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I
N F O R M A T I O N
A N D
R
S
E S E A R C H
E R V I C E S
Research Paper
No. 7 1999–2000
Australian Manufacturing: A Brief History of Industry Policy
and Trade Liberalisation
Michael Emmery
Economics, Commerce and Industrial Relations Group
19 October 1999
Acknowledgments
The author wishes to acknowledge the constructive comments on an earlier draft of this paper provided by
an outside referee, Malcolm Aldons, and his colleagues in the Parliamentary Information and Research
Service, in particular June Verrier, John Kain, Dave Richardson, Derek Woolner and Greg Baker.
Inquiries
Information and Research Services publications are available on the ParlInfo database.
On the Internet the Department of the Parliamentary Library can be found at: http://www.aph.gov.au/library/
IRS Publications Office
Telephone: (02) 6277 2760
Contents
Major Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Australia's Experience with Trade Liberalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
History of Tariff Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Rattigan Challenges McEwen Protectionism . . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Tariff Reform Program. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
The Anthony Years 1971–72 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Whitlam Era 1973–75 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Fraser Years 1975–82 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Labor and the Button Plans—1983–95 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Assistance via the Budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Trends in Rates of Assistance to Industry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Anti-Dumping and Countervailing Measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Estimated costs of protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Estimated benefits from trade liberalisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Overseas experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Industrial Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Non-tariff barriers (NTBs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Budgetary assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Glossary
APEC
Asia-Pacific Economic Cooperation
GATT
General Agreement on Tariffs and Trade
(replaced by the World Trade Organisation)
IRS
Information and Research Services (of the Parliamentary Library)
NTB
Non-tariff barrier
OECD
Organisation for Economic Cooperation and Development
PMV
Passenger Motor Vehicles
R&D
Research and Development
TCF
Textiles, Clothing and Footwear
WTO
World Trade Organisation
Australian Manufacturing: A Brief History
Major Issues
Industry policy in Australia has been subject to a major transformation over the last 30
years. Barrier protection to manufacturing industries, mainly via tariffs, has been reduced
from 35 per cent to five per cent in 2000–01, thus moving Australia a long way towards
the Asia-Pacific Economic Cooperation (APEC) goal of free trade access to developed
countries by 2010. At first glance, the protection debate appears to have been largely won
by trade liberation supporters and to be on the brink of becoming a non-issue.
However, protection remains a controversial issue. There are strong arguments for
continuing to treat barrier protection, and the broader aspects of industry policy, as
important and dynamic economic policy issues. The cost of assistance to manufacturing
remains substantial at $3.3 billion in 2000–01 and this assistance is unevenly distributed
with about 40 per cent going to the textile, clothing and footwear (TCF) and passenger
motor vehicle (PMV) industries.
Tariffs in Australia, and in most other Western countries, have declined over a two to three
decade period. Australia lagged behind most of its trading partners in the early stages of
this process but has now caught up and has average tariff levels comparable to those in the
United States, European Union and Japan.
With the declining importance of tariffs, it is important that policy makers pay more
attention to the alternative tools for achieving industry policy objectives, namely non-tariff
barriers, anti-dumping measures and assistance through the Budget (sometimes referred to
as State aid or Public Support for Industry). Compared with other Western countries,
Australia is an almost negligible user of non-tariff barriers but a major user of antidumping measures.
Budgetary assistance to manufacturing in Australia peaked in 1994–95 and declined
significantly in the next four years. The current level of Budget assistance is equivalent to
2.3 per cent of value added in Australian manufacturing, or $1319 per person employed in
manufacturing. In the European Union, there was also a distinct downward trend in
Budget assistance to manufacturing over recent years. Another feature of European Union
assistance is that over half of it is directed at regional objectives while this accounts for a
very minor component of Commonwealth Budget assistance in Australia. This may well
change given the renewed interest in rural and regional Australia.
i
Australian Manufacturing: A Brief History
The history of Australia's trade liberalisation shows that it has been a slow and politically
sensitive process. It is a process that can easily 'run off the rails' as it did with the massive
increase in quota and other protection to the TCF and PMV industries in the late 1970s
and early 1980s at a time when the average level of assistance to other manufacturing
activities was declining. While protection continues to provide large benefits to a few
industries, these industries, supported by the affected unions and State governments, will
continue to resist further liberalisation.
The Tariff Board, and its successor bodies, have played an important role in opening
protection issues for public scrutiny, for providing well-researched background on the
costs and benefits and for persuading the Government to take a more comprehensive (less
ad hoc) approach to industry assistance measures.
The last period of Labor Government, and in particular the Button Plans, demonstrated
that major structural change can be facilitated, and supported by the major players, where
sufficient effort is made to spell out the rules of the game and to establish closer
partnerships between Government and industry. This was also an era when industry policy
was increasingly seen in a broader economic and social context. One reason why the
strong move to trade liberalisation in the late 1980s and 1990s was politically acceptable
was that it was part of a much wider reform movement to open up the Australian economy
and make it internationally competitive. These economic reforms were supported with a
strengthening of the safety net to retrain and assist displaced labour.
There are several aspects of the current situation which suggest the need for particular
sensitivity in handling industry protection issues. One is the narrowing time frame for
achieving the APEC goal of free trade by 2010. With the freezing of PMV and TCF tariffs
to 2005, the window of opportunity for further major adjustments in these industries has
been greatly reduced.
At the same time, there has been a re-emergence of protectionist pressures both in
Australia and overseas. This forms part of the mounting criticism of the broad approach
which Australians commonly term 'rational economic policies' which include smaller
government, lower taxes, more open economy, greater domestic competition and a strong
emphasis on economic efficiency and cost cutting. In this climate, the trade liberalisation
verses protection debate remains alive and relevant.
ii
Australian Manufacturing: A Brief History
Introduction
This paper complements the recently released IRS Research Paper Industry Policy in
Australia. 1 It relates the key events in the tariff policy-making process, and in the road to
trade liberalisation, which occurred between the late 1960s and 1996 when the present
Government came to office.
The Industry Policy in Australia paper examines developments since 1996 and speculates
as to the future directions of industry policy. It identifies many uncertainties and
continuing debate about the future of industry policy, for example, the steps necessary for
Australia to achieve its APEC commitment to free trade by 2010, and to shift the policy
focus towards the stronger-growth, knowledge-intensive industries.
This paper examines how the policy mix has changed over time with an emphasis on
identifying the drivers of change and providing a better understanding of the macroeconomic, industry, bureaucratic and political forces that led to the major transformation
of industry policy in Australia over the past 30 years. It is hoped that some lessons from
the past can help today's policy makers with the policy challenges facing them. The saying
'those who cannot remember the past are condemned to repeat it' 2 appears very relevant to
industry protection issues.
Three main subjects are covered in the paper:
• the history of the trade liberalisation process in Australia from the late 1960s through to
1996, and the roles of the key stakeholders in that process
• trends in the cost of assistance to manufacturing industry, from tariff and other barrier
protection measures and through the Budget, and
• a brief review of comparable trends overseas, covering tariff and non-tariff barriers in
Organisation for Economic Cooperation and Development (OECD) countries.
1
Australian Manufacturing: A Brief History
Australia's Experience with Trade Liberalisation
History of Tariff Policy
The Tariff Board, and its successors the Industries Assistance Commission and the
Industry Commission (which has now been absorbed into the Productivity Commission),
has been the key institutional force behind the evolution of tariff policy in Australia. The
Tariff Board was established in 1921 under the Tariff Board Act 1921–1966. Its main
responsibility was to advise the Government on questions of assistance to Australian
industries. In particular, it was charged with reporting on 'the necessity for new, increased,
or reduced duties' and on 'the necessity for granting bounties for the encouragement of any
primary or secondary industry in Australia'.
In the 1930s, tariff barriers were substantially increased in a series of tariff proposals (the
Scullin tariffs) aimed at protecting Australian industry and employment from the ravages
of the Depression and tackling the balance of payments difficulties. These tariff barriers
were erected without industry reviews and were not determined on a 'needs' basis. When a
systematic review of industry tariffs was commenced in the 1970s, it was found that there
were significant areas of unused protection in the existing tariff structure. 3
The work of the Tariff Board had little effect on the development of Australian industries
between the late 1930s and the early 1960s. The rigid import controls during the war were
followed by a worldwide shortage of goods and then for most of the 1950s, quantitative
controls were imposed on imports for balance of payments purposes. Import licensing was
removed in 1960. The role of the tariff and its relationship to the Government's national
economic objectives was reviewed by the (Vernon) Committee of Economic Enquiry
(1963–65) but the Government's response gave little guidance as to what it wanted from
tariff policy. The Government did stress, however, that the Tariff Board was an
independent advisory body; and not a policy-making body.
Rattigan Challenges McEwen Protectionism
The need for change in Australia's tariff system began to be seriously articulated from
within the Tariff Board in the period 1963–66 with the driving force being the Chairman
of the Board, Mr Alf Rattigan. Rattigan was appointed to the position in late 1962 by
Mr John McEwen, the Leader of the Country Party and Deputy Prime Minister. Rattigan's
previous position had been as permanent head of the Department of Customs and Excise
that formed part of McEwen's portfolio.
A philosophical gulf rapidly emerged between McEwen and Rattigan. The Minister
represented the protectionist side of the debate and was opposed to any broadbrush
dismantling of the trade barriers protecting Australian manufacturing. Faced with the
2
Australian Manufacturing: A Brief History
conflicting interests of the less protected rural sector and the more protected
manufacturing sector, the Government was reluctant to provide the Tariff Board with clear
guidelines as to the criteria that should be applied in setting tariff levels. The official
guideline was that the Government would provide adequate protection for 'economic and
efficient' industries but this just begged the question as to how economic and efficient
should be defined. McEwen in his memoirs said that he believed 'all-round protection' of
all import competing and export industries was possible. However as Professor Fred
Gruen pointed out there were enough economically literate people around to expose the
illogicality this entailed. Protecting everybody effectively means protecting nobody.
'Protection all-round' only makes sense politically because it means that the different
pressure groups are each beholden to the protecting government. 4
Rattigan on the other hand has come to be known as a great proponent of free trade. This
may be a true reflection of his impact on industry policy, but it was not where he started
from in 1963. In his autobiography 5 , he outlines the following aspects of the dilemma that
faced him when he took up the Tariff Board chairmanship. He was head of a statutory
authority charged with the task of undertaking public reviews and providing independent
advice to the Government on adequate protection for economic and efficient industries.
The Government did not wish to spell out an interpretation of economic and efficient. And
the modus operandi that the Board had followed in the 1930s appeared increasingly
inadequate to cope with the protection issues of the 1960s.
The early inquiries by the Board had three important characteristics. The inquiries were
initiated by the Government. They usually covered only a few products and not the whole
output of the manufacturers seeking assistance. Finally the level of assistance
recommended was primarily based on the estimated notional cost disability incurred by
the Australian manufacturer relative to the cost of the imported product. In practice, the
notional cost differential was in most cases based on differences between Australian and
United Kingdom costs using the guidelines established under the United Kingdom–
Australia Trade Agreement for determining the preference margin for British imports.
The outcome of this review mechanism was that recommended tariffs generally provided
Australian manufacturers with a made–to–measure level of protection from British
imports based on the notional cost formula. This provided a substantially higher level of
protection against imports from other countries due to the preference margin for British
goods specified in the above Trade Agreement.
By the 1960s, a rapidly increasing proportion of Australia's imports of secondary goods
(mainly machinery, equipment and components) was coming from countries other than the
United Kingdom. These countries were the most likely source of competition for many
Australian secondary industries sheltered from import competition by very high tariffs. In
these circumstances, the detailed United Kingdom cost information on which the Board's
traditional criteria was based was no longer relevant to the majority of inquiries; and
similar information about costs of production was generally not available for other
countries.
3
Australian Manufacturing: A Brief History
The friction between McEwen and the Tariff Board surfaced in a number of areas. One
example was in the wording of references from the Government to the Board. In 1963,
McEwen started sending references to the Board, which although somewhat ambiguous in
their wording, were clearly designed to guide the Board in framing their
recommendations. These references contained the standard request that assistance should
be accorded to economic and efficient industry in Australia but added the proviso that
assistance be determined in the interests of achieving:
• a reasonably profitable development of a soundly based industry
• effective protection from competition from imports at dumped or disruptive low prices,
and
• effective and stable protection of employment and investment in the industry.
Another area of conflict was with respect to the membership of the Board and the
remuneration of its members. In 1964, McEwen did not accept the nominations put
forward by Rattigan to replace two retiring Deputy Chairmen of the Board, and effectively
put a ceiling on their salaries. In his memoirs, Rattigan laments:
The Minister's handling of the replacement of (deputy chairmen) Clark and Heyes
showed me that I would not have any real say in appointments to the Tariff Board, and
the action regarding salaries convinced me that the Minister and the Department wanted
to reduce the possibility of very capable people being appointed to the Board. 6
Rattigan sums up the deficiencies he saw in the operation of the Tariff Board after about
two years at its helm in these words:
The Board was not carrying out all the functions given it under the Tariff Board Act. It
was not providing, through its inquiry procedures, an opportunity for informed public
discussion about the major issues regarding assistance for particular industries; it was not
fulfilling the explicit requirement in the Act to report annually on the operation of the
Tariff and the development of industries; it was not using its powers to initiate inquiries
to examine and report on matters that were obviously cause for public concern, for
example, the continued protection of a number of industries by very high levels of
Customs duty imposed in 1929–30 as an emergency measure during the great
depression. 7
The Tariff Reform Program
An important start to the tariff reform program came in August 1967 when the Tariff
Board in its Annual Report for 1966–67 put the following proposal to the Government:
The Board proposes a progressive and systematic review of the Tariff consisting of an
internal examination by the Board of the structure and levels of protection in the Tariff,
4
Australian Manufacturing: A Brief History
together with public inquiries into the main areas of production where there has been no
recent public inquiry and where the levels of protection are in the medium to high range.
The Board would study the structure and levels of protection to establish an initial
classification of industries into those that have high, medium and low levels of protection
in relation to the overall level of assistance available to Australian import competing
industries.
The main reason given by the Board for the proposed review was to enable it to relate the
operation of the Tariff more fully and consistently to the Government's national economic
objectives. It would seek to do this by encouraging the development of, and the flow of
new investment into, economic activities in the less protected sector.
The Board argued that industries in the highly protected area should be reviewed first in
the sequence of public inquiries. It stated:
in its recommendations, the Board would aim at least to contain industries in the high
cost area other than those demonstrating clearly compensating external benefits and
those which can show beyond reasonable doubt prospects of operating with substantially
lower levels of protection within a reasonable time. Subject to these qualifications, this
would involve recommending against protection for any new products requiring a high
level of protection…and discouraging the commitment of new resources to increase the
rate of production of existing high cost products. 8
The Board went on to say that in regard to industries in the medium protection range, it
would adopt a watchful attitude, having particular regard to their future prospects and
likely influence on other industries.
Industries in the low protection category would not necessarily be the subject of review
inquiries. The Board would adopt a liberal attitude to low cost industries and aim at
encouraging the maximum expansion in this area. This would include providing
anticipatory protection to cover any new products likely to be produced economically.
To commence the public review of the tariff, the Board requested references covering
production in Australia of all machinery and mechanical appliances. It noted that duties in
this area ranged up to75 per cent; and there was provision for ready-made protection at 55
and 60 per cent ad valorem for a wide range of products not yet produced in Australia.
The Tariff Board, in its subsequent Annual Report for 1967–68, presented two
classifications which provided a ranking of manufacturing activity by level of protection.
The first was based on the existing nominal protection applying to final products as shown
in the Australian Tariff. The second ranking was based on industries rather than products;
it showed the proportion of the output of each industry group subject to different levels of
nominal protection.
5
Australian Manufacturing: A Brief History
The Board took another important step in the development of Australia's tariff policy when
it argued that the better and more equitable method of measuring cost of protection is the
'effective rate' rather than the 'nominal rate'. The effective rate measures the assistance
accorded to the value added in a production activity by taking account of the nominal
protection accorded both to the final product and to the materials used in that activity. For
example, higher protection could be justified when an industry used inputs made more
expensive by tariffs.
Accordingly the Board set its points of reference for identifying high, medium and low
cost production in effective rate terms as follows:
• high cost—effective rates exceeding 50 per cent
• medium cost—effective rates between 25 and 50 per cent, and
• low cost—effective rates of 25 per cent or less.
The future course of Australia's tariff policy was now clearly in the Government's hands.
The Tariff Board had put forward a proposal for a systematic and comprehensive review
of tariffs which contrasted markedly with the past practice of ad hoc reviews being
undertaken in response to manufacturers' requests for additional assistance. In the
following two Annual Reports (for 1968–69 and 1969–70), the Board restated its
arguments for the proposed review program and outlined its research on levels of effective
protection and trends in the competitive position of Australian industry. The 1969–70
Report provided estimates that the average rate of effective protection available to
individual Australian manufacturing industries ranged from 0 to 120 per cent, the average
rate for manufacturing industry as a whole was 46 per cent and this was equivalent to a
subsidy of about $2700 million per annum.
The Board's proposal for a systematic review of the tariff was actively debated in the
community throughout the period 1967 to 1971. Strong opposition came from the
manufacturing lobby groups, in particular, the Australian Industries Development
Association and the Associated Chambers of Manufactures of Australia. The key
argument put by these groups was that the classification of certain industries as high cost
was prejudging them to be not economic and efficient, without public inquiry, and hence
discouraging investment in them.
The main support for the Tariff Board's proposal came from the commerce and farm lobby
groups, from a number of academics and from the majority of economics writers in the
daily press.
The Government resisted involvement in this debate in the public arena with its standard
response being that it was satisfied with the traditional approach to tariff making. But
behind the scenes it was clear that McEwen and his Department supported the
manufacturing lobby and were actively at work seeking to discredit the Board's approach
6
Australian Manufacturing: A Brief History
or find ways to by-pass its impact. One such avenue was through the administration of the
by-laws in the Customs Tariff. In 1969 and 1970, local content plans were commenced for
a range of machines and equipment which provided very high levels of protection for the
local manufacturers of components and parts for these machines. The cancellation of bylaw entry on these components gave producers of the final products little choice but to buy
the limited range of locally produced components or establish their own component
manufacture.
The Government's response to the Tariff Board's request for a comprehensive review of
the tariff was finally made in January 1971 in the midst of a volatile public debate
following the leaking to the press of a Cabinet Submission prepared by McEwen. It was,
as expected, critical of the Board's new approach saying that it would put production by all
Australian industries requiring more than 50 per cent protection 'at risk'. This represented
40 per cent of existing manufacturing industry with an investment in excess of $3000
million and employment for about 600 000 workers. It also argued that to proceed further
with the Board's new approach would be an acceptance by the Government that it now
wanted the Board to play the role of an economic planning agency with the task of
reallocating resources within the economy.
McEwen's submission, however, did propose that the Government announce a progressive
review of the tariff but that the review should be undertaken subject to a set of guidelines
specified by the Government, and not according to the Board's criteria. It also proposed
that no increased resources be made available to the Board for review work in the
immediate future and that the Board should rely wherever possible on information and
expertise within the relevant departments and not build up its own fact finding staff.
On 27 January 1971, the Government announced that there should be a comprehensive
review of tariffs as recommended by McEwen and that the criteria under which the Board
should operate would be examined at a later date, although no timetable for the
comprehensive review was agreed to.
McEwen retired from office on 1 February 1971 bringing to an end one of the most
powerful influences on Australia's trade and industry policy.
The Anthony Years 1971–72
During the early 1970s, the Tariff Board undertook a number of initiatives to increase its
capacity to undertake a comprehensive tariff review. The manufacturing lobby, through
the Office of Secondary Industry and the industry Minister Doug Anthony, countered by
seeking to impose a number of barriers to limit the growing influence of the Board in
industry policy matters. The following examples illustrate this ongoing struggle to control
the industry policy agenda.
7
Australian Manufacturing: A Brief History
The Tariff Board moved to increase its work capacity by seeking Government agreement
to the appointment of a ninth member to the Board and to the use of single member Boards
for the hearing of non-tariff inquiries covering issues such as by-laws and dumping. After
some delays with arguments as to the role of the ninth member and the role of single
member Boards, the necessary legislation for these changes was passed in 1971 and a new
member appointed in March 1972. The Chairman of the Board was granted the discretion
to use the new member as he saw fit.
Other actions which generated controversy were:
• the use of academics as consultants to assist the staff of the Tariff Board
• a proposal to add a research branch to the Board's structure, and
• the use of the Board's Annual Reports to discuss general protection and development of
industry issues.
On the staff issue, opponents of the expansion of the Tariff Board argued that the necessary
research should be done in the industry department and that the consultants were 'anonymous
specialists' who were not accountable to the Board. In more colourful terms, one
manufacturing lobby observed:
The Tariff making process in Australia is off the rails … it is headed for a situation in
which decisions will be made by a back-room research unit of public servants assisted by
academics and presented in the guise of unquestionable truth. 9
This question of the use of university specialists and the reporting on general protection
and industry issues in the Annual Report also lead to a division amongst members of the
Board with three Members submitting dissenting opinions in the Annual Report for
1970–71.
This period provided the first real indication of the assistance the Tariff Board would
recommend for the products of the machinery and metal products industries which had
high levels of protection and had not been subject to recent review. In 1971, the Board
recommended major cuts (50 per cent in many cases) in the protection on a range of
machinery items that would bring the general tariff rate down to levels in the 20–30 per
cent range. After some delay, Anthony announced the Government's acceptance of these
recommendations.
The Tariff Board moved to accelerate the tariff review process. It submitted a plan to
complete the tariff review by December 1978—a period of six years. The plan set out the
products and processes to be covered by each inquiry, the dates and procedures to be
followed and the Board's intention to provide all interested parties with the statistical
information available about the industry under review. The Government accepted the
Board's tariff review plan in April 1972.
8
Australian Manufacturing: A Brief History
Anthony sought to counter the concerns of industry. He referred to the desirability of
reducing the role of the tariff in assisting the development of secondary industry and
called for closer cooperation between industry and government with an invitation to
manufacturing industry to think about ways in which a more fruitful partnership of this
kind could be developed. 10
The Whitlam Era 1973–75
The election in December 1972 of the first Labor government for 23 years, with a strong
mandate for social and economic reforms, gave a boost to the advocates of trade
liberalisation. Prime Minister Whitlam moved quickly:
• to send a long delayed reference on television receivers to the Tariff Board
• to transfer responsibility for the Tariff Board from the industry Minister to the Prime
Minister's own portfolio
• to establish an interdepartmental committee to examine the needs for structural adjustment
policies covering training, retraining, relocation of the workforce, adjustment help for the
affected industries and social security and welfare measures to protect dividual workers
and their families from hardship. The industry Minister Jim Cairns also proposed the
establishment of a Structural Adjustment Board with a capacity to provide financial
assistance to industry but this did not materialise, and
• to expand the Tariff Board into the Industries Assistance Commission to advise the
government on all forms of assistance to all sectors of the economy. This action followed
a brief inquiry and recommendation by Sir John Crawford, previously Vice-Chancellor of
the Australian National University.
The above actions were largely Rattigan's suggestions which he persuaded Whitlam to
implement. But while the Prime Minister was a firm supporter of Rattigan and his tariff
reform program, his industry Minister, Jim Cairns, showed a great interest in increasing
the economic and industry planning functions. In particular, Cairns set about expanding
the industry panel system which had been set up by Anthony and increasing panel
membership to include government, industry, union, consumer and academic
representatives.
The movements in trade protection in this period were strongly influenced by the sharp
movements in the economic cycle. In early 1973, the Australian economy was buoyant.
Industry was operating at close to full capacity, unemployment was falling and the balance
of payments position was strong. But private and public demand was rising rapidly,
retailers were reporting shortages of a wide range of goods and there was a big risk of a
blow out in inflation. The Whitlam Government had appreciated the Australian dollar in
December 1972 and now looked to reducing the inflation pressure by cutting tariff levels.
9
Australian Manufacturing: A Brief History
A small Committee chaired by Rattigan was established to assess this proposal. As
requested, it reported after only three weeks. It recommended a 25 per cent across-theboard reduction in all tariffs. The Committee estimated that such a tariff cut would have an
impact on imports equivalent to a currency appreciation of about six per cent but should be
preferred to the latter action in terms of its expected greater impact on stimulating imports
and cutting inflation. In addition, a tariff cut would have long-term benefits in terms of
improving resource allocation. The Committee estimated that the tariff cuts would require
changes in employment for up to 30 000 people and recommended that a range of
assistance measures be made available for both the employees and the industries affected.
Rattigan passed the Committee's report to the Prime Minister on 16 July 1973 and the
Government announced acceptance of its recommendations the following day. The largest
adjustment to Australia's tariff protection had been achieved without reference to the
Tariff Board, without public inquiry and within a matter of weeks.
The economy was allowed little time for the adjustment process triggered by the 25 per
cent tariff cut to work. By mid-1974, the economy was slowing and some affected
industries were quick to blame the tariff cuts for their woes. In particular, Leyland closed
its Sydney motor vehicle plant with the loss of 2600 jobs and the Chairman of Philips
claimed 12 000 electronics industry workers would lose their jobs over the next 18
months. In October, the South Australian Government argued that implementation of the
Industries Assistance Comission recommendations on the car industry threatened 15 000
jobs.
A major public inquiry by a large committee chaired by Gordon Jackson, chief general
manager of CSR Ltd was announced in July 1974. Its Report in May 1995 recommended:
• tariffs should be reduced to selected benchmark levels 'by small, gradual and
predetermined instalments over five to fifteen years. The reduction instalments should be
inexorable, except for suspension during any period of significant unemployment' 11
• positive assistance measures should be introduced to promote new investment in efficient,
internationally competitive and export-oriented industries, and
• establishment of both Commonwealth and State Industry Councils to involve the key
stakeholders in the design of the adjustment process.
Rattigan was a member of the Jackson Committee but did not support the majority
approach to industry assistance and presented a dissenting view. The Committee reported
just prior to the demise of the Whitlam Government but the broad thrust of its assessment
of a desirable industry policy framework was incorporated in the Fraser Government's
subsequent White Paper on Manufacturing Industry.
10
Australian Manufacturing: A Brief History
The Fraser Years 1975–82
The trade liberalisation process was partially derailed in this period. While Fraser with his
rural background was a strong advocate of freer trade in the long run and preached its
merits in international fora, his Government succumbed to enormous pressures from
selected industries and state governments to maintain or strengthen the protective mantle.
The 1975 recession led to increasing pressures from manufacturers, supported by the
unions, for protection to be by quantitative restriction, rather than by the tariff and for
temporary protection by way of import quotas. As can be seen in Table 1 below, the
following six years witnessed a massive increase in assistance to the clothing and footwear
and the motor vehicle and parts industries. This was largely offset by lower tariffs for a
range of other manufacturing activities which flowed from the progressive review of the
high cost industries by the Industry Commission.
A commitment made by the Whitlam Government to continue the local content plan for
passenger motor vehicles formed the basis for the explosion in protection to this industry.
The Industries Assistance Commission, in July 1974, had recommended the immediate
abolition of the local content plans, a temporary increase in the tariff, and then its phasing
down over seven years to 25 per cent. In November that year, the Government first
increased nominal tariffs on motor vehicles and subsequently detailed a ten year plan to
introduce a new local content plan, to use import quotas to restrict imports to 20 per cent
of the local market and to provide for new manufacturers to enter the plan. The strong
protection policy, together with the switch in demand to smaller, four cylinder cars
encouraged the entry of two new manufacturers, Nissan and Toyota, and contributed to the
already substantial problems of this fragmented industry with too many makes and models
and an operating efficiency far below world best practice levels. The outcome was a
further decline in the competitiveness of the Australian motor vehicle industry and an
increase in the level of assistance provided.
The protection regime for TCF was equally complex, cumbersome and inefficient. The
industry was protected by a web of tariffs, bounties on intermediate products and import
quotas which set the level of imports and hid from view the deteriorating competitive
position of the local industry. The Industry Commission notes TCF quotas were constantly
being 'fine-tuned'. Temporary restrictions were imposed, would lapse, only to be reimposed or superseded by a general measure. Between 1968 and 1986, over 40 separate
announcements relating to changes in TCF quotas were made. 12 In addition to the
economic costs of high protection were the costs to industry of lobbying and compliance,
the administrative costs to government and the climate of uncertainty which stifled
forward planning.
11
Australian Manufacturing: A Brief History
Labor and the Button Plans—1983–95
In the early 1980s, large parts of Australian manufacturing were recognised as seriously
lacking in international competitiveness and in urgent need of restructuring to promote
innovation, modernisation and efficiency. John Button recalls that at the beginning of his
long term as industry Minister, there was a prevailing atmosphere of gloom. He notes:
Australian manufacturing industry was still focused on the domestic market. Factories
were closing. People were not prepared to think much about longer term solutions. There
was no export culture. 13
The next five years witnessed major changes to macroeconomic policy and industry
policy. A series of initiatives were taken to open up the Australian economy to greater
international competition with the main steps in the early years being on the macroeconomic front with the floating of the exchange rate and deregulation of the banking
sector and controls on capital movements. The floating of the Australian dollar allowed
trade liberalisation to be pursued more as a microeconomic (efficiency) objective rather
than as a macroeconomic objective as had been the case with the earlier 25 per cent tariff
cut.
The new approach to industry policy was based on the implementation of a series of
industry restructuring plans for the main industries facing difficulties with foreign
competition, namely the PMV, TCF, heavy engineering, steel and shipbuilding industries.
The plans were designed to be temporary and to inject generous positive assistance to help
these industries to modernise, innovate and find new markets and at the same time to
firmly wind down the high levels of protection afforded to most of their products.
The changing emphasis of industry policy in the mid-1980s is reflected in the following
quotes from the Annual Reports of the Department of Industry Technology and
Commerce:
In approaching the task of restructuring manufacturing industry the Government has
adopted two complementary strategies. The first is to deal with the structural problem of
mature industries which developed under the highly protective regime of previous
decades. The purpose of this strategy is to provide these industries with assistance
measures to adjust to increased international competitive pressure, with the ultimate
objective of seeing them stand on their own feet in the international market place.
The second strategy, which is important to manufacturing industries generally, is the
development of industry policies of general application designed to improve export
orientation, technology capacity and growth in new areas. 14
In recent years the focus on industry policy has shifted from an essentially defensive
orientation based on barrier protection to a forward-looking approach based on
facilitating the development of industries which are more internationally competitive,
export oriented and innovative. Industry policy is now concerned with transforming
rather than preserving existing structures. 15
12
Australian Manufacturing: A Brief History
The late 1980s saw a shift from industry–by–industry reviews, and downward adjustments
to tariff assistance for those industries, to a general program to phase down most tariffs. In
1988, the Government introduced an across-the-board program to phase down all tariffs
(except for PMV and for TCF which had their own tariff reduction programs) to either 10
per cent or 15 per cent by 1992.
This general tariff reduction program was extended in 1991 as the key plank in a new
initiative entitled Building a Competitive Australia. This announced the phase down of
general tariff rates over four years from 1992 to 1996 from 15 and 10 per cent to a single
rate of five per cent. In addition, tariffs on PMV would be reduced to 15 per cent by the
year 2000 and for TCF, quotas would be terminated in 1993 and tariffs phased down to a
maximum of 25 per cent by the year 2000. These tariff cuts were to be accompanied by
measures to enhance labour market and training programs and to exempt inputs to goods
production from wholesale sales tax.
The above announcements in 1991 were accompanied by some of the strongest statements
made by Australian politicians in favour of trade liberalisation. Interestingly they were
made at a time of economic recession and high unemployment. Prime Minister Hawke
stated:
Mr Speaker, the most powerful spur to greater competitiveness is further tariff
reduction.
Tariffs have been one of the abiding features of the Australian economy since
Federation. Tariffs protected Australian industry by making foreign goods more
expensive here; and the supposed virtues of this protection became deeply embedded in
the psyche of the nation.
But what in fact was the result?
Inefficient industries that could not compete overseas; and
Higher prices for consumers and higher costs for our efficient primary producers. Worse
still, tariffs are a regressive burden—the poorest Australians are hurt more than the
richest. 16
Treasurer Keating was equally damning of the tariff:
The package of measures announced today ends forever Australia's sorry association
with the tariff as a device for industrial development.
By turning its back on tariffs, Australia will be further propelled in its quest for
international trade and efficiency, a search begun with the opening up of the economy in
1983 when we floated the dollar and abolished exchange controls.
As in all nations before it, the pursuit of trade and competition has instilled in Australia a
thirst for greater efficiency at home and a larger dominion abroad. 17
13
Australian Manufacturing: A Brief History
The recession continued through 1992 and Prime Minister Keating introduced a range of
measures to facilitate business growth and generate employment. These were outlined in
his One Nation statement on 26 February 1992 and the Investing in the Nation statement
on 9 February 1993. Measures announced in these packages included accelerated
depreciation for plant and equipment, reduction in the company tax rate, measures to
facilitate major projects and a number of incentives to encourage exports and innovation,
as well as a range of initiatives to assist training and job creation. These positive measures
no doubt helped to detract attention from the critics of trade liberalisation and the acrossthe-board progam to reduce tariffs announced in 1991 continued to operate as scheduled.
By the end of the Keating Government in 1996, most tariffs had been reduced to five per
cent and the scheduled reductions in tariffs for PMV and for TCF up to the year 2000 are
continuing as planned. The Howard Government's commitments concerning tariff
assistance for these two industries beyond 2000 and also Australia's long term
commitment to free trade under APEC are discussed in Industry Policy in Australia,
September 1999. 18
Assistance via the Budget
The main categories of Commonwealth assistance through the Budget have been, and
continue to be:
• output bounties (which currently apply to books and shipbuilding, and previously to
computers, machine tools, textile yarns and steel mill products)
• export incentives to specific industries, namely PMV, TCF and pharmaceutical industries
and also general grants for Export Market Development, and
• incentives and other support for R&D, innovation, small and medium sized enterprises
and world best practice programs.
There is an important distinction between the assistance provided to specific industries and
the general assistance measures to support R&D, innovation and exports. The latter
measures can be targeted at externalities and other market failures where there is evidence
of a gap between public and private benefit in the absence of government intervention.
These do not discriminate between different industries. On the other hand, the provision of
bounties to selected industries provides the same protective benefits to recipient industries
as the tariff, and involves the same distortions and disincentives. The difference is that
industry bounties are paid for by the taxpayer and tariffs are mainly paid for by the
consumer.
14
Australian Manufacturing: A Brief History
The assistance package provided has varied significantly from year to year. Some
assistance programs have been established with a specific sunset clause of say five years
while other programs have come and gone reflecting trade-offs between various industry
policy priorities and the on-going search for candidates to contribute to government
expenditure restraint.
Some of the key developments in Budget assistance to manufacturing have been the
growth in industry specific assistance under the Hawke Government from 1983–84 to
1989–90 with the introduction of bounty assistance for a number of new industries.
Subsequent trends are shown in Table 1. The data in this Table was compiled by the
Productivity Commission who include in assistance to manufacturing a number of
programs, including assistance to exporters, which are not allocated to specific sectors in
the Treasury Budget papers. For example, the Productivity Commission put budgetary
outlays to manufacturing in 1998–99 at $635 million while the corresponding Budget
figure is $552 million.
Table 1 indicates assistance doubled between 1991–92 and 1994–95 reflecting expanded
programs for industry specific assistance and in general assistance for R&D and enterprise
development measures.
Table 1: Commonwealth Budgetary Assistance to Manufacturing Sector
Budgetary outlays
Tax expenditure
measures
Total budgetary
assistance
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998–99
$m
$m
$m
$m
$m
$m
$m
$m
658
756
786
810
673
614
614
635
522
1021
1137
1572
1007
1058
837
807
1180
1777
1923
2382
1680
1672
1451
1442
Data for 1998-99 are budget appropriations. Data for earlier years are government
expenditures.
Source: Productivity Commission, Trade & Assistance Review 1997–98 and personal
communication.
Since 1994–95 total budgetary assistance has declined; the main reductions being in the
tax concessions area with the phasing out of the general investment allowance on plant
and equipment and the reduction in the R&D tax concession from 150 to 125 per cent in
1996. With respect to budgetary outlays, expenditure savings have been made through the
phase down (and in most cases, abolition) of bounty assistance to specific industries and
also the abolition of the Development Import Finance Facility. On the other side of the
ledger, there have been significantly increased outlays for the Industry Innovation
15
Australian Manufacturing: A Brief History
Program and for the pharmaceutical industry Factor f Program. The successor to Factor f,
which commenced in July 1999, involves a lower level of assistance to this industry.
To provide some relativity to Budget assistance to the manufacturing sector, it can be
expressed as a percentage of value added in manufacturing or in terms of assistance per
person employed in manufacturing. Hence in 1997–98, Budget assistance to
manufacturing in Australia was $1451 million which represents 2.3 per cent of the
$62 billion value added in manufacturing. Later in this paper, it is shown that the
corresponding ratio of State aid to manufacturing as a percentage of value added in the
European Community is marginally higher at 2.6 per cent. It is noted, however, that over
half of State aid to manufacturing in the European Community goes to regional assistance
which is a very minor component of Commonwealth Budget assistance in Australia.
Employment in Australian manufacturing in 1997–98 was 1.12 million and Budget
assistance per person employed was $1319. The corresponding figure for the European
Community was higher at about $2000.
Trends in Rates of Assistance to Industry
The Industry Commission publishes two key measures of total Commonwealth
Government assistance to industry:
• the nominal rate of assistance which is the percentage change in gross returns per unit of
output relative to the (hypothetical) situation of no assistance. The nominal rate measures
the extent to which consumers pay higher prices and taxpayers pay subsidies to support
local output, and
• the effective rate of assistance is the percentage change in returns per unit of output to an
activity's value-adding factors due to the assistance structure. It measures net assistance,
by taking into account not only output assistance and direct assistance to value-adding
factors, but also the costs and benefits of government intervention on inputs.
The effective rate of assistance is the preferred measure of the impact of government
assistance on the allocation of resources. It provides a basis for assessing the extent to
which assistance may alter the incentives to undertake particular economic activities.
The estimates relate to Commonwealth assistance only. The coverage of forms of
assistance has improved over time and the most recent series includes assistance via
tariffs, quantitative import restrictions, production bounties, certain export incentives,
marketing support arrangements, input subsidies, By-law (or Commercial Tariff
Concession Orders), duty-drawback and excise. Several measures including anti-dumping
16
Australian Manufacturing: A Brief History
procedures, government procurement and offsets and partnerships for development
programs are excluded because they are difficult to quantify.
While a wide range of non-tariff measures have been employed from time to time, tariffs
have dominated, providing over 80 per cent of measured assistance to manufacturing
outputs in 1983–84. With the subsequent removal of quotas and some bounties, tariffs
accounted for over 90 per cent of assistance by 1989–90 and this trend is expected to
continue to 2000–01. 19
The trend in the average effective rate of assistance for the manufacturing sector is
provided in Figure 1. The average nominal and effective rates of assistance for the total
manufacturing sector, and for three of the more highly protected industries (textiles,
clothing and footwear and motor vehicles and parts), are shown in Table 2.
Figure 1. Average effective rates of assistance to manufacturing
40
Early series
1977-78 series
1983-84 series
1989-90 series
35
25
20
15
10
1996-97
1994-95
1992-93
1990-91
1988-89
1986-87
1984-85
1982-83
1980-81
1978-79
1976-77
1974-75
1972-73
1970-71
5
1968-69
Per cent
30
Year
Source: Industry Commission, Assistance to agriculture and manufacturing industry, Information Paper, March 1995
17
Australian Manufacturing: A Brief History
Table 2: Nominal and Effective Rates of Assistance to the Manufacturing Sector and Selected
Industries, 1968–69 to 2000–01 (per cent)
Average Nominal Rate of Assistance on Outputs
1968-69
1969-70
1970-71
1971-72
1972-73
1973-74
Total
Manufacturing
24
23
23
22
22
17
Textiles
25
24
24
25
25
19
1974-75
1975-76
1976-77
1977-78
15
16
15
15
20
23
24
26
42
47
62
64
1977-78
1978-79
1979-80
1980-81
1981-82
1982-83
15
15
15
15
16
16
24
24
27
28
26
25
1982-83
1983-84
1984-85
1985-86
1986-87
1987-88
1988-89
1989-90
1990-91
13
13
13
12
12
11
10
9
9
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
2000-01
Clothing Motor
&
Vehicles
Footwear & parts
53
35
51
35
50
35
49
34
50
34
36
26
Average Effective Rate of Assistance
Total
Manufacturing
36
36
36
35
35
27
29
34
32
34
64
65
63
63
82
85
23
23
25
23
23
22
24
23
21
8
8
7
6
5
5
4
3
Textiles
43
42
42
45
45
35
Clothing &
Footwear
97
94
91
86
88
64
Motor
Vehicles
& parts
50
49
50
49
49
38
27
28
27
26
39
50
51
57
87
99
141
149
54
73
67
79
1974-75
Series
38
42
46
50
53
54
23
24
23
23
25
25
47
47
51
55
54
54
141
143
135
140
204
220
73
81
89
96
108
110
1977-78
Series
69
78
78
88
64
64
65
65
65
50
51
49
40
28
27
26
27
25
21
22
22
20
19
19
17
16
15
68
69
75
72
68
65
72
72
68
192
227
250
148
176
174
171
173
176
126
135
143
125
92
88
72
65
60
1983-84
Series
18
16
14
12
11
10
9
63
52
42
37
34
31
29
26
24
22
20
19
17
15
14
13
12
10
9
8
6
51
46
41
37
33
27
25
113
92
73
65
60
56
52
48
45
41
38
35
31
28
1989-90
Series
6
19
10
5
17
34
19
1971-72
Series
Source: Industry Commission, 'Assistance to agricultural and manufacturing industries', Information
Paper, March 1995.
18
Australian Manufacturing: A Brief History
The time series data indicate the following trends in the level of assistance afforded to the
Australian manufacturing sector over the past 30 years:
• The trade liberalisation process in Australia started with the 25 per cent across-the-board
tariff cut in July 1973. This reduced the average nominal rate of assistance for
manufacturing from 22 to 17 per cent and the average effective rate from 35 to 27 per
cent.
• The next decade from 1974–75 to 1984–85 witnessed a stable average level of protection
for the manufacturing sector as a whole but some marked changes in the assistance
afforded different industries within the sector.
• Assistance to the textiles, clothing and footwear and passenger motor vehicle industries
blew out over this period under a regime of tariff and quota arrangements and the local
content plans for passenger motor vehicles. The average effective rate for textiles
increased from 39 per cent in 1974–75 to 75 per cent in 1984–85; the corresponding rate
for clothing and footwear rose from 87 per cent to 250 per cent over this period; and for
passenger motor vehicles and parts, from 54 per cent to 143 per cent.
• The large increases in assistance to the above three industries were offset by declining
assistance to a wide range of other manufacturing industries as part of the Tariff Review
Program.
• The subsequent period from 1984–85 to the present and continuing to 2000–01 has seen a
continuous, almost linear, decline in the level of assistance to the manufacturing sector and
in this period, textiles, clothing and footwear and motor vehicles have been key elements
of the trade liberalisation process.
Figure 2: Average effective rates of assistance to manufacturing PMV and TCF, 1990–91
to 2000–01
Source: Productivity Commission, Trade and Assistance Review 1997-98
19
Australian Manufacturing: A Brief History
By the year 2000–01, it is expected that the average protection afforded the manufacturing
sector will be reduced to a three per cent nominal rate and a five per cent effective rate.
This level would probably be of little concern if it was uniform across industries but it
remains far from uniform with clothing and footwear, and to a lesser extent, motor
vehicles and textiles, receiving well above average assistance. As noted above the tariff
debate with respect to these three industries continues to be hotly debated.
Anti-Dumping and Countervailing Measures
The General Agreement on Tariffs and Trade allows Member countries to apply antidumping measures on imports of a good with an export price below its normal value in the
supplier's home market, if such imports cause or threaten to cause material injury to the
domestic industry. In addition, the WTO Agreement on Subsidies and Countervailing
Measures (1995) allows Members to apply countervailing duties where exports benefiting
from certain forms of subsidies cause or threaten to cause material injury or serious
prejudice to a domestic industry.
Like tariffs and other measures which raise the price of imports, anti-dumping and
countervailing measures may restrict competition, protect domestic industry and impose
higher costs on domestic consumers.
Anti-dumping and countervailing activity in Australia has shown considerable fluctuation
since the mid 1980s. Four phases are evident in the number of new cases initiated. New
cases fell from 56 in 1985–86 to 21 in 1988–89, rose to a peak of 88 cases in the 1991–92
recession and then declined sharply to a mere six cases in 1994–95. The number of new
cases has increased since then to 36 cases in 1997–98. 20
A major cause of these fluctuations is the business cycle. In the past, requests from
industry for anti-dumping measures increased significantly in periods of low
manufacturing company profits and fell in periods of greater prosperity. Hence the Asian
crisis, and the expected slowdown in domestic demand, may add to pressures for antidumping measures in the year ahead.
There have been important changes to anti-dumping policy and administration over the
past ten years. Following a review by Professor Gruen, 21 a number of changes including
the introduction of sunset periods for anti-dumping action and establishment of the AntiDumping Authority were introduced in 1988. The overall impact of these measures was to
reduce the scope for providing assistance to local industry via the anti-dumping
arrangements.
The Howard Government came to office with a commitment to improve existing
countervailing and anti-dumping procedures to ensure Australian producers are not
disadvantaged. Following the Willett Review 22 , the legislation was amended and a new
scheme became effective on 24 July 1998. The key changes to the policy were:
20
Australian Manufacturing: A Brief History
• a significantly shorter (155 day) single stage anti-dumping and countervailing
investigation conducted by the Australian Customs Service
• abolition of the Anti-Dumping Authority
• provision for the payment of interim duties after 60 days of the investigation period, and
• a new appeal and review mechanism which provides for reviews to be conducted by a
statutory officer known as the Trade Measures Review Officer.
The move to a single stage investigation by Customs—compared with the previous
preliminary review by Customs and a separate review of the positive preliminary findings
by the Anti-Dumping Authority—will streamline the administration of anti-dumping and
countervailing actions. Such actions will continue to be subject to a five year sunset
clause. The Government's scheduled review of anti-dumping and countervailing regulation
under the Competition Principles Agreement has been postponed to allow for full
implementation of the new arrangements.
On the international scene, new anti-dumping and countervailing actions stood at 225
cases in 1998 and this number appears to have stabilised in recent years. However the
traditional anti-dumping users, notably the United States, European Union, Australia and
Canada, remain major users, but there has been a surge in use by developing countries
with South Africa, Mexico, Argentina, Brazil, India and Korea being increasingly active
users. 23
Australia appears to have accounted for six to eight per cent of the anti-dumping cases
initiated internationally in recent years. Relative to its share of world trade (less than one
per cent), Australia continues to be one of the more frequent users of anti-dumping
measures. The recent streamlining of the administrative process for anti-dumping action in
Australia may encourage Australian industry to pursue this course of action.
Estimated costs of protection
The Industry Commission provides the following measures of the subsidy, and consumer
tax, equivalents of the tariffs and other protective measures applied to manufactures.
• The 'gross subsidy equivalent' is the estimated change in producers' gross returns from
assistance. It is the notional amount of money necessary to provide an industry with a
level of assistance equivalent to the nominal rate of assistance on its output.
• The 'net subsidy equivalent' is the estimated change in returns to an activity's value added
due to assistance. It is equivalent to the effective rate of assistance.
21
Australian Manufacturing: A Brief History
• The 'consumer tax equivalent' is the transfer from final consumers paying higher prices
due to assistance for their purchases of manufactures. 24
The continuing importance of the more highly assisted sectors is evident in Table 3. In
terms of 'net subsidy equivalent', TCF and PMV together accounted for half of the
manufacturing sector total in 1996–97. By 2000, the share of these industries is estimated
to fall to 40 per cent. 25 The level of assistance paid by the consumer is particularly evident
in the figures on 'consumer tax equivalent' per passenger motor vehicle of $3400 in 1996
and dropping to $2100 by 2000. This reduction in the consumer tax equivalent of $1300
per vehicle should be translated into a corresponding drop in average Australian motor
vehicle prices.
Table 3: Subsidy and Consumer Tax Equivalents of Assistance to Manufacturing and Key Sectors
Gross subsidy
equivalent $m
Net subsidy
equivalent $m
Consumer tax
equivalent $m
1971-72
21 273
14 182
na
1989-90
15 620
10 230
8 649
1996-97
6570
4001
na
2000-01
5553
3322
3967
1971-72
803
531
na
1989-90
808
608
348
1996-97
379
292
na
2000-01
262
196
161
1971-72
1641
1209
na
1989-90
1750
1410
2032
1996-97
801
649
na
2000-01
531
428
964
1996
1140
na
1750
2000
na
na
1081
Manufacturing sector
Textiles
Clothing and Footwear
Passenger motor vehicles
na = not available
Sources: Industry Commission, 'Assistance to Agricultural and Manufacturing Industries',
Information Paper March 1995, p. 211 and Industry Commission, 'The Automotive Industry',
Report No. 58, 26 May 1997, volume 1, pp. 252–253.
22
Australian Manufacturing: A Brief History
The cost of assistance estimates can be used to illustrate the very high cost involved in
maintaining assistance in the most highly protected industries in order to support
employment in them. In clothing and footwear, for example, employment in 1991 was
about 55 000 and the net subsidy equivalent of assistance was $1200 million or more than
$22 000 per employee. This exceeded the average wage in the industry of $21 000. 26
Estimated benefits from trade liberalisation
The reduction in the subsidy, and consumer tax, equivalents of industry assistance shown
above provides one indicator of the benefits of trade liberalisation. In the past 30 years, the
subsidy equivalent of assistance to the manufacturing sector has declined by about 75 per
cent. This reflects a corresponding reduction in the transfer of resources from the
unprotected sectors of the economy to the protected manufacturing sector.
The above measures, however, do not indicate the full net benefits from trade
liberalisation. They do not incorporate the indirect or second round effects which flow
from the behavioural responses of producers and consumers to the assistance induced
changes in relative prices. The measures do not include general equilibrium effects such as
the possible impact on the exchange rate, and most importantly, the impact of trade
liberalisation on intra-firm efficiency. Conversely, they do not include adjustment costs
such as structural unemployment, retraining costs and unused capacity.
The Economic Planning Advisory Commission in 1996 undertook a quite different
approach to measuring the gains from tariff reform and other micro-economic reforms.
The approach compares Australia's economic performance with that of 13 other OECD
countries and seeks to incorporate the 'dynamic' gains to firms arising from greater
exposure of the economy to international competition. The results suggest that the longerterm dynamic gains from policies such as tariff reductions may be as much as ten times
the static gains from better resource allocation. 27
Overseas experience
This section provides a few facts on the use of tariffs, non-tariff barriers and budgetary
assistance in other countries. These are provided mainly for purposes of comparison with
Australia's experience. Only selected material is presented and this does not convey the
history of industry policy in these countries.
23
Australian Manufacturing: A Brief History
Industrial Tariffs
Trade liberalisation in manufactured products has been achieved in most industrialised
countries over the post-war period. The main driving force behind this remarkable
achievement has been the multinational trade negotiations under the auspices of the
General agreement on Tariffs and Trade (GATT), which celebrated its 50th birthday in
1998. It started as a club of 23 countries committed to cutting tariffs on trade between
member countries. Today it has a membership of 134 countries and with more than 30
countries, including China and Russia, seeking to join. GATT has implemented eight
rounds of global trade talks, each involving more countries and taking trade liberalisation
further than the last.
Figure 3: Industrial Tariffs and Volume of Trade in GATT Member Economies
Source: World Trade Organisation, Trading into the Future, 1995 and Annual Report 1997.
The results in terms of tariff cuts and trade growth have been spectacular (Figure 3). The
average level of tariffs in industrialised countries is now less than four per cent, one tenth
of their level in 1948. This has been associated with a strong growth in specialisation and
in the share of output traded. Over the 1950–96 period, world output of manufactures grew
9-fold, while world trade in manufactures rose 31-fold. 28
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Australian Manufacturing: A Brief History
Non-tariff barriers (NTBs)
NTBs include countervailing and anti-dumping duties, voluntary export restraints,
subsidies which sustain loss making enterprises in operation, technical barriers to trade
and obstacles to the establishment and provision of services. NTBs are less transparent
than tariffs and there is no general measure of the restrictiveness of such barriers. The
OECD, however, does monitor the frequency and coverage of NTBs and these measures
indicate a significant reduction in their usage in developed countries since 1988 (Table 4).
Table 4:
Non-Tariff Barriers in OECD Countries
Frequency ratioa
Import coverage ratiob
1988
1993
1996
1988
1993
1996
United States
25.5
22.9
16.8
16.7
17.0
7.7
European Union
26.6
23.7
19.1
13.2
11.1
6.7
Japan
13.1
12.2
10.7
8.6
8.1
7.4
Canada
11.1
11.0
10.4
5.7
4.5
4.0
3.4
0.7
0.7
8.9
0.4
0.6
14.1
0.4
0.8
11.5
0.2
0.2
Australia
New Zealand
a)
The frequency ratio is the proportion of national tariff lines that are affected by a particular NTB, or by
a specified group of NTBs, irrespective of whether the products affected are actually imported.
b) The import coverage ratio is the share of a country's own imports that is subject to a particular NTB or
any one of a group of NTBs.
Source: OECD, Indicators of Tariff & Non-tariff Trade Barriers, Update 1997, pp. 53 and 56.
The OECD in June 1999 noted:
While the level of tariffs and certain quantitative import controls have declined and are
programmed to fall further, there are concerns that non-tariff barriers to trade in general
(NTBs) may be gaining greater importance as a means of protecting domestic producers
of goods and services and impeding access to international markets. 29
The OECD makes particular reference to two forms of NTB which appear to be on the
increase. It notes that a rising proportion of trade disputes concern technical barriers to
trade in the human health and safety area such as bans on imports into Europe of hormonefed beef and genetically modified organisms. The other area of concern is anti-dumping
actions which have been referred to above.
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Australian Manufacturing: A Brief History
Budgetary assistance
The OECD has started to monitor what it terms 'public support to industry' for its member
countries. However the latest (1998) report provides information for the OECD group of
countries only for the years 1989 to 1993, although information for later years is provided
for a number of countries. 30
More recent information is available for the European Union countries for what is termed
'State aid to industry' in a report published by the Commission of the European
Communities. 31 The report notes that the competition provisions of the EC Treaty include
Community rules on State aid. It is recognised that State aid may be used for common
interest purposes such as to redress the effects of market failures but that it can also be
used to frustrate free competition and provide the same effect as tariff barriers. The aim of
the report is to provide transparency and reinforce an open policy on the control and use of
State aid.
Table 5: State Aid to the Manufacturing Sector in the European Community.
Annual values in constant (1996) prices
1993
1994
1995
1996
1997
44766
41332
39328
35367
34400
3.8
3.5
3.2
2.9
2.6
In euro per person employed
1540
1457
1385
1269
1236
$A equivalent (assuming 1 euro =$A1.7)
2678
2477
2355
2157
2101
Value of State aid (million euro)
In per cent of value added
The European Community comprises the 12 Member Countries as at 1993.
Source: Commission of the European Communities, Seventh Survey on State Aid in the European
Union in the Manufacturing and Certain Other Sectors, 30 March 1999, pp. 5 and 6.
The main types of State aid included in Table 5 are grants and tax exemptions but it also
covers equity participation, soft loans, tax deferrals and guarantees. The clear message
from the Table is that State aid to the manufacturing sector in the European Union has
declined steadily over the 1993–97 period. It declined by 23 per cent in terms of total
value, and by 20 per cent in terms of value per person employed, over this period.
Other features of State aid to manufacturing in the European Union were that it was
highest (relative to value added) in Italy and Greece and lowest in the United Kingdom,
Sweden and the Netherlands. In terms of function, over 50 per cent of State aid was
directed at regional objectives and 31 per cent at horizontal objectives such as R&D,
environment, small and medium enterprises, trade and energy savings. Only 12 per cent of
State aid was directed at particular industries. For shipbuilding and steel, the granting of
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Australian Manufacturing: A Brief History
aid was subject to European Commission regulations, namely the Shipbuilding Directive
and the Steel Aid Codes.
Conclusion
Australia has moved a long way towards trade liberalisation, with average tariff levels
now close to five per cent. While Australia lagged behind the tariff reform process in
many developed countries in the 1960s and 1970s, it has now caught up and has average
tariff levels comparable to those in our main OECD trading partners and a significantly
lower usage of non-tariff barriers.
The start of the trade liberalisation process in the late 1960s and early 1970s was a slow
and hard fought battle to persuade governments, industry and unions that the move to a
more open trading economy was in Australia's best interests. The process almost ran off
the rails in the late 1970s and early 1980s with the massive increase in protection for the
PMV and TCF industries. The Hawke/Keating Governments, with the Button Plans for
structural adjustment in the key mature industries, made major steps in governmentindustry cooperation and in creating support for, or at least acceptance of, trade
liberalisation. The strongest progress towards trade liberalisation occurred in the latter part
of the 1980s and through the 1990s up to the year 2000.
This historical review suggests that if Australia is to achieve the APEC goal of free trade
by 2010, the end of the trade liberalisation process may also be a hard fought battle. It will
centre on the PMV and TCF, and possibly several other smaller industries. Significant
policy adjustments will be required in these industries in the latter half of the next decade,
following the lifting of tariff freezes for PMV and TCF. The recent re-emergence of
protectionist pressures both in Australia and overseas, and the failure of APEC countries
to reach agreement on key trade liberalisation proposals, will contribute to an uncertain
future.
With the decline in tariffs, assistance to industry via the Budget is likely to become
increasingly important. This is consistent with the role of government becoming more that
of a facilitator of change in the private sector rather than a controller or regulator of
change in its own right.
Assistance to industry via the Budget needs to be an integrated package of measures with a
clear set of objectives. It needs to move away from the image of being an ad hoc group of
incentives which is constantly changing to meet the needs of sectional industry interests on
the one hand and Budget cost cutters on the other. One way of achieving a greater
objectivity, and a greater constancy, in Budgetary assistance to industry is to reduce the
assistance for industry selective measures and increase the assistance for general measures
to facilitate education, innovation and best practice.
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Australian Manufacturing: A Brief History
The brief comparison in the Paper of Budgetary assistance to industry in the European
Union compared with Australia indicates a similar ratio of assistance to value added in
manufacturing in the two regions. However Australia continues to direct a much larger
share of its Budgetary assistance to selected industries while in the European Union
countries, regional objectives are the largest single basis for funding. With rural and
regional issues attracting renewed interest in Australia, there may be increased calls for
industry assistance to meet regional objectives.
Some suggested priorities for government assistance to industry in the areas of innovation,
education and training and encouragement of the high technology industries are discussed
in Industry Policy in Australia 32 .
Endnotes
1.
Michael Emmery, 'Industry Policy in Australia', Research Paper No. 3, 1999–2000.
2.
George Santayana, The Life of Reason, 1905.
3.
Unused protection occurred where the domestic manufacturers' price was below the notional
price, including tariff, of the corresponding imported product. It indicated the availability of
more protection than was necessary to make domestic production competitive with imports.
4.
Fred Gruen, Australian National University, Foreword to Industry Assistance The Inside Story
by Alf Rattigan, Melbourne University Press, 1986.
5.
Alf Rattigan, Industry Assistance: The Inside Story, Melbourne University Press, 1986.
6.
ibid., p. 21.
7.
ibid., pp. 22–23.
8.
Tariff Board, Annual Report for Year 1966–67, p. 9.
9.
Australian Industry Development Association Bulletin, October 1970.
10. Doug Anthony speech to West Australian Chamber of Manufactures, 25 July 1972.
11. Policies for Development of Manufacturing Industry. A Green Paper, p. 9.
12. Industry Commission, The Textiles, Clothing and Footwear Industries, Report no. 59, 1997,
vol. 2 appendices p. I7.
13. John Button, As It Happened, The Text Publishing Company, 1998, p. 254.
14. Department of Industry, Technology and Commerce, Annual Report 1984–85, p. 10.
15. Department of Industry, Technology and Commerce, Annual Report 1986–87, p. 20.
16. Commonwealth of Australia, Building a Competitive Australia, 12 March 1991, 1.5.
17. ibid., 2.1.
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Australian Manufacturing: A Brief History
18. Michael Emmery, op. cit.
19. Industry Commission, Assistance to agricultural and manufacturing industries, Information
Paper, March 1995, p. 37.
20. Productivity Commission, Trade & Assistance Review 1997–98, p. 67.
21. Fred Gruen, Review of the Customs Tariff (Anti-Dumping) Act 1975, March 1986.
22. Lawrie Willett, Review of Australia's Anti-Dumping and Countervailing Administration,
September 1996.
23. Guy de Jonquieres, 'Poorer nations starting more dumping cases', Financial Times, 6 May
1999.
24. Industry Commission, 'Assistance to agricultural and manufacturing industries', Information
Paper, March 1995, p. 212.
25. Industry Commission, Trade & Assistance Review 1996–97, Annual Report Series 1996–97,
p. 55.
26. R. M. Conlon, 'Protection of Australian manufacturing: past, present and future', in Satya Paul
(editor), Trade and Growth New Theory and the Australian Experience, Allen & Unwin,
Sydney, 1998, p. 226.
27. Economic Planning Advisory Commission, 'Tariff reform and economic growth', Commission
paper no.10, February 1996.
28. Martin Wolf, 'Why liberalisation won', Financial Times, 18 May 1998
29. OECD, Economic Outlook, June 1999, p. 210.
30. OECD, Spotlight on Public Support to Industry, 1998.
31. Commission of the European Communities, Seventh Survey of State Aid in the European
Union in the Manufacturing and Certain Other Sectors, 30 March 1999.
32. Michael Emmery, op. cit., pp. 34–38.
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