by this

3

straight line on the basis of gross domestic expenditure. Subtract­ ing these notional import figures (shown in column (

3

) of Table VII-l)

1.

It is true that 1950-51 is somewhat higher than comparable figures for the only post war years. There were substantial shortages of imported goods in many of these years in addition to which the move­ ment in relative prices in the post war period was strongly against Australia.

2.

See A.R.Hall, ’’The Full Employment Demand for Imports, 1962-63", Economic Record, Vol*3S, No.81, pp.111-113« While Dr. Hall does not attempt to quantify the total abnormal importing in 1960-61 there is little doubt that, provided one accepts his arguments, the £80n. reduc­ tion made above is a conservative one.

3.

Since in some way the propensity to import is considered to represent a structural feature related to income it was thought more appropriate to use this propensity in relation to the expenditure data, rather than calculate the notional import proportions on the basis of gross domestic expenditure in 1950-51 and 1960-61. The results would be little diff­ erent. They would have been different if the notional proportions had been applied to gross notional product data which are as one would expect, since the expenditure figures take some account of what consumers try to do with their income. Notional imports as a proportion of G.N.P. are higher in 1952-53, 1953-54 and 1956-57 but lower in all other years.

we o b ta in th e r e s u l t s i n column (5) o f T able V II- 1 .

In document The control of imports : Australia 1952-1960 (Page 165-175)