Bills Digest no. 10 2009–10
Automotive Transformation Scheme Bill 2009
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
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introduced: 24 June
House: House of Representatives
Portfolio: Innovation, Industry, Science and
Sections 1 and 2: the day
the Act receives Royal Assent.
Sections 3 to 29: 1
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
implements the Government’s policy arrangements for the
automotive industry announced in A New Car Plan for a Greener
Future and will establish the Automotive Transformation Scheme
(ATS) to commence from 1 January 2011.
The Bracks Review and A New Car Plan for a Greener Future
On 10 November 2008, the Government announced
A New Car Plan for a Greener Future for the automotive
industry. A key element of the car plan was the establishment of
the ATS to replace the Automotive Competitiveness and Investment
The ATS was one of the recommendations outlined in the Review of
the Automotive Industry headed by the former Victorian Premier, the
Hon Steve Bracks. The review laid the blue print for the
Government’s policy arrangements for the Australian
automotive industry and the ATS is the centre piece of that
The review proposed that the design and delivery of ATS differ
from that of ACIS.
First, assistance should be in the form of grants rather than
import credits which are used to offset customs duty payable on
automotive imports. The import credits can be sold or
The change in the way assistance was provided was advocated by
the motor vehicle manufacturers. It was argued that the quantum of
assistance was eroded by the rate of tariff or, in the case of
imports with zero tariffs, as in the case of imports under a free
trade agreement, no import duty offset was applicable. As the
… ACIS credits earned can be used to discharge customs
duty on eligible automotive imports or can be sold or transferred.
According to the Federal Chamber of Automotive Industries, the
automotive industry “favours retention of duty credits as the
preferred mechanism for the delivery of investment support”.
On the other hand, GM Holden expressed concern about possible
erosion of tariffs under future free trade agreements, and
recommended that “the ACIS funding mechanism should be
reviewed to provide an alternative to a duty credit which could be
used to pay not only customs duties, but also tax
Second, the review recommended the maximum rate of assistance
for eligible R&D should be increased from 45 per cent under
ACIS to 50 per cent. The increase in the rate of subsidy by 5 cents
in the dollar and streamlining of eligible R&D activities was
intended to promote innovative R&D focussing more exports and
The funding mix under the assistance arrangements should be
changed to offset the impact ACIS has had on retaining marginal
firms in the industry, to more appropriately target R&D and to
remove the anomaly in providing more assistance for the production
of vehicles for the domestic market and New Zealand compared with
assistance for production of vehicles for export to other
In addition, some of the eligible expenditure items for R&D
that can be claimed by the supply chain under ACIS are generous.
For example, firms can claim costs associated with recruitment and
management. Streamlining the eligible expenditure items will help
ensure that claims more accurately reflect R&D activities. It
will also help raise the modulation rate.
Removing the loadings and reducing the eligible expenditure
items can be complemented by an increase in the rate for claims of
eligible R&D. Currently, it is 45 percent. This could be raised
to 50 percent. To further encourage R&D, the rate for plant and
equipment claims can be reduced from its present 25 percent to 15
A New Car Plan for a Greener Future 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 ATS. Other elements of the New Car Plan
- expanding and doubling the Green Car Innovation Fund from $500
million (from 2011 to 2016) to $1.3 billion (starting in 2009 and
extending over ten years)
- $116.3 funding for the new Automotive Industry Structural
Adjustment Program to assist component manufacturers with costs
associated with labour market adjustments
- $20 million over the four years to 2012-13 to assist automotive
suppliers improve their capabilities and integrate into national
and global supply chains
- $10.5 million to expand the LPG vehicle scheme through doubling
of payments for purchases of new vehicles using LPG technology from
$1000 to $2000.
The Australian automotive industry has three motor vehicle
manufacturers (Toyota, Holden and Ford) who are supplied by approximately 200
component, tooling and design, and engineering firms located
predominantly in Victoria and South Australia.
According to the Australian Automotive Intelligence Yearbook
2009, the industry:
- in 2007, employed a total of 67 384 persons – of which 26
135 persons were employed in motor vehicle manufacturing
- had a gross turnover in 2007 of $24.7 billion
- spent $635 million on R&D in 2007
- in 2007, the motor vehicle manufacturers reported net losses
totalling $27 million on total sales of $18.75 billion.
In 2008, 332,000 passenger motor vehicles and light commercial
vehicles were produced and 159,876 vehicles were exported. Exports
of motor vehicles and components were worth $5.8 billion in 2008
while imports were worth $22.7 billion.
Fully built passenger motor vehicles (the Toyota Camry, Holden
Commodore, Ford Territory and until 2008, the Mitsubishi Diamante)
are exported to the Middle East, South Africa, New Zealand and
Oceania. Components including engines and brake parts are exported
to most major global automotive markets – China, Korea, the
EU and the United States.
There has been a strong increase in automotive trade associated
with trade liberalisation and the restructuring of the industry
over the past two decades. Between 1988 and 2008, motor vehicle
exports have risen from 1,921 units in 1988 to 159,876 units in
Domestic production is now geared to the export market which
accounts for 48 per cent of total production compared with 0.5 per
cent in 1988. The value of imports has risen correspondingly and
the more than 600 per cent growth over the same period was valued
at $25.7 billion. The resulting automotive trade amounted to $24
billion in 2008.
In 2008, more than 70 million motor vehicles, including
passenger motor vehicles and commercial vehicles were produced
Global production is dominated by the four major producer
countries (Japan, China, the United States and Germany) which
accounted for 50 per cent of global production in 2008.
Australia’s production of motor vehicles accounts for 0.5 per
cent of global production.
Five large firms (Toyota, General Motors, Volkswagen, Ford and
Honda) with multi-national operations account for 42 per cent of
the global market. Market outsiders such as Tata Motors, the Indian
commercial vehicle producer and FAW Group, China’s first
automotive producer are increasing their share of exports and
In 2009, with the global economic downturn and recession in the
United States, the global automotive industry is experiencing a
combination of pricing pressures from rising oil prices, fall in
demand and changes in consumer buying habits. It is estimated that
half of the light vehicle plants in the United States will
permanently close within the coming years. As a result of the plant closures in
the United States, in 2009, China became the second largest
automobile maker, surpassing the United States, after Japan and the
largest automobile market, in the world.
The Automotive Transformation Scheme (ATS)
The New Car Plan described the replacement of ACIS Stage 3 with
the ATS. ACIS Stage 3 was planned to run from 1 January 2010 to 31
December 2015. The ATS incorporates the additional tranche of
assistance as recommended by the Bracks Review (from 2015 to 2020)
and will replace ACIS Stage 3 which will expire effective from 31
December 2010. Underlining the new ATS program is the reduction in
tariffs from 10 per cent to 5 per as scheduled on 1 January
The industry generally will be compensated by an even greater
than expected level of transitional and ongoing assistance than
under ACIS. The ATS will include:
- total capped assistance of $1.5 billion from 2011 to 2015
- total capped assistance of $1 billion from 2016 to 2020
- total uncapped assistance of approximately $850 million from
2011 to 2020.
Capped assistance will continue to be split 55 per cent (to
motor vehicle manufacturers) and 45 per cent (component
manufacturers and suppliers) as recommended by the Bracks
The maximum rate of assistance for approved R&D will be
increased from 45 per cent to 50 per cent and the list of eligible
R&D activities will be reduced. However, there will be no
funding for recruitment and management expenditure associated with
R&D activities as
recommended by the Bracks
Modulation of payments will occur to ensure that assistance is
available over the entire program period. Under ACIS, quarterly assistance was
determined on a pro rata basis, using a motor vehicle producer
modulation rate or a component producer modulation rate.
Participants in the ATS will be required to demonstrate
compliance with the conditions provided for by the ATS. As stated
in the Explanatory Memorandum to the Bill:
The Bill also includes a strong monitoring regime, including
provision for authorised officers to obtain a monitoring warrant to
check compliance with the Scheme. These provisions are
necessary, given that the Scheme is a self-assessment scheme, to
facilitate effective monitoring and to ensure the integrity of the
The cost of the ATS, in terms of capped funding, will be $2.5
billion which will be guaranteed through a standing appropriation.
Uncapped assistance (approximately $850 million) will be provided
through an annual appropriation. This support to the industry is
far above the assistance provided to any other single industry.
Assistance will be in the form of grants (cash) rather than
import duty credits and it is expected that provision for the first
budgetary outlays for capped and uncapped assistance will be made
in the 2010-2011 Budget.
The proposed ATS will consolidate and strengthen the operations
of the three motor vehicle manufacturers with a supply of funds
during the ten-year lifetime of the program. More critically, the
ATS will help reposition the industry into an expected new growth
segment of the market in Australia and globally.
However, the proposed ATS raises four key issues.
- The first is the question whether the details of funding
allocations and compliance with the ATS should left out of the Bill
and consigned to the regulations. The Bill establishes the
framework of the ATS with the administrative arrangements to be
included in the regulations.
- Secondly, will there be adequate monitoring and independent
evaluation of a self-assessment scheme that delivers substantial
cash payments to the ATS participants? A major criticism of ACIS
was the lack of publicly available data on ACIS funded production
- The third question is how sustainable is the ongoing assistance
likely to be given the need for further improvements to
productivity and the industry’s dependence on export growth?
The assistance provided under the previous Export Facilitation
Scheme and ACIS has not produced the benefits in terms of
sustainable growth in the industry. While restructuring has
resulted in a reduction in the number of motor vehicle
manufacturers from five to three, the industry produces fewer motor
vehicles than it did in the mid 1980’s when the Button Car
Plan was announced.
- The fourth issue is the WTO consistency of the ATS which is a
form of production subsidy.
Proposed section 3 of Part 1
of the Bill sets out the object of the Act, which is to encourage
competitive investment and innovation in the Australian automotive
industry through the provision of assistance to ATS participants.
The object is to be achieved in a way that improves environmental
outcomes and promotes the development of workforce skills.
The Automotive Transformation Scheme
Proposed paragraphs 5(1)(a) to (h) of
Division 1 prescribe the matters that must be
included in the regulations.
Proposed subsection 5(2) of Division
1 establishes the ATS as a self-assessment scheme.
Proposed section 7 of Division
2 provides that ATS has two types of assistance: capped
assistance and uncapped assistance. Proposed section
8 states that capped assistance under the ATS must not
exceed the stage caps. For Stage 1, commencing 1 January 2011 and
ending 31 December 2015, the cap must not exceed $1.5 billion. For
Stage 2, commencing 1 January 2016 to 31 December 2020, the cap
must not exceed $1 billion. Moreover, capped assistance cannot
exceed $300 million per year, although if less than $300 million is
paid in particular year, the ‘underspend’ can be
carried forward and paid in any later year of the relevant stage.
Thus it is possible that funding will exceed $300 million in some
Proposed section 9 ensures that payments made
to ATS participants may only be made if certain conditions are
satisfied. These include that money may be offset or recovered in
the circumstances specified in the regulations.
Proposed section 10 provides that amounts of
capped assistance will be appropriated from the Consolidated
Proposed sections 11 to 26 deal with monitoring
compliance with the ATS. Overall, the powers are fairly standard
for a Commonwealth scheme of this nature. Amongst other things, an
authorised officer may enter premises without consent under a
monitoring warrant issued by a
They may operate electronic equipment at the premises in order to
exercise monitoring powers and require a person to answer questions
and produce documents requested by the authorised officer who
enters the premises under a monitoring warrant. A person that is
required by the authorised officer to answer questions, produce
documents etc, but refuses to do so or otherwise fails to comply,
commits an offence carrying a maximum penalty of six months
imprisonment: proposed section 24. However, no
offence is committed if the person has a reasonable excuse –
this includes the situation that the answering of a question etc
would tend to incriminate them.
It is worth noting that in Commonwealth legislation dealing with
regulatory schemes, self-incrimination is often not an excuse for
failing to comply with a requirement of an authorised officer
acting under a warrant. However, in such situations the person does
have some protection in that generally the information obtained is
inadmissible as evidence in a criminal proceeding, other than a
proceeding for giving false or misleading information or documents
under sections 137.1 and 137.2 of the Criminal Code Act
1995. Whether in this case the retention of self-incrimination
as a reasonable excuse for not complying with the requirement of an
authorised officer acting under a warrant is consistent with the
Government assertion that under the Bill the ATS will have a
‘strong monitoring regime’ is something that Parliament
may wish to consider.
Proposed section 26 provides that the power
conferred on a magistrate in respect of the issuing of monitoring
warrants, is conferred on a magistrate in a personal capacity, and
not as a court or member of a court.
The release of the New Car Plan follows a number of reviews of
the industry in recent years and more specifically the Bracks
Review. The review made 42 recommendations, the majority of which
have been incorporated into the New Car Plan. The review also
recommended that the existing scheduled tariff reductions proceed
While the quantum of assistance under the ATS is capped by the
Bill at $2.5 billion, details of the administration of the ATS are
lacking. The Explanatory Memorandum states that the administrative
details will be included in the regulations to reduce the
complexity of the legislation and provide flexibility in dealing
with changing circumstances in the automotive industry. The
regulations will need to ensure there is adequate monitoring and
evaluation of grant payments and that funding is not used to
“prop up” firms and the timing of payments reflects the
objectives behind the ATS. The industry will also need to ensure that it
understands the ATS to ensure that R&D projects and capital
investments are consistent with the ATS.
A specific concern is the WTO consistency of the ATS under the
SCM Agreement. The New Car Plan makes clear that the ATS is central
to the Government’s objective to establish Australia as one
of only a small number of countries capable of designing and
building environmentally cleaner cars. The New Car Plan also makes
clear that Australia will continue to pursue markets for its
automotive exports through the assistance provided under the ATS.
As a form of subsidy, the ATS will provide production incentives to
the industry directed to the supply of the export market. It is to
be noted that in the 1990s, encouraged by the Export Facilitation
Scheme, exports displayed their strongest growth until the scheme
was replaced by the more WTO acceptable ACIS.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02)
10 August 2009
Bills Digest Service
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