Bills Digest No. 10  1998-99 Customs Legislation (Automotive Competitiveness and Investment Scheme) Bill 1998

Numerical Index | Alphabetical Index

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

Acronyms
Passage History
Purpose
Background
Main Provisions
Endnotes
Appendix A - World Car Sales 1997
Contact Officer and Copyright Details

Passage History

Customs Legislation (Automotive Competitiveness and Investment Scheme) Bill 1998

Date Introduced: 2 July 1998

House: House of Representatives

Portfolio: Industry, Science and Tourism

Commencement: Upon Royal Assent except:

• Schedule 1 items, covering the Automotive Competitiveness and Investment Scheme, which commence on a day or days to be fixed by proclamation, and
• Schedule 2 items, covering tariff reductions, which commence on 1 January 1999. If any of these items are not proclaimed within 6 months of Royal Assent they automatically commence on the day after the 6-month period.

Purpose

The purpose of this Bill is to:

• replace the Export Facilitation Scheme (EFS) with the proposed Automotive Competitiveness and Investment Scheme (ACIS),(1) and
• carry out the Government's decision to hold the tariff from year 2000 at 15 per cent for a further five years with a new rate of 10 per cent to apply from January 2005.(2)

Background

Overview

The purpose of ACIS is to provide transitional assistance to the Australian automotive industry leading up to the deadline for Australia's obligations under the APEC(3) free-trade agreement. The APEC deadline for free-trade is 2010.

In addition, the Bill implements changes to the rate of customs duty payable on passenger motor vehicles (PMVs) and certain parts for PMVs.

Under the current scheme, the rate is 20 per cent and reduces to:

• 17.5 per cent on 1 January 1999, and
• 15 per cent on 1 January 2000.

This Bill reduces the Customs tariff to 10 per cent beginning on 1 January 2005.

The Australian automotive industry

The Australian automotive industry has four PMV manufacturers(4) who are supplied by 200 component, tooling, and design and engineering firms.(5)

The 1995-96 Australian Bureau of Statistics (ABS) figures(6) reveals the industry:

• employed 54 817
• had a gross turnover of $14.5 billion, which accounted for 7.4 per cent of total manufacturing turnover
• is the second largest consumer of basic iron and steel products, and
• is the third largest consumer of paints.

In 1997 around 325 000 cars were produced and both cars and components worth $2.7 billion were exported.

Sales figures for July 1998 eclipsed the previous highest July sales (in 1985) by 7 471 vehicles - a rise of 11.7 per cent.(7)

Fully built cars are exported to North America, Asia, the Middle East, South Africa and Oceania. Components and design and engineering services are exported to most major world automotive markets.(8)

The global automotive industry

Global production is mainly concentrated within the OECD group of countries.

Twenty large firms, most with multi-national operations, account for over 90 per cent of the global market.(9) Outsiders, such as South Korea, are beginning to increase their share of exports of PMVs and production is also growing rapidly in other developing countries.(10)

Australia's production of PMVs accounts for less than one per cent of global production, which is currently headed towards 50 per cent overcapacity.(11)

The Automotive Competitiveness and Investment Scheme (ACIS)

ACIS will replace the EFS and is scheduled to commence on January 2001 and run for five years, ending on 31 December 2005.

In a joint ministerial statement released earlier this year, the Government believes ACIS will encourage firms to make competitive, long-term commitments to Australia's automotive industry, based on production, investment and research and development (R & D) activity. Mr Moore said:

The new scheme recognises the realities of international trade liberalisation and the globalisation of the car industry. It has been designed to reward innovative companies that are prepared to back Australia by investing in its future.(12)

ACIS provides two specific sub-schemes aimed at PMV manufacturers and component manufacturers and service providers. They are to be known as the:

2. PMVP sub-scheme, and

3. CMSP sub-scheme.

The PMVP sub-scheme

The current EFS allows vehicle and component producers to earn export credits in return for automotive exports and to use theses credits to offset the duty on their imports. These export credits will cease under the new arrangements. The ACIS will extend the existing duty-free entitlements which are set at 15 per cent but currently apply only to production for the Australian and New Zealand markets. Under the proposed arrangements, ACIS will:

• increase the duty-free concession to 25 per cent and extend its application to include production for the export market as well as the domestic market
• enable PMV manufacturers to earn duty credits for the production of engines and engine parts
• enable PMV manufacturers to earn a 10 per cent credit on investments in productive assets, and
• enable PMV manufacturers to earn benefits for R & D investment on behalf of third parties.

The CMSP sub-scheme

ACIS will enable component manufacturers and service providers to claim the following benefits:

• 25 per cent of the value of investment in productive assets, and
• 45 per cent of the value of R & D investment.

The Bill provides that total industry benefits under ACIS will not exceed $2 billion from 2001 to 2005 and benefits to participants will not exceed 5 per cent of eligible sales in the preceding year.

The Australian Customs Service (ACS) will assume a similar administrative role with ACIS as it currently does with EFS.

Tariff reduction

In 1993 the Labor government introduced the current tariff schedule which continues until 31 December 2000. The schedule provides for tariffs on PMVs and automotive components to be reduced by 2.5 per cent per year until it reaches 15 percent in the year 2000. On 5 June 1997 the Government announced that the rate would remain at 15 per cent until 31 December 2004 and reduce to 10 per cent from 1 January 2005. This Bill implements those proposals.

Main Provisions

Schedule 1 - ACIS

Item 1 amends the Customs Act 1901 by inserting a new Part XVAA, which provides for the establishment and administration of ACIS.

Proposed new section 269SLC sets out a detailed list of definitions.

Division 2 provides for PMV manufacturers to apply for membership of the PMVP sub-scheme. Membership is limited to those manufacturers who, in the 12 months preceding the membership application, produced and sold 30 000 PMVs.

Division 3 provides for component manufacturers and service providers to apply for membership of the CMSP sub-scheme. Membership is limited to those who are contracted to:

• make components for motor vehicles(13)
• make automotive machine tools for Australian PMVPs, and
• provide design, development and production services to Australian PMVPs.

Division 4 deals with the administration of ACIS. The CEO of Customs will determine credits earned by ACIS participants for:

• producing eligible automotive goods, or
• making eligible investments.

Credits are calculated according to a formula. The CEO will make adjustments to take account of the maximum level of credit available to each participant(14) as well as the maximum level of credit available to the industry as a whole.(15)

Proposed new section 269SLY allows duty credit holders to transfer credits to other persons in accordance with the process set out in the section.

Proposed new section 269SLZ allows the Minister to limit the use of certain production credits in order to maintain an equitable balance in the allocation of benefits.(16)

Proposed new section 269SLZA requires ACIS participants to maintain documents lodged under the scheme for a period of 5 years after lodgement. The word 'document' will include electronic records as defined in the proposed new amendments to section 4 of the Customs Act 1901.(17)

Proposed new section 269SLZC requires the CEO to establish and maintain a ledger detailing production and investment credits due to ACIS participants or transferees.

Item 2 provides a list of decisions made by the CEO reviewable by the Administrative Appeals Tribunal (AAT).

Schedule 2 - Tariff reduction

Items 1-6 amend the Customs Tariff Act 1995 to provide for the Customs tariff to be reduced from 15 per cent to 10 per cent from 1 January 2005. The new rate will apply to PMVs and PMV components.

Item 7 provides the legal mechanism by which duty credits earned under ACIS are applied or offset against the duty payable for eligible imports.

Item 8 provides that on 1 January 2005 the new Customs tariff on PMVs and PMV components will be 10 per cent. This item also provides the mechanism for components not used in the production of PMVs to be entered at the general manufacturing rate of 5 per cent.

Concluding Comments

Financial impact

Financial estimates are subject to variables including the impact of the current Asian financial crisis, exchange rates, world and domestic market growth rates and consumer choice for imported vehicles. The following points mark the core of the financial impact upon the Australian economy:

• forgone revenue from ACIS benefits will not exceed $2 billion over the five years from 2001 to 2005.(18) This excludes the present 15 per cent duty-free allowance on production for Australia/New Zealand markets
• continuing benefits under the existing 15 per cent duty-free allowance paid on the production of PMVs for sale in Australia and New Zealand will be uncapped. Forgone revenue is expected to total $824 million over the five years from 2001 to 2005(19)
• ACIS running costs are expected to total $9.18 million over the five years from 2001 to 2005,(20) and
• forgone revenue due to the proposed tariff cuts in the fiscal year 2005 will be $500 million - assuming the current PMV market will continue its growth rate and imports will increase to satisfy the domestic market.(21)

Related matters

The global automotive industry is now characterised by a network of equity cross-holdings and joint ventures. The evidence suggests that the Australian industry is moving with this trend.(22)

German and US carmakers, Daimler-Benz and Chrysler, recently agreed to a $55 billion merger. Some commentators see this merger as being likely to create a more dynamic new corporation, which will force the global industry to look at further rationalisation.(23)

World greenhouse concerns have added pressure on carmakers to reduce vehicle weight and fuel consumption by significant degrees.(24) This may indirectly strengthen the position and marketing options available to those manufacturers specialising in small vehicle production.

As a final point, the Minister's statement of 25 May 1998 provides that:

The industry overall is forecasting $4 billion in new investment and 5 000 new jobs by 2005, and annual exports by that year of $6 billion.(25)

The 'forecast' of $6 billion in annual exports by the year 2005 appears to be an industry 'goal' rather than a 'forecast', though the Australian Automotive Exporters Group believes the target is achievable by a sustainable, prosperous and internationally competitive Australian automotive industry.(26)

Endnotes

2. Schedule 1 of the Bill will amend the Customs Act 1901 to implement ACIS.

3. Schedule 2 of the Bill will amend the Customs Tariff Act 1995 to implement the new tariff rate.

4. Asia Pacific Economic Cooperation Council.

5. The four local manufacturers are Toyota, Holden, Ford and Mitsubishi. The Bill uses the acronym PMVP when referring to Australian passenger motor vehicle manufacturers.

6. 'Driving the future: Australia's automotive action agenda', Department of Industry Science and Tourism, the Hon. John Moore, Minister for Industry Science and Tourism, 25 May 1998.

7. Australian Bureau of Statistics, Manufacturing Industry, Catalogue Number 8221.0, 1995-96.

8. 'Car sales rev up to record', Australian Financial Review, reported by Mike Kable, 7 August 1998, p.2.

9. 'Driving the future: Australia's automotive action agenda', Department of Industry Science and Tourism, the Hon. John Moore, Minister for Industry Science and Tourism, 25 May 1998.

10. See Appendix A.

11. Report 96/17, 'Automotive Case Study, Micro Reform - Survey of Impacts on Firms', Productivity Commission, September 1996, p.6.

12. 'Driving the future: Australia's automotive action agenda', Department of Industry Science and Tourism, the Hon. John Moore, Minister for Industry Science and Tourism, 25 May 1998.

13. Media release, the Hon. Tim Fischer / the Hon. John Moore, Deputy Prime Minister, Minister for Trade / Minister for Industry Science and Tourism, 22 April 1998.

14. The kind of motor vehicles are prescribed in the Custom Regulation.

15. Maximum credit available to each participant will be capped at 5 per cent of eligible sales in the preceding year.

16. Maximum revenue to be foregone by the Commonwealth will be capped at $2 billion from the years 2001 to 2005.

17. Customs Legislation (Automotive Competitiveness and Investment Scheme) Bill 1998, Explanatory Memorandum, p.22.

18. The proposed Customs Legislation Amendment Bill (No.1) 1998 will amend section 4 of the Customs Act 1901.

19. Customs Legislation (Automotive Competitiveness and Investment Scheme) Bill 1998, Explanatory Memorandum, pages 8-9.

20. Ibid.

21. Ibid.

22. Ibid.

23. Report 96/17, 'Automotive Case Study, Micro Reform - Survey of Impacts on Firms', Productivity Commission, September 1996, Box A2.1, p.140.

24. 'Record industrial marriage', Sydney Morning Herald, reported by Geoff Kitney, 8 May 1998.

25. 'Driving the future: Australia's automotive action agenda', Department of Industry Science and Tourism, the Hon. John Moore, Minister for Industry Science and Tourism, 25 May 1998.

26. 'Driving the future: Australia's automotive action agenda', Department of Industry Science and Tourism, the Hon. John Moore, Minister for Industry Science and Tourism, 25 May 1998.

27. Department of Industry, Science and Tourism, State of the Australian Automotive Industry 1996, see statement at the beginning of the last paragraph, page 77.

Acronyms

AAT Administrative Appeals Tribunal

ABS Australian Bureau of Statistics

ACIS Automotive Competitiveness and Investment Scheme

ACS Australian Customs Service

APEC Asia Pacific Economic Cooperation Council

CEO Chief Executive Officer

CMSP Component Manufacturers and Service Providers

EFS Export Facilitation Scheme

OECD Organisation for Economic Cooperation and Development

PMVP Passenger Motor Vehicle Producer

R & D Research and Development

Appendix A - World Car Sales 1997

The following table was published in the Sydney Morning Herald on 8 May 1998. Accordingly, the recent merger between Chrysler and Daimler-Benz places the new entity in fifth position between European manufacturers Volkswagen and Fiat.

Contact Officer and Copyright Details

Ross Kilmurray
24 August 1998
Bills Digest Service
Information and Research Services

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ISSN 1328-8091
© Commonwealth of Australia 1998

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Published by the Department of the Parliamentary Library, 1998.

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