- Government assistance to industry is provided through an array of measures including tariffs, budgetary outlays, tax concessions, and restrictions on competition. – This benefits the industry receiving it, but comes at a cost to other industries, taxpayers or consumers. A critical issue is whether the benefits accruing to industry outweigh the costs.
- Estimated tariff assistance to industry was $7.8 billion in 2012-13 in gross terms, accruing overwhelmingly to manufacturing. Budget and tax related support was worth a further $7.8 billion, thus total gross assistance was $15.6 billion.
- After deducting the cost penalty of tariffs on imported inputs ($7.1 billion, two thirds incurred by services industries) net assistance to industry was $8.5 billion.
- Budgetary assistance in 2012-13 was about $2.2 billion less than in 2011-12. The largest reductions were from the winding down of transitional assistance afforded by the Energy Security Fund ($1 billion), the Coal Sector Jobs Package ($219 million) and the Steel Transformation Plan ($164 million).
- Since November 2013, the current Government has announced, amongst other things, that it would: reduce funding to motor vehicle manufacturing between 2015–2017 by $500 million, not provide a debt guarantee or line of credit to Qantas, nor provide assistance requested by processing company SPC Ardmona, but would proceed with support to Cadbury for a tourist facility.
- Australia recently agreed to bilateral trade agreements with Korea and Japan. Trade agreements can distort comparative advantage between nations and consequently reduce efficient resource allocation. – The rules of origin in Australia’s nine bilateral agreements differ widely, are likely to impede competition and add to the compliance costs of firms engaging in trade.
- Government outlays on defence capability represent one of the largest discretionary items in the Commonwealth’s budget. – Defence industry assistance includes cost premiums for local purchasing preferences and budgetary support for skilling, research and exporting (with expenditures up to $500 million directly and indirectly benefiting industry). – Significant cost premiums can also be incurred by choosing to modify off-the-shelf equipment or pursuing bespoke designs.
- To be justified, cost premiums and defence industry assistance need to be commensurate with any additional security and operational benefits. Publishing these additional costs and benefits would assist understanding of apparently huge cost differentials.
- The efficiency and effectiveness of direct defence industry assistance programs could benefit from independent scrutiny.
- Three short reviews also comment on topical areas of public interest: R&D; Foreign Investment Rules; and Special Economic Zones.
The concept of a TPP agreement developed from an existing trade agreement between Brunei, Chile, New Zealand and Singapore (known as the Trans-Pacific Economic Partnership Agreement) signed in 2005. The original goal was to create a model regional agreement that could be expanded to include additional members from the APEC group of countries. In addition to the four foundation members, eight other countries have since joined the negotiations. In chronological order of their engagement, these countries are the United States, Australia, Peru, Vietnam, Malaysia, Mexico, Canada and Japan. South Korea and Taiwan have also expressed interest in joining. The latest ministerial meeting was held in Singapore on 19 and 20 May 2014. The timeline for completion of negotiations remains unclear.
A defining feature of the original TPP agreement was that it provided, over time, for the provision of preferential tariff rates between members on all goods, including agriculture. The agreement would also be comprehensive in that it would cover trade in goods and services, rules of origin, trade remedies, sanitary and phytosanitary measures, technical barriers to trade, intellectual property, government procurement, competition policy, temporary entry of business persons and dispute settlement procedures.
In addition to these topics, the TPP negotiations have broadened to encompass financial services, investment, electronic commerce, telecommunications, regulatory coherence and competitiveness issues. TPP negotiation groups have also been established to consider labour and environmental issues. A stated aim of the TPP is that the agreement would facilitate a consolidation of the differences (particularly rules of origin) in existing bilateral agreements used by current and prospective TPP members.
The confidential nature of the TPP negotiating text has been contentious particularly in respect of intellectual property and investor-state dispute settlement provisions. It has been argued that it is not common practice (including in Australia) to release negotiating texts of agreements before they are finalised on the grounds that public disclosure could undermine negotiations and, given their evolving nature, do little to better inform public debate (Robb 2014). Once an agreement involving Australia has been signed by the negotiating parties, the text is subjected to scrutiny, but not amendment, in the Australian Parliament before ratification. However, by that stage, the government of the day has staked its credibility on the agreement being ratified. The Commission is unaware of any trade agreement that has been rejected in response to parliamentary scrutiny. An independent, arms-length process that precedes commitment by the government would be preferable.In "Assessing the potential impacts of proposed agreements" the report goes on to state -
Trade preferences granted through bilateral and regional trade agreements, if fully utilised, can increase trade and investment flows between partner countries. Reporting of the outcomes of agreement negotiations invariably focuses on the positive impacts of these bilateral flows between signatories to the agreement. What is less commonly reported are the potential negative impacts of trade and investment that is diverted from more efficient sources of supply and the availability of even greater gains through unilateral action by the Australian Government to eliminate tariffs and other impediments to trade. The costs associated with a protracted negotiation process and compliance burden associated with preferential agreements, including complex and confusing rules of origin, are similarly under-reported.
In its 2010 report into bilateral and regional trade agreements, the Commission concluded that any increases in national income accruing from preferential agreements are likely to be modest. The Commission also concluded that current processes for assessing bilateral and regional agreements lacked transparency and tended to oversell the likely benefits. To help ensure that bilateral and regional trade agreements entered into are in Australia’s best interests, it recommended that a full and independent, arms-length assessment of a proposed agreement should be made after negotiations have concluded — covering all of the actual negotiated provisions. It recommended (amongst other things):
The Australian Government should improve the scrutiny of the potential impacts of prospective trade agreements, and opportunities to reduce barriers to trade and investment more generally. … It should commission and publish an independent and transparent assessment of the final text of the agreement, at the conclusion of negotiations, but before an agreement is signed (PC 2010, p. 312).
The expanding involvement of Australia in preferential trading arrangements adds to the imperative of this recommendation to ensure Australia maximizes the benefits from international trade and investment opportunities.