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The Productivity Commission is the Australian Government's principle review and advisory body on microeconomic policy and regulation. It conducts public enquiries and research into a broad range of economic and social issues affecting the welfare of Australians, including competition policy, productivity, the environment, economic infrastructure, labour markets, trade and assistance, structural adjustment and microeconomic reform.

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Answer 6

TRADE POLICY REVIEWS: FIRST PRESS RELEASE, SECRETARIAT AND GOVERNMENT SUMMARIES
Australia: June 1998
The unilateral trade liberalization measures and internal structural reforms launched by Australia in the early 1990s have led to higher rates of growth of GDP and productivity, and to lower unemployment.






See also:
> Second press release
> Chairperson’s concluding remarks


PRESS RELEASE
PRESS/TPRB/76
23 June 1998
Australia should push ahead with trade policy reforms to increase its overall competitiveness Back to top

The unilateral trade liberalization measures and internal structural reforms launched by Australia in the early 1990s have led to higher rates of growth of GDP and productivity, and to lower unemployment. The economic reforms, including tariff reform, a reduction in subsidies and the deregulation and privatization of many services sectors, have improved the competitiveness of Australian business and stimulated exports. Despite these benefits, Australia appears hesitant about pushing ahead with reforms, especially for industries that continue to be relatively heavily protected, such as textiles and clothing and the automotive sector. A new WTO Secretariat report on Australia's trade policies and practices suggests that Australia should continue its reforms and address unnecessary regulatory measures and other structural rigidities that impair the competitiveness of its economy.

The WTO Secretariat report and a policy statement prepared by the Government of Australia will provide the basis for a review at the WTO of Australia's trade policies and practices on 30 June and 2 July 1998.

Australia met its Uruguay Round commitments by changing all remaining quantitative restrictions in agriculture to tariffs so that it now relies largely on tariffs, rather than quotas, for import protection. It also removed export subsidies. Under its unilateral programme, Australia's average applied tariff declined to 5.6% in 1998 and will be progressively reduced until 2000. Between 1993 and 1998, the simple average tariff declined from 0.9% to 0.3% in agriculture, from 1.1% to 0.6% in mining and from 11.1% to 6.0% in the manufacturing sector. Overall, approximately 86% of all tariff lines now bear duties of between 0 and 5%. This is significantly more than the 44% level of 1993.

In spite of the general tariff reduction, considerable variation still remains within the overall tariff structure. In particular, Australia's car and textiles and clothing industries continue to receive relatively higher tariff protection. The discrepancies will be accentuated with the Government's recent decision to freeze tariff reductions for these industries between 2000 and 2005. For example, duties on motor vehicles will be reduced from 15% to 10% only after 1 January 2005 rather than by 1 percentage point per year during the period 2000-2005. The Secretariat report argues that this change in policy may thus give the wrong signal to industries which, on the contrary, should be encouraged to become more competitive as soon as possible.

Tariff and non-tariff assistance to agriculture is low. According to government sources, Australia's average, effective rate of assistance for agriculture was 12% in 1995/96. The dairy industry (especially milk production) receives assistance in excess of 200%, however. Moreover, these indicators of assistance do not reflect the economic effects of the restrictions imposed by Australia's quarantine regime on a large number of agricultural and food-related products.



Australia continues to be a significant user of anti-dumping measures. The percentage of imports affected by anti-dumping and countervailing actions increased between 1993 and 1996, although the incidence of measures and undertakings in force declined from 86 in 1996 to 47 in 1997. Recent changes in anti-dumping procedures have considerably shortened investigation periods and questions arise regarding the seemingly enhanced role of local industry in the new investigative process.



In the services sector, which accounts for around 70% of GDP, Australia made WTO commitments in over 90 sectors and sub-sectors, with MFN exemptions in financial and audio-visual services. As part of the WTO Agreement on Financial Services, Australia removed its MFN exemption relating to the stock exchange. In addition, mergers between the four largest banks and the two largest insurers are permissible under the 1997 financial sector reforms, subject to approval by the Treasurer; mergers among the four largest banks, however, are not permitted. In its offer in the WTO Agreement on Telecommunication Services, Australia allowed unrestricted competition in basic telecommunication services as of July 1997 and has removed its foreign equity restrictions in the second basic service provider, Optus. Trade liberalization in the services sector has also been pursued under the Services protocol signed with New Zealand, exposing them to a greater degree of competition. In addition, Australia's new competition policy provides for the opening of utilities, including gas and electricity, to competition. However, other vital services such as maritime and port services remain to be reformed.

Overall, the report notes, that despite the obvious benefits of the reform programme, recent developments suggest that the Australian government may be adopting a more ambivalent attitude to unilateral trade liberalization, perhaps because of increased susceptibility to pressures from certain interest groups. However, the report also notes Australia's commitment to the multilateral trading system and, through the Cairns GroupSee footnote 1, to emphasizing the importance of further multilateral reforms in agriculture.

The report concludes that it is crucial for Australia to continue its trade and structural reform process to ensure strong growth in the long run. This would also help reduce Australia's unemployment rate, which is still above 8%. Hesitation over pushing through further reforms create anomalies and distortions in the tariff and assistance structure, and may give mixed signals to producers and consumers about the Government's commitment to future reforms and their direction. There is a need, the report says, for ongoing reform to address regulatory measures and structural rigidities that continue to impair the competitiveness of Australian industry.

Notes to Editors

The WTO's Secretariat's report, together with a policy statement prepared the Australian government, will be discussed by the WTO Trade Policy Review Body (TPRB) on 30 June and 2 July 1998. The WTO's TPRB conducts a collective evaluation of the full range of trade policies and practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system. The report, together with a report of the TPRB's discussion and of the Chairman's summing up, will be published in due course and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

The report covers the development of all aspects of each of Australia's trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Full reports are available for journalists from the WTO Secretariat on request. The full text of the WTO Secretariat report is also available for the press in the newsroom of the WTO website.

Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Benin (1997), Bolivia (1993), Botswana (1998), Brazil (1992 & 1996), Cameroon (1995), Canada (1990, 1992, 1994 & 1996), Chile (1991 & 1997), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Cyprus (1997), the Czech Republic (1996), the Dominican Republic (1996), Egypt (1992), El Salvador (1996), the European Communities (1991, 1993, 1995 & 1997), Fiji (1997), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993 & 1998), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992, 1995 & 1998), Kenya (1993), Korea, Rep. of (1992 & 1996), Lesotho (1998), Macau (1994), Malaysia (1993 & 1997), Mauritius (1995), Mexico (1993 & 1997), Morocco (1989 & 1996), New Zealand (1990 & 1996), Namibia (1998), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Paraguay (1997), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993 & 1998), Sri Lanka (1995), Swaziland (1998), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992, 1994 & 1996), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

The Secretariat’s report: summary Back to top

TRADE POLICY REVIEW BODY: AUSTRALIA
Report by the Secretariat – Summary Observations

Since its previous Trade Policy Review in 1994, Australia has, by and large, pressed on with its unilateral trade liberalization programme, which has been central to the process of structural reform and the exposure of Australian business to increased competition. Under the current programme, the general level, which dropped to 5% in 1996, is expected to be reduced further by the year 2000. Furthermore, Australia has met its Uruguay Round commitments by tariffying all remaining quantitative restrictions in agriculture and removing export subsidies. Internal structural reforms have been seen as complementing the trade liberalization process. There has been a reduction in subsidies, spurred by the Government's commitment to reduce the budget deficit. Australia has also recently enacted a new competition policy, which requires, inter alia, a review of all legislation that may contain anti-competitive elements and impose costs on business. Moreover, government enterprises, previously excluded from competition rules, are now subject to the same rules as private business. Deregulation and privatization are also taking place in many services sectors. A continuation of the trade reforms, accompanied by comprehensive competition policy reforms and internal deregulation, is seen as the key to improved competitiveness and the ability of Australian industry to compete successfully on the international market. The high degree of transparency regarding the nature and effects of various distortions to competition have greatly facilitated not only this Review, but the process of trade and structural reform during the 1990s.

The main outcome of the reform process is that Australia's rates of GDP and total factor productivity growth have been among the highest in the OECD group of industrialized countries. Unemployment, however, although declining from a peak of 11% in 1992/93, remains high at over 8%. It is crucial that the trade and structural reform process be continued and completed to ensure strong growth in the long run. This would, in turn, contribute to a further reduction in unemployment.

Economic environment

Since 1994, the Australian economy has experienced strong growth, accompanied by low rates of inflation. Prudent monetary policies have ensured a stable macroeconomic environment for Australian industry, while fiscal policy has concentrated on the consolidation of the budget deficit and privatization to reduce the savings-investment gap, which has contributed to persistent current account deficits. After falling from a peak of 6% of GDP in 1994/95 to 3% in 1996/97, the current account deficit is again rising and, with some repercussions from the recent financial crisis in Asia, is expected to be around 4.5% in 1997/98 (forecast by the 1997/98 budget to worsen to 5.25% in 1998/99), raising questions about the long-term implications of the low saving rate.

Significant progress has been made since the previous Review in raising private saving and curtailing public dissaving. The Government has maintained its commitment to cut the budget deficit by reduced spending and is currently involved in efforts to raise private saving, notably through the implementation of compulsory superannuation and tax rebates on savings. Nevertheless, in the longer term, the Government will have to tackle the politically sensitive subject of tax reform, which is expected, among other things, to reduce the present tax disincentive to save and overhaul the existing sales tax.

Trade and Trade-Related Policy Features and Recent Trends

Recent developments

Under a unilateral, predetermined programme, which began in 1991, Australia's applied tariffs declined to a general level of 5% in 1996 and are expected to fall further in a phased manner until the year 2000. As a result, unweighted average tariffs have declined from 9.6% in 1993 to 5.6% in 1998. Overall, approximately 85% of all tariff lines bear duties of between 0% and 5% in 1998, significantly more than the 1993 level of 44%.

Still, considerable variation remains within the overall tariff structure. In particular, Australia's traditionally protected industries, passenger motor vehicles (PMV) and textiles, clothing and footwear (TCF), continue to receive tariff protection considerably in excess of the manufacturing average. Furthermore, the Government, contrary to independent advice, decided in favour of a pause in tariff reductions for the PMV and TCF industries between 2000 and 2005. The pause is significant because it results in higher degrees of tariff protection for PMV and TCF industries, favouring these two industries at the expense of others, such as mining and agriculture, which have traditionally received little tariff protection. In light of the positive adjustment that has taken place in PMV and TCF industries, largely in response to tariff reductions since 1991, the Government may be giving the wrong signal to these two industries and to the manufacturing sector in general.

In the area of foreign investment, proposals from foreign nationals are, in general, subject to the Foreign Investment and Takeovers Act, 1975. Investment approval from the Government for small projects, up to $A 5 million in value, is not required in non-sensitive sectors. However, investment above this sum or in sensitive sectors is subject to national interest considerations and must be notified to the Government. Large investments (above $A 50 million) and investments in sensitive sectors, are examined on a case-by-case basis by the Foreign Investment Review Board, again taking into account the national interest, before approval is granted.

The previous Review noted that, despite sluggish growth, the Government implemented a tariff reform programme in 1991 in the belief that unilateral trade liberalization would have a positive effect on economic growth. The results have been positive for exports, economic growth and productivity, even in relatively protected sectors such as TCF and PMV. Despite the obvious benefits of the previous reform programme, several recent developments suggest that the Government may be adopting a more ambivalent attitude to unilateral trade liberalization and the provision of assistance to industry, perhaps reflecting its increased susceptibility to pressures from certain interest groups. For example, apart from the tariff pause, the Government's new industry policy embodies a more reciprocal and proactive approach to trade and foreign investment. There has also been a tendency, in some instances, to bypass the primary independent review (and transparency) body in the country, the Industry Commission (amalgamated in 1998 into the Productivity Commission) as regards a number of recent inquiries. These include the Mortimer and Goldsworthy reviews on which the new industry policy is largely based. The composition of these review committees appears to suggest greater involvement of industry groups, and thus further pressure on the Government from these vested interests.

Type and incidence of trade policy instruments

With the exception of a few tariff lines, representing around 0.3% of the total, Australia relies largely on tariffs, rather than quotas, for import protection. In addition, strong quarantine provisions provide substantial additional protection to the food and food processing sectors. The exceptions include imports of some kinds of cheese, which were subject to a quota during the period covered by previous Review, and currently face a tariff quota; and a specific tariff previously faced by sugar importers, which has been removed and tariffs reduced to zero.

Tariff escalation has, in general, declined, although in some sectors, such as textiles, clothing and leather products, it remains significant. Australia's complex tariff concession system, especially the Policy By-Laws and Tariff Concession Orders (TCO) systems, currently covers around 25% of total merchandise imports. Although declining in importance, these concessions tend to exacerbate tariff escalation, notably in industries such as textiles and clothing, where tariff protection is already considerably higher than the average. A recent recommendation by the Industry Commission to address tariff anomalies in the TCF and PMV industries, by reviewing the tariff concession system, has not been adopted by the Government.

Australia's quarantine regime restricts imports of a large number of agricultural and related food products. Thus, indicators of tariff protection or effective assistance, which would indicate that agriculture and food processing are largely unassisted, do not take into account relatively strict quarantine measures that restrict imports of most products in these sectors. While the authorities consider these measures to be necessary for the maintenance of sound health and sanitary conditions in an island continent, and based on scientific evidence, some are being challenged by WTO Members (Australia's restrictions on imports of salmon, for example, are currently the subject of a dispute with Canada).

Local-content schemes for fresh fruit juices and tobacco have been removed to ensure consistency with Australia's Uruguay Round commitments. However, schemes in the broadcasting sector appear recently to have been strengthened. In the PMV industry value-added requirements exist to make a company eligible for the duty-free import allowance scheme.

As part of a general undertaking to reduce production and export subsidies, government expenditure on both types of subsidy has in general declined during the period under review. Export facilitation remains a major feature of support for the PMV industry, however, providing duty-free imports of cars and components for the export industry. The Government has recently pledged to replace the export facilitation scheme for the PMV industry with the Automotive Competitiveness and Investment Scheme (ACIS) in 2001. The scheme, which, according to the authorities, will be WTO-consistent and run for five years, will provide benefits averaging $A 300 million per year to the automotive industry.

Australia also continues to be a significant user of anti-dumping measures. The percentage of imports affected by anti-dumping and countervailing actions increased between 1993 and 1996, although the incidence of measures in force and undertakings declined from 86 in 1996 to 47 in 1997. Changes announced recently to anti-dumping procedures, including the dissolution of the Anti-Dumping Authority and consolidation of all anti-dumping investigations within one body (the Australian Customs Service), have considerably shortened the investigation period, raising questions about the effectiveness and thoroughness of the investigation during this shorter period. Questions also arise regarding the seemingly enhanced role of local industry in the new investigative process, which is intended to benefit local industry and meet long-held industry concerns. In addition, the revised appeal mechanism allows only for a review of the interpretation of current information. The Government's scheduled inquiry into anti-dumping under the Competition Principles Agreement will be delayed to allow implementation of the new arrangements.

Sectoral Policies

Since the previous Review, border measure reforms, including tariff reductions and tariffication or removal of non-tariff barriers, have continued. Between 1993 and 1998 the simple average tariff, according to broad ISIC categories, has declined from 0.9% to 0.3% in agriculture, from 1.1% to 0.6% in mining and from 11.1% to 6.0% in the manufacturing sector. Australia bound around 96% of its tariff lines as a result of the Uruguay Round (100% in agriculture and over 94% in manufacturing according to Secretariat calculations based on HS 92), compared to 20% previously.

As a result of declining tariff protection and sectoral government subsidies, average effective rates of assistance (ERAs), measured (according to ASIC categories) by the Industry Commission, have declined from 11% to 6% for manufacturing since the last Review; assistance for agriculture increased slightly from 11% in 1993/94 to 12% in 1995/96, from a level of 15% in 1990/91.

Despite declines in ERAs, there are considerable variations among to industries. In the agricultural sector, the dairy industry (especially milk production) receives assistance in excess of 200%, and in manufacturing, TCF and PMV industries receive assistance in excess of three times the manufacturing average. ERAs do not take into account any assistance provided by Australia's quarantine laws, especially in the agriculture and food processing sectors, and may therefore understate the degree of overall protection extended to these sectors.

In the services sector, which accounts for around 70% of GDP, Australia made commitments in over 90 sectors and sub-sectors, with MFN exemptions in financial and audio-visual services. As part of the WTO Agreement on Financial Services, Australia removed its MFN exemption relating to the stock exchange. In addition, mergers between the four largest banks and the two largest insurers are permissable under the 1997 financial sector reforms, although they must be approved by the Treasurer; mergers among the four largest banks, however, are not permitted. In its offer in the WTO Agreement on Telecommunication Services, Australia allowed unrestricted competition in basic telecommunication services as of July 1997 and has removed its foreign equity restrictions in the second basic service provider, Optus. Trade liberalization in the services sector has also been pursued under the Services protocol signed with New Zealand, under which the services sectors included in a "negative inscription list" have gradually been reduced, exposing them to a greater degree of competition.

Since the previous Review, major market opening has taken place in financial and telecommunications services; reforms have also been implemented in air transport services. In addition, Australia's new competition policy provides for the opening of utilities, including gas and electricity, to competition. This is important, given the essential contribution of these services to manufacturing and agricultural activities and to overall productivity. However, other vital services sectors such as maritime and port services remain to be reformed, although some liberalization of coastal trade regulations was announced by the Government recently.

Trade Policies and Foreign Trading Partners

Australia's unilateral trade reforms - particularly tariff reductions - have gone beyond the scope of its Uruguay Round commitments. Major changes introduced since the previous Review to comply with its WTO commitments include the tariffication of remaining quantitative restrictions in agriculture; amendments to farm legislation to comply with the WTO Agreement on Agriculture; and changes to anti-dumping and countervailing procedures and to intellectual property rights legislation.

As Australia reduces its import tariffs, preferences for developing countries provided through the ASTP are also gradually being reduced. Apart from its bilateral agreements, notably ANZCERTA with New Zealand, CANATA with Canada, and PATCRA with Papua New Guinea, Australia has limited involvement in regional trade agreements. Its participation in the Asia Pacific Economic Cooperation Forum (APEC) is carried out within the broader goal of maintaining "open regionalism" within multilateral rules.

Australia remains strongly committed to the multilateral trading system and, through the Cairns Group emphasizes the importance of further multilateral reforms in agriculture. In particular, Australia seeks to place agriculture on the same footing as industrial products, stressing elimination of export subsidies and deep cuts in domestic subsidies, and substantially improved market access through deep reductions in tariffs and elimination of non-tariff barriers.

However, recently, there has been an increased emphasis on bilateral efforts to open foreign markets to Australian exports in addition to Australia's continuing participation in the multilateral trading system. This is reflected in several recent schemes (notably the Supermarkets to Asia Council; the Market Development TaskForce; and the appointment of market access facilitators for a number of industries), which identify markets and emphasize bilateral negotiations to increase market access. Australia has also increased export credit insurance for exports to the Republic of Korea and to Indonesia in response to the worsening crisis in Asia and to increased export facilitation, especially in agriculture, by major competitors in the region. It is unclear what the long term implications of such export guarantees are for international commodity prices or whether they will result in an escalation of export subsidization.

Outlook

The success of economic reform in general, and unilateral trade liberalization in particular, is reflected in the relatively strong performance of the Australian economy since the early 1990s. With the exception of the relatively high and stubborn unemployment rate of over 8% and a structural savings-investment gap, the benefits of reform have been evident in higher rates of productivity and GDP growth. However, despite these benefits, the Government appears to be hesitating over pushing through further reform, especially of industries that continue to be relatively protected. In addition to creating anomalies and distortions in the tariff and assistance structure, such hesitation may give mixed signals to producers and consumers about the Government's commitment to future reforms and their direction. Australia's new industry policy, moreover, appears to have taken a more interventionist role in encouraging foreign investment based on its "strategic" importance to the country, a stance which may cause further resource misallocation.

Challenges, especially high rates of unemployment and the difficulties of structural adjustment in traditional industries, are likely to continue to confront policymakers. However, it is unlikely that resorting to second-best trade measures, such as tariffs or export incentives to offset distorting government policies, will solve these problems. Rather, there is a need for continued reform to address unnecessary regulatory measures and structural rigidities that impair the competitiveness of Australian industry.

Government report Back to top

TRADE POLICY REVIEW BODY: AUSTRALIA
Report by the Government

Since the mid-1980s, Australia has undertaken significant economic deregulation and reduced trade barriers substantially. Globally, it has been a strong advocate for trade and investment liberalization. This commitment to liberalization and reform has continued since the last Trade Policy Review of Australia in 1994.

In a globalizing world, Australia's economic well-being and growth depend on healthy domestic economic settings and open international markets. In this context, the Government is committed to creating a more productive and outward-looking economy, while at the same time supporting an open international trading system. Trade and investment policy, industry policy and microeconomic reform go hand in hand in providing Australian business with the competitive foundations and market opportunities to thrive in an increasingly globalized world.

The Australian Government's 1997 White Paper on Foreign and Trade Policy, In the National Interest, identifies security, jobs and living standards as the core national interests on which foreign and trade policies are basedSee footnote 2 See footnote 3 It advocates an integrated national approach in developing domestic, foreign and trade policies, and an integrated bilateral, regional and multilateral approach in progressing Australia's trade policy interests. These are covered comprehensively in the Government's annual Trade Outcomes and Objectives StatementSee footnote 4 See footnote 5

Australia strongly committed to multilateral trading system and to reducing trade barriers

Australia is a staunch advocate of a rules-based, free and open global trading environment. Australia continues to promote trade liberalization at home and overseas, with trade policy strategies designed to achieve the best possible market access outcomes for Australian business. Australia is an active participant in WTO activities and a leader in APEC trade liberalization efforts. Important advances in the past two years have included:

- significant market access gains under the WTO Financial Services negotiations and major improvements in access, transparency and predictability in telecommunications services trade under the WTO Telecommunications Services Trade negotiations;

Over the past two years, the Australian Government has pursued economic policies aimed at strengthening firms' international competitiveness through increased productivity. Eliminating the underlying budget deficit, maintaining low inflation, encouraging greater domestic competition, streamlining regulation, reducing structural impediments to growth and employment, reforming the financial sector and encouraging inward investment are key elements of those policies.

Since 1996, the Australian Government's medium-term fiscal strategy has been to secure and maintain a balanced budget. The primary objective is to increase national savings and improve Australia's long-term growth prospects by reducing its vulnerability to external shocks. The Government's recent Budget Statement projects an underlying budget surplus of $2.7 billion for 1998/99, compared to an expected underlying deficit of $1.2 billion in 1997/98.

Australia's monetary policies aim to keep underlying annual inflation in a 2-3% band. Inflation has been maintained below 5% since 1991 and below 2.5% since 1995, the lowest level among OECD members.

Macroeconomic policy changes have been complemented by a wide range of microeconomic reforms to increase productivity and flexibility and allow product, labour and financial markets to operate more efficiently. These reforms focus on labour markets, financial system regulation, the waterfront, domestic competition policy and taxation.

In relation to labour market reform, the Government, through the Workplace Relations Act 1996, aims to give employers and employees primary responsibility for setting wages and conditions, so that outcomes better reflect the economic conditions facing individual workplaces.

In the financial sector, reforms in response to the 1997 Financial System Inquiry will build on the major reforms undertaken in the 1980s. The aims are to enhance competition and efficiency, improve the regulatory structure, and reduce barriers to entry into deposit-taking and other areas, while preserving the financial system's integrity, security and fairness.

On the waterfront, the objective is to raise labour productivity and create a more efficient and reliable shipping services industry which meets world best-practice operations and does not impede trade or adversely affect Australian businesses' international competitiveness. Shipping reforms will include ending the pooled labour system, reducing the costs of Single Voyage permits and Continuing Voyage permits (which allow foreign vessels coastal access), and removing cabotage on Christmas Island trade.

Competition Policy

Federal, State and Territory Governments established the National Competition Policy in April 1995. The reforms:

See footnote 6 The major initiatives aim to encourage innovation, investment and exports (three key drivers of economic growth); to improve Australia's attractiveness as a regional financial centre; and to ensure that Australia benefits from the global information revolution. Key trade-related features include a more competitive customs regime through a new Manufacture-in-Bond system and a new scheme combining existing duty and tariff concession programs. These are complemented by action agendas which will encourage information industry development (e.g. by removing tariffs on IT inputs) and addressing impediments to growth in the food, financial services, tourism, chemicals and plastics, renewable energy, liquefied natural gas, automotive, and textile, clothing and footwear industries.

This policy is part of an ambitious economic reform agenda designed to build a strong economy that will be able to thrive among the challenges and opportunities of the twenty-first century. By encouraging a more strategic approach to grasping the opportunities open to Australia as a globally oriented nation, the industry policy meets community demands for a greater sense of direction and policy predictability.

Moreover, the measures announced in Investing for Growth are strikingly similar to the policy priorities highlighted by OECD Industry Ministers at their meeting in Paris on 3-4 February 1998. They agreed that sustained economic growth will only be achieved if governments maintain a sound macroeconomic framework and set policies which improve their industries' competitiveness, encourage investment and recognise the central role of research and development.

Foreign Investment Policy

Australia's foreign investment policy is framed and administered to encourage investment consistent with Australia's interests. The objectives are: to ensure that Australia is an attractive location for sustainable, long-term investment that creates employment and benefits the wider community; to encourage the establishment of new industries or expansion of existing industries, especially in high value-added sectors; to generate export earnings; to improve industry competitiveness and productivity; and to ensure that any incentives are consistent with Australia's international obligations.

Under the Government's foreign investment policy and the Foreign Acquisitions and Takeovers Act of 1975, the Treasurer may need to be notified of proposals by foreign interests to invest in Australia. For non-sensitive sectors (i.e. all except real estate, civil aviation, media and telecommunications), proposals for acquisition of a substantial interest in an existing business with total assets of less than A$5 million (A$3 million for rural properties), and proposals for an initial investment of less than A$10 million in a new business, are exempt from notification. Proposals for investments exceeding these amounts are normally approved unless they are judged contrary to the national interest. The national interest 'test' is a 'negative test', with the onus essentially on the authorities to have reason to reject, rather than on the investor to show benefit to Australia. Approvals are not withheld on national interest grounds except in unusual circumstances affecting Australia's vital interests and development (2.5% of 4200 proposals were rejected in 1996/97, mostly proposed real estate transactions). Foreign investment policy is currently under review as part of the Government's comprehensive review of legislation imposing costs on business (see Regulation Review below).

In the Industry Statement, the Government announced that it will consider incentives to make investment in Australia more attractive. The primary requirement is net benefit to Australia, and candidates (domestic and foreign alike) must demonstrate a prima facie case against the criteria and the need for incentives before they will be considered. Cabinet will consider incentives for major investment projects on a case-by-case basis in limited and special circumstances, in line with a set of published eligibility criteria (see WTO Secretariat Report, Chapter III, for details)

Regulation Review

Complementing all these policies is a significant Australia-wide regulation review process arising out of the Competition Principles Agreement signed by Federal, State and Territory Governments in 1995. An important objective is to significantly reduce the paperwork and compliance burden on small business by simplifying taxation compliance, providing easier access to government information and reducing complexity, duplication and delays in regulatory approval processes. The Federal Government, for its part, has commenced the review process in line with its Legislation Review Schedule. The guiding principle is that legislation should not restrict competition unless the public benefits of such restriction can be demonstrated to outweigh the costs associated with any restrictive arrangement.

Taxation Reform

Reform of Australia's taxation system is high on the Government's economic agenda. A Taxation Taskforce is assisting the Government to examine options for reform, in order to make the tax system simpler, fairer and more efficient. The Taskforce's broad guidelines are: not to increase the overall tax burden; to reduce personal income tax with special regard for families; to consider a broad-based, indirect tax to replace some or all of the existing indirect taxes; to provide appropriate compensation for those deserving special consideration; and to address Commonwealth/State financial relations. The Government plans to announce its tax reform programme before the next election.

Australia's Trade Policy Objectives and Issues

Australia's trade policy is flexible and pragmatic, with a fully integrated bilateral, sectoral, regional and multilateral approach to achieving market access outcomes. It is increasingly results-oriented and focuses on providing tangible market solutions for Australian business. As we move into the twenty-first century, Australia's trade policy will need to incorporate a broader and more complex agenda closely linked with industry and microeconomic policy.

The Government's primary trade policy objective is to secure optimum overseas market access for Australian companies by:

seeks to ensure an efficient, consistent and focused approach across key portfolios in setting and achieving bilateral trade objectives for 25 target markets. In addition to bilateral market access negotiations, Federal, State and Territory Governments have extensive trade development efforts in Asia, Europe, North America and numerous emerging markets. Sectoral trade facilitators in the Department of Foreign Affairs and Trade (appointed in 1997/98) coordinate business input on issues that affect market access and trade development in sectors such as food, information technology, automotive products, and textiles, clothing and footwear.

APEC and Open Regionalism

Australia's regional trade policy aims to build upon the multilateral system's trade and investment liberalization goals and gains, and to advocate and protect Australia's interests in a variety of regional fora. This complements in an important way Australia's multilateral and bilateral policy activities and objectives.

The Asia-Pacific Economic Cooperation forum (APEC) is the cornerstone of Australia's regional trade policy. Australia has been at the forefront of efforts to secure freer trade and investment among APEC members, as the best means of achieving sustainable economic development. Much of APEC's work centres around achieving the 1994 Bogor Declaration goal of free and open trade by 2010 for developed members and 2020 for developing economies.

APEC is not a preferential trading arrangement. Rather, it is based on the principle of open regionalism in which trade is conducted on an MFN basis. APEC complements multilateral trade liberalization efforts by seeking to progressively reduce and remove barriers to trade and investment. In APEC, Australia is encouraging members to strengthen their Individual Action Plans (IAPs), and to support early voluntary liberalization of specific sectors. See footnote 7 APEC Leaders, at their November 1997 Vancouver meeting, agreed to accelerate trade liberalization in 15 sectors, including two put forward by Australia (energy and food) and one co-sponsored by Australia (chemicals). Liberalization of nine sectors, including energy and chemicals, is to be fast-tracked for implementation in 1999.

The Australia-New Zealand Closer Economic Relations agreement (CER), recognised as one of the world's most comprehensive, effective and multilaterally compatible free-trade agreements, celebrates its fifteenth anniversary in 1998. AFTA-CER and CER-Mercosur dialogues will continue to focus on trade facilitation and harmonization issues. Australia is also advancing its objectives of increased regional engagement through the Australia-Indonesia Development Area (AIDA) and the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC).

Regional trading arrangements (RTAs) are an important feature of the global trading system. In 1997, a major review of Australia's policy on participating in RTAs concluded that Australia could in future consider the option of joining them if it is in its interest. The Government recognises that while RTAs can offer their participants potential advantages, they can also impose costs on members as well as non-members. Firms outside can face discriminatory arrangements which could potentially contribute to the fragmentation of the nondiscriminatory trading system. Australia will continue to promote stricter multilateral rules and disciplines for RTAs. It will also encourage quicker multilateral and APEC liberalization processes in order to reduce the incentive for countries to resort to discriminatory regional solutions in order to address trade-related issues.

Multilateral Efforts

At the multilateral level, a key objective of Australia's trade policy is to improve market access and achieve a fairer global trading environment via the WTO, which is important to Australia because it is the major forum for global trade liberalization. Through its rules and disciplines, the WTO provides a more predictable and transparent environment for business, as well as a means for resolving disputes. At a time of turbulence and uncertainty in international financial markets and increased global interdependence, this rules-based system is essential to economic growth and prosperity. (See Part III: Australia and the WTO, for details.)

Trade Liberalization

Progressive trade liberalization over the past decade has served Australia well. Indeed, Australia is pushing hard for the liberalization of trade and investment regimes overseas because we are convinced that open markets are important, not only for Australian exporters, but for sustaining and increasing living standards in general. Tariff reductions introduce healthy competition, make companies more cost- and service-conscious, and offer consumers broader choice and better prices . Over the past decade, the average Australian family has saved more than A$1000 per year from tariff reductions. The average effective tariff on manufactured imports fell from 22% in 1984-85 to 7% 1996-97 and will decline to 5% by 2001.

Australia's applied tariff regime compares favourably with the rest of the world. Most goods enter Australia duty free. Australia's unweighted (simple average) ad valorem tariff level is 5.6% (9.6% in 1993). Australia bound around 96% of its tariffs as a result of the Uruguay Round (from 20% in 1993). In some cases, Australia has brought forward its final Uruguay Round tariff bindings. For example, as part of its APEC Individual Action Plan, Australia advanced by one year to 1 January 1998 the final bound rate on some industrial and agricultural products, and has bound these accelerated reductions in the WTO.

Australia continues to reduce tariff barriers on a unilateral basis. Of particular note was the Government's decision in July 1997 to remove tariffs on imports of raw and refined sugar and related products, opening fully this important (and domestically sensitive) sector to international competition.

However, Australian exports continue to face tariff and other trade barriers overseas as other economies continue to protect local industries. Australia takes every opportunity at bilateral, regional and multilateral fora to encourage our trading partners to meet their existing commitments and to liberalize further.

The TCF and PMV Sectors

In two important industry sectors: textiles, clothing and footwear (TCF) and passenger motor vehicles (PMV), tariffs continue to be phased down unilaterally, but remain above the general 5% level. These industries are important employers, including in regional Australia. Acknowledging that tariff reductions can impose significant short-term costs on individual industries, the Government has given them some extra time to strengthen their capital bases and enhance their international competitiveness in the lead-up to the APEC target of free trade beyond 2010. See footnote 8

In the case of motor vehicles, tariffs will be reduced from 20% in 1998 (32.5% in 1993) to 15% on 1 January 2000 and will 'pause' at that level for five years. The Government has said it will introduce legislation this year to further reduce the tariff to 10% on 1 January 2005. Another review will occur in 2005.

'Peak' tariffs for clothing and finished textiles will continue to decline from 31% in 1998 (41% in 1993) to 25% on 1 January 2000 and will remain at that level until 2005. The Government plans to legislate this year to further reduce the peak tariff to 17.5% on 1 January 2005. Similarly, tariffs on all other TCF products will decline from a range of 5-22% at present to a range of 5-10% by 2005. In other words, between 1998 and 2005, TCF tariffs will decline by about half.

The PMV and TCF 'tariff pauses' do not signal a change in the Australian Government's commitment to tariff reductions and trade liberalization generally. Rather, the decision reflects the Government's desire to achieve balanced outcomes in the interest of the community as a whole, and to provide greater predictability for industry while at the same time ensuring that Australia meets its international obligations. Given that average general tariff levels are just 5% and Australia is committed to free trade within APEC by 2010, tariff pauses in other sectors are not envisaged.

Access for TCF products to the Australian market is not hindered by quotas. Australia removed its last TCF quota in 1993, and its TCF tariff lines are fully integrated under the WTO Agreement on Textiles and Clothing.

Export Assistance

The Government gives high priority to trade promotion and exporter advisory services to encourage Australian firms to develop markets offshore and to take advantage of the opportunities offered by improved market access. In line with its fiscal consolidation program, however, the Government discontinued such programs as the International Trade Enhancement Scheme (ITES) and the Innovative Agriculture Marketing Scheme (IAMP) in 1996. It has also capped funding for the Export Market Development Grants (EMDG) Scheme, which was established in 1974 to boost exports by reimbursing part of eligible firms' (mostly SMEs) export promotion expenditure.

Anti-dumping and Countervailing Measures

Australia's anti-dumping and countervailing policies are designed to provide relief to Australian companies injured by overseas goods sold at a lower price than their 'normal value' in their home market. The system is industry-driven and conforms to the WTO Agreement on Anti-dumping and Countervailing Measures. Under Australian legislation and consistent with WTO requirements, anti-dumping action can be taken only if dumped items cause or threaten material injury to local producers of similar goods. The number of anti-dumping cases initiated by industry declined from 51 in 1993/94 to 36 in 1997/98 (to May 1998). See footnote 9 Most have been in the chemical and petroleum products (13 cases) and paper (14 cases) sectors. Furthermore, the number of anti-dumping and countervailing measures has been cut from 101 at end-1995 to 54 at end-1997.

In February 1998, the Government proposed changes to Australia's anti-dumping procedures which will reduce the investigation period and provide a simpler, more predictable and expeditious process for all parties: importers, exporters and local industry alike. The main features are: (1) abolishing the Anti-dumping Authority; (2) reducing the investigation period from 215 to 155 days; and (3) establishing a new independent appeal mechanism. In addition, all interested parties will be given 20 days to examine and respond to the Statement of Essential Facts of a case as presented by the Australian Customs Service. The proposed legislation, currently before Parliament, will permit provisional measures to be imposed at any time after Day 60 of an investigation, following a public determination indicating grounds for such measures, as required by the WTO Agreement.

Australia's Quarantine Regime

Australia's prudent approach to quarantine and sanitary and phytosanitary regulations reflects its island geography, which has isolated it from many exotic diseases and pests, and its unique flora and fauna. More often than not, Australia's access to other markets depends on its favourable animal and plant health status. Up to 80% of Australia's agricultural output is exported, with foodstuffs accounting for 22% of total merchandise exports.

GATT/WTO rules recognize countries' right to maintain measures to ensure food safety and to prevent the spread of pests or diseases among plants and animals. Australia, as a relatively disease- and pest-free island continent, is keen to maintain this status. Consequently, all imported plants, animals and associated products, including food, are subject to a rigorously enforced quarantine regime, which is consistent with international rules and standards.

The Government, in response to independent reviews of Australia's quarantine policies and practices in 1996 and 1997, has committed (among others) to:

places high priority on negotiating with prospective WTO members improved access for Australian services exporters, particularly in financial services, telecommunications and professional services. Australia is also negotiating commitments on transparent and secure operating conditions. In current (May 1998) negotiations on accountancy disciplines, the Government has sought commercially meaningful, universally binding WTO regulations. Australia expects that once the accountancy negotiations are concluded, a generic approach to other professions will be adopted. Taking a leading role in advancing WTO preparations for the next round of services trade negotiations, scheduled to commence in 2000, Australia is keen to see further truly liberalizing market access and national treatment concessions in the key areas of interest noted above.

Industrials

Australia supports further negotiations on industrial tariffs as part of comprehensive negotiations in 2000. Australian industry continues to face high tariff and non-tariff barriers for many products. Broad-based negotiations incorporating a balanced framework and the full involvement of all WTO members will be necessary to move the liberalization agenda forward.

Information Technology Agreement

Australia has secured significant benefits by pursuing improved market access conditions through the WTO Information Technology Agreement and the WTO Agreement on Trade in Telecommunications Services. Australian industry and Government jointly have developed Australia's position for the ITA II negotiations. Australia considers that one of ITA II's most important features is its desire to ensure that non-tariff measures do not undermine ITA tariff commitments. Priorities for Australia in ITA II negotiations will include accelerating tariff reductions in key markets (India, Malaysia and Indonesia); extending ITA participation; examining non-tariff measures which affect trade in ITA products; and identifying additional products (eg, chemical inputs) for the ITA list.


Accession Negotiations

Australia encourages an expansion of WTO membership through the admission of new members on commercially acceptable terms. Australia sees WTO accession negotiations as offering a unique opportunity to improve market access and secure commitments for greater transparency and stability in trading conditions. Among the more than 30 economies negotiating accession to the WTO are seven which buy over A$8 billion worth of Australian products each year, or 10% of our total exports (China, Chinese Taipei, Vietnam, Saudi Arabia, Jordan, Oman and Russia). The successful conclusion of accession negotiations with these economies will bring important segments of Australian trade under WTO rules. It is important to the Government that the WTO is not weakened through the admission of new members which are not fully committed to its rules. WTO accession is an important step in these economies' integration into the world trading system, and Australia provides technical assistance to help them achieve the reforms necessary to comply with WTO rules.

Dispute Settlement

One of the key outcomes of the Uruguay Round was a stronger multilateral dispute settlement system. The WTO Dispute Settlement Understanding (DSU) of 1995 removed disputing parties' powers to veto adoption of panel reports and introduced an appellate system. The large number of disputes dealt with under the DSU - more than 120 requests covering 87 distinct matters - and the number of members involved indicate that the system is functioning effectively and is generally well accepted. Australia has been involved in 14 disputes initiated under this mechanism: two as a complainant, four as a respondent and eight as a third-party participant (see WTO Secretariat Report, Chapter II, for details).

From Australia's perspective, the extensive use of the DSU over this initial period has contributed to increased confidence in the multilateral trading system. At the same time, a number of procedural and substantive matters have emerged which will require detailed consideration by members in coming years. In this respect, Australia is taking a close interest in the DSU review scheduled to be completed this year. Australia strongly supports the dispute settlement mechanism and will continue to work towards its optimum effectiveness.

Australia's Position on 'Current' Trade Issues
Electronic Commerce: Australia supports placing on the WTO agenda the issue of the implications of electronic commerce for the General Agreement on Tariffs and Trade (GATT), the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), to examine if existing WTO rules are adequate or if new rules are required.

Investment: Australia supports the principle of an effective rules-based regime in the WTO covering trade-related investment issues. Australia is actively involved in exploratory work in the Working Group on Trade and Investment.

Competition Policy: In this highly complex area, Australia actively supports an exploratory, educative discussion on the interaction between trade policy and competition policy as a foundation for considering how the WTO might handle this issue in future.

Trade and Environment: Australia strongly advocates that economic, environment and trade interests be given balanced treatment in international discussions and that international agreements respect the sovereign right of countries to determine appropriate domestic environmental policies. Australia strongly advocates improved coordination of trade and environment issues, both at the national level and in international fora such as the WTO Committee on Trade and Environment (CTE). Australia actively supports efforts to make trade and environment policies mutually supportive, particularly through reform of trade-distorting policies that adversely affect the environment.

Government Procurement: Australia is taking a close interest in the review of the WTO Agreement on Government Procurement. Australia hopes that related work of the Working Group on Transparency in Government Procurement and the Working Party on GATS rules will deliver significant improvements to the Agreement, in both the principles and the practices


The Agreement on Sanitary and Phytosanitary Measures (SPS Agreement)

As a major exporter of agricultural products, Australia attaches great importance to WTO Agreements on the application of Sanitary and Phytosanitary Measures and on Technical Barriers to Trade (TBT). Australia is an active participant in the SPS Committee. The 1998 review of the SPS Agreement will be an important priority for Australia, which has a strong interest in ensuring that the SPS Agreement operates effectively in terms of both ensuring fair access to markets and safeguarding our largely pest- and disease-free status, an important element of our comparative advantage in agriculture.

Intellectual Property

Australia advocates the need to harmonize and bring certainty to intellectual property laws worldwide, including those governing biotechnology. It will be an active participant in the review of the TRIPS Agreement in 2000, monitoring closely issues related to biotechnology, geographical indications for wine, and copyright for new technologies and electronic commerce.

Rules of Origin

Australia wishes to see the Harmonization Work Programme on Rules of Origin produce an acceptable, fair and workable set of rules within the agreed timeframe. Australia has made a strong commitment to achieve this objective in the WTO Committee on Rules of Origin and in the Technical Committee on Rules of Origin in Brussels, both of which it chairs. It acknowledges, however, that progress remains slow, mainly because it is a very complex and difficult process.

Standards and Conformance

Among non-tariff barriers to trade, standards and conformance issues have an important impact on Australian exports. Australia is therefore seeking - bilaterally, regionally and multilaterally - the alignment of standards, mutual recognition of conformity assessment, and good regulatory practices.

Future Direction of Australian Trade Policy

Australia is committed to trade liberalization and will continue to pursue trade policies which support international efforts to achieve freer and more open trade through reduced tariff and non-tariff barriers. To this end, Australia will remain an active participant in WTO trade liberalization efforts. Similarly, the Government is fully committed to its tariff reduction program, aiming to meet the 1994 APEC Bogor Declaration goal of free and open trade by 2010/2020. It will also continue to pursue domestic economic policies aimed at reducing structural impediments to economic development and employment growth. Bilateral, regional and multilateral strategies will remain essential elements of the Government's trade policy.

Australian trade and investment polices and measures will continue to reflect the Government's desire to encourage business to capitalise on opportunities arising from globalization, improved market access conditions and the information revolution. Streamlined regulation, increased transparency and broader consultation will provide clearer parameters in which to pursue trade and investment opportunities.

Over the coming years, Australia will face numerous challenges in its international trade relations. The economic uncertainties in East Asia will impact on Australian exports and economic growth; accession of new members to the WTO and APEC may alter these organizations' internal dynamics; and we will need to guard against any resurgence of protectionist sentiments in the global trading environment. The international trade agenda will become more complex as issues affecting domestic regulatory regimes and rules affecting investment are debated more frequently, and as pressures rise to include particularly sensitive issues. Australia believes that the best approach to dealing with these issues is to maintain a flexible, pragmatic and focused trade policy; to highlight the significance of the rules-based multilateral system in delivering prosperity; and to persist in efforts to improve it.

By continuing to develop a framework for fair and transparent trade, and by addressing the challenges of globalization and issues such as new technologies, the environment, investment and competition, the international trading system can contribute toward sustainable economic development for all economies. Australia is therefore keen to see broad-based multilateral negotiations, embracing agriculture, services and industrial tariffs, commence by 2000. This will complement other WTO work and benefit all WTO Members. Back to top


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Footnote: 1Group of "free trading" agricultural exporting nations formed in 1986 in Cairns, Australia, to present their common interests and concerns in the agricultural negotiations of the Uruguay Round. It comprises Australia, Argentina. Brazil, Canada, Chile, Colombia, Fiji, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, Thailand and Uruguay.


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