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1998-99
THE
PARLIAMENT OF THE COMMONWEALTH OF
AUSTRALIA
HOUSE OF
REPRESENTATIVES
TEXTILE, CLOTHING
AND FOOTWEAR STRATEGIC INVESTMENT PROGRAM BILL
1999
EXPLANATORY
MEMORANDUM
(Circulated
by the Authority of
the Minister for Industry, Science
and Resources,
Senator the Honourable Nick
Minchin)
ISBN: 0642 389144
The Bill establishes the framework for the implementation of the Textile,
Clothing and Footwear Strategic Investment Program. The program aims to foster
the development of sustainable, internationally competitive TCF industries in
Australia during the transition to a proposed free trade environment under the
Asia Pacific Economic Cooperation (APEC) by providing incentives which will
promote investment, innovation and value adding in the Australian TCF industries
and better exploit Australia’s natural advantages in raw materials such as
wool, hides and cotton.
As a result of Government’s decision on
Industry Commission Report No.59 on the Textiles, Clothing and Footwear
Industries, the structural adjustment assistance to be provided to the TCF
industries under the Bill is in line with Government’s decision to
phase-down of customs rates of duty for textiles, clothing and footwear articles
from 1 January 2005. The Customs Tariff Amendment Bill (to be cognated with the
TCF (SIP) Bill) will amend the Customs Tariff Act 1995 to give effect to the
phase-down of rates of duty for TCF articles.
The TCF (SIP) Bill
requires the Minister to formulate the TCF(SIP) Scheme for the making of grants
in connection with the design for manufacturing and manufacturing, in Australia,
of eligible TCF products.
The TCF (SIP) scheme will provide for 5 types
of grants, namely:
(a) for new TCF plant/building expenditure;
(b) for
TCF research and development expenditure;
(c) for TCF
value-adding;
(d) special grants in respect of second-hand TCF plant
expenditure for communities which are heavily dependent on TCF manufacturing;
and
(e) special miscellaneous grants for communities heavily dependent on TCF
manufacturing industries.
The Bill will also allow the Minister to make
supplementation to Government’s Regional Assistance Program
(RAP).
The Scheme will run for 5 financial years, beginning with the
2000-2001 year. However, grants in respect of new TCF plant/ building
expenditure may be claimed for the 1998-99 and 1999-2000 years. Grants under
the TCF (SIP) Scheme are to be made in arrears.
The total amount for the TCF (SIP) Scheme and supplementation to RAP will
be $700 million.
The overall cost to revenue of the SIP is equivalent to
the aggregate cost of the Import Credit Scheme (ICS) had it continued past its
termination date of 1 July 2000 up to 30 June 2005. The ICS Scheme will end on
30 June 2000.
1. Australia’s TCF industries are facing a decline in the domestic
market with increased import competition. This situation, together with the
rapid reduction in the effective rate of protection since the 1980s, has
emphasised the need for radical reform of the TCF industries in order to improve
and maintain their competitiveness. The Industry Commission in its report on
the TCF industries (September 1997) examined issues specific to the industry
such as industry training and research and development (R&D). It
acknowledged that a package of policy changes would provide incentives for the
development of a sustainable, prosperous and internationally competitive TCF
industry in Australia.
2. There are clear opportunities for Australia to
build on its comparative advantage in the production of natural fibres and other
products. The major issue for Government is the need to develop initiatives and
incentives which can lever opportunities for TCF industries to take advantage
of, and exploit these opportunities.
3. In response to the Industry
Commission’s final report on the TCF industries, the Government on 10
September 1997, announced the framework for Post 2000 arrangements for the
Textiles, Clothing and Footwear (TCF) industries (Cabinet Minute JH97/0443/CAB
of 9 September 1997).
4. The package, including a tariff pause
until 2005 at levels scheduled for 2000, to be reviewed in 2005, includes a
range of new industry initiatives and reforms. These initiatives include; an
investment support fund at an aggregate cost equivalent to the existing Import
Credit Scheme (ICS), a technology development fund, a market development
program, extension to the existing overseas assembly provisions, a framework for
excellence in TCF training, a program for regions and employees, and the
examination of tariff anomalies. This is an integrated approach the TCF
industries as a whole, which will equip it to become sustainable and
internationally competitive during the move to a free trade environment under
APEC in 2010.
5. The decision to pause the tariff phasing from 1 July
2000 to 1 January 2005 has provided the TCF industries with an opportunity to
consolidate and strengthen, by way of investing, restructuring and innovation,
and identifying global business opportunities.
1. The Australian TCF industries occupy a key position in
Australia’s economic and social landscape. The industries are a major
employer of Australians in city and regional locations (9% of manufacturing
employment nationally), and are a growing and significant exporter.
2. TCF industries incorporate every stage of the value chain from raw
materials processing, through intermediate and finished goods to retail. They
include large and small businesses and the full range of production strategies
from raw material and technology intensive production to more labour intensive
production, branding and market differentiation and end users. Products
developed in Australia for local and international markets include processed
wool; cotton and hides; fine yarns; woven and knitted fabrics; bed and bath
products; carpets; domestic furniture and automotive leather; high fashion
designer clothing and shoes. In addition there is a growing market for woven
and non-woven industrial textiles.
3. Over the last decade, the
TCF industries have been characterised by declining production and employment;
and increasing imports and exports. Since 1987-88, gross industry product has
fallen by 15% and employment by 16%. Imports have increased from $3.5 billion
in 1988/89 to $5.9 billion in 1997/98 (current prices). Import share of the
domestic market has continued to increase (from 29% in 1988-89 to approximately
50% in 1995-96). Total exports have nearly doubled, with exports in 1988/89
being $1.5 billion and in 1997/98 being $2.9 billion (current prices). Total
employment was around 103,500 in 1997.
4. The Australian TCF industry
share of manufacturing output and total economic activity is declining. This is
consistent with nearly all OECD countries, including those, which have
maintained higher barriers to international trade than Australia. Labour force
data for February 1998 indicated that employment was down 15% on the employment
a year ago. The impact of the East Asian financial crisis and currency
devaluations is mixed. Export growth slowed in the December quarter of 1997,
and in the March quarter of 1998, there has been a marked seasonal decline in
textile and clothing exports. Total TCF exports of intermediate and finished
goods were down 2.2% on a year ago, while imports are up 23.5%, with large
increases from China, Hong Kong, Korea and the ASEAN. Textile exports have
fallen in those countries whose currencies have devalued against the Australian
dollar and improved in markets such as the USA, UK and Italy. Import prices
have risen because major sources of imports (such as China, Taiwan, &
Pakistan) have not devalued against the US dollar.
5. The 1987 TCF Industry Plan began the process of reducing tariff
protection and supporting structural adjustment in these industries. This plan,
which was varied in the 1988 Economic Statement, and the 1991 Industry Statement
(which set the current tariff phase-down to 2000), led to significant reductions
in tariff levels, the provision of direct assistance to firms through the
Textile, Clothing and Footwear Development Authority (TCFDA) and the Industry
Development Strategy from 1989 to 1996; the abolition of quotas in 1993; and the
introduction of the Import Credit Scheme (ICS) in 1991 and the Overseas Assembly
Provisions (OAP) in 1993.
6. In 1994 a Future Strategies Committee was
established to examine the performance of the industry and the effectiveness of
the Industry Development Strategy. The Committee recommended the continuation
of the ICS and OAP until 2000, no further restructuring assistance and a package
of enterprise improvement and training assistance under the TCF 2000 Development
Package.
7. The TCFDA was wound up in February 1996 and the management of its policy
and program activities were taken over by the TCF Branch of the Department of
Industry Science and Resources (DISR).
8. The Government announced an Industry Commission Inquiry into the Post 2000
policy arrangements for the TCF industries in December 1996, and the Commission
reported in September 1997.
9. In response to that report, the Government
agreed to a package of strategically directed measures aimed at encouraging
increased value added activity in natural materials processing, design, research
and development, marketing and product assembly. These included a freeze on
tariffs at their 1 July 2000 level until 1 January 2005 and an investment
program to encourage TCF companies to become more internationally competitive
and to better exploit Australia’s natural advantage in raw materials such
wool and cotton. There was also agreement to examine anomalies in TCF by-laws
and tariff concessions and to conduct a review of policy arrangements in
2005.
10. In the Government’s framework of partnership and
outcomes, to set the framework for the TCF post 2000 policy environment, the
Government, in partnership with industry, is developing forward looking action
agendas for wool, cotton, leather and fashion. The aim of the action agendas is
to:
• identify what can be done to make more use of Australia’s
competitive advantages and skills;
• attempt to define the necessary
shape and structure of TCF industries to promote sustainability in an
increasingly open trading environment; and
• determine the specific
measures, which can be taken to promote stronger investment and innovation and
to improve our access to international markets.
11. This package, due to run until June 2000, includes initiatives aimed at
improving sector performance in an increasingly open global trading environment.
The measures include:
• The TCF 2000 Benchmarking Study is
a major exercise in internationally benchmarking TCF industries performance
against a broad range of measures covering key business success factors. Over
200 companies worldwide, including 120 in Australia, participated in the
development of the first round of this study. A comprehensive range of 50
primary performance measures supported by a further 58 secondary measures have
been combined to provide powerful insights into company and industry competitive
performance. Following the successful completion of the first year of the
study, the Government has decided to continue its support and commitment to two
further rounds in 1998 and 1999 at a total cost of $1 million, after which the
project will be wholly driven by the TCF industries;
• the
AusIndustry TCF Best Practice (BP) Program aims to demonstrate widely the
commercial gains to be made by the TCF industries pursuing world’s best
practice in all areas of their business management. Under the program, 35
companies from each sector of the TCF industries and from across Australia are
undertaking major projects to advance their strategic vision for the future, and
have made commitments to share their experience and outcomes with others in the
TCF industries at a total cost of $7.4 million. From now to
30 June 2000, the industries will be invited to participate in a range
of demonstration activities hosted by BP firms and by the Government;
• the AusIndustry TCF Supply Chain Partnerships (SCP)
Program is designed to encourage companies to adopt a strategic approach to
its relationship with their key suppliers and customers, as well as the internal
processes by which value is added to products and services. The SCP program is
funded by the Federal Government and is delivered through the State and
Territory AusIndustry network. Services include professional facilitation of
firms wishing to form or improve a supply chain partnership and to assist with
the identification and implementation of targeted improvement activities.
Approximately 75 firms and 24 projects have been supported;
• the AusIndustry TCF Quality and Business Improvement
(QBI) Program addresses the ability of small and medium-sized firms in the
TCF industries to acquire the information and management skills needed to
enhance their international competitiveness. The QBI program is funded by the
Federal Government and is delivered through the State and Territory AusIndustry
network. Services available under the QBI program include general and
specialised diagnostics and business improvement consulting services Three
hundred firms and 450 projects have been supported;
• the
Outworker Project, which provides financial support for an education
campaign relating to a code of practice developed for outworkers in the local
TCF industries.
• the Import Credit Scheme, to cease on 30
June 2000 provides import duty concessions to firms based on their export
performance. Since 1996 concessions totalling $240 million have been provided
to over 300 firms. The Government also provided a support package to Howe
Leather to resolve a trade dispute with the United States which threatened the
ongoing operation of the ICS; and
• the Overseas Assembly
Provisions (OAP) scheme, introduced in 1992 and originally due to cease on
30 June 2000, is designed to assist the Australian textiles sector through
encouraging the further development of an internationally oriented and
competitive Australian clothing industry. The OAP enables eligible local firms
to assemble garments overseas from pieces, which have been cut or knitted, to
shape in Australia from fabric knitted or woven in Australia. The assembled
garment can then be imported into Australia with a free rate of customs duty on
the Australian content of the garment.
12. On 7 July 1998, the Government agreed to detailed arrangements which gave
effect to the Government’s support package for Australian TCF industries,
announced in September 1997, in response to the Industry Commission’s
final report on the TCF industries. The package of measures is comprised of 5
elements:
• TCF Strategic Investment Program (SIP): The TCF
Strategic Investment Program (SIP) provides for the establishments of a
five-year, $700 million program to further encourage investment and growth in
Australia’s TCF industries. This includes the acquisition of plant and
building , research and development activities, and value adding to the products
of early stage processing. Firms will be able to make a claim, in accordance
with the following program guidelines:
• Up to 20% of eligible
investment expenditure on plant and building; t
• Up to 45% of eligible
research and development activities: and
• Up to 5% of the TCF value
-added by firms in Australia, in the year of the claim.
- Special
Benefits: Under this element of the SIP, assistance for industry
reconfiguration and adjustment may be provided to firms operating in
communities heavily dependent on TCF manufacturing industries. In addition,
assistance may be provided to regions that are significantly affected by the
restructuring of TCF industries, through supplementation of the Regional
Assistance Program administered by Department of Employment, Workplace
Relations and Small Business.
13. The following programs form part of
the overall package of measures for TCF industries post 2000 which together with
the tariff pause, and the SIP and RAP, will apply until 2005. The overall
package will provide TCF industries with a stable policy platform to assist the
industries in developing into a sustainable and internationally competitive
industry by 2010.
• TCF Technology Development Fund: $10
million will be provided to encourage the development of new technologies that
have the potential to enhance business competitiveness in TCF industries and
provide a commercial benefit for Australia.
• National
Framework for Excellence in TCF Training: $10 million will be provided
towards strengthening the education and training infrastructure within the TCF
industries.
• TCF Market Development Program: $12.5 million
will be provided for the development and implementation of strategies to
increase the export capabilities of Australia’s TCF industries. The main
objective will be the development of a comprehensive export market development
strategy to assist industry sectors in targeting niche markets and the expansion
of Australian production.
• Expanded Overseas Assembly
Provisions Scheme: The new arrangements expand the provisions of the
existing scheme to include conversion offshore of cut or uncut fabric and
leather into finished goods. The expanded scheme will take effect from 1 March
1999 and is estimated to cost around $40 million.
14. Currently, the TCF industries are facing a slow growing domestic
market with increased import competition. This situation, together with the
reduction in the effective rate of assistance (during the mid 1980’s some
activities received 200+% and by 1994/95 it had decreased to around 40-50%), has
underlined the need for reform of industry practices.
15. Government
assistance to the industry has concentrated on measures aimed at improving the
sustainable performance of TCF firms in this increasingly competitive climate.
Post 2000 assistance measures are aimed at providing a stable policy environment
for the TCF industries for the coming decade by maximising investment of
Australian TCF firms and supporting product and market development to achieve a
more innovative, self-sufficient presence in the world market.
The aim of the Government’s initiative is to create the necessary
environment, which will lead to the development of a sustainable and
internationally competitive TCF industries in Australia under a liberalised
global trade.
1. Having regard to the Government’s decision to cease the ICS scheme
in June 2000 and the continued need to provide adjustment assistance to the
TCF industries arising from the dismantling of tariffs, the following options
were canvassed on the Government’s post 2000
measures:
• Option 1: Production Subsidy
• Option
2: TCF Strategic Investment Program
2. The production subsidy or bounty
was examined in the context of replacing tariffs on TCF products by the payment
of a production bounty. The Industry Commission’s report into the TCF
industries in September 1997 highlighted that as a form of assistance a
production bounty has some advantages over tariff assistance. These
include:
• Production for the domestic market would not be
advantaged relative to that for exports;
• the cost is spread across
the whole community instead of just to the users of TCF products; and
• it is a transparent form of assistance, facilitating open
evaluation.
3. Industry and the Industry Commission highlighted problems
with a bounty. The Commission’s report noted that:
• it is
very inefficient as it does not encourage investment or movement to best
practice;
• there are potential practical difficulties associated with
paying value added bounty due to the diversity of the TCF
products;
• exports may be subject to countervailing duties by other
countries under WTO rules;
• bounty expenditure requires either extra
taxes or foregone expenditure in other areas; and
• where it
substitutes for a tariff, it would involve a reduction in duty revenue.
4. In addition, fixing the bounty rate to the equivalent tariff rate
would also provide substantially greater assistance to the fabric sector than
for the leather and yarn sectors. The bounty option was therefore not
pursued.
5. The Strategic Investment Program was designed to encourage
Australian TCF firms to become more internationally competitive and to better
exploit Australia’s natural advantage in raw materials. In the
development of the SIP a number of different options were examined. These
included: Entitlement v Competitive Entry, Legislation v Budget Appropriation
and Cash Payment v Duty Credits.
6. Two approaches were considered in developing the TCF Strategic
Investment Program:
• A competitive entry model; and
• An
entitlement model.
7. Under a competitive entry model, each application
is assessed against published eligibility criteria and performance measures,
within a framework where applicants are judged against each other. Under such a
model, assessment and administrative procedures are more complex and require a
high degree of skill. This also has the potential of allowing the more
established larger firms to take advantage of the assistance being provided over
smaller to medium sized companies. This is due to the larger and well
established firms able to be more innovative and are usually operating within a
more stable management and economic base.
8. In contrast, an
entitlement program is open to all firms who meet the published eligibility
criteria, with no assessment of any one firm’s application against
another. This provides an environment that encourages small to medium firms to
be involved throughout the life of the program.
9. A key consideration in
choosing which approach to adopt was the likely effectiveness of each in
leveraging the particular category of TCF industries capable of surviving and
expanding in the free trade environment of 2010. A performance-based model was
also perceived to be more exposed to a possible challenge under the WTO than
would be the case for an entitlement scheme.
10. The question of whether or not the TCF SIP should be incorporated
into legislation was given careful consideration. Funding by way of budget
appropriation would have provided an element of policy and funding flexibility
(and with regard to funding, possible carryover of unused funds at the end of
each year of the program). However, industry successfully expressed their
concern that a non-legislated program could be subject to reduced funding in
subsequent budgets. They argued that by embodying the program in legislation,
similar to that adopted for the Automotive Competitiveness and Investment
Scheme, would indicate the Government’s commitment to providing funding
combined with sufficient flexibility to allow carry-over of funds from year to
year within the overall ceiling.
11. Recognising the added
administrative costs associated with the development of the SIP legislation, it
was decided that legislation would be drafted to underpin ministerial
administrative arrangements for the SIP, including appropriate regulations and
determinations. The proposed SIP Bill and a related Bill (The Customs Tariff
Amendment Bill), which gives effect to the phasing down of tariffs to their 2000
level and that they be held at that level until 1 January 2005, are planned to
be put before Parliament during the Autumn sittings in February 1999.
Cash Payments V Duty Credits
12. The industry raised the
possibility of benefits under the SIP being paid in the form of import duty
credits rather than direct cash payments. Moving to a revenue-based scheme
would have made the SIP similar to the Automotive Competitiveness and Investment
Scheme but would have opened it up to the possible criticism that there was no
clear departure from the Import Credit Scheme (ICS), the existing duty credits
scheme which has tainted status under the WTO. In addition, it was considered
that a duty credits scheme would have favoured unnecessarily a small number of
large industry players who are significant importers, at the expense of other
firms that would suffer some losses associated with transaction costs inherent
in trading the credits.
13. The decision to implement a cash payments
scheme rather than a duty credit scheme was also due to widespread concern
expressed by coordinating departments that the latter would remove transparency
from the scheme and attract WTO scrutiny.
1. The SIP, which will come into effect following the termination of the ICS,
will offer clear incentives for continued structural adjustment in the TCF
industries as they move towards further reductions in Tariff protection in 2005
and the prospect of APEC free trade in 2010. It will encourage investment and
strategic research and development that are critical for the TCF sectors to meet
the challenges ahead.
2. Under the program, benefits are paid in cash,
annually in arrears, calculated at:
• up to 20% of total eligible
investment expenditure on new plant and building;
• up to 45% of
expenditure on eligible R&D related activities (including product
development expenditure, other than advertising and media);
and
• up to 5% of TCF value added by the company in Australia in
the year of the claim, with the total value limited to the total value of
benefits earned on eligible investment in plant and building and research and
development related expenditure .
3. The total benefit to individual
companies from these assistance measures is not to exceed 5% of sales of
eligible products or services produced in Australia in the preceding twelve
months. This will avoid being deemed to be causing serious prejudice under the
World Trade Organization (WTO) Subsidies Agreement. Sales to New Zealand will
not receive payments under the value added provisions and would not be included
as sales for calculating the 5% limit on overall subsidy. This is in accordance
with the CER 1998 Agreed Minute on Industry Assistance, where Australia has
undertaken to exclude exports to New Zealand from bounty payments or like
measures.
4. In recognition of industry concern that significant
investment in plant and building is expected in 1998/99 and 1999/00, firms
investing during these years will be entitled to lodge a claim for those years
at the end of the first year of the SIP. This is to ensure that industry does
not defer investment unnecessarily until after 1 July 2000. However, recipients
of funding during this period will need to make a choice between the Import
Credit Scheme (ICS), if applicable, or the SIP Program or be subject to the 5%
ceiling.
5. The R & D payment under the SIP will be subject to the
clawback provisions of either Section 73C of the Income Tax Assessment Act
1936, or the recoupment provisions of sub-division 20A of the Income Tax
Assessment Act 1997 should they claim the 125% R&D tax concession.
6. A special benefits element is included in the SIP to provide
adjustment assistance for communities heavily dependent on TCF manufacturing
industries through extended eligibility to include expenditure on ‘state
of the art’ second hand plant and building , subject to proposed criteria.
Special miscellaneous grants will cover related grants for TCF dependent
communities.
7. In addition where a clear need for regional assistance is
demonstrated, supplementation for the existing Commonwealth Regional Assistance
Program, administered by Department of Employment, Workplace Relations and Small
Business, will be provided. This Department is currently liaising with the
Department of Employment, Workplace Relations and Small Business to establish a
mechanism to deliver the required services.
1. The TCF Strategic Investment Program (SIP) is aimed at providing an
investment incentive to leverage a cultural change towards international
competitiveness and global integration of the Australian TCF industries. It
provides for investment certainty to encourage TCF companies to become more
internationally competitive and better exploit Australia’s natural
advantages in raw materials such as wool, hides and cotton.
2. The
scheme encourages TCF industries to be proactive in determining their future
viability in a robust and increasingly free trading global market. It is aimed
at backing Australian industry and Australian jobs and facilitating innovation,
self-sufficiency and competitiveness.
3. The SIP is not a replacement
for the ICS, but aims to support sustainable investment in TCF manufacturing in
the development of an internationally competitive industry in an environment of
free trade.
4. The overall cost to revenue of the SIP is $700 million, which is
equivalent to the aggregate cost of the ICS had it continued past its
termination date of 1 July 2000, up to 30 June 2005. The expected benefit of
the scheme is the transformation of TCF firms that have long-term viability by
way of an appropriate investment strategy into internationally competitive
enterprises.
5. The SIP is investment driven and those TCF sectors with
traditionally higher investment levels (such as textile and fibre manufacture)
are more likely to be in a position to fully benefit from the program, than the
clothing sector, which has traditionally had low levels of investment and high
value added.
6. A more viable and internationally competitive TCF sector
in Australia will be able to meet the challenge of remaining competitive when
tariffs phase down on 1 January 2005 and maintaining an effective presence in
the APEC free trade environment in 2010. SIP provides industry with the
necessary framework for this aim by encouraging increased and new investment in
innovation and R&D, which are crucial to the competitiveness of the TCF
industries.
7. Recent ABS data indicates that around 96 % of all TCF
establishments have annual investment levels below the SIP entry threshold of
$200,000. Hence, the program will be accessible initially by only a limited
number of larger firms, (estimated at around 300). However small firms under
this program have the opportunity, if necessary, to build up their investment
over the 5 years of the program to reach the entry limit of
$200,000.
8. The ICS is an export-based benefit scheme and there are a
number of companies currently receiving ICS benefits who may receive little
support under the SIP, and vice versa.
9. In accordance with
Cabinet’s decision of 10 September 1997, the SIP has been developed at a
cost equivalent to the ICS, had it continued to 30 June 2005.
10. Formal employment in the TCF industries has been estimated at around
77,000, with an estimated additional 30,000 outworkers. The regional assistance
measures provided under the SIP will help secure long term employment futures
for the current TCF full time workforce by encouraging retention and development
of jobs, particularly those located in the regions, as well as thousands of
other jobs tied to the TCF industries.
11. The Industry Commission Report
into the TCF industries highlighted that irrespective of which industry
assistance policies are in place post 2000, labour adjustments in the TCF
industries will continue to occur. The Industry Commission further noted that
this was due to a number of reasons, which are unrelated to reductions in
assistance. These include:
• the use of capital over labour
(especially in the textiles sector);
• preference by consumers for
imported products; and
• substantial wage differentials between
Australia and developing countries.
12. While the general investment
provisions of the SIP have not been specifically designed to effect a
rationalisation of TCF firms, the investment incentives provided may
contribute towards such an outcome. By allowing claims for regional
reconfiguration and adjustment, the program gives specific recognition to the
impact such structural adjustment may have in areas where TCF activity plays a
significant role in the local economy.
13. A total allocation of $700 million has been made for the SIP over the
5 years of the program from 1 July 2000 to 30 June 2005 (ie at a nominal rate of
$140 million per year). The program is triggered by investment expenditure,
which aims at firms becoming more competitive in a free trade environment.
Investment in 1998/1999 and 1999/2000 will be eligible to be claimed, and this
will provide an incentive to firms not to defer this type of investment until
the start of the program on 1 July 2000.
14. The SIP will reward those
TCF firms that are willing to undertake eligible investment in plant and
building , by assisting their adjustment to a sustainable and internationally
competitive firms by 2005. Investment expenditure undertaken in the early years
of the scheme will generate further eligible value adding which can be claimed
in the later years.
15. The program aims to encourage innovative product development by
including payments on R&D type activities such as expenditure on Australian
based product design, testing, trialing and sample production, and employment of
personnel principally engaged on product development and process improvement for
goods manufactured in Australia.
16. All firms applying for payment
under the provision of the SIP will be required to submit a detailed strategic
business plan and strategic investment plan. In addition, applicants would be
required to submit audited accounts and report on compliance with their
strategic plan, as well as meet registration requirements to account for plant
and building expenditure that has been claimed under the program. The
registration requirements for any second hand plant and building will be
particularly stringent in order to preserve adequate propriety of such
claims.
17. It is proposed that a pro-rata business plan may be developed
to minimise the cost for all applicants. However, these requirements are
unlikely to impose significant business compliance costs for small businesses.
The program has been designed to encourage all firms engaged in the TCF
industries, irrespective of size, to undertake eligible activities. While the
de minimis rule will restrict initial entry into the program to ensure a
manageable administrative workload, it does operate to allow smaller firms to
build up their investment levels over the five years of the program, if
necessary.
18. The SIP was developed bearing in mind the need to avoid
any elements that would come within the WTO prohibited category of trade related
industry assistance. The proposed program, while it could be actionable, has
a low risk of challenge. Total assistance to individual firms is limited to 5%
of sales per annum, thus avoiding the possibility of the subsidy being deemed to
cause serious prejudice under WTO rules, and the benefits provided will have no
direct or inferred reference to export or local content.
19. These
safeguards ensure that the onus is placed on the complainant country to
establish adverse effects to its industry if a WTO challenge against the SIP
were to be mounted.
20. Furthermore, under Australia’s CER
obligations, exports to New Zealand from bounty payments or like measures are to
be excluded. In accordance with CER obligations, Australia is consulting with
New Zealand on the effect of the SIP on Trans-Tasman competition between the
respective TCF industries.
1. The Government’s decision to maintain tariffs on TCF products at
their level on 1 July 2000 until 31 December 2004, and then to reduce tariffs on
1 January 2005, will be detailed in the Customs Tariff Amendment Bill (1999),
which will be introduced in the Autumn 1999 Sittings of the
Parliament.
2. The Customs Tariff Amendment Bill and the SIP Bill are to
be cognate.
1. The process of devising an appropriate strategic investment program
involved extensive consultation between the Department of Industry Science and
Resources, the Minister’s Office and the industry . In addition, the
Industry Commission which reported on the TCF Industries in September 1997
undertook significant consultation with industry and other interested persons.
2. These consultations concluded that the SIP provides a framework for
the development of TCF internationally competitive firms, when tariffs phase
down in 2005, and their ability to maintain an effective presence in the 2010
APEC free trade environment.
3. In finalising the Cabinet Submission on
post 2000 TCF arrangements, consultation and coordination comments were sought
from the Departments of Prime Minister and Cabinet; Treasury; Finance and
Administration; Employment, Workplace Relations and Small Business; Education,
Training and Youth Affairs; Transport and Regional Development; and Attorney
General’s. These Departments all noted their support for the
SIP.
4. The industry originally expressed a preference for a simple
production subsidy. However, this would have favoured labour intensive clothing
production over the more capital intensive sectors (such as textiles). Clothing
production has a much higher level of value adding than processing of raw
materials or the production of intermediate goods (such as yarn, fabric and
leather). Low cost generic clothing production in Australia is unlikely to be
sustainable and/or competitive in a free trade environment. An investment
driven program, which encourages new and further investment in innovation and
R&D, was therefore considered to be the best mechanism for ensuring that
firms receiving benefits would become genuinely internationally competitive.
5. Given that WTO obligations do not permit replication of export based
benefits on which the ICS is structured, it was inevitable that the profile of
benefits available under the SIP would be different from those available under
the ICS. However, the weightings given to investment and R&D in the SIP are
designed to focus company activities on those areas which approximate the
regimes adopted by internationally competitive and export oriented
firms.
1. It is anticipated that AusIndustry, the service delivery agency of the
Department of Industry, Science and Resources (ISR), will administer the SIP.
However, the general overall policy aspects of the program will remain under the
control of the TCF Policy Unit, Industry Division A, ISR. Regional assistance
measures under supplementation to the RAP will be administered jointly with the
Department of Employment, Workplace Relations and Small
Business.
2. Applicants under the SIP will be required to keep
adequate records of eligible investment, product development and value added
activities. As part of the program is eligibility criteria for investment
assistance, applicants will be required to provide:
• A Strategic
Business Plan (incorporating an ‘Investment Plan’ for the period up
to and including 2005);
• Audited accounts for the previous three
years;
• A statement from a registered accountant as to the
firm’s future financial viability;
• Australian Registered Body
Number , date of incorporation, and information on firm size, based on
employment level and turnover; and
• Information on other Government
benefits received or applied for.
3. Monitoring based on outsourcing is
considered to be the most cost effective means of undertaking the complex
financial compliance issues involved.
4. All Departments and agencies
that are likely to have a role in implementing or enforcing the requirements
under the program have been identified. ISR is currently finalising the details
of the resource requirements and administrative costs.
5. The draft
SIP Program Guidelines were provided in December 1998 to the TCF industries for
their comments prior to finalisation in March 1999.
6. As part of its September 1997 initiative to implement post 2000
arrangements for the TCF industries, the Government also decided to undertake a
review in 2005 of assistance measures implemented, ahead of the move to free
trade under APEC. The review will have regard to:
• the
effectiveness of assistance programs in developing internationally competitive
TCF industries in Australia; and
• international developments in
protection for TCF industries, in order to consider appropriate tariff levels
for TCF beyond 2005, (including international moves towards free trade under
APEC, and the degree to which signatories have met their commitments under the
Agreement on Textiles and Clothing (ATC), and the implications for
Australia).
7. Under the ATC, developed countries have a commitment to
remove all quotas on imported textiles and clothing by 31 December
2004.
8. The review will also provide an opportunity to develop and
recommend further policy options the Government might adopt in meeting its
commitment to free trade under APEC by 2010.
9. Mechanisms will be
developed to undertake an annual review of the SIP. The review will be based
on detailed criteria, which will measure the program's effectiveness and what
changes have occurred to individual firms under the program. A formal review of
SIP will be undertaken at the end of the program, which will measure the
program's effectiveness and achievement in meeting its aims.
1. It was agreed that the proposed SIP program provides the best means of
bringing about the cultural change in Australia’s TCF industries on the
necessity for an investment ethic which would lead to the development of a
sustainable and internationally competitive sector in the coming free trade
environment.
1. This clause provides for the short title of the Bill.
2. This clause provides that the Act commences on the date of Royal
Assent.
3. This clause provides an overview of the main provisions of the
Bill.
Clause 4 - Definitions
4. This clause provides
definitions and interpretations of key terms used in the Bill.
5. This clause provides that a change in the composition of a partnership
does not affect its continuity.
Clause 6 - Crown to be
bound
6. Subclause (1) provides that the Crown is bound in each of
its capacities. However, Subclause (2) provides that the Crown is not liable
for prosecution for an offence under the Bill.
Clause 7 - External
territories
7. This clause provides that the Bill has application in
all external territories.
Part 2 - TCF (SIP)
scheme
Division 1 - General
provisions
Clause 8 - TCF (SIP) scheme
8. This
clause provides the enabling power for the Minister to formulate the TCF (SIP)
scheme for the making of grants relating to the design for manufacture in
Australia and/or manufacture in Australia of eligible TCF products.
Clause 9 - $700 million cap
9. This clause provides the
total dollar ceiling for all grants paid under the TCF SIP scheme. The ceiling
is $700 million less the total supplementation payments under the Regional
Assistance Program determined under Clause
33.
Division 2 - General policy objectives for the
scheme
Clause 10 - General policy objectives for the
scheme
10. This clause lists clauses which set out the policy
objectives to be achieved under the scheme, namely clauses 11,12,13,14 and
15.
Clause 11 - Types of grants
11. This clause sets out
the policy objectives in the scheme in relation to categories of grants under
the scheme, namely:
- new TCF plant and building expenditure;
- TCF
research and development expenditure;
- TCF value-adding;
- special grants
for second-hand TCF plant and building expenditure;
- special miscellaneous
grants for TCF-dependent communities.
12. Special grants for second-hand
TCF plant and building expenditure will be limited to entities in communities
that are heavily dependent on TCF manufacturing. Special grants will primarily
benefit regional areas heavily dependent on TCF manufacturing industries.
Special miscellaneous grants will cover related grants not specifically covered
by the grants for second-hand TCF plant and building expenditure in respect of
TCF-dependent communities. It is intended that TCF dependent areas would
include those communities where TCF employment constitutes more than 10% of the
total manufacturing employment, or where the unemployment percentage is in
excess of the national average, and TCF employment constitutes more than 5% of
total manufacturing employment.
13. Subclause (3) ensures that the
categories of grants specified in Subclause (2) do not limit the range of
matters for which grants may be made under the scheme.
Clause 12 -
Duration of Scheme
14. This clause prescribes the policy objectives
on the time frame for claims for individual grants under the scheme. For new
TCF plant and e/building expenditure, grants to entities may be made in respect
of activities undertaken during 1998-1999 through to 2004 - 2005
income years. For all other categories, grants can only be made in respect of
activities undertaken during the entity’s 2000-2001 income year and ending
in their 2004-2005 income year.
Clause 13 - Grants to be made in
arrears
15. This clause sets out the policy objectives on the time
frame for claims for individual grants under the scheme. Subclause (2)(a)
provides that grants for new TCF plant and building expenditure cannot be made
to an entity for expenditure incurred in respect of the entitlement periods
1998-99 and 1999-2000 unless the entity claims the grant after its 2000-2001
income year.
16. Subclauses (2)(b) and (2)(c provide that for all other
categories, grants cannot be made to an entity for expenditure incurred in
respect of entitlement periods 2000-2001 through to 2004-2005 unless the entity
claims the grant after the end of the income year in which the expenditure was
incurred.
Clause 14 - Cap for grants in respect of TCF value-adding
17. This clause sets out the policy objectives on cap for
value-adding for grants under the scheme. Total grants for TCF value-adding
made to an entity regarding activities undertaken by the entity in a particular
income year are equivalent to the lesser of the sum of the total grants for new
and second hand TCF plant and building expenditure and TCF research and
development expenditure, and five percent of the entity’s total eligible
TCF value added for that year. It is intended that the sales of eligible
products to New Zealand will not be eligible for inclusion in value added claims
for the purpose of meeting CER obligations.
Clause 15 - Sales-based
cap for grants
18. This clause sets out the policy objective of the
sales-based cap for grants in all categories made under the scheme, which is
equivalent to five percent of sales revenue of eligible TCF products during the
previous income year. It is intended that sales of eligible products to New
Zealand will be excluded from the sales
revenue.
Division 3 - Registration for the purposes
of the scheme
Clause 16 - Registration for the purposes of
the scheme
19. Subclause (1) prescribes that the scheme must impose
registration requirements on entities. Subclause (2) specifies registration
requirements that the scheme may include. These are the need for registration
by the entity, the need to provide a statement as to the entity’s future
financial viability, the need to provide any additional information which may be
specified in the scheme, and to provide for a registration
fee.
20. Subclause (3) provides that entities not complying with
particular registration requirements may be ineligible for a grant, have its
grant eligibility restricted or reduced, or have the time of payment of a grant
deferred. The scheme will specify the consequences.
Division 4 - Strategic business plans and audited
accounts
Clauses 17 and 18 - Strategic business plans and
audited accounts
21. These clauses provide that an entity is not
eligible for a grant unless it has complied with any requirements under the
scheme in relation to contents of strategic business plans and variations of
such plans, submission of audited accounts and financial statements and
registration. It is intended that there will be a minimal audited accounts
compliance.
Division 5 - Other matters relating to the
scheme
Clause 19 - Scheme may confer administrative powers
on the Secretary
22. This clause enables the scheme to provide
discretionary power to the Secretary to make administrative decisions, including
power to determine the amount of claims for grants.
Clause 20 -
Reconsideration and review of decisions
23. This clause requires the
scheme to provide a mechanism for internal review of a decision by the Secretary
affecting an entity. The power of delegation under Clause 48 will allow the
Secretary to delegate this power to reconsider a decision to appropriate senior
departmental officers or a panel consisting of such
officers.
24. Subclause (1)(a) provides that an entity dissatisfied with
a decision may request reconsideration by the Secretary within a period
specified in the scheme.
25. Subclause (1)(b) requires the Secretary to
reconsider the decision and confirm, revoke or vary the
decision.
26. Subclause (1)(c) provides for external review of the
Secretary’s decision by the Administrative Appeals
Tribunal.
27. Subclauses (2) and (5) specifies a period of 30 days for
both the submission by an affected entity of a request for reconsideration by
the Secretary of a decision and the consideration by the Secretary of such a
request. Failure by the Secretary to take action within that time is taken to
be confirmation of the decision.
28. Subclause (3) requires that the
scheme specify that any request for reconsideration of a decision under
Subclause (1)(a) must include reasons for making the request for a
review.
29. Subclause (4) has the effect of deeming any request made
under Subclause (1)(a) to be an application for review under the Administrative
Appeals Tribunal.
30. Subclause (6) requires that the result of any
reconsideration of a decision, the Secretary must notify applicant the reasons
for confirming, revoking or varying the decision.
31. Subclause (7)
provides that where a decision has been confirmed the Secretary, section 29 of
the Administrative Appeals Tribunal Act 1975 applies to the effect that
the 28 day application period under the AAT is deemed to commence from the date
of the decision.
Clause 21 - Statement to accompany notification of
decisions
32. Subclauses (1) and (2) contain the requirement that
notification of a decision under the scheme, or reconsideration of a decision
under the scheme, must be accompanied by a statement of appellant rights under
the Administrative Appeals Tribunal Act 1975.
33. Subclause (3)
provides the validity of a decision where such a statement has not in fact been
provided.
Clause 22 - Guarantees relating to payment of scheme
debts
34. This clause prescribes that the scheme may provide that an
entity’s eligibility for a grant under the scheme be conditional on
receipt of a guarantee from another entity relating to any scheme debts owed by
the former entity. This particularly relates to subsidiaries.
Clause 23 - Non-arm’s length transactions
35. This
clause enables the scheme to provide that where an amount of expenditure derives
from a non-arm’s length transaction, it may be deemed to be the amount
that could reasonably be expected to have been incurred in a normal arm’s
length transaction.
Clause 24 - Grant by way of
bounty
36. This clause does not prevent a grant under the scheme
being a grant by way of a bounty.
Clause 25 - Grants to be
inalienable
37. This clause enables the scheme to provide for grants
under the scheme to be inalienable except with the approval of the
Secretary.
Clause 26 - Miscellaneous Matters
38. This
clause prescribes the scheme may provide for various miscellaneous matters,
including imposition of a time limit for lodgement of grant claims, the need for
accompanying audited statements to verify eligible expenditure, apportionment of
expenditure in accordance with entitlement under the scheme, the adjustment of
eligibility for grants resulting from transfer of beneficial ownership of the
whole or part of a business, and times when grants become
payable.
Clause 27 - Ancillary or incidental
provisions
39. This clause enables the Minister to provide for any
ancillary or incidental provisions in the scheme as necessary.
Clause
28 - Scheme-making power not limited
40. This clause ensures that the
general powers under Clause 8 to provide for matters under the scheme are not
limited to those matters specified in Clauses 9 to 28.
Clause 29 - Fee
must not amount to taxation
41. Clause 29 provides that the amount of
a fee under the scheme must not be such as to amount to
taxation.
Clause 30 - Variation of scheme
42. Subclause
(1) allows the scheme to be varied but does not confer power to revoke.
Subclause (2) however does not limit the application of Subclause 33(3) of the
Acts Interpretations Act 1901.
Clause 31 - Scheme to be a
disallowable instrument.
43. This clause provides that the scheme is
a disallowable instrument for the purposes of Section 46A of the Acts
Interpretation Act 1901.
45. Provides for grants made to eligible firms to be drawn from the
Consolidated Revenue Fund (CRF). The annual profile of benefits to be agreed
with the Minister of Finance.
46. Subclause (1), (2) (3) and (4) provide that the Minister from time to
time may appropriate from the TCF SIP money ($700 million) to the Regional
Assistance Program administered by the Commonwealth. The Minister must table a
copy of his determinations in Parliament.
47. Subclause (5) defines the
Regional Assistance Program (RAP) for the purpose of this Bill. RAP is
administered by the Commonwealth Department of Employment, Workplace Relations
and Small Business.
48. Subclause (1) deals with information on a document which may be
relevant to the operation of the scheme.
49. Subclause (2) outlines
the Secretary’s power to seek such information or the document in writing,
from the individual or body corporate.
50. Subclause (3), makes it an
offence if a person contravenes the requirement of the Secretary under subclause
(2).
51. Subclause (4) provides that any notice under Subclause (2) by
the Secretary to request information or a document must set out the penalty
provisions noted in subclause (3) and in Clause 45 False or
misleading information, Clause 46, False or misleading
evidence and Clause 47 False or misleading documents.
52. This clause provides compensation to persons or body corporate for
the costs incurred in complying with the requirements under Clause 34.
53. Subclause (1) provides that an individual cannot be excused from
giving information on assistance or providing a document under Clause 34 on the
ground that the information will incriminate the individual or body corporate or
expose the individual or body corporate to a penalty.
54. Subclause (2)
however provide that the information, evidence or document provided by the
individual is not admissible as evidence against the individual in criminal
proceedings. Subclause (2) (c) and (d) provide that such information is
admissible if the criminal proceedings are for an offence under Subclause 34 (3)
or Clause 46 or 47, or clause 45 that relates to this part.
Clause 37
- Copies of Documents.
55. This clause allows the Secretary to
inspect, make and retain copies or extracts from a document which are produced
in accordance with the requirements of clause 34(2)(c).
56. Subclause (1) allows the Secretary to retain documents obtained under
clause 34., which are relevant to the SIP Scheme.
57. Subclause (2)
provides that a person entitled to possession of the document is entitled to
receive a certified copy of the document.
58. Subclause (3) provides
that the certified copy is to be received as the original document in all courts
and tribunals if presented as evidence.
59. Subclause (4) if a certified
copy of the document is not available, the person/entity or their authorised
delegate, who is entitled to the document may inspect, copy or take extracts
from it.
Clause 39 - Repayments of conditional grants
60. This
clause provides that a grant under the TCF scheme may be paid subject to a
condition. If that condition is not met the grant recipient is liable to repay
to the Commonwealth the grant amount or part of the grant.
61. This has its natural meaning.
62. This clause allows for the Commonwealth to recover debts using the
court system.
63. This allows the Commonwealth to deduct money owed to it from one or
more grants that are due to the entity under the TCF SIP Scheme.
64. Subclause (1) allows the Commonwealth to collect money from another
person/entity (third party) who owes money to the entity that has a scheme debt
with the Commonwealth.
65. Subclause (2) permits the Secretary to direct
a third party who owes money to the entity that has a scheme debt to pay all or
some of the money owed directly to the Commonwealth. The entity with the scheme
debt must be provided with a copy of this direction.
66. Subclause (3)
provides that the Commonwealth cannot require a third party to pay an amount to
the Commonwealth before it is owed by the third party to the entity.
67. Subclause (4) provides that the third party which is directed by the
Secretary to make a payment to the Commonwealth must comply with this direction
as far as the third party is able to do so.
68. Subclause (5) provides
that a third party can be convicted in a court for refusing or failing to comply
with Subclause (4) and that in addition to a penalty being imposed the court may
order them to pay the Commonwealth up to the amount involved in the refusal or
failure of the third party.
69. Subclause (6) provides indemnity to the
third party for the payment made to the Commonwealth under this Bill to the
extent that the payment has been made with the authority of the
entity.
70. Subclause (7) states that the Secretary must inform the third
party immediately if the scheme debt is discharged by the entity prior to any
payment being made by the third party.
71. Subclause (8) defines when a
third party owes money to the entity whether or not the payment of the money is
dependent on a pre-condition that has not been fulfilled.
72. Subclause
(9) defines that money which has been paid by a person to a building society for
the issue of withdrawable shares in the capital of the Society but has not been
repaid is taken to be money payable on demand.
73. Subclause (10)
defines a building society for the purpose of this clause.
74. This clause applies Chapter 2 of the Criminal Code and the relevant
penalty provisions to all offences under this Bill.
75. This clause provides that a person is guilty of an offence if the
person provides information, in the knowledge that it is false or misleading in
a material particular, to another person exercising powers under the scheme or
in pursuance of a request by the Secretary under Clause 34.
76. This clause provides that a person is guilty of an offence if the
person provides evidence, in the knowledge that it is false or misleading in a
material particular, to another person in pursuance of a request by the
Secretary under Clause 34.
77. Subclause (1) provides that a person is guilty of an offence if the
person provides a document, in the knowledge that it is false or misleading in a
material particular, to another person in pursuance of a request by the
Secretary under Clause 34.
78. Subclause (2) provides an exemption from
the operation of Subclause (1) if the document is accompanied by a written
statement that the document is, to the knowledge of the person producing the
document, false or misleading in a material particular, and sets out or refers
to that material particular.
Delegation to senior officers of the Department or an authorised
Commonwealth contractor
79. Subclauses (1) and (3) allow for the
Secretary, in writing, to delegate any or all of his or her power under this
Bill or the TCF (SIP) scheme to one or more senior officers in the Department or
an authorised Commonwealth contractor.
80. Subclause (2) and (4) note
that the delegate, in exercising such delegated power, is subject to the
directions of the Secretary.
81. Subclause (5) provides that any person
who is a delegate under this clause is deemed to be a person performing services
for the Commonwealth for the purpose of application of relevant sections of the
Crimes Act 1914 relating to a Commonwealth officer.
82. Subclause
(6) defines, for the purpose of this clause of the Bill, an authorised
Commonwealth contractor, senior employee and senior officer.
83. This clause ensures that the power bestowed by this Bill on the
Minister or the Secretary in relation to any bounties is exercised uniformly
throughout the Commonwealth, consistent with paragraph 51 (iii) of the
Constitution.
84. This clause provides that in the exercise of powers conferred upon
the Minister, the latter must have regard to Australia’s international
obligations, including the WTO and CER.
85. This clause provides the standard regulation making power. Under the
clause, the Governor-General may make regulations on prescribed matters which
are either required or permitted, or are necessary or convenient for carrying
out or giving effect to this Bill.