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1998-99
THE PARLIAMENT OF THE
COMMONWEALTH OF AUSTRALIA
HOUSE OF
REPRESENTATIVES
EXPLANATORY
MEMORANDUM
(Circulated
by authority of the Minister for Justice and Customs,
Senator the Hon Amanda
Vanstone)
ISBN: 0642 400423
The purpose of this Bill is to amend the Customs Tariff Act 1995
(“the Tariff”) to:
− complement the industry assistance
scheme proposed in the ACIS Administration Bill 1999 and the ACIS (Unearned
Credit Liability) Bill 1999;
− reduce the rates of Customs duty on
passenger motor vehicles and certain related componentary from 15% to 10% on
1 January 2005; and
− remove the word
“replacement” from a number of descriptions of goods in Schedule 3
to the Tariff.
1. Automotive Competitiveness and Investment
Scheme
The ACIS Administration Bill 1999, the ACIS (Unearned
Credit Liability) Bill 1999 and this Bill establish the Automotive
Competitiveness and Investment Scheme (ACIS) to commence from
1 January 2001. ACIS is explained in greater detail in the
Explanatory Memorandum to the ACIS Administration Bill
1999.
2. Tariff Reduction
The rate of customs duty
imposed on passenger motor vehicles (PMVs), and certain parts for PMVs, by the
Tariff is presently 17.5%. Under the current provisions of the Tariff, the rate
declines to 15% on 1 January 2000, after which there are no further
reductions. This Bill will provide for a further reduction to 10% from
1 January 2005.
3. Removal of
“replacement”
The removal of the word
“replacement” in a number of descriptions of goods in Schedule 3 to
the Tariff will make clear that all components used in the manufacture of a PMV
will be classified to the subheadings listed.
BACKGROUND
The core of the Australian automotive industry
is represented by four motor vehicle manufacturers and over 200 component,
tooling and service providers. The industry is largely concentrated in South
Australia and Victoria, and employed approximately 55 000 people in
1996-97, mostly in these two states. It is a significant manufacturing
industry, with a turnover of approximately $15 billion in 1996-97, and exports
of about $2.5 billion in 1998.
The Australian automotive industry has
strong links to other resources and manufacturing industries in the Australian
economy through supply chains from raw materials to elaborately transformed
manufactures. It is among the leaders in the manufacturing sector in the
adoption of quality systems. It is a significant investor in R&D and a
training ground for trades and professions.
In recent years, the
Australian automotive industry has established itself as a low cost, high
quality source of design and engineering, and has expertise in flexible, small
volume manufacturing. Government assistance has helped the industry to position
itself as a high tech, globally focussed, sustainable manufacturing industry.
Continued government assistance will help the industry to secure its place in
the global market in the context of increasing trade liberalisation.
At
the centre of the current assistance arrangements is a steadily declining tariff
on passenger motor vehicles (PMVs) and original equipment (OE) components, at
2.5% per year, which will result in a tariff of 15 per cent in the year 2000,
and the Export Facilitation Scheme (EFS) and Duty Free Allowance (DFA). EFS had
been instrumental in encouraging the Australian automotive industry to become
more globally integrated. In line with Australia’s commitments under the
WTO, the EFS is due to expire on 31 December 2000.
A Government
review of post-2000 arrangements for the automotive industry was initiated in
1996, reflecting the long lead times for investment in this industry. The
review, informed by an Industry Commission inquiry and the advice of a specially
constituted Automotive Manufacturing Council, was intended to determine a
strategy to encourage the future development of a sustainable, prosperous and
internationally competitive industry having regard to Australia's international
obligations and commitments.
Having considered the various policy
perspectives on assistance for the automotive industry, the Government announced
on 5 June 1997 that tariffs on PMVs and OE components would remain at 15% from 1
January 2000 to 31 December 2004, and would then fall to 10% on 1 January 2005.
It also announced that transitional assistance arrangements would be devised to
encourage investment and the modernisation of the industry to assist the
industry to become globally integrated.
On 22 April 1998, the Government
announced its decision to introduce a transitional assistance scheme to be known
as the Automotive Competitiveness and Investment Scheme (ACIS) on 1 January
2001. This is a total package of reforms, which will be implemented through
three cognate pieces of legislation.
ISSUE
The current
tariff phasing arrangement was due to finish on 31 December 1999. The current
EFS was due to finish on 31 December 2000.
The issue was to develop automotive industry support arrangements (including appropriate tariff arrangements and transitional assistance measures) which would achieve four key Government objectives:
• Encourage the development of a sustainable, prosperous and internationally competitive automotive manufacturing industry in Australia;
• Improve the overall economic performance of the Australian automotive industry;
• Provide good quality, competitively priced vehicles to the Australian
consumer; and
• Meet Australia's international obligations and
commitments.
This set of objectives raised a number of constraints which
meant that the range of effective options was limited. It was important to
provide an environment in which industry could achieve global integration as
well as to adjust to an increasingly liberalised domestic market. The
Government was cognisant of the problems caused by the high protection policies
of the past and the need for adjustment to take account of the long lead times
for the key investments in this industry.
OBJECTIVE
The
objective of the ACIS legislative package is to set in place a post-2000
industry assistance package for the automotive
industry.
OPTIONS
A range of alternative tariff phasing
options were canvassed during the review process. The majority view of the
Industry Commission report was that tariffs on PMVs and components should
continue to be reduced at the rate of 2.5 percentage points per annum until
2004, when the tariff would rest at 5%, the rate currently applying to most
Australian manufacturing industries. The minority view expressed in the same
report was that the tariff should rest at 15% between 2001 and 2005 and there be
a further review in 2004.
In terms of other forms of assistance, the
majority view of the Industry Commission report was that EFS should be
abolished, but that the DFA should be retained until the tariff reached 5%, at
which time it should be reviewed.
The minority report, however, argued
that further assistance aimed at assisting the industry to become more globally
integrated should be established.
On 5 June 1997, the Government
announced that tariffs on PMVs and OE components would remain at 15% from 1
January 2000 to 31 December 2004, and would then fall to 10% on 1 January
2005. The Government also indicated that it would be developing new
arrangements for the industry to commence from 2001. On 22 April 1998, the
Government announced its decision to introduce a transitional assistance package
to be known as ACIS on 1 January 2001.
IMPACT ANALYSIS (COSTS AND
BENEFITS) OF THE DECISION
TARIFF PAUSE AND TARIFF REDUCTION ON
PASSENGER MOTOR VEHICLES
The major parties affected by the decision
to reduce the tariff are PMV manufacturers and component producers, consumers,
other industries and the Government. The Industry Commission report contains
estimates of the size of costs and benefits of a tariff pause and tariff
reduction.
Benefits
1. Cheaper PMVs
Consumers will be the greatest beneficiaries
from the scheduled reduction in the tariff to 10% in 2005. Consumers will pay
lower prices for motor vehicles; both imported and locally produced. This will
reduce transfers from consumers to government and the Australian motor vehicle
industry. Consumers may also benefit from a widened choice of products,
although the Australian market is already open to imports and has a wide
diversity of product available.
The scheduled reduction in the tariff on
PMVs will also lessen costs on other areas of the economy. To the extent that
PMVs are capital inputs to other industries, tariffs impose higher business
costs and lead to lower demand for these products. Reductions in the price of
PMVs, through lower tariffs, will be beneficial to other industries.
The
automotive industry will benefit from the reduced tariff on input components
used in manufacturing and assembling. The lower cost of inputs will help
increase the competitiveness of the automotive industry.
As tariffs are
being maintained at 15% from 2000 to 2004, the benefits to consumers, to the
automotive industry and to other industries will be lower than if the tariffs
had continued to fall over this period.
2. Increased stability and certainty in the automotive
industry
The automotive industry will benefit from the increased
certainty and stability due to the tariff pause and subsequent tariff reduction.
The automotive industry has long lead times for investment planning, and
therefore will benefit from more time to adjust its production and investment
activities to take into consideration the future tariff reduction.
The
tariff pause will also create a more stable employment environment in the
automotive industry. The industry is a significant manufacturing employer in
Victoria and South Australia, and a stable employment environment is of
considerable importance to these two regions.
3. Improved production efficiency
The automotive industry is
expected to improve its productive performance in light of the increased
competitive pressure from reduced tariff assistance. Evidence highlighted in
the Industry Commission report about the effects of lowering tariffs since the
mid 1980s shows that the increased competitive pressure from reduced assistance
has significantly improved productivity, quality and export orientation in the
industry, and has facilitated the industry's readiness to take advantage of
other reforms, such as labour market reforms.
Costs
1. Reduced activity and less profitable performance in the PMV and
component sectors and related industries
The automotive industry will
receive less assistance through tariffs on imported automotive products after 1
January 2005. It is possible that under a reduced assistance scenario there
could be output and employment re-adjustments in the PMV and component
manufacturing industries. Profits and wages could be put under greater pressure
as imports become more competitive.
This outcome depends on how the
manufacturers respond to the increased price pressure. Present indications are
that the industry is embarking on a new round of investment and anticipating
continued strong growth in exports. The tariff pause will benefit the
automotive industry by enabling it to be better prepared for the tariff
reduction in 2005.
2. Expected lower Government revenue
Falls in the tariff
could be expected to provide lower revenue levels to the Government, unless the
increase in imported vehicles sold is sufficiently large to compensate for the
lower revenue per vehicle.
AUTOMOTIVE COMPETITIVENESS AND
INVESTMENT SCHEME (ACIS)
ACIS will operate from 1 January 2001 to 31
December 2005, encouraging new investment to help position the industry as a
competitive player in the global market. ACIS will provide incentives in the
form of duty credit, which may be used to pay Customs duty on eligible imports,
or may be transferred.
Motor Vehicle Producers (MVPs) will be able to claim:
• Duty credit equal to 15% (uncapped) plus 10% (capped) of the value of production of PMVs sold in Australia and New Zealand, multiplied by the relevant tariff rate;
• Duty credit equal to 25% of the value of production of motor vehicles
(other than PMVs sold in Australia and New Zealand), engines and engine
components, multiplied by the relevant tariff rate; and
• Duty credit
equal to 10% of the value of their investment in plant and equipment averaged
over the preceding three years.
Automotive Component Producers (ACPs), Automotive Machine Tool and Tooling Producers (AMTP) and Automotive Service Providers (ASPs) will be able to claim:
• Duty credit equal to 25% of the value of their investment in plant
and equipment averaged over the preceding three years; and
• Duty
credit equal to 45% of the value of their investment in R&D averaged over
the preceding three years.
In instances where MVPs produce automotive
components, tooling or services for a third party, they too can access the 25%
investment allowance and the 45% R&D allowance.
A fiscal cap of $2
billion will apply to all benefits paid over the 5 years of ACIS, except the 15%
uncapped production credit for PMVs sold in Australia and New Zealand. The 15%
uncapped production credit represents the continuation of benefits equivalent to
the existing Duty Free Allowance, and was announced by the Government on
5 June 1997, prior to the Government's decision to establish
ACIS.
A 5% subsidy to sales cap for each company registered under ACIS
will also apply, to ensure that assistance provided under the scheme does not
exceed WTO limitations.
Eligibility criteria will apply to both
participating firms and to the products, services, investments and activities
against which benefits can be earned. The threshold eligibility tests for
registration under ACIS require minimum levels of production and sales to be
achieved. Consultation with the industry has indicated that most of the current
participants in the Export Facilitation Scheme will be eligible to apply for
registration under ACIS.
These eligibility rules are in place to
encourage long term, strategic investments of significant scale. The automotive
industry has long and complex supply chains, and these eligibility rules will
identify those firms with a long term commitment to the industry in
Australia.
The major parties affected by the decision to introduce ACIS
are motor vehicle producers, automotive component producers, automotive machine
tool and tooling producers, automotive service providers, other industries and
the Government.
Benefits
1. Continued investment and employment in the automotive and associated
industries
Assistance provided through ACIS should contribute to the
continued high levels of output and employment, and other economic activity,
such as new capital investment, in the motor vehicle and component manufacturing
industries and associated supply industries.
2. Improved production efficiency in the automotive and associated
industries
Improvements in the performance of the automotive industry
are expected from the introduction of incentives under ACIS for firms to invest
in new plant and equipment and research and development.
ACIS has a
strategic focus on encouraging expenditure on innovation and investment. The
automotive and associated industries will benefit from longer term investment
commitments and will continue to set the pace for automation of design,
engineering and manufacturing systems.
Costs
1. Expected lower Government revenue
Import duty concessions
can be expected to provide lower revenue levels to the Government. The
Government has capped the revenue to be forgone under the scheme (except for the
production credit that will directly replace the existing 15% DFA) to $2 000
million over five years.
2. Administrative requirements
The administrative
requirements under ACIS have, as far as possible, been maintained at analogous
levels to the requirements under the current EFS and DFA. It is recognised,
however, that the validation of claims for benefits which are based on
investment in plant and equipment and research and development is less
straight-forward that identifying production or export performance under the
present arrangements.
Participating MVPs, ACPs, AMTPs and ASPs will be
expected to provide quarterly reports which provide details of production,
investment in plant and equipment and research and development, so that the
administering agency can calculate duty credit earned. Compared with the
current EFS reporting requirements based on transactions, quarterly reporting
will be less onerous.
The need to modulate benefits with regard to the $2
billion fiscal cap for all participating firms and the 5% subsidy-to-sales cap
for individual firms means that there will be a marginal increase in
administrative requirements under ACIS, with the bulk of this burden being met
by the Commonwealth Government. One area where compliance costs of industry
will rise moderately, will be the requirement for participating entities to
provide updated annual business plans to assist with the management of the two
caps applying under the
scheme.
CONSULTATION
Consultation was very broad
through both the Industry Commission inquiry into the automotive industry, and
through the Automotive Manufacturing Council, which was established to advise
the Industry Minister during the review of the industry. Opportunities were
provided for all interested parties to participate in the review process and
state their views.
The automotive industry has indicated support for the
package of measures.
CONCLUSION
The Government
decisions to withhold the tariff reduction until 1 January 2005, and to
introduce ACIS, will provide a transitional assistance package which will
encourage competitive investment and innovation in the Australian automotive
industry in order to achieve sustainable growth, in the context of trade
liberalisation.
IMPLEMENTATION AND REVIEW
Regulations
and other disallowable instruments which will give effect to ACIS will be tabled
before the scheme commences. The industry will be consulted as the disallowable
instruments are being developed to ensure the new scheme is well understood and
suited to the particular needs of the industry. Part of this consultation will
address the need to minimise the administrative and compliance burden of the
scheme, while not unduly compromising its administrative
rigour.
AusIndustry will be the Government agency charged with
responsibility for administering ACIS. It is expected that companies seeking
registration will be able to apply to AusIndustry from mid-2000, ready for
scheme commencement on 1 January 2001.
ACIS has an expiry date of 31
December 2005. A further review of the automotive industry arrangements is
scheduled to be undertaken in 2005, having regard to Australia's APEC
commitments and progress on market access.
The measures set up in the Bills are expected to have the following
financial impact.
1. Automotive Competitiveness and Investment
Scheme
The provision of benefits under ACIS (except production
credit that will directly replace the existing 15% DFA - see next paragraph) is
to be capped at $2 billion in revenue forgone over the five years from 1 January
2001 to 31 December 2005.
Entitlements arising from the continuation of
the existing 15% DFA paid on production of PMVs for sale in Australia or New
Zealand, announced separately by the Government on 5 June 1997, will be
uncapped. Revenue forgone under these entitlements is expected to be
approximately $825 million over the five years from 1 January 2001 to 31
December 2005.
2. Reduction in the Tariff on Passenger Motor
Vehicles
It is difficult to predict the actual impact on revenue
of the proposed tariff cuts on motor vehicles and related components in 2005.
Assuming the Australian motor vehicle market will continue growing at its recent
rate, and that import penetration will grow to account for all new growth in the
domestic market, it is estimated that the revenue forgone in fiscal year 2005
will be $500 million.
It should be noted that there are a number of
variables such as the rate of growth in the motor vehicle market, consumer
preferences, and exchange rate fluctuations, which influence the price and
amount of duty payable on imported vehicles, that can affect the estimate of
tariff revenue.
This clause provides for the Bill, when enacted, to be cited as the
Customs Tariff Amendment (ACIS Implementation) Act 1999.
Subclause (1) provides for this Act to commence on a day to be fixed by
Proclamation. It is expected that the Act will be proclaimed after the
substantial amount of subsidiary legislation required under ACIS has been
finalised. The Proclamation commencement of these items is subject to the
standard “sunset” provision that if the Act is not proclaimed within
a period of 6 months after the Act receives Royal Assent, then they
automatically commence on the first day after that period (subclause (2)
refers).
This clause is the formal enabling provision for the Schedule to the
Amendment Act, providing that each Act specified in a Schedule is amended in
accordance with the applicable items of the Schedule. In this Bill,
Schedule 1 provides for amendments to the Customs Tariff Act
1995.
This item reduces the general rate of duty on PMV componentry classified
to one of the listed tariff subheadings from 15% to 10% as from 1 January 2005.
The duty rate for goods from developing countries is 5% less than the
duty rate for goods from other countries (“the general rate”).
Developing countries are divided into two groups, the more advanced developing
countries and the less advanced developing countries. The Government has
decided that the duty rates that apply to goods from more advanced developing
countries will not continue to receive the benefit of the 5% differential. The
duty rates for those more advanced developing countries will remain static until
the general rate phases down to equal or less than the rate for the more
advanced developing countries. Once that occurs the general rate of duty will
apply to more advanced developing countries. The less advanced developing
countries will continue to receive the benefit of the 5%
differential.
From 1 January 2005 the duty rate for these goods
from less advanced developing countries will become 5%, but the rate for more
advanced developing countries will remain 10%, becoming the same as the general
rate.
In one instance, for subheading 8483.60.10, the general rate of
duty will be reduced from 13% to 10%. This is because the general rate for this
subheading is currently 13%.
This item reduces the general rate of duty on new PMVs and certain
componentry classified to one of the listed tariff subheadings from 15% to 10%
as from 1 January 2005. Goods from the more advanced developing countries will
be subject to general rate of 10%. For the less advanced developing countries
and Forum Island countries the rate falls from 10% to 5%. The Canadian rate
will reduce from 7.5% to 2.5%.
This item reduces the general rate of duty on certain PMV componentry
classified to one of the listed tariff subheadings from 15% to 10%. Goods from
the more advanced developing countries will be subject to general rate of 10%.
For the less advanced developing countries the rate falls from 10% to 5%. The
Canadian rate will reduce from 7.5% to 2.5%.
This item reduces the general rate of duty on tubes, pipes and hoses and
fittings therefor, other articles of plastics and electrical apparatus for
switching or protecting electrical circuits, or making connections to or in
electrical circuits of a kind used as components in passenger motor vehicles
from 15% to 10%. Goods from the more advanced developing countries will be
subject to general rate of 10%. For the less advanced developing countries the
rate falls from 10% to 5%. The Canadian rate will also reduce from 10% to
5%.
Item 5 - At the end of the last rate of duty in column 3 of each
of the subheadings in Schedule 3 that are included in the list
below
This item reduces the general rate of duty tubes, pipes and
hoses, of vulcanised rubber other than hard rubber, other articles or iron or
steel, and electrical accumulators from 15% to 10%. Goods from the more
advanced developing countries will be subject to general rate of 10%. For the
less developed countries the rate falls from 10% to 5%. The Canadian rate will
reduce from 5% to Free.
Item 6 - At the end of the last rate of duty
in column 3 of each of the subheadings in Schedule 3 that are included in the
list below
This item reduces the rate of duty on used or second-hand
PMVs classified to one of the listed tariff subheadings as from
1 January 2005. The fixed rate of $12,000 currently payable on the
importation of these sorts of PMVs remains unchanged. The ad valorem portion of
the general rate of duty reduces from 15% to 10%. Goods from the more advanced
developing countries will be subject to general rate of 10%. For the less
advanced developing countries and Forum Island countries the rate falls from 10%
to 5%. The Canadian rate will reduce from 7.5% to 2.5%.
Item 7 -
After item 41D in Part III of Schedule 4
This item inserts new item
41E into Part III of Schedule 4 to the Tariff, to allow people possessing duty
credits earned under ACIS to use them to reduce the customs duty payable on the
importation of “eligible goods”. By-laws made under section 273 of
the Customs Act 1901 will prescribe those goods that can have import duty
reduced by using ACIS credits. They can only be goods of an automotive nature,
falling to tariff headings 8702, 8703 and 8704 in Schedule 3 to the
Tariff.
Column 3 of the new item provides for the duty payable on
eligible imports to be calculated as the general rate of duty that would
normally apply to those goods assessed in accordance with Part 2 of the Tariff,
less the value of any duty credit owned by the importer of the
goods.
Item 8 - Item 53 in Part III of Schedule 4
Many
non-PMV goods are classified to the same tariff classifications as PMV
components (for example, a spring used in a watch may be classified to the same
subheading as a similar spring used in a PMV). Such goods would currently
attract the 15% rate of duty applicable to PMV goods but for item 53 in Part III
of Schedule 4 to the Tariff. Item 53 is the statutory mechanism by which
non-PMV goods are able to be entered at the general manufacturing rate of
5%.
This item replaces item 53 in Part III of Schedule 4 to the Tariff
and inserts new items 53A, 53B and 53C into that Part.
New item 53
is substantially the same as the current item 53, with an end date of 31
December 1999 has been inserted. After 31 December 1999 the rate of
duty for PMVs and components used in the production of PMVs will reduced from
17.5% to 15%. If item 53 were to apply after 31 December 1999 it is
possible that the 5% rate of duty would apply to PMVs and some components. It
is the Government’s intention that these goods should continue to attract
their substantive rate of 15% in accordance with Schedule 3 to the
Tariff.
New item 53A will apply to goods entered for home
consumption between 1 January 2000 and 30 June 2000. Item
53A will provide the mechanism to alter the PMV rate of 15% to the general
manufacturing rate of 5% for all goods that are non-PMV goods, other than goods
falling to a list of excluded tariff subheadings. The list of excluded tariff
subheadings cover those PMVs and components whose rate of duty will phase down
from 17.5% to 15% on 1 January 2000.
New item 53B will
apply to goods entered for home consumption between 1 July 2000 and
31 December 2004. On 1 July 2000 the rate of duty on
certain Textile, Clothing and Footwear (TCF) goods will be reduced to 15%. It is
the Government’s intention that these goods should continue to attract
their substantive rate of 15% in accordance with Schedule 3 to the Tariff.
Hence, item 53B excludes from its operation those TCF goods as well as PMVs and
components.
New item 53C will apply to goods that are entered on
or after 1 January 2005. On this date the rate of duty on PMV and PMV
componetry will phase-down from 15% to 10%. Item 53C will provide the mechanism
to alter the new PMV rate of 10% to the general manufacturing rate of 5% for all
goods that are non-PMV goods, other than goods falling to a list of excluded
tariff subheadings. The list of excluded tariff headings covers certain TCF
goods, PMVs and components.
Item 9 - The description of goods in
column 2 of each of the subheadings in Schedule 3 that are included in the list
below
There are a number of descriptions of goods in certain
subheadings in Schedule 3 to the Tariff that refer to goods “of a kind
used as replacement components in passenger motor vehicles”. It has been
argued this term may not cover goods used as original equipment in a PMV. So as
to remove any doubt item 9 will remove the word “replacement” from
each of those descriptions. This will make clear that all components used in
the manufacture of a PMV will be classified to the subheadings listed in the
item.