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CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
Textile, Clothing
and Footwear Strategic Investment Program Bill 1999
Date Introduced: 11 February 1999
House: House of Representatives
Portfolio: Industry, Science and Resources
Commencement: Royal Assent
Purpose
Provide for the
establishment of the Textile, Clothing and Footwear Strategic
Investment Program.
Background
Long term tariff reform program
Textiles, clothing and footwear (TCF), together
with passenger motor vehicles, are the two remaining major sectors
of Australian manufacturing which are protected from import
competition by high tariff barriers. The Government is committed to
a long term program of trade liberalisation with respect to these
two industries.
The process of reducing tariffs on TCF items
began with the 1987 TCF Industry Plan. The current tariff phase
down to 2000 program was set out in the 1991 Industry Statement.
The present Government has endorsed this phase down which will
result in the maximum tariff rate on TCF items in 2000 being 25 per
cent. In September 1997, the Government announced a pause in the
TCF tariff reduction program from July 2000 to end December 2004,
and a further reduction to apply from 1 January 2005. The tariff
pause was part of a broader package to encourage the restructuring
of the TCF industry and the move to greater international
competitiveness.
The Prime Minister expressed at this time, the
Government's commitment to the continuation of the tariff reform
process in these words:
We remain committed to a resolute but sensible
programme of tariff reform. This decision is consonant both with
providing job security in the industry, encouraging new investment,
but also with an eye to the trade liberalisation goals of APEC by
the year 2010. This should be seen as a decision which maintains
the pressure for and the process of tariff reform and developing a
greater outward orientation of Australian industry(1).
Medium term structural reform
program
The other half of the September 1997 TCF package
was the commitment to provide a range of positive incentives to the
TCF industries to undertake restructuring and achieve efficiency
gains in the period up to 2005. The objective is to provide special
assistance, for a limited period, to those segments of TCF activity
which have a strong prospect of becoming internationally
competitive at lower tariff rates after 2005. A key element of the
package is the development of action agendas for wool, cotton,
leather and fashion, to build on Australia's strengths in these
activities. The program seeks to promote stronger investment and
innovation in these areas.
Strategic Investment Program
(SIP)
The current Bill provides for the establishment
and funding of the SIP which is the main component of the
structural reform program. ( Other elements of the program relate
to technology development, skills training and development of
export markets.)
SIP has five parts. The three largest parts
provide grants for new plant/building expenditure, for R&D
expenditure and for value-adding in TCF activities. The grants will
be paid in arrears on the basis of demonstrated performance in the
areas specified. In line with WTO rules, the overall level of
assistance to individual companies from the grant program will be
limited to five per cent of its total sales of eligible products in
the preceding twelve months.
The last two items of SIP are designed to
provide assistance to communities which are heavily dependent on
TCF manufacturing and are facing restructuring and employment
problems. The first provides for grants to affected firms for the
purchase of 'state of the art second-hand plant and equipment'(2)
in the designated communities. The Department of Industry, Science
and Resources advises that this measure is designed, not to
subsidise takeovers, but to facilitate the purchase of second hand
equipment as part of an action to rationalise the use of equipment
in a designated area. For example, the measure could be used to
assist two struggling firms in an area to combine and rationalise
their production facilities into a viable production unit.
Finally the Bill allows for assistance to be
sought under the Government's Regional Assistance Program for
employment creation measures in regions affected by TCF
restructuring.
Funding for SIP is capped at $700 million over
five years. This cap includes any supplementation to the Regional
Assistance Program. The overall cost to revenue of the SIP of $700
million is equivalent to the aggregate cost of the Import Credit
Scheme had it continued past its termination date of 1 July 2000,
up to 30 June 2005. The Import Credit Scheme provides import duty
concessions to firms based on their export performance. Since 1966
concessions totalling $240 million have been provided to over 300
firms.
There will be an entry threshold to SIP of $200
000 annual investment. This means initially the program will only
be accessible to a limited number of larger firms, estimated at
around 300.
Industry Response
The TCF industry applauded the announcement of
the SIP package and acknowledged the need to direct assistance to
those activities that will be viable in a post 2005 environment.
The President of the Council of Textile and Fashion Industries of
Australia, Mr Hershan, noted:
The Government has now provided a package of
measures for the TCF industries which will enable them to position
themselves for the future. It was important that the funding and
the right mix of measures was made available to drive the change
needed. The Government has delivered on this promise.
We recognise that the new programs will help the
industry meet the challenges of the post 2005, free trade
environment. All progressive companies in our sector, with a
strategic eye to the future, understand and accept this. We realise
that the programs will need to be directed at those firms that are
striving to improve their prospects for future sustainability and
growth.(3)
Main Provisions
Establishment of the Scheme
Clause 8 requires the Minister
as soon as practicable after the commencement of this clause to
establish a scheme, the TCF (SIP) scheme (the Scheme), for the
making of grants relating to:
-
- the manufacture in Australia of eligible TCF products
-
- the design in Australia, for manufacture in Australia or
elsewhere, of eligible TCF some or all of which are intended to be
sold in Australia.
Total grants which may be paid
out
Total grants paid out under the Scheme must not
exceed $700 million less Regional Assistance Program
supplementation payments (clause 9).
Types of grants
Clause 11 states the policy
objective for the Scheme in relation to types of grants, which is
that there be five types of grants, namely:
-
- grants in respect of new TCF plant/building
-
- grants in respect of TCF research and development
expenditure
-
- grants in respect of TCF value-adding
-
- special grants in respect of second-hand TCF plant
expenditure
-
- special miscellaneous grants in respect of TCF-dependent
communities.
Time frames for the making of
grants
Clause 12 sets out the policy
objective for the Scheme in relation to time frames for the making
of grants. For new TCF plant/building expenditure, grants may only
be made in respect of eligible expenditure incurred during
1998-1999 through to 2004-2005 income years. In respect to other
types of grants, grants may only be made in respect of eligible
expenditure incurred during 2000-2001 and 2004-2005 income
years.
Time frames for the making of claims for
grants
Clause 13 sets out the policy
objective for the Scheme in relation to time frames for the making
of claims for grants. For new TCF plant/building expenditure,
grants for the 1998-99 and 1999-2000 income years cannot be made
unless an entity makes a claim after the end of its 2000-2001
income year. In respect to other types of grants, grants for the
2000-2001 through to 2004-2005 income years cannot be made unless
an entity makes a claim after the end of the income year
concerned.
Cap on TCF value-adding grants
Clause 14 sets out the policy
objective for the Scheme in relation to TCF value-adding grants.
Basically, clause 14 places a cap on the total
grant that can be made to an entity in an income year. Specifically
a TCF value-adding grant must not exceed whichever is the lesser
of:
-
- 5% of the amount taken to be the total eligible TCF value added
by the entity during the income year and
-
- the sum of total grants in respect of new TCF plant/building
expenditure, TCF research and development expenditure, second-hand
TCF plant expenditure and total special miscellaneous grants in
respect of TCF-dependent communities made to the entity.
Sales based cap on grants
The effect of clause 15 is to
place a sales based cap on the five types of grants which can be
made. Basically, grants to an entity must not exceed 5% of revenue
derived during the preceding income year from sales of eligible TCF
products.
Strategic business plans and audited
accounts
The Scheme must provide that an entity is not
eligible for a grant unless it complies with any requirements
relating to the contents of strategic business plans, variations of
such plans and submission of audited accounts and financial
statements (clauses 17 and
18).
Internal and external review of
decisions
Clause 20 provides a mechanism
for the internal and external review of decisions by the Secretary.
An entity dissatisfied with a decision of the Secretary under the
Scheme may request the Secretary to reconsider the decision. The
Secretary must confirm, revoke or vary the decision. Applications
may be made to the Administrative Appeals Tribunal for a review of
decisions that have been confirmed or varied. An application for a
review must be made within 30 days of the entity becoming aware of
the decision. Reasons must be given by an applicant for seeking a
review. Where the Secretary does not confirm, revoke or vary a
decision within 30 days of receipt of a review request, the
Secretary will be taken to have confirmed the decision. The
Secretary is required to notify an applicant within 30 days of
receipt of a review request of the result of the review.
Scheme is a disallowable
instrument
The Scheme is a disallowable instrument
(clause 31).
Supplementation of Regional Assistance
Program
The effect of clause 33 is to
provide the Minister with power to determine, before 1 July 2005,
that an amount is appropriated from the Consolidated Revenue Fund
for the purposes of the Regional Assistance Programme. Each House
of the Parliament is to be notified of a determination. The object
of the clause is to allow the diversion to the Regional Assistance
Program of some of the $700 million that is available for the
Scheme.
Information gathering powers, recovering
of debts and offences
Parts 4-6 of the Bill (clauses
34-47) are, for the most part, provisions common to
legislation of this nature relating to the administration of the
Scheme. Major provisions provide:
-
- the Secretary with power to require a person within a specified
period and form any information relevant to the operation of the
Scheme (clause 34)
-
- offences, punishable by a maximum fine of $2,200, for the non
provision of information and documents (clause
34)
-
- for the repayment of conditional grants (clause
39)
-
- the Secretary with power to direct a person who owes, or may
later owe, money to an entity that has a Scheme debt (ie. a grant
overpayment to an entity, or repayment of a conditional grant) to
pay some or all of the money to the Commonwealth (Note: a direction
to a third party cannot require a payment at a time before it
becomes owning by the third party to the entity) (clause
43).
Concluding Comments
The Government is riding a fine line between its
different policy measures for the TCF industries. Its long run
policy is to reduce TCF tariffs and this will discourage resource
use in this industry relative to other industries. The Government's
medium term policy, however, is to use SIP and some related
initiatives to encourage new investment, R&D and value adding
in those parts of the textile industry that have good prospects of
being internationally competitive. A strong administration and
careful scrutiny will be necessary to ensure the assistance is
being used to facilitate expansion in the areas of potential
competitiveness and avoid the leakage of funds to areas which will
never become competitive.
The Minister in the Explanatory Memorandum (page
10) states the SIP is not a replacement for the existing Import
Credit Scheme. This may be strictly correct but it is worth noting
the similarities as well as the differences between the two
schemes. The two schemes would involve the same cost to the
taxpayer; the bulk of the benefits appear likely to go to the
larger 300 or so firms in the industry; and the introduction of SIP
is partly in response to the perceived threat of a World Trade
Organisation challenge to the Import Credit Scheme. Against these
similarities, are some clear differences, namely that the existing
scheme is an export-based benefit program while the new SIP scheme
is investment driven and should favour textile and fibre
manufacture relative to clothing.
Finally, the proposal to subsidise the purchase
of second hand equipment in certain 'problem'regions appears to be
a high risk venture. How does the administrator ensure that the
benefits are passed on to the communities in these regions are not
absorbed by the buyer or seller of the equipment, for example, by
setting an artificial price for the equipment or by the buyer
disposing of the equipment soon after its subsidised purchase.
Endnotes
-
- Transcript of the Prime Minister the Hon. John Howard MP Press
Conference, Bonds Industries
Wentworthville, Sydney, 10 September 1997.
- Second Reading Speech by the Minister for Defence, the Hon.
John Moore MP, on the
introduction of Textile, Clothing and Footwear Strategic Investment
Program Bill 1999, p.2.
- Council of Textile & Fashion Industries of Australia, Press
Release, 'TCF Industry Applauds
Government Initiatives', 10 July 1998.
Mike Emmery & Ian Ireland
5 March 1999
Bills Digest Service
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ISSN 1328-8091
© Commonwealth of Australia 1999
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