Trade and Assistance Review 2016-17

• Global trade policy appears to be at dangerous cross roads.
• The US, having long led the drive to liberal world trade with positive effects on growth for almost all nations, is now moving to exploit its leverage to favour domestic industries.
• New tariffs have been introduced and trade agreements are being renegotiated on less liberal terms. What was for two generations a question only of whether international trade grew slower or faster now must include the prospect that regulation may force it backwards.
• Trade wars may be easy to initiate but winning is improbable, unless the benchmark is solely crude politics. Employment and living standards should form part of the calculation.
• The Productivity Commission published estimates in 2017 of the damage that such initiatives impose on both the initiator and the rest of the world. These costs are serious.
• The ability to resist this trend lies with major trading nations. Australia can still be an effective partner for growth and living standard improvement locally and globally by:
  • negotiation of genuinely multilateral and plurilateral trade agreements
  • reducing further our tariff and non tariff barriers unilaterally
  • not adding further to the 'noodle bowl' of rules of origin impediments to trade
  • ceasing to view the anti-dumping regime as a cheap card to play every time an industry claims to be threatened by imports
  • removing parallel import restrictions.
• An open trade policy has contributed clearly to making our economy resilient to shocks over more than 25 years of uninterrupted growth.
• Australia’s recent policy steps have been inconsistent and in many cases heading in the wrong direction.
• New project finance vehicles have been established that have the potential to skew industry assistance to particular firms and projects with minimal public scrutiny until deals are done. Major shifts in tax have favoured a particular cohort of businesses. Bilateral trade agreements continue to be negotiated without publishing sound prior analysis to show where net benefit to Australia is being sought or to allow the Parliament to see if these objectives have been met. Opaque processes rarely make good policy.
• The Commission estimates that gross assistance to industry provided by the Australian Government was $19.3 billion and that net assistance (after deducting the cost penalty of tariffs) was $13.4 billion in 2016-17. This was a substantial increase on last year’s estimate of $9.7 billion in net assistance. These estimates are conservative as they exclude harder-to-quantify assistance: favourable finance (loans, debt, equity, guarantees); local purchasing preferences, such as for defence equipment; and regulatory restrictions on competition.

A time for trade policy leadership

Global trade policy appears to be at a dangerous cross-roads says the Productivity Commission in its latest Trade and Assistance Review.

As indicated in the report, the USA, having long led the drive to liberal world trade with positive effects for growth, is now moving to exploit its leverage to favour domestic industries.

'Even if protectionism unfolds in fits and starts as it is at present, once it takes hold in popular opinion it will prove very hard to wind back,' Productivity Commission Chair Peter Harris said.

'Australia’s interests clearly lie in resisting this protectionist trend. An open trade policy has contributed to Australia’s economic resilience to shocks over more than 25 years of uninterrupted growth. However, major political parties have in recent times taken confusing and inconsistent positions,' Harris said.

Australian industry received more than $19 billion in assistance from the Australian Government in 2016-17, a substantial increase on last year’s estimate. Tariffs made up $6.8 billion of this figure; budgetary assistance $5.3 billion; and tax concessions $7.2 billion. The bulk of industry assistance still favours manufacturing over other export industries.

The Commission’s figures for industry assistance are conservative as they don’t include the significant assistance provided by government through favourable finance, local purchasing preferences, and regulatory restrictions on competition.

'In particular, new schemes to provide government finance to commercial projects — whether Northern Australian infrastructure, regional water assets, farm businesses or defence materiel exporters — lack transparency and risk serious misallocation of resources in coming years,' Mr Harris said. 'Tax breaks to small companies will, if they remain isolated to that group, also skew investment and harm the economy.'

The Commission has set out an agenda for leadership in trade policy, including:

• reducing further our tariff and non tariff barriers, whether multilaterally or unilaterally
• not adding further to the ‘noodle bowl’ of Rules of Origin in bilateral agreements that impede trade
• ceasing to view the anti-dumping regime as a cheap card to play every time an industry claims to be threatened by imports.

Read the report above.

• Preliminaries: Cover, Copyright and publication detail, Foreword, Contents, Abbreviations and explanations
• Key points
• Chapter 1 Key results and policy developments
  • 1.1 Industry assistance estimates
  • 1.2 Concessional project financing is playing an increasing role as assistance
  • 1.3 Rising protectionism: how should Australia respond?
  • 1.4 Some trade and assistance implications of national security measures
• Chapter 2 Assistance estimates
  • 2.1 Tariff assistance
  • 2.2 Australian Government budgetary assistance
  • 2.3 Combined assistance and effective rates of assistance
  • 2.4 Effective rates of assistance since 1970
• Chapter 3 National security measures: some trade and assistance implications
  • 3.1 Industry assistance for mandatory data retention
  • 3.2 Restrictions on cross border flow of data
  • 3.3 Aviation security costs
  • 3.4 Cost recovery of screening for low value consignments
  • 3.5 Towards better national security policy
• Chapter 4 Recent developments in industry assistance
  • 4.1 Northern Australia Infrastructure Facility
  • 4.2 The Defence Export Strategy
  • 4.3 A new farm concessional loan scheme and water infrastructure facility
  • 4.4 Domestic gas security and assistance
  • 4.5 Lower taxes for small business
  • 4.6 Film and television industry assistance
• Chapter 5 Trade policy developments
  • 5.1 Multilateral and plurilateral agreements
  • 5.2 Bilateral and regional agreements
• Appendix A Detailed estimates of Australian Government assistance to industry
• References