H.—2B

with a large export trade in primary products for which we must in the long-run, allowing for adjustments on loan capital account and other items, take equivalent imports. At the same time the reasons which make our country a heavy exporter of primary produce contribute to make it relatively unsuited for intensive industrial operations. This should not be taken to imply that in our opinion New Zealand has no industrial present and no industrial future. Certain industries, for example, will probably be kept in operation as an insurance against oversea exploitation, or to diversify the economic and social structure, and thus avoid some of the dangers arising from an over-specialised economic life in a world of rapid change and development. It is, however, essential to retain a population perspective. In New Zealand we have approximately a million and a half people, not the population of a large city in more densely peopled parts of the world. This consideration sets a limit to our possibilities of industrial expansion at the present time. It is not proposed to deal on an academic basis with the general problem of Free Trade or Protection. We consider that our tariff policy, its continuance or modification, is a matter for the Legislature, and in any case such a discussion would be otiose as far as New Zealand is concerned. The important question is not whether New Zealand shall or shall not have a protective tariff ; that issue is practically decided. The point is how high the tariff shall be, and on what commodities and by virtue of what principles it shall be levied. For this reason it is not deemed necessary to refer in set terms to general arguments placed before the Commission as to the desirability of Free Trade or Protection, because it is considered that that issue is definitely decided, for the present at all events, on a basis of moderate Protection. At the same time the arguments placed before the Commission in this connection by witnesses have been carefully considered. (b) The Ottawa Trade Agreement, Article 7. It is, however, necessary for us to consider our tariff policy in connection with the Ottawa Trade Agreement of 1932. We are, of course, not called upon to express an opinion as to whether, as a matter of policy, this Agreement should have been made, or as to the theoretical validity of the principles on which it is based. Our duty is merely to interpret it. The clauses of this Agreement to which our attention has been particularly directed are Articles 7 and 8. Certain difficulties in the interpretation of these clauses were brought out by witnesses before the Commission, and analogous differences of opinion in respect of substantially similar clauses seem to have arisen in other Dominions. Article 7 reads as follows : — " His Majesty's Government in New Zealand undertake that protection by tariffs shall be afforded against United Kingdom products only to those industries which are reasonably assured of sound opportunities for success." It was strongly pressed upon us by some witnesses that the effect of this clause was that no Customs duties could be levied in New Zealand even for purely revenue purposes, on imported commodities, unless there was in New Zealand an industry actually manufacturing such commodities. This interpretation, if correct, involves a surrender by New Zealand of the right to levy Customs duties for purely revenue purposes. We have no hesitation in rejecting this interpretation. The clause clearly means, in our opinion, that where duties are levied for protective purposes on United Kingdom goods, the industries so privileged shall be such as are suited to the economic circumstances of the Dominion, and therefore reasonably assured of sound opportunities for success. It is important to notice that the undertaking given in this article does not involve any change of policy as far as the Dominion is concerned, but rather crystallizes and embodies continuity of the policy we have pursued for many years. An examination of Dominion tariffs against the United Kingdom discloses the fact that our tariff is generally much lower than those levied by certain other Dominions. It is further considered that this clause does not contemplate that duties levied in accordance with it should be merely to cover a temporary educative period for the industry protected. We think it is quite consistent with a policy of permanent protection for industries coming within its scope.

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