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This Digest was prepared for debate. It reflects the legislation as
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CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
ACIS Administration
Bill 1999
Date Introduced: 13 May 1999
House: House of Representatives
Portfolio: Industry, Science and Resources
Commencement: On commencement
of the proposed
Customs Tariff Amendment (ACIS Implementation) Act 1999,
that is, on a day fixed by proclamation or if no such day is fixed
within 6 months of the Bill receiving Royal Assent, at the end of
that period.
Purpose
The purpose of
this package of Bills is to implement the key elements of the
Government's policy arrangements for the automobile industry
post-2000:
-
- the ACIS Administration Bill 1999 and the ACIS (Unearned Credit
Liability) Bill 1999 will establish the Automotive Competitiveness
and Investment Scheme (ACIS) to commence from 1 January 2001,
and
-
- the Customs Tariff Amendment (ACIS Implementation) Bill 1999
will reduce the tariff on passenger motor vehicles and certain
parts from 15 per cent to 10 per cent from 1 January 2005.
Background
Overview
In June 1997, following an Industry Commission
review, the Government announced a framework for post-2000
automotive policy. The main elements are a pause in the tariff at
15 per cent from 2000 to 2004 followed by a reduction to 10 per
cent in 2005, and a commitment to introduce a new assistance scheme
upon expiry of the Export Facilitation Scheme in 2000. This action
is consistent with a the Government's long term commitment to trade
liberalisation and Australia's international obligations to move to
free trade by 2010.
In April 1998, the Government released details
of ACIS to run from 2001 to 2005. The new scheme is intended to
provide assistance to producers of motor vehicles, components and
automotive services for both the domestic and export markets.
The Explanatory Memorandum to the Bill
states:
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.(1)
The cost of ACIS, in terms of customs revenue
foregone, will be capped at $2 billion over five years. It may be
noted that this is far above the assistance provided to any other
single industry - the corresponding Strategic Investment Program
for textiles, clothing and footwear is capped at $700 million over
five years.
The proposed ACIS program raises two key issues.
The first is the question of how 'transitional' this assistance is
likely to be - will it be required beyond end 2005? Secondly, will
the benefits in terms of 'sustainable growth' in this industry
justify the cost of up to $2 billion in revenue foregone plus the
substantial administrative costs for Government and compliance
costs for industry?
The Australian automotive
industry
The Australian automotive industry has four
passenger motor vehicle (PMV) manufacturers(2) who are supplied by
approximately 200 component, tooling, and design and engineering
firms.(3)
The 1995=96 Australian Bureau of Statistics
(ABS) figures 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.(4)
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.(5)
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.(6)
There has been a strong increase in both imports
and exports of automotive products associated with trade
liberalisation and the rationalisation of domestic production.
Between 1988 and 1997, exports recorded a cumulative growth of 302
per cent or $2 billion. The value of imports is much larger than
exports and their 149 per cent growth over the same period was
valued at $6.2 billion. The resulting automotive trade deficit
amount to $7.8 billion in 1997.
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 outsiders, such as South Korea, are beginning to
increase their share of exports of PMV's and production is also
growing rapidly in other developing countries.(7) Australia's
production of PMV's accounts for less than one per cent of global
production, which is currently headed towards 50 per cent over
capacity.(8)
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 last
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.(9)
ACIS will provide incentives in the form of duty
credit, which may be used to pay customs duty on eligible imports,
or may be transferred. One part of the scheme will provide benefits
to motor vehicle producers (MVP's) and the second part will assist
automotive component producers (ACP's), automotive machine tool and
tooling producers (AMTP) and automotive service providers.
(ASPs).
The MVP component
The current EFS allows vehicle and component
producers to earn export credits in return for automotive exports
and to use these 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 on the production of PMV's 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, and
-
- enable PMV manufacturers to earn a 10 per cent credit on
investments in productive assets.
The ACP, AMTP and ASP component
ACIS is intended to enable component
manufacturers, tooling producers and service providers to claim the
following benefits:
-
- duty credit equal to 25 per cent of the value of new investment
in plant and equipment, and
-
- duty credit equal to 45 per cent of the value of research and
development investment.
Where MVP's produce automotive components,
tooling or services for a third party, they too can access the 25
per cent investment allowance and the 45 per cent research and
development allowance.
AusIndustry will be the Government agency
responsible for the administration of ACIS.
Financial impact
Financial estimates are subject to variables
including 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.
-
- continuing benefits under the existing 15 per cent duty free
allowance paid on the production of PMV's for sale in Australia and
New Zealand will be uncapped. Forgone revenue is estimated to total
$825 million over the five years from 2001 to 2005
-
- ACIS will involve higher administrative costs to Government and
higher compliance costs to industry than the existing assistance
arrangements but these costs are not quantified, 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.
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.(10)
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.(11)
World green house concerns have added pressure
on carmakers to reduce vehicle weight and fuel consumption by
significant degree.(12) 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.(13)
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.(14)
Main Provisions
Clause 6 defines major terms
used in the Bill. The commencement date of the scheme is intended
to be 1 January 2001. However, it may commence on an earlier date
providing the date is proclaimed and is the first day of a calendar
year (subclause 6(1)).
Establishment of ACIS
Clause 13 provides that there
is established by the Bill a scheme to be knows as the Automotive
Competitiveness and Investment Scheme or ACIS.
Basic Eligibility Requirements
The major effect of Subdivision
B of Division 3 (clauses
16-20) is to set the basic scheme eligibility criteria to
be met by producers of motor vehicles, components, machine tools
and providers of automotive services. In respect of eligibility for
motor vehicle producers (MVP), eligibility is limited to those
manufacturers who, in the 12 months preceding application
membership application:
-
- produced in Australia 30,000 motor vehicles, or
-
- at least 30,000 engines.
In respect to eligibility for automotive
component producer (ACP), eligibility is limited to those producers
of automotive components who, in the 12 months preceding
application:
-
- produced in Australia at least one kind of automotive component
for use as original equipment in at least 30,000 motor vehicles, or
in at least 30.000 engines, and the production value of such
components was at least $500,000, or
-
- the production value of the automotive components as original
equipment was at least $500,000 and comprised at least 50% of the
production value of all automotive components produced by the
person.
In respect to eligibility for automotive machine
tool producers (AMTP), eligibility is limited to those producers
which, in the 12 months preceding application:
-
- produced in Australian automotive machine tooling to the value
of $500,000 and
-
- at least 50% of that value was for automotive machine tools and
automotive machine tooling used to produce original equipment.
In respect to eligibility for providers of
automotive services (ASP), eligibility is limited to those
providers which, in the 12 months preceding application:
-
- the production value of automotive services provided in
Australia was at least $500,000, or
-
- at least 50% of that production value was for services related
to the production of motor vehicles or original equipment.
The provisions also provide for eligibility
based on prospective production and the national interest. Where
eligibility for application is accorded on national interest
grounds by the Minister, the decision is subject to disallowance by
the Parliament.
Division 4 of Part
3 (clauses 21-22) provides that eligible
groups of companies may be registered.
Divisions 5 and
6 and Part 3 (clauses
21-40) of the Bill deal with the certain of the scheme's
administrative requirements relating to registration. Major
requirements include:
-
- an ongoing requirement that
-
- the MVP produce in Australia each year at least 30,000 motor
vehicles or at least 30,000 engines;
-
- if the MVP has been registered on national interest grounds,
compliance with such conditions relating to ongoing registration as
specified by the Minister;
-
- each scheme participant must provide the Secretary with
quarterly returns in the manner prescribed by the regulations;
Parts 4 and 5
(clauses 41-60) of the Bill deal with credit.
Scheme participants earn duty credits which can be used to offset
customs duty, or may be transferred.
MVP's will be able to claim:
-
- Duty credits totalling 15% plus 10% of the value of production
of PMV's sold in Australia or New Zealand, multiplied by the
general tariff rate applying to imports of PMV's;
-
- Duty credits totalling 25% of the value of production of PMV's
(other than PMV's sold in Australia and New Zealand), engines and
engine components, multiplied by the general tariff rate applying
to imports sold in Australia or New Zealand, multiplied by the
general tariff rate applying to imports of PMV's, engines and
engine components;
-
- Duty credits totalling 10% of the value of their new investment
in plant and equipment averaged over the preceding three
years;
-
- Duty credits totalling 25% and 45% where the MVP produces
automotive components, machine tools or services for a third
party.
ACP's, AMTP's and ASP's will be able to
claim:
-
- Duty credits totalling 25% of the value of their new investment
in plant and equipment averaged over the preceding three years;
and
-
- Duty credits totalling 45% of the value of their investment in
research and development averaged over the preceding three
years.
Note: Except for the first credit, the
amount claimable is to be reduced by other Commonwealth assistance
payable for the relevant activity/expenditure.
$2 billion cap
Clause 53 provides that the
Secretary must not enter in the ACIS ledger credit in relation to
modulated production and investment which exceeds $2 billion (The
modulation process is to be carried out in accordance with
guidelines made under clause 55).
5% of sales cap
Clause 54 provides that duty
credit issued to a scheme participant must not exceed 5% of the
sales value of the participant's ACIS goods and services. ACIS
goods and services are defined to mean the sale value of the goods
or services provided by the participant as a result of activities
that earned, or would have earned the scheme participant duty
credit.
Dealing in and use of duty
credit
Part 7 of the Bill
(clauses 74-77) deal with dealing in and use of
duty credit. Clause 75 allows duty credit holders
to transfer duty credits to other persons. The parties to the
transfer must notify the Secretary of the transfer.
Clause 76 provides the Minister
with power to declare that ACP, AMTP or ASP investment credit may
only be used for importing motor vehicles or off-setting a
liability under the proposed ACIS (Unearned Credit Liability)
Act 1999. Where the Minister makes such a declaration the
notice of the declaration must be tabled in both Houses of
Parliament within 15 days of the notice being made. Clause
77 allows the Minister to limit the use of modulated
production credits in the same way as investment credits under
clause 76. While the Explanatory Memorandum to the Bill does not
provide a rationale for clauses 76 and 77 it is arguable that the
provisions might assist in balancing allocations.
Obligations relating to
documents
Part 10 of the Bill
(clauses 108-109) deals with obligations relating
to quarterly returns and business plans. The obligations include
that scheme participants:
-
- maintain, or create and maintain, documents that evidence all
the particulars contained in each quarterly return
-
- maintain such documents for five years after lodgment
-
- provide the Secretary with updates of the business plan
provided with their application for participation in the
scheme.
Administrative review
Clauses 111 and 114 specifies
the kinds of decisions made under the Bill which may be reviewed by
the Administrative Appeals Tribunal, including:
-
- a decision of the Secretary as to whether a scheme participant
is entitled to duty credit;
-
- a decision by the Secretary that a person is not a fit and
proper person;
-
- a decision by the Secretary to deregister a participant;
and
-
- a decision by the Secretary not to issue MVP production credit,
or as to the amount of any MVP production credit to be issued.
Concluding Comments
ACIS is a major new industry policy initiative
which deserves careful attention. The Minister states that the
purpose of ACIS is to provide transitional assistance to achieve
sustainable growth in the automotive industry. To achieve the APEC
target of free trade by 2010, the tariff wind-down program for
automobiles will need to continue beyond 2005. Hence it must be
expected that when the Government reviews ACIS IN 2005, there will
be industry pressure to extend this assistance program to 2010 as a
'sweetener' for the further tariff cuts. The result may well be a
transitional assistance package for ten years rather than five.
Also care will be needed in the administration
of ACIS to ensure that the assistance package does not become a
barrier to new entrants to this industry. The Explanatory
Memorandum states that eligibility criteria will apply to
participating firms and to products, services, investments and
activities against which benefits can be earned. The threshold
eligibility tests for registration under ACIS require minimum
levels of production and sales to be achieved. There would appear
to be some risk that such threshold tests will discriminate against
potential new entrants to the industry, particularly in the
components and services areas, and hence provide a barrier to
innovation and competition.
A broader concern is the limited potential of
this industry for growth. It is a mature industry which has
achieved little growth in the volume or value of production in
recent years.(15) The value of the growth in exports has been far
exceeded by the growth in the value of imports and resulted in the
growth of the automotive trade deficit which stood at $7.8 billion
in 1997. ACIS cannot change these basic industry
characteristics.
Finally there is the issue of whether Australia
should continue to deliver the bulk of industry assistance (both
tariff and budgetary assistance) to the mature and generally slow
growth industries such as motor vehicles and textiles, clothing and
footwear. Conversely, it leaves largely unanswered the question of
when and how a significant shift might be made in the policy
emphasis towards the newer, high growth, knowledge intensive
sectors like information technology and telecommunications. ACIS
retains the established pattern of directing the bulk of industry
assistance to the mature industries.
Endnotes
-
- ACIS Administration Bill 1999 & ACIS (Unearned Credit
Liability) Bill 1999, Explanatory Memorandum, p. 4.
- Toyota, Holden, Ford and Mitsubishi. The Bill uses the acronym
PMVP when referring to Australian passenger motor vehicle
manufacturers.
- '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.
- Australian Bureau of Statistics, Manufacturing
Industry, Catalogue No. 8221.0, 1995-96.
- 'Car sales rev up to record', Australian Financial
Review, 7 August 1998, p. 2.
- '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.
- Report 96/17, 'Automotive Case Study, Micro Reform -
Survey of Impacts on Firms', Productivity Commission, September
1996, p. 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.
- Media Release, the Hon. Tim Fisher / the Hon. John
Moore, Deputy Prime Minister, Minister for Trade / Minister for
Industry, Science and Tourism, 22 April 1998.
- Report 96/17, 'Automotive Case Study, Micro Reform -
Survey of Impacts on Firms', Productivity Commission, September
1996, p. 140.
- 'Record industrial marriage', Sydney Morning Herald,
reported by Geoff Kitney, 8 May 1998.
- '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.
- Ibid.
- Department of Industry, Science and Tourism, State of the
Australian Automotive Industry 1996, p. 77.
- Ibid., at pp. 21 and 23.
Mike Emmery and Ian Ireland
28 June 1999
Bills Digest Service
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