The chapter examines the amendment to Australia’s Schedule of Concessions in the General Agreement on Tariffs and Trade 1994 (GATT) which gives legal effect to commitments made under the World Trade Organisation (WTO) Ministerial Declaration on the Expansion of Trade in Information Technology Products (Expanded ITA) and Ministerial Decision on Export Competition as it relates to export subsidies (Export Subsidy Decision), both of which were announced at the WTO Ministerial Conference held in Nairobi in December 2015.
The GATT is a multilateral agreement on liberalising trade, initially negotiated between 23 countries in 1947. Between 1947 and 1994, eight rounds of negotiation were completed under the original GATT, culminating in the Uruguay round. The Uruguay round resulted in both the 1994 GATT and the Marrakesh Agreement to establish the WTO as the single institutional framework encompassing the GATT. The current round of negotiations, known as the Doha round, commenced in November 2001 and is yet to be completed. Membership of the WTO has expanded to include 164 countries, with another 20 observer countries.
The WTO’s structure is headed by a Ministerial Conference, which meets at least once every two years. The 10th Ministerial Conference was held in Nairobi in December 2015, and the Expanded ITA and Export Subsidy Decision were part of the results of that Ministerial Conference.
Overview and national interest summary
According to the National Interest Analysis (NIA), the Expanded ITA extends the original WTO Information Technology Agreement (original Agreement), which commenced in July 1997. The Expanded ITA commits 54 WTO member nations to eliminate tariffs and other customs duties on 201 technology products. WTO members agreed to remove tariffs on the majority of products in the Expanded ITA within three years, with reductions for Australia beginning in 2017.
The Export Subsidy Decision provides for the elimination of agricultural export subsidies, new rules for export credits, and decisions on international food aid and exporting state trading enterprises. The Export Subsidy Decision commits all WTO member nations to eliminate agricultural export subsidy entitlements and is intended to permanently remove a long-standing source of distortion in global agricultural markets.
Developed countries—including Australia—agreed to immediately remove scheduled export subsidy entitlements, with developing countries following by 2018. Longer elimination timeframes will apply in a limited number of defined cases, such as for least-developed countries, or in cases where developing countries use export subsidies to cover marketing and transport costs. As Australia does not currently use export subsidies, the commitment involves the elimination of the entitlement to use them in the future.
Reasons for Australia to take the proposed treaty action
The Ministerial Declaration on the Expansion of Trade in Information Technology Products
The NIA states that the Expanded ITA is expected to reduce costs and barriers to trade in technology products, promoting growth in jobs and innovation in Australia. The WTO estimates that annual trade in the 201 products covered is valued at over AUD1.3 trillion per year, accounting for approximately 10 per cent of total global trade today. Participants to the Expanded ITA account for approximately 90 per cent of world trade in these products. Some of the products in the Expanded ITA currently face high tariffs; for example, the tariff for magnetic cards is 30 per cent in some markets.
The expanded ITA eliminates tariffs on these products, including new-generation semi-conductors, machine tools and instruments, telecommunications satellites, consumer electronics (including GPS navigation systems and video game consoles) and a range of medical devices. The NIA suggests that eliminating tariffs on these goods may benefit Australian consumers by putting downward pressure on end prices. Upstream technology industries such as software design, and downstream industries such as IT service providers, could also benefit from cost reductions. The NIA claims that this has the potential to improve the competitiveness of both export and import industries. It is estimated that Australia imports around AUD19 billion worth of goods covered by the Expanded ITA, and exports around AUD3.6 billion.
However, the Department of Foreign Affairs and Trade (DFAT) conceded that of the 201 technology products, Australia already applies a zero tariff to 146. The 55 remaining products attract an applied tariff of five per cent. Additionally, the tariff on some items will be phased out over a three-year period and on others over a five-year period. Further, the amount of the five per cent reduction passed on to customers will depend on ‘commercial decisions’.
The NIA suggests that the implementation of the Expanded ITA will have significant benefits for the Australian economy. Information technologies are highly integrated within global value chains meaning barriers to trade can have significant flow on effects for innovation and productivity in other industries. By removing these barriers, implementation of the Expanded ITA could help to create jobs and boost GDP growth. It may also enhance predictability for traders and investors by providing permanent commitments for the included goods.
The Ministerial Decision on Export Competition
The NIA states that achieving the global elimination of agricultural export subsidies has been a long standing objective of Australian trade policy. The elimination of agricultural export subsidies in global trade was identified as a central goal in the WTO mandate developed at the time of the launch of the WTO Doha Round of negotiations in 2001, and successive Australian governments have worked with agricultural industry groups to achieve this through the WTO.
DFAT explained that the Export Subsidy Decision targets export subsidy entitlements which are designed to enable governments to ‘subsidise farmers to put their products more cheaply on the world market, while, to a certain extent, insulating their own market’ and are considered the ‘most trade-distorting form of subsidy that exists’.
The NIA notes that the removal of agricultural export subsidies by other WTO members is expected to significantly benefit Australian farmers by levelling the playing field in many of Australia’s agricultural export markets. The Export Subsidy Decision phases out scheduled export subsidy entitlements worth around AUD15 billion for agricultural commodities across many key Australian sectors including sugar, beef, pork, lamb, dairy, wheat, rice, wine, fruit, vegetables, processed foods and cotton.
Although the benefit to Australian agriculture is not easily quantified, reducing the potential for these subsidises will boost confidence:
But even if we cannot put in exact monetary terms what it means for the farming community, it is the potential that has been wiped out here. When food prices spiked some six or seven years ago a number of countries resorted to export subsidies, which many economists would argue exacerbated the food security issues that were in existence at that time. The suggestion here is that that is no longer going to be a viable option—that option is eradicated.
The Export Subsidy Decision commits Australia to removing its remaining export subsidy WTO entitlements to the value of AUD88 million from Australia’s GATT Schedule of Concessions. The NIA states that the practical impact is minimal as Australia has not used export subsidies since 1999-2000 when AUD3.7 million was used to subsidise dairy exports. The NIA claims that the elimination of Australia’s entitlements is a balanced response in view of the benefits Australia is expected to gain through the elimination of other countries’ agricultural export entitlements.
The obligations as set out in the NIA are provided below.
The Expanded ITA commits Australia (and the other 52 participants) to permanently eliminate all customs duties and other duties and charges, within the meaning of Article II:1(b) of the GATT, on 201 technology related products.
The amendment to the Schedule of Concessions to reflect the Expanded ITA would permanently bind Australia to apply zero customs duties and other duties and charges to these products for imports from all countries. Australia currently applies a zero rate of customs on the majority (146) of the products. In return, the 52 other participants to the Expanded ITA will also bind their duties on the same products to zero. Participants may apply staging in limited circumstances as per the negotiated schedules. For Australia, the first such rate reduction is effective no later than 1 January 2017, and the elimination of customs duties shall be completed no later than 1 July 2019.
The Export Subsidy Decision commits Australia, and other WTO members, to immediately eliminate its agricultural export subsidy entitlements. The proposed amendment to Australia’s Schedule of Concessions removes the export subsidy entitlements for the small number of products where export subsidy entitlements remain. This includes eliminating remaining export subsidy entitlements for pears and certain dairy products (butter, butter oil, skim milk powder, cheese, other milk products), to the value of AUD88 million from Australia’s schedule of concessions, noting that these subsidies have not been used for over 15 years.
As the amended Schedule of Concessions does not list subsidy entitlements for any products, Australia will be prohibited from using export subsidies in any sector in the future.
According to the NIA, the implementation of the amendments to the Schedule of Concessions to reflect the Expanded ITA requires an amendment to the Customs Tariff Act 1901 by 31 December 2016 in order for the Agreement to be implemented by 1 January 2017. The proposed amendment to the Act will revise tariff rates set out in ‘Schedule 3 – Listing of Goods, their classification and duty rates’ of the Act in accordance with the Expanded ITA.
The NIA states that no changes to legislation or policy are required for implementation of the proposed amendments to the Schedule of Concessions to reflect the Export Subsidy Decision. Australia has not used subsidies since 1999-2000.
Costs of the treaty action
The NIA states that the financial cost of implementing the amendment to the Schedule of Concessions in relation to the Expanded ITA is approximately AUD20 million in 2018–19, and AUD60 million in 2019–20. The costs are associated with foregone tariff revenue based on current trade values. The NIA expects the proposed amendments to the Schedule of Concessions to implement the Expanded ITA to reduce the regulatory burden for businesses trading in these products. Businesses previously trading under preferential agreements or concession schemes will no longer have the administrative burden previously associated with accessing lower duty rates, for example under an applicable free trade agreement.
The financial costs of the amendments to the Schedule of Concessions to reflect the Decision on Export Subsidies is expected to be neutral; the elimination of Australia’s remaining agricultural export subsidy entitlements is not expected to change expenditure or revenue.
The Committee acknowledges the significance step that these two agreements represent for the WTO and its members. While it notes that both will provide incremental improvements for Australian consumers and farmers, the Committee is acutely aware that further work needs to be done to reduce domestic subsidies and non-tariff barriers if more progress is to be made on liberalising trade.
For example, the Australian Dairy Industry Council Inc. pointed out that the United States ‘will continue to be able to subsidise exports via its privately funded “Cooperatives Working Together” (CWT) scheme’ and that the EU remains a ‘highly protected and distorted market for dairy with high tariffs, a complex tariff regime and continued existence of Tariff Rate Quotas’. The Export Subsidy Decision also allows Canada to continue to subsidise dairy exports until the end of 2020:
Canada’s uncompetitive milk quota (supply manage) system has created a large and growing structural surplus of milk proteins resulting in a long history of utilising non-tariff barriers to trade to protect their domestic market and also to subsidise exports, especially skim milk power in contravention of their Uruguay Round Agreement on Agriculture (URAA) commitments.
The Committee supports the amendments to Australia’s Schedule of Concessions in GATT and recommends that binding treaty action be taken.
The Committee recommends that the amendments to Australia’s Schedule of Concessions in the General Agreement on Tariffs and Trade 1994 (GATT) incorporated into Annex 1A of the Marrakesh Agreement Establishing the World Trade Organizationto give effect to commitments made under the World Trade Organization (WTO) Ministerial Declaration on the Expansion of Trade in Information Technology Products and Ministerial Decision on Export Competition be ratified and binding treaty action be taken.