by Brian D. Varian (Newcastle University)
This blog is based on the author’s article which was recently published on early view: https://onlinelibrary.wiley.com/doi/10.1111/ehr.13142
Before the First World War, the British Dominions adopted policies of imperial preference, whereby imports from Britain (or, in some cases, the entire British Empire) were subject to lower, preferential tariff rates. Canada enacted a preferential trade policy in 1897, followed by New Zealand and the South African Customs Union in 1903, and Australia in 1907. However, it would be several decades before Britain reciprocated; under the much-studied Ottawa Agreements of 1932, Britain eventually extended preferential treatment to its imports from the Dominions.
My forthcoming article examines the comparatively less-studied Edwardian origins of British imperial preference. Focusing on New Zealand’s initial policy of imperial preference, I consider the question: Did this policy actually increase the share of New Zealand’s largely manufacturing imports coming from the British Empire? My focus on New Zealand is motivated by a unique feature of its preferential policy; unlike the policies of the other Dominions, New Zealand’s policy, codified in the Preferential and Reciprocal Trade Act of 1903, extended preference to only 44 commodities. For example, imported window glass (one of the 44 commodities) was subject to a lower duty if it came from Britain than if it originated from Belgium. Yet, bottle glass (not one of the 44 commodities) was subject to the same duty irrespective of its country of origin. In contrast, the other Dominions applied preference across the entire range of imports. Nonetheless, this peculiar characteristic of New Zealand’s policy is useful for estimating the econometric impact of its policy.
Why did New Zealand embrace imperial preference in 1903? There were several reasons. During the previous decade, there had been a considerable increase in the share of New Zealand’s imports originating from the United States and Germany—Britain’s industrial rivals! Policymakers were alarmed by the rising shares of imports from foreign industrial countries (Figure 2). Contemporaneously, it was argued that, although cheaper, non-British manufactures were of an inferior quality, which might deceive unwitting customers. Moreover, New Zealand’s adoption of imperial preference was also politically motivated. Germany, in particular, was vilified during parliamentary debates over the Preferential and Reciprocal Trade Bill, with one MP stating, ‘I owe the German no debt of gratitude, and why should I allow him to come here, or his products either. When I go into a shop to buy anything, if they offer me a German article I will not deal there’ (New Zealand Parliamentary Debates, CXXVII, 18 November, 1903, p.784).
Yet, there was also a more self-interested rationale for New Zealand’s enactment of imperial preference in 1903. In the early twentieth century, the prospect of Britain’s abandonment of free trade was increasingly likely, having been championed by Joseph Chamberlain. If Britain imposed tariffs, then there would be scope to grant preference, that is, reduced tariff rates on imports from the Dominions. New Zealanders were keenly aware of the possibility that their exports could receive preferential treatment in the British market. Hence, New Zealand enacted imperial preference preemptively in the belief it would obtain leverage when negotiating for similar preference in a soon-to-be-protected British market. But, New Zealanders hoped in vain: Britain did not abandon free trade, in earnest, until 1932.
My research finds that New Zealand’s Preferential and Reciprocal Trade Act of 1903 did not, on the whole, increase the share of its imports originating from the British Empire. Quite simply, the margins of preference — the difference between the tariff rate applied to a commodity imported from outside Empire and the tariff rate applied to that same commodity imported from within the Empire — were too low to divert New Zealand’s imports toward the British Empire. In other words, the preferential treatment was not strong enough. Yet, for those commodities subject to extremely high margins of preference (20 per cent ad valorem margins), such as iron and steel rails, I identify a diversion of imports toward the British Empire.
New Zealand’s initial policy of imperial preference was largely ineffective, insofar as the intention was to increase the share of imports originating from the British Empire. In short, margins of preference mattered! Whereas Britain’s adoption of imperial preference under the Ottawa Agreements of 1932 was strongly trade-diverting, the same cannot be said for New Zealand’s adoption of imperial preference in 1903.
To contact the author: B.Varian@newcastle.ac.uk