The control of imports : Australia 1952-1960

THE CONTROL OF IMPORTS: AUSTRALIA 1952-1960

by

STUART F. HARRIS

Thesis presented to the Australian National University for the purpose of proceeding to the Degree of Doctor of Philosophy.

Dr.Pearce, to whom the theoretical discussion, in particular, owes much; to Dr.Hall for helpful comments and guidance at various stages; and to Sir John Crawford for encouragement and help through­ out.

Many others have contributed greatly among the staff and students of the Australian National Univesity and members of the Departments of Trade, Customs and Excise and the Bureau of Census and Statistics, and to them and to many others my thanks are due.

Contents List

Chapter Page

I. Introduction I

II. The Direct Control of Imports 13

III. The Method of Import Control

Appendix III.A. (Source and Method: Tables III-2

and III-3) 63

IV. Some Theoretical Considerations. I: Quantitative

Import Restrictions and the Balance of Payments 6"] Appendix IV.A (Comparison of the Welfare Effects

of an Exchange Rate Variation and an Import

Restriction) l°(*

V. Some Theoretical Considerations. II: Internal Effects

of Quantitative Import Restrictions llg

VI. Some Theoretical Considerations. Ill: The Method of

Import Licensing Control )43

VII. Empirical Investigation - General Aspects 13'4-Appendix VII.A. (The F.o.b. to C.i.f.e. Ratio) 3i7 Appendix VII.B. (Source and Method. Table VI1-5) «W& Appendix VII.C. (industry Subclass Code Numbers

and Titles) ^3o

VIII. Economic Implications of the Administration of the Controls: The Import Level

Appendix VIII.A. (The Import Time Lag) X o LX. Economic Effects of the Administration of the Controls:

Discriminatory Aspects X 6

XII. Import Restrictions and Secondary Industry. II 3^3 Appendix XII,A. (Group A. Industry subclasses)

XIII, Import Restrictions and the Tariff 4f1 Appendix XIII.A. (Method and Notes to Table

XIII-3) 444

XIV. Import Restrictions and Investment in Secondary

Industry 4

Appendix XIV.A. ('No Exchange* Licences Issued:

1952-1959) 443

XV, Import Restrictions and the Effects on Secondary

Industry 444

XVI. Effect on Export Prices S3?

XVII. Effects on Importers

Summary

This thesis attempts to assess the effects of the control of imports on the allocation of resources in the Australian economy from 1952-1960. The control system and methods are described briefly in Chapters II and III. Chapters IV - VI analyse the theoetical implica­ tions of quantitative import controls and provide the framework for the empirical investigation.

Chapter VII sets out the main lines of the enquiry, some general aspects of the period and some methodological considerations. The importance of the form and methods of control is examined in Chapters VIII - X from three aspects: speed and accuracy of the controls; discrimination among countries and among goods; and protection provided to domestic industries.

The effect of the method of operation of the controls on investment - domestic and overseas - is deferred for examination, together with other aspects of the effects on secondary industry in Chapters XI - XV. Consideration is given to the pattern of

development in secondary industry during the period and implications of the concurrent operation of the tariff. Since the effects of the controls depend importantly upon the policies of businessmen, the price reactions of exporters are discussed in Chapter XVI and those of importers, along with other effects, in Chapter XVII.

Introduction

The system of import licensing which operated from March 1952 to February I960, and which for a number of items continued to

operate after that time, dates from December 1939. When all imports were brought within the licensing regulations in

1941

it was the

first occasion in the history of the Commonwealth that a general system of quantitative import control had been in operation.

Prior to 1939 there had been several occasions when, for different reasons and for relatively short periods, quantitative controls had been Imposed on imports into Australia. Certain luxury-type imports

1

were restricted during the latter years of the first World War;

some 7S items were prohibited except under licence as an emergency

2

measure from 1930 to 1932; and a fairly large group of items was regulated by licence during the short lived ’Trade Diversion* policy from 1936 to 1938.^

In addition there are a few examples of quantitative controls being maintained for longer periods: quantitative controls on imports

T

Commonwealth Year Book, No.11, (1901-1917), p.559.

2

Ibid, No.26, (1933), pp.221-2. 3

9

h j

o f p l a i n s h e e t g l a s s imposed u n d e r th e emergency m easures o f 1930-32

were r e t a i n e d u n t i l 1959, u n d e r th e term s o f th e A u stra lia -B e lg iu m

Trade Agreem ent o f 1934, to m eet t h r e a t s o f r e t a l i a t i o n by Belgium

1

a g a in s t th e p r o t e c t i o n g iv en t o th e A u s t r a lia n g l a s s in d u s tr y ;

im p o rts o f m o to r v e h ic le c h a s s i s from c o u n tr ie s o th e r th a n th e U n ite d

Kingdom, w hich were r e s t r i c t e d by q u o ta u n d e r th e ‘Trade D iv e r s io n 1

m easures o f 1936 -3 8 , c o n tin u e d to be r e s t r i c t e d in t h i s way when th e

q u o ta r e s t r i c t i o n s on o th e r ite m s were l i f t e d , p r i n c i p a l l y to stim u

-l a t e th e m o to r v e h ic -le in d u s tr y ;

and f o r a number o f y e a r s th e r e h a s

been an embargo on th e im p o r ta tio n o f su g a r to p r o t e c t dom estic

3

p r i c i n g a rra n g e m e n ts .

C e r ta in im p o rts a re a ls o c o n t r o l l e d by p e rm it

f o r re a s o n s o f d e fe n c e , s e c u r i t y , h e a l t h , f o r s o c i a l re a so n s e t c .

u n d e r th e Customs Act

U n t i l 1939, how ever, th e r e was in A u s t r a l i a no t r a d i t i o n o f

q u a n t i t a t i v e c o n t r o l o f im p o rts w h e th er f o r th e m aintenance o f dom estic

economic a c t i v i t y , f o r th e p r o t e c t i o n o f l o c a l i n d u s t r y , as a b a r g a in ­

in g c o u n te r i n i n t e r n a t i o n a l n e g o t i a t i o n s , o r to p r o t e c t th e b a la n c e

o f paym ents.

N ic h o lso n , o p . c i t . , p p .7 4 -7 S .

2 I b i d . , p .1 1 4 .

3

Commonwealth Y ear Book, Nos .3 7 ,( 1 9 5 0 ) , p p .943-15 and 4 7 ,(1 9 6 1 ) , p.924*

4

S h ip s , a i r c r a f t , c e r t a i n ty p e s o f w eapons, n a r c o t i c s , obscene l i t e r ­

a tu r e e t c . a re c o n t r o l l e d u n d e r th e C u sto m s(P ro h ib ite d Im ports) Regu­

l a t i o n s .

T h at th e s e r e g u l a t i o n s may be u s e d f o r p u r e ly economic re a so n s

may be seen from th e f a c t t h a t th e q u a n t i t a t i v e c o n t r o l s imposed u n d e r

by the controls on imports. The main aim of the controls was to

reduce overall expenditure of foreign exchange, either of all currencies or of particular currencies. The reduction of this expenditure on

imports affected the overall relationship between aggregate supply and aggregate demand within the economy. The form of this change induced relative price changes, shifts in the distribution of income, changes in the propensity to save and the inducement to invest, etc.

The logic of the controls is that actual decisions to import were made on a basis different to that which would have resulted

from the use of the price mechanism. Moreover, imports include imports of raw materials and investment goods upon which existing output and expansion of that output depend. The bases on which these decisions were made were important in determining directly and indirectly the pattern of economic activity and of development. Consequently, the term import control is incomplete since it obscures the fact that the control of imports involves some degree of control of production and investment.

rate of growth. Under certain circumstances, as in the case of underdeveloped economies, this may well be justified. It is argued that it may not be justified in the circumstances of the Australian economy.

We may argue a priori that interference with the price mechanism will in general reduce welfare. The supplanting of the price mechan­ ism with direct physical controls in certain areas of the system will be even more likely to lead to an inefficient allocation of resources. It is necessary to recognise that the theoretical model behind such a priori reasoning is the classical and neo-classical international trade model based on the principle of comparative advantage, and is based essentially on certain broad assumptions regarding the nature of the economic system.

The validity of a number of these assumptions has been strongly assailled. The major criticisms are that the classical static model takes only limited cognisance of various dynamic factors; where non optimum conditions apply it is not necessarily the case that optim­ ising in other sectors will minimise the deviation from the total optimum; and businessmen do not maximise profits.

At this stage, of course, any businessman is able to justify any monopolistic practice, any protectionist can validate claims for a

because the niceties of marginal cost and price are not calculated to the *nth degree, does not mean that the aim of businessmen is not to approximate to this position; simply because current opportunity costs may differ now from opportunity costs in the future does not necessarily mean that existing opportunity costs are not a better guide than anything else to economic resource allocation; simply because a constraint on one sector makes it a non optimum sector does not necessarily mean that a movement towards optimising in other sectors is not better than a movement

1

in the other direction.

Clearly there are limitations which have to be kept in mind in examining any economic phenomena in terms of the welfare model but despite these limitations it seems to provide a useful

1

.

The 1 second best1 theorists would argue that it may have been General

6

framework for the investigation.

Moreover, the results of this study will themselves enable a judgement to be made regarding the Validity of the assumption in the Australian environment of profit maximising businessmen.

Chapters II and III describe the variations in the nature of the control system over time and the basic methods used during the period to operate these controls.

The second section, Chapters IV - VI, is concerned with the principal theoretical issues involved in the quantitative restriction of imports. Chapter IV deals with the general aspects of the use of quantitative import controls as an instrument of balance of payments policy. Chapter V considers more particular aspects of the effects on domestic economy including the effects on industries receiving incidental protection from the controls. Chapter VI deals briefly with some theoretical aspects of the methods of control employed.

1

1

.

Where, for some pair of goods, the relative marginal costs are greatly out of line with relative prices, there is a prima facie case for investigation. In making the investigation one will be aware of the fact that any change in the outputs of the two goods in question will affect not only their own relative prices and

costs, but possibly those of many other goods. One will also be aware of the fact that marginal costs may be partly in respect of goods whose price is already distorted1 and one must keep one*s eyes open for external economies and diseconomies, etc. Even given these elaborate complications, one may nevertheless sometimes be

T his s e c t i o n i s n o t in te n d e d to e x h a u s t th e t h e o r e t i c a l is s u e s

a r i s i n g from th e use o f q u a n t i t a t i v e c o n t r o l s - r a t h e r i t i s in te n d e d

to p ro v id e th e t h e o r e t i c a l background t o th e su b se q u e n t d is c u s s io n

o f th e e x p e rie n c e o f th e p e r io d .

The e x p e rie n c e o f th e p e r io d from 1952 t o i9 6 0 th e n p ro v id e s th e

s u b je c t m a tte r o f th e re m a in d er o f th e s tu d y . In t h i s p a r t answ ers

are b e in g so u g h t t o th r e e q u e s ti o n s .

The f i r s t co n cern s th e e x t e n t

to w hich th e m ethods o f c o n t r o l and t h e i r o p e r a tio n m itig a te d o r

a c c e n tu a te d th e d i s t o r t i n g e f f e c t s o f th e d i r e c t c o n t r o l s a s su ch .

The second co n ce rn s more d i r e c t l y th e e f f e c t s o f th e a l l o c a t i o n of

r e s o u rc e s in d u ced by th e c o n t r o l s and a sk s w h e th er and in w hat way

th e c o n t r o l s on Im p o rts c o n tr ib u te d to t h e i r own rem o v al.

The t h i r d

q u e s tio n co n ce rn s th e use o f q u a n t i t a t i v e c o n t r o l s f o r s h o r t p e r io d s

and r e l a t e s Im p o r ta n tly t o th e r e a c t i o n s , in c lu d in g p r ic e r e a c t i o n s ,

o f b u sin essm en .

C h ap ters V III - X c o n s id e r p a r t i c u l a r a s p e c ts o f th e li c e n s i n g

system .

The i n v e s t i g a t i o n o f th e e f f e c t s o f th e c o n t r o ls on p a r t i c u l a r

s e c to r s o f th e economy i s l i m i t e d to th e d i r e c t e f f e c t on sec o n d a ry

in d u s t r y .

A b r i e f e x a m in a tio n o f some i n d u s t r i e s s u b je c t n o rm a lly

to im port c o m p e titio n i s made in C haptersX I and X II.

The r o le o f th e

T a r i f f Board and th e t a r i f f are c o n s id e re d i n C h ap ter X III and the

e f f e c t o f th e c o n t r o l s on in v e stm e n t, in c lu d in g o v e rs e a s in v e stm e n t,

i s c o n s id e re d i n C h ap ter XIV.

C h ap ter XV sums up th e e x p e rie n c e o f

8

were e x p e rie n c e d s in c e th e y f a c i l i t a t e d th e r e a l i s a t i o n o f some

econom ies o f s c a l e .

An e x a m in a tio n o f th e p r ic e r e a c t i o n s o f e x p o r te r s to th e c o n t r o l s

was made i n C h ap ter XVI t o see w h eth er th e se c o n tr ib u te d to o r s u b t r a c t ­

ed from th e r e a l c o s t s o f th e r e s t r i c t i o n s on im p o r ts .

C hapterX V II th e n c o n s id e r s th e p o s i t i o n o f im p o rte rs u n d e r th e

c o n t r o l s , p a r t i c u l a r l y th e f l e x i b i l i t y o f im p o rtin g and th e n a tu re

o f t h e i r p r i c e r e a c t i o n s .

In t h i s s tu d y we have arg u ed th r e e t h i n g s . We have a r g ie d t h a t

th e form and m ethod o f o p e r a tio n o f th e c o n tr o ls th e m selv e s s e rv e d

to m itig a te some o f th e d i s t o r t i o n s w hich m ight be e x p e c te d to

r e s u l t from th e u se of d i r e c t c o n t r o l s ; i t was c o n s id e re d , however,

t h a t th e e x t e n t to w hich t h i s was p o s s ib le was l i m i t e d b u t was

g r e a t e r th e c l o s e r th e m ethod o f c o n tr o l approached e q u iv a le n c e to a

p r ic e m easu re.

S e c o n d ly , we have arg u ed t h a t a lth o u g h th e c o n tr o ls on im p o rts

may have a s s i s t e d t o some e x t e n t i n b rin g in g ab o u t c o n d itio n s i n

w hich th e y c o u ld be removed, th e e x te n t o f th e s e fa v o u ra b le e f f e c t s

was c o n s id e r a b ly o f f s e t by th e d i s t o r t i o n s in d u ced by them .

M ost,

i f n o t a l l , o f th e fa v o u ra b le e f f e c t s and s u b s t a n t i a l l y few er o f th e

u n fa v o u ra b le e f f e c t s o f th e c o n t r o l s c o u ld have been a ch ie v e d w ith

th e use o f th e p r ic e m echanism .

F i n a l l y , we have a rg u e d t h a t p r ic e p o l i c i e s o f businessm en te n d

q u a n t i t a t i v e c o n t r o l s c o u ld be u sed to m eet o t h e r th a n s t r u c t u r a l

b a la n c e o f paym ents problem s w ith o u t e f f e c t s on th e c o s t s tr u c t u r e

would p ro b a b ly be q u ite s h o r t .

S u b s t a n t i a l l i m i t a t i o n s t o t h i s s tu d y sh o u ld be n o te d . We have

c o n s id e r a b le sympathy w ith P ig o u ’ s view t h a t t o know sim ply th e

d i r e c t i o n o f sny movement o f economic f o r c e s i s " . . . on a p a r w ith

knowing m erely t h a t a man’ s te m p e ra tu re i s above o r below no rm al.

To g e t any la r g e and im p o r ta n t guidance f o r p r a c t i c e we must know,

o r a t a l l e v e n ts , we m ust have some rough g e n e r a l id e a , a s to how

much above o r below th e norm al i t i s . ”

F o r re a s o n s o f a c o n c e p tu a l

as w e ll as a s t a t i s t i c a l n a t u r e , q u a n t i t a t i v e a sse ssm e n ts have n o t

in g e n e r a l been p o s s i b l e . W hile i t i s c o n s id e re d t h a t th e r e s u l t s

p ro v id e some b a s i s f o r q u a l i t a t i v e a sse ssm e n t o f th e s i g n i f i c a n c e

o f th e e f f e c t s o f th e c o n t r o l s such a sse ssm e n ts must n e c e s s a r i l y

c o n ta in a s u b s t a n t i a l elem en t o f s u b je c tiv e judgem ent.

W hile a tte m p ts have been made to draw c o n c lu s io n s from s t a t i s t i c a l

m a t e r i a l , th e n a tu r e o f th e a v a il a b le s t a t i s t i c s i s such t h a t , in gen­

e r a l , th e y can be l i t t l e more th a n a rough g u id e to th e f a c t s o f th e

s i t u a t i o n .

F o r t h i s re a s o n th e use o f r e f i n e d s t a t i s t i c a l te c h n iq u e s

has been a v o id ed in th e s t a t i s t i c a l m a te r ia l p r e s e n te d i n th e s tu d y .

We ta k e th e d e c is io n to impose im p o rt r e s t r i c t i o n s i n 1952 o r to

re impose them in 1954^55 a s a b a s ic datum . W hile an im p lic a tio n o f

10

our conclusions from ex post analysis is that some other method of redirecting demand from imports would have been preferable to

quantitative controls on purely economic grounds, the basic decision to use quantitative controls is in general not of concern to us. We are

concerned with evaluating what followed from that decision. While the comparison of alternative methods of limiting expenditure on imports is not a major purpose of this study, comparison with one or more of the alternative methods of achieving this end has been found

at various times to be a useful technique for demonstrating the partic­ ular features of the quantitative control on imports.

Essentially this is a partial analysis in two respects. Attention is directed primarily to the resource allocation effects of the con­ trols. We do not attempt to give other than limited attention to the effects of the controls on aggregates of the economy. This would be an interesting study in itself since levels of output and employment of the economy as a whole have been importantly affected by the restrictions on imports. We have considered it reasonable to assume that in the situation in 1952 and again in 1954-55, the alternatives were not action to control imports by import licensing or no action

at all, but direct control of imports or some other import policy

I t i s a l s o a p a r t i a l a n a l y s i s in t h a t i t was c o n sid e re d n e c e s s a ry

to l i m i t o u r a t t e n t i o n to c e r t a i n a r e a s in which th e in flu e n c e o f

th e d i r e c t c o n t r o l s m ight be e x p e c te d to be s i g n i f i c a n t .

While we

have exam ined th e d i r e c t e f f e c t s on seco n d ary in d u s tr y o n ly l i m i t e d

a t t e n t i o n h as been g iv en to th e i n d i r e c t e f f e c t s e i t h e r on seco n d ary

in d u s tr y o r on o th e r s e c t o r s o f th e economy.

L i t t l e a t t e n t i o n h as

been g iv e n t o th e e f f e c t s o f th e c o n t r o l s on A u s t r a l i a ’ s t r a d in g

r e l a t i o n s h i p s w ith o th e r c o u n t r i e s - as d i s t i n c t from th e p r i c i n g

p o l i c i e s o f p a r t i c u l a r e x p o r t e r s .

L i t t l e c o n s id e r a tio n i s giv en to

th e e f f e c t o f th e c o n t r o l s on p a r t i c u l a r i n d u s t r i e s o th e r th a n th o se

in th e m a n u fa c tu rin g s e c to r

th e e f f e c t on th o se r u r a l i n d u s t r i e s

w hich compete w ith im p o rts h a s been l a r g e l y ig n o re d .

I t i s im p o rta n t to re c o g n is e t h a t th e im p o rt l i c e n s i n g system

v a r ie d c o n s id e r a b ly b o th o v er tim e and a c c o rd in g to th e degree o f

r e s t r i c t i o n o f im p o rts th e system was in te n d e d t o e n f o r c e .

There were

a ls o many e x c e p tio n s to m ost o f th e g e n e r a l p r i n c i p l e s invoked in th e

a d m i n is tr a tio n o f th e sy stem .

To enum erate a l l th e se changes and a l l

th e e x c e p tio n s w ould r e q u ir e a volume o f i t s own.

I t i s n e c e s s a ry

to r e s t r i c t th e g e n e r a l d e s c r i p t i o n o f th e system to th e b a s ic f e a t u r e s

and th ro u g h o u t th e stu d y to r e f e r t o g e n e r a l p r i n c i p l e s when c l e a r l y

i n p r a c t i c e such p r i n c i p l e s w ere, and in many c a s e s co u ld on ly b e ,

a p p lie d i n a f a r from u n ifo rm m anner, b o th from case to case and from

12

been drawn t o im p o rta n t e x c e p tio n s ; i t i s p o s s ib le t h a t o th e r s w hich

have been o m itte d may have been o f im p o rta n c e .

F i n a l l y n o th in g in t h i s s tu d y i s in te n d e d as a judgem ent o f th e

a d m i n i s t r a t i o n o f th e im p o rt l i c e n s i n g sy ste m .

I t would be im proper

f o r me t o a tte m p t t h i s even i f I f e l t com petent to p a ss such a

judgem ent and I make no c laim to such com petence.

The assu m p tio n i s

made t h a t u n d e r s i m i l a r c o n d itio n s , s i m i l a r a d m in is tr a tio n would

r e s u l t , i . e . s i m i l a r in c o n s i s t e n c i e s w ould e v e n tu a te , b ein g s i m i l a r l y

re c o g n is e d a s such by th e a d m in is te r in g a u t h o r i t i e s .

The assu m p tio n

in b r i e f i s t h a t i f Im port li c e n s i n g were r e in tr o d u c e d i t would lo o k

p r e t t y much th e same as th e system i n th e p e r io d u n d e r re v ie w , an

assu m p tio n I do n o t c o n s id e r u n re a s o n a b le .

A stu d y o f t h i s n a tu re te n d s to view i t s s u b je c t m a tte r in te rm s

o f a com parison w ith a s t a t e o f p e r f e c t i o n .

I do n o t c o n s id e r t h i s

a bad t h i n g .

C e r ta i n ly one has to a c t , o r p o lic y i s s e t, in te rm s o f

w hat i s p r a c t i c a b l e , b u t i t i s u s e f u l to know a t what economic c o s t

t h i s i s b ein g a c h ie v e d .

M oreover, p r a c t i c a b i l i t y , w h eth er p o l i t i c a l

o r a d m i n i s t r a t i v e , i s a r e l a t i v e c o n c e p t, and h as i t s e l f to be ju d g ed

in term s o f i t s c o s t .

I f th e c o s t can be seen to be l a r g e , th e n

p e rh a p s th e id e a o f w hat i s p r a c t i c a b l e in th e p a r t i c u l a r c o n te x t

sh o u ld be re c o n s id e r e d . W hile c o n s id e r a tio n s o f what i s p r a c t i c a b l e

a re e s s e n t i a l c o n d itio n e r s o f academ ic t h e o r i s i n g , a sse ssm e n ts o f th e

im p e r fe c tio n s o f a c h ie v in g m erely w hat i s deemed t o be p r a c t i c a b l e

a re a u s e f u l a n tid o te t o judgem ents w hich make p r a c t i c a b i l i t y an a l i b i

Chapter II

The Direct Control of Imports

Wartime Import Controls 1939-1945»^*

With the outbreak of war in 1939,— h ewav&r., a licensing system of

2

.

import controls was introduced on December 1st, 1939* * The restrictions were at this stage largely a precautionary measure designed primarily to conserve foreign exchange, as a logical complement to the overall

control on foreign exchange transactions introduced shortly before the outbreak of war.

Licensing of imports at this time necessarily involved problems of the criteria to be used in determining the essentiality of civilian imports, and of the expansion of domestic industry under the incidental protection provided* Official policy in the early stages had been that the expansion of industry should not be encouraged unless it was

reasonably certain that such expansion could be maintained after the

1

.

For a more detailed description of changes in import licensing policy and administration see History of Australia*s Import Licensing Measures. December. 1939 to February. I960, Department of Trade, Canberra, I960. (Roneod)•

2

.

Customs (import Licensing) Regulations; promulgated by Statutory Rule No. 163 of 1939. under the Customs Act 1901-1936.

3.

A limited control on payments for imports had been exercised from this time by the Commonwealth Bank under its exchange control powers to prevent a possible outflow of currency through importing

14

war without special

protection.^-The need to intensify these restrictions made itself imperative in the second half of 1941 with the deterioration of the war situation. Import restrictions ceased to be merely one aspect of exchange control but became instead an integral part of a controlled economy established on a war footing*

Even so, a relatively wide range of items from sterling sources, mainly of a relatively essential nature, remained either uncontrolled or on a freely licensed basis during the whole of the war period,

although the level of imports was limited by lack of availability over­ seas and by shipping scarcity. In the second half of 1944» the first relaxations of any significance were made in the import restrictions; further substantial relaxations were not made until July 1945*

During the war period the function of the controls on imports went further than merely the conservation of foreign exchange. Availability of shipping, rationing, price control, supplies of war material and equipment, rationalisation of production etc., were all factors inter­ related with the control of imports. Moreover, the existence of price and production controls probably offset much of what would normally be expected to result from the existence of such controls in the absence of

T. _

Professor Butlin makes the point, however, that "... the Department of Trade and Customs was, in accordance with its traditions, actively interested in promoting the development of new industries and rather disposed to see import restrictions as a glorious opportunity. "S.J. Butlin, War Economy 1939-1942. in the War of 1939-1941 series,

such measures.

The Post-War Period 1945-1952

At the end of the war Australia had what were, for that time, substantial sterling reserves in London (£208m.). Although some

relaxation in the restrictions on imports had been made towards the end of the war and in the first few months after the end of the war with the acute sterling-dollar position becoming rapidly apparant, many of the relaxations - particularly in relation to the dollar area - were

reversed in 1946* A few controls had been retained to permit the dis­ posal of stocks of commodities built up as a wartime measure e.g.

cotton. Internally there was a large backlog of demand for a wide variety of goods in short supply or simply unobtainable until that time. The United Kingdom was obviously not able to meet anything like the potential demand for her goods. Had the import restrictions been relaxed immediately at the end of the war, therefore, it is probable that much of the

Australian demand for imports, directly or indirectly, would have gone to the United States weakening further the already weak dollar position of the sterling area and also helping to increase prices.

IT

16

Controls on imports were therefore relaxed progessively, taking account of differing currency situations in the various countries* From 1946 the import licensing system discriminated against countries whose currencies were in short supply within the sterling area as a

whole. Relaxations on imports from the sterling area were made progress­ ively largely as suppües became available. By January 1947, the bulk of imports from the United Kingdom was licensed almost without restriction, some 50 items remaining under control; by June 1948, a similar position applied to the remainder of the sterling area. Many of the restrictions which remained at this time, e.g., on tin plate and newsprint, were not to restrict imports but to ensure an equitable distribution within Australia of the limited supplies available.

Licences for dollar area goods were tightly restricted, being limited to essential goods not available from alternative sources. With the rapid deterioration of the sterling area dollar position a system was introduced in 1948 fixing ceiling levels for total imports from the dollar area.

This system of budgeting, under which a monetary ceiling was set for each three monthly period from 1st April, 1948, for the issue of licences, was continued and was largely maintained for dollar licensing for the remainder of the period during which the licensing system

operated.

Reconstruction and Development (i.B.R.D.) which gave rise to additional imports amounting to some £20 m. per annum. This largely accounts for the substantial increase in dollar imports in 1951-52.

During this period, goods from other hard currency countries were licensed on criteria similar to goods from the dollar area, though gradually it became the practice to license token quantities of imports of some less essential goods. The question of which currencies should be treated as hard was largely decided upon advice from the United Kingdom, but despite frequent variations in these classifications there was nothing like the "football league" of the United Kingdom Treasury with countries moving up and down the ladder according to the state of

2

bilateral trade, which Leyshon has described.

For a number of countries special trading arrangements between them and Australia meant that they were given treatment a little different, 1. e. more liberal, from that of the classification to which their

3

currencies would otherwise belong, e.g. Sweden.

When normal commercial trading relationships were again permitted with Japan in 1947, her currency was classified as hard for licensing

TT

Part of the increase in value terms from 1949-50 was also due t o the depreciation of t he Australian pound by 30 per cent, in terms of the United States dollar in September 1949, (and 10 per cent, in terms of the Canadian dollar)•

2

.

A.M. Leyshon, "Import Restrictions in Post War Britain", Scottish Journal of Political Economy, Vol. IV, Oct. 1957, p.182.

3

.

18

purposes, and as with other hard currency countries only relatively

essential goods unavailable from other sources were licensed. Some relax­ ations were made during 1951-52 with token shipments of consumer goods

1

being permitted.

By the beginning of 1952, only the dollar area countries remained strictly in the hard, currency category; dollar goods were licensed again­ st the overall ceiling set for the dollar budget and were still strictly limited. Japanese goods, while licensed more freely than those of a truly hard currency, \ i ere limited largely to relatively essential goods.

Goods from the sterling area and f rom easy currency areas were virtually free from control. Only two items were controlled when of United Kingdom origin and 17 items when from the outer sterling area

or easy currency countries. The Control of Imports 1952-60

The regime of direct controls on imports, which began with the reimposition of controls on 8th March 1952 over the whole r ange of import items and from virtually all sources,^ aud ended with the removal of

*The principal reason for t h e severe licensing treatment of Japanese goods was that Japan, for much of the early post-war period had large sterling balances. Had these continued or increased, the United Kingdom expected difficulties regarding the conversion of these balances, since there was a dollar convertibility clause in the Payments Agreement between Japan and the sterling area until August 1951. The licensing treatment of Japanese goods was, in later years, eased when these balances ceased to be large enough to give cause for concern, although undoubtedly, the increasing importance of Japan as an export market, particularly for wool, was also significant.

2

.

controls from most items in I960, can be usefully considered as

consisting of two distinct periods. The dividing line can be placed at the beginning of 1955 when the more or less steady movement towards the apparent ultimate removal of what was generally accepted as a temporary expedient was reversed. The need to reverse this movement, and to reverse it with considerable severity, placed the policy of import controls into a different perspective both from the viewpoint of the authorities administering the system and of business interests directly or indirectly affected. The administering authorities - and the

government generally - appeared prepared to accept some rather ad hoc and temporary features of t he system in the years from 1952 to 1954» simply because it was considered of short term duration and in course of removal. Expectations in the industrial sectors seemed both to follow and lead this feeling with expectations that the gains or penal­ ties of the system would be rather short-lived. The period after 1955» and more particularly following 1956-57, showed both an awareness on the part of the government that it was necessary to think more in terms of long run policy as far as controls on imports were concerned, and expectations on the part of businessmen that controls on imports were here to stay - at least for the foreseeable future.

For convenience in describing in a necessarily abbreviated but more detailed way the general features of the period, each of these two

20

Consequently the eight years under consideration have been subdivided as in Table II-l.1*

Table II-l.

Import Licensing - Principal Control Periods: 1952 - I960 First Intensification Period 8*2.1952 to 31.3.1953 First Relaxation Period 1.4*1953 to 31*3*1955 Second Intensification Period 1.4*1955 to 31*7*1959 Second Relaxation Period 1*8.1959 to 22*2,1960

* First Intensification Period

Little effect on the flow of imports was expected from the controls during the months remaining in 1951-52. It was initially intended, however, that imports in 1952-53 should be at about the level of £500m.

2

.

f.o.b*, or something less than half that of the previous year*

For quota goods importers were generally allowed to import at levels either of 60 per cent, or 20 per cent, of their imports in 1950-51* * • Goods other than quota goods were generally licensed on a basis compar­ able in s everity with the less restrictive quota category, but with wide variations between individual items.

1

.

Annual import statistics for the period are shown in Table together with other relevant balance of payments data.

2

.

All import values are f*o.b. (free on board) unlessotherwise stated. 3*

In general the internal economic situation was deflationary. The decline in export income and the large expenditure on imports plus high levels of stocks led to a severe shortage of liquidity, while competition from imports had reduced activity in a range of industries. Stocks of imported goods, while not evenly distributed throughout the economy, were high. Consequently the extent to which import demand was frustrated by the controls was considerably less than indicated by the extent of the reduction in imports in 1952-53 over the previous year (see Table 11-4) •

Nevertheless the restrictions were severe and necessarily somewhat arbitrary and action was necessaiy to overcome the more severe hardships and anomalies. Some of these could be offset by changes in the licensing treatment, and many such changes were made in the first months of the licensing system. Some £20m, of special licenses to meet particular cases of hardship were issued during 1952^* Quota goods on firm order, where licensed, were debited to importers1 quotas. For some importers their quota entitlements were exhausted for some considerable time into the future. These debits were cancelled as from January 1953? adding further to the volume of imports possible under the set quota levels. First Relaxation Period

On the 1st April 1953? relaxations were made over the whole range

1

.

' "

22

of imports designed to increase t h e import rate by some £

50

m. a year. Further relaxations made in July 1953 and in October of the same year were designed to add

a

further £

40

m. and £45m. respectively to the

annual rate of imports. Relaxations were again made in April 1954 which together with the earlier relaxations were estimated would give an

import bill in 1954-55 of £730m. One of the features of t h e relaxations of April, 1954 and to a lesser extent those in October of the previous year was the transfer of some 400 items - almost entirely specific quota items to the no quota restrictions (N.Q.R.) basis.’*'* Imports in 1954-55 actually rose to £847m., due largely to a much greater increase in imports of items in the N.Q.R. categoiy than had been expected.

An attempt to restrain the rate of licence issues which clearly contained some speculative stock accumulation either of import goods or licences * was made in October, 1954* The items transferred to N.Q.R. in April, 1954 were returned to a specific quota basis of licensing, though on a higher rate, (100 - 120 per cent of 1950-51), than had operated before the April relaxations. The early 1954 relaxations had been considered a prelude to the removal of the import licensing system, and this move was still largely within the context of a relaxing of

the system; it has therefore been considered part of the first relaxation period.

IT

See Chapter III for a description of the various import licence categories.

2

.

Second Intensification Period

The second intensification period began in April 1955 with the first real reversal of the process of dismantling the controls These further restrictions were designed to give an annual rate of imports of £720m. f.o.b. Imports in 1955-56 were £820m., despite the intensifica­ tion of April 1955 and further cuts in October of that year designed to reduce imports by a further £80m. in a full year, or to £690-700m. for 1956-57.

Clearly the estimated level of imports was far below the actual imports for 1955-56. The reasons for this seem to be a combination of factors such as the increased usage of existing quotas, stocks of lic­ ences being held by importers, issues of special licences made in

earlier periods and higher than expected imports of exempt goods. These factors are considered in more detail below.

The failure to restrain the import rate as effectively as had been intended and expected, concern at the considerable number of relatively short run changes in the levels of licensing control, together with the realisation that having accepted the proposition that the balance of payments position should be protected by the direct controls on imports these controls were less of a temporary measure than had been anticipated, all led to a change in the approach to the licensing of

1.

imports.^* One important result was the introduction of the "import ceiling" from July 1st, 1956. Previously changes in the degree of control were made from licensing period to licensing period according to the foreign exchange reserves position at the time and in the

immediate future. A u s t r a l i a ^ balance of payments and foreign exchange reserves tend to fluctuate widely (See Table II-4); the domestic effects of these fluctuations were, if anything, accentuated by the method of adjusting the licensing levels on the basis of short term changes in the reserves. The introduction of the ceiling was based on the objective of making relaxations only when the existing reserves and payments position and longer term prospects were such as to give reasonable confidence that such relaxations could be maintained. The ceiling was set at £700m. for 1956-57, involving further intensification of the restrictions as from July 1956. Various changes were made in the methods of licensing from this time and these are described in subsequent sections.

Some relaxations were announced in January 1957 and in April of that year the ceiling for 1957-58 was raised to £775m. The import

ceiling was again raised in August 1957, being increased by £25m. to £S00m. f.o.b., and it remained unchanged at this level until August 1959. Consequently it is not until August 1959 that the second intensification

l7

~~

period has been judged to have ended. Again, however, increasing

difficulty was being experienced in late 1958 and early 1959 in keeping imports within the ceiling of £800m. in the face of the pressures

resulting from an increasing level of internal activity. The general growth in the economy over the two years of the unchanged ceiling itself meant that the level of licensing was probably significantly more

restrictive towards the end than at the beginning. The experience of this period is also discussed in more detail below.1 *

Second Relaxation Period

July 1959 saw the end of the second intensification period and the second and last relaxation period began with the increase in the ceiling from £800m. to £850m. A further relaxation in December of that year to an annual ceiling of £875m. was f ollowed shortly after by the announce­ ment that the restrictions would be largely removed from imports into Australia on February 20th, I960, only some 200 items remaining under a generally less restrictive degree of licensing control. Import licensing controls on the remainder of these items were finally lifted with effect from 18th October, 1962.^'

1

.

See Chapter VIII.

2

.

[image:31.525.41.497.51.537.2]

26

Table II-2

(a)

Principal Changes in Licensing Levels of Category A (Specific Quota) Imports k • March 1952 to February 1960

8 March 1952 1 April 1953 1 July 1953 1 October 1953 1 April 1954 1 October 1954 1 April 1955 1 October 1955 1 July 1956 1 October 1956

1 April 1957

1 August 1957

1 August 1959 1 December 1959 23 February I960

Base Year CATEGORY A Quotas

% of Base Year

1950-51 60

" 70

M 80

" 90

ri N.Q.R* or Admin*

Star* n (Retrospective to 1*4*54) 100

" 85

" 74*4

M Reduced by percentages varying from nil to 90% (Base year for a no* of A Category items

changed to 54/55'°'*

Selective increases within 11% increase in overall licensing ceiling for category. Selective increases within 3% increase in

overall licensing ceiling for category. 10% increase in quotas.

5% increase in quotas. 20% increase in quotas.

(Only 29 items remaining under control).

Notes: (a) Changes shown are those applicable generally to the specific quota category. Exceptions in respect of individual items have been ignored.

(b) The methods of licensing control are discussed in Chapter III* (c) For a few items, calendar year 1954*

Source: Department of Customs and Excise, (to March 1956, Department of Trade and Customs), Licensing Instructions issued under Customs

[image:32.525.46.499.68.688.2]

Table II-3

Principal Changes in Licensin

rtf

Quota) Imports

(a)

Levels of Category B (Interchangeable March 1952 to February 1960

8 March 1952 1 April 1953 1 July 1953 1 October 1953 1 April 1954

1

October 1954 1 April 1955

1

October 1955 1 July 1956

1 January 1959

1 April 1957

1 August 1959 1 December 1959 23 February I960

Base Year CATEGORY B Quotas

%

of Base Year

1950/51

20

w 30

" 40

" 50

" 60

" 60

" 40

“ 30

1954/55 (B Category divided into 7 subgroups; inter- ) (changeability restricted to within subgroup ) Either

(33

1

/

3

$)

A

,. , (c)

or ( 3 7 ^ ) dePendinS on subgroup (Textiles for manufacturing transferred to

Bank C«l

6

ldO

(Subcategories abolished* Full interchange-ability restored).

1954/55 Either

55.5%

or 62.5/S 1954/55 Either

66%

or

75%

1954/55 Either 69.1$ or 79$ (approx.) 1959 Either

83

$ or 95$ (approx.)

(Only 113 items remaining under control).

Notes: (a) Only major changes are shown.

(b) The methods of licensing control are discussed in Chapter III. (c) See Chapter III. Not shown here are some minor changes within the subcategories. In Januaiy 1957, importers could exercise an option to transfer quotas from B(a) Apparel to B(2) Textiles on a once and for all basis; subcategories b(T) Various Metal Manufactures and B(7) Miscellaneous were amalgamated at the

same time.

(d) See discussion of Bank C.16 in Chapter III.

28

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30

Chapter III

The Method of Import Control«

General Aspects

On the 8th March 1952, direct controls were reimposed upon the whole r ange of imports from all sources. These controls were imposed initially under the same regulations as those of 1939*^*

During the period all imports were subject to quantitative control unless specifically excepted by the Minister. Goods so excluded were placed in an Exempt category and could be imported without a licence. At times of the greatest severity of licensing these consisted in the main of items such as passengers’ baggage, imports for diplomatic

representatives of overseas countries etc., plus imports from Australian territories, such as Papua and New Guinea. It was not until 1957 that other items of significance were placed in this category. Until that time the Exempt category comprised items which in .1950-51 constituted less than 2 per cent.of total imports.

1

.

Statutory Rule No. 163 of 1039. Subsequent amendment of the Customs Act, Section 52(g) of which provided the authority for t h e regulation of

for the imports was to all intents and purposes automatic except in special circumstances. The right to refuse foreign exchange or to direct in which currency the payment should be made was, however, retained by the Commonwealth Bank.

The two principal methods of control used during the period were the Quota« generally a proportion in value of imports in some base year period; and the Specific Licence for goods in the category classified as Administrative, containing those types of imports considered unsuit­ able for quota control.

Quota Control

Two types of quota were used in the operation of the Australian import licensing system; the Specific Quota (distinct from the specific licence), and the Interchangeable Quota. Under the Specific Quota method, a quota relating to a particular item was established in favour of an importer, who could then obtain licences for that item up to the

- |

.

value of the quota. In the principal specific quota category, Category

!A*

, the size of the quota e stablished in favour of the importer depended in most cases, initially at least, upon the value of that importers imports of the particular item in the base year 1950-51.

T.

Quotas in this category represented a uniform proportion of base year imports until July 1956

;

from that date, however, quota levels were set and variations in specific quotas made according to the particular circumstances of each case* The size of the quotas established for the other specific quota categories, of which the Administrative quota category, known as Category Administrative Asterisk (or Administrative Star) was the principal one, were also related to the value of base ye a r imports, but not on the basis of a uniform proportion* From July 1956 the Administrative Asterisk category was abolished, there t h e n being no difference in principle between it and Category ’A 1.

Items in the specific quota categories tended in the main to be raw and serai-raw materials, components and replacement parts, and as well some consumer goods judged to be of a relatively essential nature.

Under the Interchangeable Quota method, quotas were established in favour of an importer, again primarily on the basis of the trader's base year imports of a specified group of items, the resultant quota

2

being valid for importing any of the items in this group. This category,

1

.

Table VIII-5 illustrates more specifically a number of the items included in this category.

2

.

Quotas for all quota categories were established in favour of those who actually imported goods in the base year period, and this policy was adhered to, in general terms, throughout the existence of the import licensing system* This was a cause of pressure from manufacturers,

Category ’3 !. consisted largely of consumer goods, p}-us a number of raw materials in which there was significant local production: .in other words, goods judged to have little essentiality either because of adequate availability from domestic sources, or because of the nature

1

of t he item*

Although Australia had operated various forms of import licensing controls from 1939 onwards, the system reintroduced in 1952 was the

2

first to make significant use of the interchangeable quota. The intro­ duction of this form of quota was designed to achieve several purposes. Although the aim of limiting the protection to domestic producers

3

provided by the controls was of importance, its principal purpose seems to have been to permit market forces to determine the pattern of imports over a wide range of generally less essential goods. This not only limited the extent of the interference with consumer choice but simpli­ fied administration considerably. Its flexibility also gave it certain advantages over other methods of restriction from the exporting countries

1

.

An indication of some of the items actually included in this category may be obtained from Table X-2.

2

.

A precursor can perhaps be found in the limited experience of what were known as the Traders’ General Licences, introduced in July, 1951 as a means of licensing limited quantities of less essential goods from Japan. Existing importers were given these licences up to 5 per cent of their imports from Japan in the 6 months to December, 1950 with a maximum of £1000. Similar licences were also made available on a specified

basis to importers who had traded with Japan before 1941» Traders’ General Licences were discontinued in May 1952.

and hence trade relations point of view.

It was found, however, that the interchangeability of these licences also facilitated what became known as ’’trafficking" in

1

licences, i.e. buying and selling the use of an import licence. Partly in an attempt to reduce the extent of this trafficking, and partly to ensure that at least some importations were made of items which in themselves offered fairly low rates of profit for importers, a considerable reduction was made in July 1956 in the interchangeability of the Category B items* This category was subdivided into seven sub­ groups and interchangeability was limited to within the subgroup* At the same time quotas were re-established on the basis of imports during 1954-55 at two different levels according to the nature of the import

2

itene contained within the subgroup* Largely as a result of complaints from importers and retailers based on the lack of flexibility that this reduced interchangeability provided, and coupled perhaps with some doubts as to the efficiency of the action in reducing trafficking, these

sub-1

.

Some of the theoretical issues involved in the trafficking in import licences has been discussed in Chapter VI* The experience of

’trafficking1 during the period 1952-1960 is discussed below in Chapter XVII.

2*

The (specific) quota Banks, (see below) were of a similar principle,

-|

but of a much more limited coverage. Specific Licences

These related to import items, classified to the Administrative Category (Admin.) for which application for licences to import were considered individually, on the basis of predetermined criteria largely in relation to end use and availability from domestic sources. The manner in which these criteria were applied varied, however, with the

2

circumstances operating at any particular time.

Some flexibility in the use of specific quotas and specific

1

.

It is worth noting the slight difference of emphasis in the Australian system, as far as the importer is concerned, compared with the practice in some other countries operating quantitative restrictions. The quota related directly to t h e importer rather than directly to a commodity as was generally the case in the United Kingdom, for example. Overall this made little, if any, difference to the total imports of a

specific oxuota item. It may have affected the pattern of imports of interchangeable quota items and may also have affected the distribution of imports among importers, depending upon the method used to allocate licences.

2

.

nAs an example of the policy of the Government to ensure as much flexibility in the arrangements as the situation permitted from time to time, imports of the nature of capital equipment had not been made

subject to rigid quota restrictions, but had been placed on an admini­ strative basis in order that full consideration could be given to the governmental and private undertakings which were of vital concern in the life of the community^ and in the necessary development of

36

licences was introduced by the increasing use over the period of what were termed Banks, an administrative device designed to simplify the system both for importers and for the administering authorities. These consisted of a grouping of a number of items of a roughly similar

nature which frequently were receiving different licensing treatment. All items within the group then received the same licensing treatment. For the importer the quota Banks had the additional advantage that their quota could be used for any item in the bank and thus provided a

limited degree of interchangeability. Banks were used mainly for items such as replacement parts for types of products such as tractors, agri-cultural machinery, or components for a particular manufacturing process e.g. for the manufacture of agricultural machinery. Motor vehicles were imported under the Bank system for most of the period, mainly under three separate banks depending upon whether the imports were complete vehicles, c.k.d. packs or components for approved manufacturing projects. The importance of the Bank system may be judged from the fact that over the period they accounted for up to one third of the specific quotas.

Additional flexibility in the relatively rigid quota system was provided by the issue of supplementary quotas - permanent additions to quotas - and special licences - issued on a once and for all basis. Supplementary quotas or special licences were principally to offset

i 7 ~ ~ ~

Completely knocked down. See Chapter XIV.