Bills Digest no. 9 2009–10
ACIS Administration Amendment Bill 2009
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage history
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Date
introduced: 24 June
2009
House: House of Representatives
Portfolio: Innovation, Industry, Science and
Research
Commencement:
Sections 1 to 3: the day
the Act receives Royal Assent.
Schedule 1: At the
same time as section 3 of the Automotive Transformation Scheme
Act 2009 commences.
Links: The relevant
links to the Bill, Explanatory Memorandum and second reading
speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Bill amends the ACIS
Administration Act 1999 to implement changes to the Automotive
Competitiveness and Investment Scheme (ACIS) that were announced
in
the Government s A New Car Plan for a Greener Future by
repealing ACIS Stage 3 which was scheduled to run to 31 December
2015.
Together with the Automotive Transformation Scheme Bill 2009 the
Bill implements the $3.4 billion Automotive Transformation Scheme
which will replace ACIS as the major support program for the
Australian automotive industry.
Automotive Competitiveness and Investment Scheme (ACIS)
ACIS 2001 2005
The ACIS scheme
commenced on 1 January 2001 and was initially scheduled to end
on
31 December 2005. The scheme replaced the duty free entitlement and
longstanding Export Facilitation Scheme (EFS).[1] ACIS was intended to provide
transitional assistance and encourage competitive investment in the
context of trade liberalisation. As stated in the Explanatory
Memorandum to the ACIS Administration Bill 1999:
The purpose of ACIS is to provide transitional assistance to
encourage competitive investment and innovation in the Australian
automotive industry in order to achieve sustainable growth, both in
the Australian market and internationally, in the context of trade
liberalisation.
Although ACIS was intended as a transitional program to assist
the industry during the tariff pause (2000-2005)[2] it was structured in a way to
deliver the same level of assistance as the scheme it replaced. As
an industry support program, the EFS was vulnerable to challenge
under the WTO rules because it provided a production subsidy for
automotive exports. In its annual national trade estimate reports
on foreign trade barriers, the Office of US Trade Representative
identified the EFS as an export subsidy.[3]
ACIS provided tradeable import duty credits for the automotive
industry in two separate packages for motor vehicle manufacturers
(Ford, GMH, Toyota and Mitsubishi Motors) and automotive component
manufacturers, toolmakers, design and engineering firms. The import
duty credits were based on three categories of activities:
production, investment and R&D.
ACIS provided around $2.8 billion in assistance over five years.
This amount was drawn from two pools . One was capped at $2 billion
and an uncapped pool, which was estimated to cost $840 million.
Much of the assistance to the industry was drawn from the capped
pool and necessitated modulation (or rationing) each year with
average payout rates being about three-quarters of the maximum
rate.
It should be noted that the level of assistance under ACIS
exceeded that of any assistance program provided to an Australian
industry the corresponding Strategic Investment Program, the
transitional program available to textiles, clothing and footwear
industry was capped at $700 million over five years.
There are no figures publicly available as to the quantum of
assistance received by the four motor vehicle producers, although
estimates range from $80 million to $120 million per annum for each
of the motor vehicle producers. It was estimated that Mitsubishi
received more than $200 million over the five-year life of the ACIS
scheme.[4]
ACIS 2005 2015
On 13 December 2002, the Minister for Industry, Tourism and
Resources announced that ACIS would be extended for a further ten
years until 2015. During the 2006-2010 period, ACIS capped
incentives were limited to $2 billion. From the period 2011 to
2015, ACIS capped payments were limited to $1 billion subject to
phasing arrangements to progressively reduce assistance over this
period.[5] Uncapped
assistance was estimated at $1.2 billion over ten years.
Under the extended ACIS scheme, tariffs were set to fall to 10
per cent on 1 January 2005 and remain at 10 per cent until 1
January 2010, when they would be reduced to 5 per cent and remain
at that level until 2015. In announcing an extension of the ACIS
scheme, the Minister stated:
The new look package goes far beyond what was
recommended by the Productivity Commission Review, adding an extra
50% of $1.4 billion over the 10 year continuation of the scheme.
The package is also aimed squarely at innovation, it has a greater
emphasis on R&D, rather than production subsidies.
Similar to its predecessor, the post-2005
Automotive Competitiveness and Investment Scheme will be a
transitional scheme that will encourage competitive investments by
firms in the automotive industry in order to achieve sustainable
growth.[6]
The Government also announced that it would establish, from the
motor vehicle producer s portion of ACIS, a $150 million R&D
fund to operate over the period 2006-08 to support key automotive
technologies.
The table on the following page, which is reproduced from the
Productivity Commission s Trade & Assistance Review
2007-08, shows the quantum of assistance to the industry under
the extended ACIS scheme.
The Bracks Review
Following the 2007 Federal Election the Minister for Innovation,
Industry, Science and Research announced a review of the automotive
industry headed by the former Victorian Premier, the Hon Steve
Bracks. The terms of reference of the review included an evaluation
of the ACIS scheme.[7]
The review concluded that ACIS had been effective in encouraging
additional production, investment and R&D than would otherwise
have occurred.[8]
However, there was no quantitative assessment of the effects of
ACIS funded assistance on production, R&D and plant and
equipment by motor vehicle producers and component manufacturers.
In an earlier review of the automotive industry, the Productivity
Commission noted that some additionality effects due to ACIS were
expected given the large rate of subsidy.[9]
The review recommended further extension of the transitional
assistance through to 2020 and proposed replacing ACIS with a new
program the Global Automotive Transition Scheme (GATS) which would
commence in 2010 rather than proceed with ACIS through to 2015. The
review recommended funding be increased to $1.5 billion from $1.0
billion under ACIS over the period 2010 to 2015 and that a further
$1.0 billion be provided over the period 2016 to 2020.
Under GATS, automotive production would continue to earn
assistance similar to that under ACIS but the review did not
recommend a rate of subsidy.
Table: Australian
Government budgetary assistance to the automotive industry, 2001-02
to 2007-08 ($ million)
Source: Productivity Commission, Trade & Assistance
Review 2007-08, Table A.6, p.164.
Green Car Innovation Fund (GCIF)
Prior to the Bracks Review the Government announced the
introduction of a $500 million Green Car Innovation Fund (GCIF)
which would commence in 2011. In June 2008, the Government
announced a $35 million grant from the GCIF to Toyota to assist the
manufacture of a hybrid petrol-electric Toyota Camry in Australia.
The GCIF was later doubled under the Government s A New Car
Plan for a Greener Future.
A New Car Plan for a Greener Future
In November 2008, the Government
announced a $6.2 billion assistance package for the motor vehicle
industry over the period 2009 to 2021: A New Car Plan for a
Greener Future.[10] The announcement made new commitments of $3.4 billion
over and above the $3 billion earmarked for the remaining stages of
ACIS. The package included additional funding of $80 million to
assist the transition from ACIS to the Automotive Transformation
Scheme.
According to the Explanatory Memorandum to the Bill, the
estimated savings of the early termination of the ACIS scheme is
$1.135 billion. The estimated cost of additional ACIS assistance in
2010 is $79.6 million.
The Main Provisions reflect the repeal of ACIS Stage 3 which was
to run from 1 January 2011 to 31 December 2015 and changes to the
formula for calculating unmodulated capped and uncapped production
credits which will provide increased assistance to motor vehicle
manufacturers in 2010 to coincide with the scheduled tariff cut
from 10 per cent to 5 per cent on 1 January 2010. The formula has
been amended to correct an anomaly where there were different
levels of assistance for vehicles sold in Australia versus vehicles
sold for export.
Schedule 1
ACIS Administration Act
1999
Item 6, subsection
4(2A) omits ACIS Stages 2 and 3 and substitutes ACIS Stage 2 .
Item 8 and 9,
subsection 6(1) (definition of ACIS year) omit
1 January 2016 and substitutes 1 January 2011 by
repealing ACIS Stage 3 which was scheduled to run to
31 December 2015.
Item 12,
subsection 42(1) (formula) repeals the formula for working out
unmodulated uncapped production credits under ACIS and substitutes
the formula 
Item 13,
subsection 42(1) (definition of B) repeals the definition
and substitutes: B is 7.5%. The increased rate of subsidy
under the unmodulated uncapped production credits is achieved by
the addition of second component of the formula (C x B x 15%) and
increase in the tariff rate to 7.5% from the applicable tariff rate
of 5%.
Item 14, subsection 42(1) inserts the
following:
C is the production value of MVP
production by that MVP in the quarter concerned (other than
passenger motor vehicles, and specified load‑carrying
vehicles, that are sold in the Australian or New Zealand
markets).
Item 15, subsection
42(2) (formula) repeals the formula for working out unmodulated
capped production credits and substitutes:
Concluding comments
The automotive industry faces acute market pressures in
Australia as new vehicle sales decline. While sales data for the
month of June 2009 showed a 36 per cent rise in new vehicles sold
over the previous month, the volume of sales remains well below
long-term trends. The rise in sales was due in large part to the
Government s fiscal stimulus package and temporary 150 per cent tax
break for small business.[11] These support measures helped drive business demand for
new vehicles which rose by 40 per cent in June. Further assistance
to motor vehicle producers is provided for under changes to the
formula for calculating production credits in 2010 at a cost of
$79.6 million.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 .
Michael Priestley
10 August 2009
Bills Digest Service
Parliamentary Library
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