The Commission states that
This year's review also explores how the size and nature of the assistance estimates might be influenced by recent developments such as the Agricultural Competitiveness White Paper, the Defence Industry Statement and submarine procurement, programs to increase renewable energy and reduce carbon emissions, regional business investment programs and efforts targeted at business innovation.The Commission's Key Points are
For 2014-15, estimated assistance to industry (provided by the Australian Government) was $15.1 billion in gross terms.
It comprised $7.8 billion in tariff assistance, $4.2 billion in budgetary outlays and $3.1 billion in tax concessions. While tariff assistance is inherently distortionary, not all budgetary outlays create distortions that result in a misallocation of resources.
After deducting the cost penalty of tariffs on imported inputs ($7.5 billion, two-thirds incurred by services industries), net assistance to industry was $7.6 billion. The incidence of assistance varies widely between sectors.
Manufacturing received an estimated $7.0 billion in net assistance (largely due to tariff protection), Primary production received an estimated $1.3 billion (mostly through budgetary assistance), and Mining recorded a small but positive assistance ($0.3 billion).
The measured industry assistance arrangements imposed a net cost of $1.6 billion on services industries (as the tariff cost penalty on inputs outweighed budgetary assistance).
Of the eight categories of measured budgetary industry assistance the two largest are:
- R and D support (generally available to all industries and specific to rural industry), which represented around 40 per cent ($3.1 billion), the majority of which relates to the R and D Tax Incentive (around $2.2 billion)
- Industry specific assistance, which consists of a range of grants and concessions such as for the automotive, film, finance and ethanol industries, and represented 18 per cent ($1.3 billion) of measured assistance.
The measured estimates are conservative as they exclude significant assistance that is difficult to quantify. This includes: favourable finance (loans, debt, equity, guarantees); local purchasing preferences for defence equipment; and regulatory restrictions on competition. The estimates also exclude state and territory government support to industry.
A number of recent developments will likely add to the level of assistance in coming years. Measures providing assistance have been proposed in the Agricultural Competitiveness White Paper, the Defence Industry Statement, programs to increase renewable energy and reduce carbon emissions, and programs targeted at innovation, collaboration and commercialisation.
Regional industry investment grant programs continue to be introduced as a response to the closure of iconic local employers. These schemes deliver high subsidy rates to recipient businesses, but the outcomes of these programs are uncertain. A review is needed to determine what design best assists displaced workers and regions to adjust.
Australia continues to negotiate on a wide array of trade agreements and in a multitude of membership forums. Apart from the conclusion of negotiations on the Trans-Pacific Partnership Agreement, and the China Australia Free Trade Agreement coming into force in December 2015, developments include:
- final arbitration in Australia's favour of the investor-state dispute in relation to tobacco plain packaging
- a tightening of screening thresholds for foreign investment proposals in Australian agribusiness and pastoral land purchase
In discussing Australia's plain packaging regime, the report comments
- an increase in anti-dumping protection.
Australia’s tobacco plain packaging legislation came into full effect on 1 December 2012. The legislation prohibits logos, brand imagery, colours and promotional text other than brand and product names in a standard colour, position, font style and size appearing on tobacco packaging. Tobacco plain packaging forms part of a range of tobacco control measures to reduce the rate of smoking in Australia.
Dispute against the Australian legislation by the tobacco companies or countries acting in their interests has been three pronged:
• under the WTO Dispute Resolution rules
• by Investor State Dispute arbitration conducted under the United Nations Commission on International Trade Law Arbitration Rules
• via Constitutional challenge.
The Constitutional challenges were unsuccessful in 2012. The ISDS arbitration dismissed the case in 2015 (after a substantial cost to taxpayers, some of which may be recouped). [One estimate of the legal costs for the first procedural hearing stage (as at June 2015) was $50 million (Martin 2015). Further costs have not been made public. In the 2016 17 Budget Paper No.1 international litigation related to plain packaging is listed.] The WTO disputes remain open.
Challenges to Australia’s tobacco plain packaging legislation
WTO Disputes
The WTO Dispute Settlement Body (DSB) has established dispute settlement panels at the requests of Ukraine (28 September 2012), Honduras (25 September 2013), Indonesia (26 March 2014), the Dominican Republic (25 April 2014), and Cuba (25 April 2014). In addition to the complainant countries, 41 other countries have requested (and been granted permission) to join the disputes as third parties. All five complainants claim that Australia’s tobacco plain packaging laws appear to be inconsistent with certain provisions of the Trade Related Aspects of Intellectual Property Rights (TRIPS) Agreement, the Technical Barriers to Trade (TBT) Agreement, and the General Agreement on Tariffs and Trade (GATT 1994).
On 5 May 2014, the WTO Director General composed the panels in each of the five tobacco disputes. The same panellists have been appointed to hear the five disputes.
Investor State arbitration Dispute
Pursuant to the Agreement between the Government of Australia and the Government of Hong Kong for the Promotion and Protection of Investments, which entered into force in 1993, Philip Morris Asia Limited served Australia with a Notice of Claim (followed by a Notice of Arbitration) in 2011 over tobacco plain packaging requirements. This was the first investor state dispute brought against Australia.
The arbitration was conducted under the United Nations Commission on International Trade Law Arbitration Rules 2010. On 18 December 2015 the tribunal issued a unanimous decision agreeing with Australia's position that the tribunal has no jurisdiction to hear Philip Morris Asia's claim. On 17 May 2016 the tribunal published the decision with the parties' confidential information redacted. The tribunal found that Philip Morris Asia's claim was an abuse of process (abuse of rights), because Philip Morris Asia acquired an Australian subsidiary, Philip Morris (Australia) Limited, for the purpose of initiating the dispute under the Hong Kong Agreement. This concluded the arbitration in Australia's favour, subject to finalisation of the costs claim.
Constitutional challenges
Two challenges to the tobacco plain packaging legislation were heard by the High Court of Australia 17–19 April 2012: British American Tobacco Australasia Limited and Ors v. Commonwealth of Australia and J T International SA v. Commonwealth of Australia.
On 15 August 2012, the High Court handed down orders for these matters, and found that the Tobacco Plain Packaging Act 2011 is not contrary to s 51(xxxi) of the Constitution. On 5 October 2012 the Court handed down its reasons for the decision. By a 6:1 majority (Heydon J in dissent) the Court held that there had been no acquisition of property that would have required provision of 'just terms' under s51(xxxi) of the Constitution.
