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Tuesday, 25 November 1986
Page: 2717


Senator VIGOR(9.25) —A fairly complex argument is involved in calculating the level of bounty. The level of bounty is calculated to replace a current 15 per cent general tariff on imported goods. In the process there has been an estimate of the calculation of the average value of freight insurance, wharfage and Customs clearance, and it is maintained by a number of people within the industry that this estimate has been wrongly calculated. In order not to spend too much time in the Committee stage, as I believe the arguments have been thoroughly canvassed, I will seek leave to incorporate a letter from Industry and Trade Consultants (Australia), which sets out the reasons for the calculation. Its main conclusion reads:

We trust this information will lead to an urgent reconsideration of the bounty rate which should be 10.8 per cent.

In view of the fact that the Democrats were not in any way happy with the decrease overall in bounties, which the Government introduced, we thought that the 10.8 per cent should be rounded off to 11 per cent in the amendment. The calculations are fairly rough, as has been shown overall, but are convincing compared to the calculations which have been made and given in reply by the Minister. We have moved these two amendments to change the bounty level so that that industry will not be disadvantaged. I now seek leave to incorporate the letter in Hansard.

Leave granted.

The letter read as follows-

ITC (AUSTRALIA) INDUSTRY AND TRADE CONSULTANTS

88 Arthur Circle, Forrest, ACT, P.O. Box E134

Queen Victoria Terrace, ACT 2600, Australia.

Telephone: (062) 95 2688. Telex: ITC AA61222.

20 October 1986

Assistant Secretary

Engineering Industries Branch

Department of Industry, Technology and Commerce

Edmund Barton Building

Barton ACT 2600

Attention: Mr L. French

Dear Sir,

We wish to acknowledge receipt on 16 October 1986 of the details of the IAC's calculations in determining the fob/1df ratio of 0.83. As you are aware, this information was the subject of our request dated 29 July 1986 and has reinforced our view that the Commission's assessment is incorrect as shown by the enclosed Attachments.

We note the Commission's assessment was based on Customs records of Entry for Home Consumption for selected goods in 1984-85 and in respect of major tariff items and countries of origin (refer Attachment ONE).

Any conclusions based on this approach should be qualified by the following:

(1) an inherent bias is introduced by the inclusion of parts as distinct to complement machines which are generally shipped via container

(2) a number of major importers are associated with their overseas suppliers and transactions are non-arms length transfer prices which will deflate the value for duty

(3) the Commission has assumed the value for duty is synonymous with the fob value which is incorrect. High inland freight costs in many of the major countries of origin have lead importers to use the Brussells transaction definition of value for duty i.e. ex-factory selling price. (Inland freight can approach the magnitude of ocean freight in respect of imports from European and US sources). The value for duty is, therefore, understated.

We note in Appendix G of its report, the Commission stated:

``The nominal rate of assistance provided on output by the current 15 per cent General Tariff on imported goods was estimated by calculating an average for freight, insurance, wharfage and Customs clearance to be 20 per cent of their value at world prices (fob). Duties are levied at free on board (fob); not at landed duty free (ldf) values. This gives a nominal rate of:

df = 15% tariff x fob = 15% x 100 = 12.5%

df = 15% tariff x ldf = 15% x 120 = 12.5%

Therefore, the nominal (price raising) assistance on output is 12.5%.''

The enclosed attachments draw upon the practical experience of customs agents who are responsible for clearing large quantities of cultivation machinery for major importers. The information supplied by these agencies (refer Attachments SIX and FIVE) indicate the vfd/1df ratio is more correctly determined at 0.89 or 0.9.

Attachments TWO, THREE and FOUR detail particular shipments of cultivation machinery and parts imported by local producers and this data supports the above conclusion that the vfd/ldf ratio is 0.9. A copy of supporting commercial documentation is included in Attachments THREE and FOUR. Additional examples are also being sought and will be provided over the next couple of days.

We trust this information will lead to an urgent reconsideration of the bounty rate which should be 10.8 per cent.

We look forward to the opportunity to discuss this matter further together with the question of a minimum eligibility criteria of 25 per cent local value added.

Yours sincerely,

GRAEME N. DAY

Director