Big Three take tariff fight to Canberra
BY DAVID HASSALL | 19th Aug 2008
Holden, Ford and Toyota remain hopeful that the federal government will delay the introduction of the new tariff, which is set to come down from 10 per cent to five per cent as of 1 January, 2010.
They will argue that the collapse of free trade talks just three weeks ago – after the Bracks report was completed – is reason enough not to expose the Australian car industry to greater risk by reducing the tariff so soon.
But the Big Three and the Federal Chamber of Automotive Industries argue that the collapse of the so-called Doha trade talks in Geneva on July 29 has changed the situation significantly since the Bracks Report was concluded.
Convened by the World Trade Organisation to create free trade around the globe, the Doha Round – named after the capital of Qatar, where the talks commenced almost seven years ago and reconvened around the world almost annually since – broke down over disagreement on agricultural imports between the United States, India and China.
The chief executive of the FCAI, Andrew McKellar, told GoAuto this week that the collapse of the trade talks had changed some key assumptions of the Bracks Report.
He said it was subsequently vital for the government to consider these developments before making its final decision and meetings have been scheduled with the FCAI, car company chief executives and federal ministers.
“The local manufacturers acknowledge that there will be future tariff reductions, but what they put forward in their submissions to the Bracks review was that those tariff reductions should be contemplated on the basis that there would be progress in trade negotiations, and particularly with a view to what the outcome might be from the WTA Doha negotiations,” Mr McKellar told us.
“There has been a development in the period since Steve Bracks finalised his report with the apparent collapse of those Doha negotiations … so the local manufacturers have put forward the position that that is a significant development that has to be taken into account in the government’s response.
“It would be unfortunate if there wasn’t a clear tabling of all those considerations prior to the government reaching its decision.
“Clearly there is a signal coming from the parent companies of the local manufacturers that they are concerned about the implications of that (tariffs). We have to be realistic – nobody is suggesting that there won’t be future reductions it is really a question of the government determining the timing.
“There needs to be further consultation between the industry, the minister and other decision-makers in government before a decision is reached. There are some meetings scheduled, so there are some key opportunities that are coming up within the next week for those views to be represented to the government.” While Ford and Toyota have intentionally kept a low profile since the Bracks Report was released, GM Holden chairman Mark Reuss came out strongly, saying the tariff reduction would outweigh the benefits of other new programs suggested in the review.
“The tariff is a big issue for us,” Mr Reuss told the media last Friday.
“We need to look at this on a fair playing field basis. Brazil runs a 35 per cent tariff and China is 25 per cent. Australia, at 10 per cent, makes it tougher for local manufacturers in competing and drawing innovation and new technology into Australia, so it is more of a challenge for us here.
“There are other countries out there that value their auto industry greatly. Their tariffs reflect that, so the tariff piece of this report is something we’re going to have to discuss and analyse.
“It is going to have an impact here on what money we feed back into the economy. It certainly has a short-term effect on how we re-invest our money here.
“If we have to spend money to price-compete with some of the people that bring products at very low cost into this country, it diverts some of our re-investment opportunity for the future.” Union boss Dave Oliver, the national secretary of the Australian Manufacturing Workers’ Union, said that the lack of tariff protection is a blow to the local car industry and called on the Prime Minister to consider the collapse of the Doha talks.
Mr Oliver said that Australia was going out on a limb by reducing tariffs while China has a tariff and non-tariff regime of 40 per cent, India 60 per cent and Malaysia 150 per cent.
Ford Australia president Bill Osborne welcomed the Bracks Report recommendations to expand the Australian Competitiveness and Investment Scheme (ACIS) and the Green Car Innovation Fund, but also expressed concern about the tariff reduction.
“The decline in tariffs in 2010 is a concern for the industry’s ability to compete on a global scale,” said Mr Osborne.
Toyota Australia public affairs manager Peter Griffin said that the aim of the WTO was for all countries to have lower tariffs, but Australia opening up ahead of everyone else was putting pressure on locally made cars.
Mr Griffin said that, while Toyota benefits from importing the Thai-built HiLux duty-free under the Free Trade Agreement with Australia, Thailand’s excise on engine size would effectively add 80 per cent to the cost of an Aurion if it was exported from Australia.
“Going down to five per cent is no doubt going to put more pressure on local cars,” said Mr Griffin.
“We are a very, very open market already, so we think tariffs are pretty important, but, having said that, issues around competitiveness and the ACIS scheme are critically important also.” While the industry is gearing up for a showdown with the government over the tariff aspect of the Bracks Report, federal industry minister Kim Carr has indicated that he is not about to be swayed.
Speaking at the launch of the report in Melbourne on Friday, Mr Carr said that the government remains committed to the concept of free trade and described tariffs as a “second order issue” and “an incredibly old-fashioned idea”.
“This review was never just a tariff review,” said Mr Carr. “In some peoples’ mind, industry policy is only about tariffs. They are wrong. It’s an incredibly old-fashioned idea.
“We’re about trying to encourage Australian manufacturing, economic development, in terms of our capacity to participate on a global stage, about attracting new investment, not trying to stop imports.
“We don’t want to think about these in old-fashioned terms, as some people in Canberra seem determined to do. We’re about the 21st century, not the 1970s.” The government even has rare bi-lateral support, with opposition leader Brendan Nelson saying that reducing tariffs will ultimately make Australia more globally competitive.
But Mr McKellar is not concerned and says the FCAI will continue to argue against the tariff reduction timing, as well as the “very damaging” increase in the Luxury Car Tax.
“Australia is at the low end of the scale in terms of tariffs these days, but it is clear that a five percentage point change in one hit can have a significant impact in the marketplace,” Mr McKellar told GoAuto.
“It’s one of those things that the international parent companies do take into account. It’s something that’s readily understood and it’s a comparable benchmark from one economy to another. It is more difficult for them to assess other policy arrangements like ACIS, which are harder to pin down.
“A number of the companies are at a critical phase in terms of future investment decision-making and they need as much certainty as possible about what those future policy arrangements are going to entail.
“What’s critical now is to clarify those issues with government and get the right decision out of this review – that’s firmly the objective and I think the Prime Minister and the minister are cognisant of those issues.
“It’s a tricky phase, but nonetheless a necessary part of the process to go through, and one has to hope that, when the government looks at all these questions, it resolves any remaining uncertainty in the industry’s favour.” Mr McKellar said he was very disappointed that Mr Bracks had “talked around the issue of the Luxury Car Tax” in his report and remains hopeful that the senate will oppose the increase or at least make significant amendments.
Key recommendations of the ‘Review of Australia’s Automotive Industry’:
• Reduce import tariffs from 10 per cent to 5 per cent from 1 January 2010 • Replace the Australian Competitiveness and Investment Scheme (ACIS) with the Global Automotive Transition Scheme (GATS), with grants of $1.5 billion between 2010 and 2015, another $1 billion from 2016 to 2020, then zero from 2020 • Include road transport in the proposed carbon tax scheme • Bring forward the Green Car Innovation Fund to 2009 and, if successful, doubling it from $500 million to $1 billion (with 2:1 or 4:1 support from the industry itself) and extending it beyond its initial five years • Establish an Automotive Industry Innovation Council – consisting of manufacturers, suppliers, unions, researchers, academics and government – to oversee the industry’s transition • Assist the automotive supply chain to be more competitive • Encourage automotive exports through expanded free trade agreements, particularly with the Gulf States, ASEAN (South-East Asia) and South Africa • Expand access to overseas automotive supply chains through a ‘Team Australia’ approach using eminent automotive ambassadors (Mr Bracks told GoAuto that former Toyota Australia boss John Conomos and former Ford Motor Company president Jac Nasser would be ideal candidates) • Harmonise and, in some cases, reduce state and territory vehicle taxes • Encourage governments to support an environmentally sustainable Australian industry by purchasing locally-produced cars • Establish a new Automotive Industry Innovation Council to provide advice and oversight in relation to the new transitional arrangements • Ensure vehicle safety standards are uniform across all states and territories, and consistent with international markets • Encourage the government’s Henry review of taxation to change the fringe benefits tax vehicle kilometers table to encourage drivers to use cars only as necessary • Increase the government grant for more efficient factory-fitted LPG systems (such as Falcon E-Gas models) from $1000 to $2000, the same as retro-fit systems (including Commodore dual-fuel models).Read more:
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