Industry states its case to Bracks review

THE continuation of financial assistance from the federal government beyond 2015, to compensate for the strength of the Australian dollar and changing consumer tastes due to record fuel prices, is the key recommendation within the Federal Chamber of Automotive Industries (FCAI) submission to the Review of Australia’s Automotive Industry.

The FCAI submission was revealed on Monday this week (May 20), just over two months ahead of the July 31 deadline for the review’s final report to be tabled by former Victorian Labor premier Steve Bracks, and will be accompanied by submissions from Australia’s car-makers and vehicle importers.

“The key recommendation that the industry is pushing for is that the investment support provided through ACIS (the federal government’s Automotive Competitiveness and Investment Scheme) be continued beyond 2015, and that we ensure that the effectiveness of that program is enhanced to at least partially offset what has occurred in terms of a change in competitive environment over the past few years,” FCAI chief executive Andrew McKellar told GoAuto today.

Officially, the FCAI has requested that the value of ACIS support should be augmented and the program should be extended beyond 2015.

Specifically, it recommends that the impact of modulation and the arbitrary stage caps should be removed, that the calculation of ACIS credits earned should be adjusted so that it is no longer directly based on the tariff rate and that ACIS support should continue to be delivered through duty credits and the program should continue to operate on a legislated basis.

More surprisingly, however, the nation’s peak industry body, which represents both Australia’s vehicle importers and exporters, has made contradictory recommendations on the controversial issue of the new-vehicle import tariff, which is scheduled to drop from its current 10 per cent to five per cent in 2010.

Mr McKellar defended his body’s two-pronged tariff submission, which presents both the local manufacturers’ view that the planned reduction in passenger vehicle tariffs should not proceed, and the position of vehicle importers which support further reductions in import tariffs.

According to the FCAI submission: “While vehicle importers would not object to the provision of enhanced investment support for local vehicle manufacturers under ACIS, they believe that this should continue to be linked to a defined schedule for further reform of Australian automotive tariffs.

“To this end, vehicle importers believe that there should be a clear timetable for the reduction of passenger motor vehicle tariffs to five per cent.” But the FCAI submission also contained the view of local manufacturers, which “acknowledge that further reductions in automotive tariffs will occur, however, they contend that the scheduled reduction in tariffs from 10 per cent to five per cent, from1 January 2010, pre-empts multilateral reductions in industrial tariffs which might be achieved from a successful conclusion of WTO Doha Development Agenda negotiations.

Left: FCAI chief executive Andrew McKellar and (below left) Steve Bracks.



“Local vehicle manufacturers believe the timetable for future tariff reductions should be determined on the basis of the outcome of WTO multilateral negotiations and any future bilateral or regional trade agreements concluded by the Australian Government.

“Local vehicle manufacturers are concerned that the legislated reduction in passenger motor vehicle tariffs is not currently matched by reciprocal improvements in market access for Australian automotive exporters.

“They also note that the Australian Government is continuing to pursue bilateral and regional trade agreement negotiations with a number of significant trading partners. If resolved these negotiations could provide automotive manufacturers in these economies with preferential access to the Australian automotive market.” Mr McKellar told GoAuto that the outcome of the Doha trade talks, which may still be some way off but will bind the Australian government on issues including free trade agreements, should be taken into account in tariff deliberations. But he said the gulf between views of importers and exporters on tariffs had narrowed.

“There has been movement across the industry on that issue and really the points of difference between the importers and the manufacturers are not that great,” he said.

“The importers, for their part, acknowledge the very key importance of local manufacturing capability in Australia. What they are saying is that I think they are prepared to show some flexibility. They support the extension of ACIS and the better funding of ACIS and I think they are prepared to see some refinement of the existing tariff reduction schedule.

“What they are saying though is that they believe that in doing that there should be a defined schedule and the objective should still be to go to five per cent.

“(For) the vehicle manufacturers, the only point of difference there I think is that it would be premature to lock into a defined schedule until you know what you are getting in return, in terms of the context of multilateral trade negotiations and what might come out of a range of FTAs which are currently under consideration,” he said, adding that the review submissions he had seen from interested parties presented a somewhat united front.

“The manufacturers and a whole range of other interested parties have put in submissions, and I think there will be very broad consistency across the submissions from the manufacturers. I have seen them – I think they are all excellent submissions and I think there is very much a strong degree of unity across the industry,” he said.

Mr McKellar, who was today in discussions with key luxury vehicle brands to formulate a strategy about the recent federal budget’s proposed luxury car tax (LCT) increase from 25 to 33 per cent, said the FCAI’s stand to abolish the LCT altogether predated last week’s budget announcement.

“The LCT submission (to abolish it) was always going to be there, but gained additional significance at late notice unfortunately,” he said.

In its submission to the Bracks review, the FCAI says it opposes the proposed increase in the LCT rate and calls for the tax to be abolished.

“The FCAI contends that the LCT constitutes a non-tariff barrier which discriminates against certain types of imports. The FCAI argues that the LCT can also act as a disincentive for the uptake of improvements in vehicle specification, including advanced safety features, particularly for those vehicles near or just above the tax threshold,” the FCAI said.

“The FCAI observes that indexation of the LCT threshold has not kept pace with changes (in) vehicle prices. As a result, the negative impact of the tax and the number of vehicle brands and models affected has expanded over time.” The FCAI has also urged the review to be “technology neutral” when it comes to the $500 million Green Car Innovation Fund, a key election promise of the Rudd government that aims to support the development of low-emissions vehicle technology from 2011.

“In developing the framework for the Green Car Innovation Fund, the FCAI recommends that the program should be technology neutral and aim to achieve a reduction in the CO2 emissions of Australian manufactured vehicles and be made available to all technologies that achieve this outcome,” it said.

“To ensure that the technologies developed through this program are commercialised into Australian manufactured vehicles, funding should be restricted to Australian vehicle manufacturers. Vehicle manufacturers should be encouraged to engage component manufacturers in the program.

“Funding should be in addition to existing programs available to the industry and benefits from the program should be issued on a grants basis, not in the form of duty credits.

“There should be a limit to the maximum amount of support available to any individual participant and the proposed ratio of $1 for $3 of industry investment should be reviewed as it may not be sufficient given the level of risk associated with the desired investment.” In conclusion, the FCAI submission reiterated its call for continued government assistance via ACIS and the careful consideration of tariff movements in the government’s first comprehensive review of the Australian automotive industry since 2002.

“The Australian automotive industry has undergone substantial transformation over a period of more than two decades and is now one of the most open and competitive markets in the world,” it said.

“The industry is now faced with an emerging suite of challenges that will require further structural reform within the industry.

“The sustained appreciation of the Australian dollar, rising fuel prices and shifting consumer preferences have all contributed to significant changes in the competitive environment now facing Australian vehicle manufacturers.

“With appropriate policy arrangements and the efforts of the car manufacturers and their suppliers there is every reason to believe the Australian automotive industry will meet the challenges it is now facing.”

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