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Wednesday, 4 August 2004
Page: 25686

Senator CARR (6:02 PM) —I rise to speak in support of the Labor Party's position on the US Free Trade Agreement Implementation Bill 2004 and the US Free Trade Agreement Implementation (Customs Tariff) Bill 2004. I begin by pointing out that any trade agreement, especially one as complex as this agreement, comes with costs and benefits. I would like to pay tribute to the Labor senators on the Senate Select Committee on the Free Trade Agreement between Australia and the United States of America who were instrumental in preparing the report of the committee—Senator O'Brien, Senator Conroy and Senator Cook and of course their staff. They have performed a great service for the parliament through their analysis in this document. When we look at it closely, the report draws to our attention some basic but pertinent facts about the nature of economic modelling and the nature of this agreement.

I start with the proposition of economic modelling because I think that it needs to be asserted and never forgotten that economic modelling can only ever provide guidance and of course always depends upon the assumptions that are actually placed in the model that lead to the conclusions that are finally reached. So it is important that we test the assumptions made by economic modellers and that we not take at face value the things that they resolve as a result of their work without understanding the assumptions that go to the heart of the propositions they are putting forward. When we look at this issue we have to test whether or not the removal of barriers to trade between countries will lead to an increase in two-way flows of investment. That is just one example. We have to examine whether or not two-way flows of investment will have ramifications for jobs in this country and of course for jobs in the other country that is the subject of such an agreement.

We also have to take the opportunity to examine some of the less tangible issues that arise from these trade treaties, this form of economic legislation by way of treaty. We have to examine whether or not the effects of these agreements will mean benefits are spread throughout the entire economy and the entire society. From my perspective, in terms of my responsibilities in representing the Labor Party on industry, innovation, science and research matters, we have to examine whether or not these agreements will benefit Australian industry as a whole—not just the big firms with the capacity to compete with anything near equality with American firms.

When we examine the economic modelling we notice that this agreement was negotiated, frankly, far too quickly. We see a hasty agreement put together to meet political timetables, namely the election timetables in the United States and in this country. We have an agreement which is the result of a government that has been negligent with regard to the amount of analysis that was actually undertaken to examine the effects of this agreement. Only through the Senate committee have we seen a process of proper examination through which we can draw some conclusions. They are not comprehensive conclusions; they are not complete. However, there is now a far better understanding of what is involved with this agreement than the government ever undertook to provide.

The various economic models put forward are in fact contradictory because they are all based on different assumptions. It would therefore follow that they are going to come up with different conclusions.

However, I would assert that each study points to the serious economic issues that require attention from government, and in particular each of the studies points to the negative effects that this agreement will have on the manufacturing industry in this country. I say that because it is quite apparent to me that, when you examine the overall economic benefits of such agreements, the benefits are not distributed evenly across the economy. There is no doubt in my mind that there are indeed winners and losers in this arrangement and that it is difficult to assess in clear terms what the employment implications will be. What is apparent to me is that the absolutes of the benefits in dollar terms range from the negative, through minor gains, to the billions of dollars that the government estimated in its modelling. I note that in particular the CIE report refers to its `back-of-the-envelope' calculations. How you can enter into an agreement of this type, complexity and duration and come forward with a model based on back-of-the-envelope calculations defies description. It is negligent of this government to undertake such a process. It was negligent of this government not to have had the industry department, for instance, undertake any formal study or formal analysis or even undertake any formal advice on the implications of this agreement for industry in this country.

If we take the Centre for International Economics model of 2001, it predicted that Australia would benefit by $10.9 billion over 20 years. That study assumed that all the major sectors, including sugar, would be liberalised. The centre's latest study in 2004 indicates that the net benefit would rise to $52 billion, and that is on an agreement that does not include all the things they included in their first study. Both ACIL and the Productivity Commission predict that Australia's trade relations with the US will be worse off. If we look at the Senate committee's report and at Philippa Dee's findings we can see that the benefit is marginal, at $53 million per annum. The National Institute of Economic and Industry Research found that the agreement would lead to a loss of manufacturing jobs in average annual terms of 57,700 and that employment losses would be as high as 195,400 by 2025.

I am not saying that one should take any one of those particular models as gospel, because, as I say, the results you get depend on the assumptions you make. What is clear, though, is that all of them, even the CIE study, pointed to difficulties for the automotive industry. Even the CIE study highlighted problems for domestic drive train manufacture. CIE might not have identified that in all parts of its report but it is clearly stated in the body of the position it brought forward.

As the shadow minister for industry I have had to carefully balance these contradictory models and other evidence available to us to make some calculation of the effects of this agreement on Australian industry, particularly the employment implications. Some issues that concern me are quite apparent when you look at the fundamental structural questions that arise from any analysis of the United States and Australia. We simply have to acknowledge that there is a massive trade imbalance between the two countries. The Australian Bureau of Statistics has reported that, for 2002-03, Australia's merchandise trade deficit with the United States was $12.13 billion. That is the highest merchandise trade deficit Australia has recorded with any trading partner. Our trade deficit with the United States is most acute in manufactured goods. In the 12 months to March we had a massive trade deficit in chemical and related products, manufactured goods, and machinery and transport equipment.

Tariffs in the United States are generally lower than those in Australia, particularly in manufacturing. This means that Australian tariffs will have to fall further, potentially eliminating any obvious benefits that the present tariff regime provides for Australian domestic industry. There are massive disparities in the economies of scale between Australian industries and US industries which cannot be overcome by any trade agreement. The margin of cost of production that stems from that basic fact provides the United States with an enormous economic advantage, and the fact is that the margin of cost of production for US goods will remain much lower than that of Australia. Likewise, there are huge differences in the amount of government assistance provided to industry between the United States and Australia, giving the United States manufacturers a considerable advantage.

Our automotive industry is critical, not just in an economic sense but also in a social sense. It is incredibly important to our society. It currently has a turnover of $17 billion per year, it accounts for six per cent of value added employment in the total manufacturing sector and its exports total about $5 billion a year. Significantly, the sector currently employs around 55,000 people. That is a hell of a lot of Australian families who are dependent upon the automotive industry in this country. The US already has a large trade surplus with Australia in the automotive sector. In 2003 the United States recorded a trade surplus in automotive components alone of $US272 million, and now we are going to have an agreement where there will be considerable disadvantages of scale and higher costs of production for many Australian manufacturers. We have a situation in the components industry in which the components manufacturers are being required by the domestic car companies to enter into contracts under which there must be a 20 per cent price reduction over a three-year period. The choice is: if you don't sign, you don't get the job—and car components can be imported from China or India. On top of that, the car component manufacturers have agreements with the AMWU which, on average, lead to five per cent increases in wages per annum. I would suggest that that poses quite a serious set of economic numbers. You will not see any of the practical effects of these matters in the economic modelling.

In this agreement we have a situation where reductions in tariffs to zero will increase import penetration. At an industry dinner for automotive component manufacturers in Queensland recently, which I had the pleasure to attend, the United States Ambassador, Mr Tom Schieffer, was pleased to point out:

... on day one is an opportunity to receive American parts for your cars without the 15% tariff that you now have to pay. That will make the cars you make here cheaper and more competitive in markets around the world, not just in the US.

I do not think all the component manufacturers greeted the prospect of a 15 per cent reduction in tariffs on American components with the same enthusiasm as the ambassador thought they might.

We have run into quite fundamental problems in our approach stemming from these economic facts. I state the position clearly as far as the Labor Party is concerned: I want to see a competitive and prosperous automotive components manufacturing industry in this country. We have various studies pointing to the fact that the industry is under considerable pressure. Even the Victorian government's study out of Monash University pointed to the prospect of over 1,000 jobs being lost across the sector as a result of this agreement. I am also aware that the head of General Motors North America, Mr Bob Lutz, pointed out in a recent article in the Detroit press that, if Australian manufactured Monaros achieved significant volumes and market acceptability in the United States, production would be shifted from Australia to the United States. That poses some difficulties for those that presume that the iconic ute will be driving down the main streets of Detroit. That image may be open to some challenge. The more lurid assumptions that are being made by some reporters on these questions need to be examined more clearly in the light of economic realities.

The trade deficit that we have with the United States and other disparities in the production scale are not the only problems. There needs to be a fundamental change in manufacturing culture in this country and it is important in this context to appreciate that the government has a critical role to play. I am sure a Labor government will take up this challenge and seek to address some of the structural problems that are now being faced by manufacturing in this country. We have a serious difficulty with regard to research and development and the capacity of this government to concentrate on the drivers of productivity—research and development and skills formation. At the moment far too little money is actually spent by private firms on R&D. Only one in four enterprises, according to AIG, is spending any money at all on R&D. The story goes that some of those are in fact spending more on their electricity bill that they are on research and development and that only one in four of those involves itself in any way with any public research agency.

I point out to the Senate that in 1974 manufacturing value added constituted 16.3 per cent of GDP. Today that is at 10.7 per cent. The sector still employs 1.1 million Australians, but this figure highlights the serious challenge that is being faced by Australian manufacturing. With currency movements and many other factors, many manufacturers are doing it very hard. If it is going to enter into these types of agreements, it is appropriate that the government face up to its responsibilities to actually assist and to put its shoulder to the wheel. Manufacturers need to be able to turn to the government and be sure that there is a policy framework in place to encourage industry development and to ensure that the challenges faced by industry are faced with a government with a shoulder to the wheel. The government needs to ensure that the best possible efforts are made to improve productivity to ensure that Australian manufacturers and Australian industry are in a position to compete with American companies, which are going to pose a much more serious threat to Australian manufacturers than they have in the past.

It is not just a question of opportunities here; it has to be acknowledged that there are serious threats as well. I ask the simple question: where is the industry minister on this issue and on these questions? We have not heard from him. The only time we saw a statement on these issues was when I went public a little while ago highlighting the fact that Minister Macfarlane had not been seen on the issue—that he was missing in action. The only time we saw the minister say anything on the US FTA was in response to the opposition and in an attempt to score political points—not to do anything to assist the industry or encourage the industry department to undertake its responsibilities. The department has not even undertaken a proper study of the implications of this agreement. No monitoring is going on in the industry department and no attempt is being made to address the fundamental questions of market failure or the responsibilities of the Commonwealth government to the manufacturers and the manufacturing work force of this country. There are 1.1 million Australians that earn a living from manufacturing and depend upon the capacity of this country to pull its weight in the world. We are falling behind and we are under enormous pressure. The industry department has provided no formal advice to DFAT on these matters and has done no independent analysis. Quite frankly, it has been asleep at the wheel. That is why this Senate Committee report is so valuable. It provides the framework and highlights the need for substantive policy intervention by the Commonwealth government.

With regard to intellectual property, we are seeing issues being addressed in a way which provides guidance for a future Labor government and which we will take up. It points out, for instance, the enormous difficulties for our manufacturing industries and our universities and research agencies. Philippa Dee pointed out that there is a potential loss of some $88 million in IP and copyright in that area. The report also points out the need for an independent commission of inquiry to determine the legislative responses needed to establish mechanisms to encourage industry development. It provides a vehicle by which we can move forward to encourage a proper response by the Commonwealth—a response which is clearly lacking in this failed government and a minister who frankly is not interested in manufacturing and has made no effort to fulfil his responsibilities. Finally, with regard to the PBS and evergreening, the Labor Party's initiatives highlight the possibilities to develop this area. (Time expired)