Trade and Assistance Review 2005-06

The Australian Government assists industries through an array of mechanisms, including tariffs and regulatory restrictions on imported goods and services, as well as subsidies and tax concessions for domestic producers.

• Assistance generally benefits the industry that receives it but can penalise other Australian industries, as well as taxpayers and consumers.
• Some types of assistance, such as R&D funding, may deliver net community benefits; others entail net costs to the community.

While industry assistance has declined greatly over recent decades, assistance provided by the Australian Government remains significant.

• In 2005-06, the government measures covered in the Commission's latest series of estimates provided assistance to industry equivalent to $14.4 billion in gross terms, and $7.5 billion in net terms.

Tariffs provided (gross) assistance equivalent to $8.2 billion in 2005-06.

• Virtually all of this was directed to manufacturing industries.
• The resulting higher prices of manufactured inputs meant that net tariff assistance to most industries in other sectors (agriculture, mining and services) was negative.

Estimated budgetary assistance to industry totalled $6.1 billion in 2005-06.

• Activities assisted included R&D (which received 28 per cent of measured budgetary assistance) and exporting (11 per cent). Sectoral and industry-specific assistance together accounted for 35 per cent of the total.
• Manufacturing, primary production and the (much larger) services sector each received around one third of this assistance.

The measured rates of combined assistance to manufacturing and primary production industries were, on average, roughly equal at around 5 per cent in 2005-06.

• In manufacturing, the automotive and textiles, clothing and footwear industries attracted the highest effective rates of assistance, ranging up to 15 per cent.
• The measured rate of assistance to primary production has increased in recent years, partly reflecting the provision of substantial drought relief.

The current (Doha) round of multilateral trade negotiations has reached an impasse.

• While the causes are many, a key underlying problem is a lack of understanding in most WTO member countries of the source of benefits that arise from trade liberalisation, which helps sectional interests to trump the national interest.
• This could be alleviated by instituting mechanisms in all member countries to bring greater transparency to the costs and benefits of trade liberalisation.

In line with a global trend, Australia has recently concluded a number of preferential trade agreements with particular countries, with more in prospect.

• The outcome for Australia from such arrangements depends on detailed design features, including 'rules of origin' embodied in the agreements.

Import tariffs, budgetary grants and tax concessions provided Australian industry with the equivalent of around $7.5 billion in net assistance ($14 billion gross) last financial year, according to a Productivity Commission report.

Trade & Assistance Review 2005-06 sets out the Commission's latest estimates of industry assistance provided by the Australian Government.

Most Australian industries have relatively low rates of assistance by historical standards, but pockets of high assistance remain.

The textiles, clothing and footwear and the automotive industries remain the most highly assisted manufacturing industry groupings, although the Government has announced continuing transition programs designed to move both sectors to lower levels of assistance.

Assistance to the primary production sector has increased recently, not least because of the substantial 'exceptional circumstances' drought support provided for farmers, which totalled around $400 million last financial year.

The report notes that some forms of assistance, such as R#38;D subsidies, can deliver net community benefits if well designed. But it also indicates that industry assistance can entail significant costs to consumers, taxpayers and other industry - for example, tariffs on manufactured imports effectively penalised businesses in the services sector by around $4 billion in 2005-06.

In relation to the current impasse in World Trade Organization negotiations, the report points to a lack of understanding about the source of benefits from trade liberalisation as a key underlying cause. The report supports calls for WTO member countries to bring greater transparency to the costs and benefits of protection. This would help counter the influence on trade policy of sectional interests.

• Preliminaries
  Cover, Copyright, Contents, Preface and Abbreviations
• Key points
• Chapter 1 Introduction
• Chapter 2 Assistance estimates
  2.1 Tariffs
  2.2 Budgetary assistance
  2.3 Agricultural marketing and pricing assistance
  2.4 Combined assistance
• Chapter 3 Selected developments in assistance
  3.1 Drought relief
  3.2 Industry-specific assistance
    — sugar
    — wheat
    — tobacco
    — forestry
    — wine
    — automotive
    — venture capital
    — alternative fuels
    — energy
  3.3 Assistance for small business
  3.4 Regional adjustment support
  3.5 Selective investment incentives
  3.6 Anti-dumping arrangements
• Chapter 4 Recent developments in trade policy
  4.1 Multilateral trade negotiations
  4.2 Preferential trade agreements
• Appendix A Detailed budgetary assistance estimates
• Appendix B Antidumping and countervailing activity
• References