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Textile, Clothing and Footwear Strategic Investment Program Bill 1999
Bills Digest No. 126 1998-99
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not h ave any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.
Textile, Clothing and Footwear Strategic Investment Program Bill 1999
Textiles, clothing and footwear (TCF), together with passenger motor vehicles, are the two remaining major sectors of Australian manufacturing which are protected from import comp etition by high tariff barriers. The Government is committed to a long term program of trade liberalisation with respect to these two industries.
The process of reducing tariffs on TCF items began with the 1987 TCF Industry Plan. The current tariff phase down to 2000 program was set out in the 1991 Industry Statement. The present Government has endorsed this phase down which will result in the maximum tariff rate on TCF items in 2000 being 25 per cent. In September 1997, the Government announced a pause in the TCF tariff reduction program from July 2000 to end December 2004, and a further reduction to apply from 1 January 2005. The tariff pause was part of a broader package to encourage the restructuring of the TCF industry and the move to greater international competitiveness.
The Prime Minister expressed at this time, the Government’s commitment to the continuation of the tariff reform process in these words:
We remain committed to a resolute but sensible programme of tariff reform. This decision is consonant both with providing job security in the industry, encouraging new investment, but also with an eye to the trade liberalisation goals of APEC by the year 2010. This should be seen as a decision which maintains the pressure for and the process of tariff reform and developing a greater outward orientation of Australian industry(1).
The other half of the September 1997 TCF package was the commitment to provide a range of positive incentives to the TCF industries to undertake restructuring and achieve efficiency gains in the period up to 2005. The objective is to provide special assistance, for a limited period, to those segments of TCF activity which have a strong prospect of becoming internationally competitive at lower tariff rates after 2005. A key element of the package is the development of action agendas for wool, cotton, leather and fashion, to build on Australia’s strengths in these activities. The program seeks to promote stronger investment and innovation in these areas.
The current Bill provides for the establishment and funding of the SIP which is the main component of the structural reform program. ( Other elements of the program relate to technology development, skills training and d evelopment of export markets.)
SIP has five parts. The three largest parts provide grants for new plant/building expenditure, for R&D expenditure and for value-adding in TCF activities. The grants will be paid in arrears on the basis of demonstrated performance in the areas specified. In line with WTO rules, the overall level of assistance to individual companies from the grant program will be limited to five per cent of its total sales of eligible products in the preceding twelve months.
The last two items of SIP are designed to provide assistance to communities which are heavily dependent on TCF manufacturing and are facing restructuring and employment problems. The first provides for grants to affected firms for the purchase of ‘state of the art second-hand plant and equipment’(2) in the designated communities. The Department of Industry, Science and Resources advises that this measure is designed, not to subsidise takeovers, but to facilitate the purchase of second hand equipment as part of an action to rationalise the use of equipment in a designated area. For example, the measure could be used to assist two struggling firms in an area to combine and rationalise their production facilities into a viable production unit.
Finally the Bill allows for assistance to be sought under the Government’s Regional Assistance Program for employment creation measures in regions affected by TCF restructuring.
Funding for SIP is capped at $700 million over five years. This cap includes any supplementation to the Regional Assistance Program. The overall cost to revenue of the SIP of $700 million is equivalent to the aggregate cost of the Import Credit Scheme had it continued past its termination date of 1 July 2000, up to 30 June 2005. The Import Credit Scheme provides import duty concessions to firms based on their export performance. Since 1966 concessions totalling $240 million have been provided to over 300 firms.
There will be an entry threshold to SIP of $200 000 annual investment. This means initially the program will only be accessible to a limited number of larger firms, estimated at around 300.
The TCF industry applauded the announcement of the SIP package and acknowledged the need to direct assistance to those activities that will be via ble in a post 2005 environment. The President of the Council of Textile and Fashion Industries of Australia, Mr Hershan, noted:
The Government has now provided a package of measures for the TCF industries which will enable them to position themselves for the future. It was important that the funding and the right mix of measures was made available to drive the change needed. The Government has delivered on this promise.
We recognise that the new programs will help the industry meet the challenges of the post 2005, free trade environment. All progressive companies in our sector, with a strategic eye to the future, understand and accept this. We realise that the programs will need to be directed at those firms that are striving to improve their prospects for future sustainability and growth.(3)
Clause 8 requires the Minister as soon as practicable after the commencement of this clause to establish a scheme, the TCF (SIP) scheme (the Scheme), for the making of grants relating to:
- the manufacture in Australia of eligible TCF products
- the design in Australia, for manufacture in Australia or elsewhere, of eligible TCF some or all of which are intended to be sold in Australia.
Total g rants paid out under the Scheme must not exceed $700 million less Regional Assistance Program supplementation payments ( clause 9 ).
Clause 11 states the policy objective for the Scheme in relation to types of grants, which is that there be five types of grants, namely:
- grants in respect of new TCF plant/building
- grants in respect of TCF research and development expenditure
- grants in respect of TCF value-adding
- special grants in respect of second-hand TCF plant expenditure
- special miscellaneous grants in respect of TCF-dependent communities.
Clause 12 sets out the policy objective for the Scheme in relation to time frames for the making of grants. For new TCF plant/building expenditure, grants may only be made in respect of eligible expenditure incurred during 1998-1999 through to 2004-2005 income years. In respect to other types of grants, grants may only be made in respect of eligible expenditure incurred during 2000-2001 and 2004-2005 income years.
Clause 13 sets out the policy objective for the Scheme in relation to time frames for the making of claims for grants. For new TCF plant/building expenditure, grants for the 1998-99 and 1999-2000 income years cannot be made unless an entity makes a claim after the end of its 2000-2001 income year. In respect to other types of grants, grants for the 2000-2001 through to 2004-2005 income years cannot be made unless an entity makes a claim after the end of the income year concerned.
Clause 14 sets out the policy objective for the Scheme in relation to TCF value-adding grants. Basically, clause 14 places a cap on the total grant that can be made to an entity in an income year. Specifically a TCF value-adding grant must not exceed whichever is the lesser of:
- 5% of the amount taken to be the total eligible TCF value added by the entity during the income year and
- the sum of total grants in respect of new TCF plant/building expenditure, TCF research and development expenditure, second-hand TCF plant expenditure and total special miscellaneous grants in respect of TCF-dependent communities made to the entity.
The effect of clause 15 is to place a sales based cap on the five types of grants which can be made. Basically, grants to an entity must not exceed 5% of revenue derived during the preceding income year from sales of eligible TCF products.
The Scheme must provide that an entity is not eligible for a g rant unless it complies with any requirements relating to the contents of strategic business plans, variations of such plans and submission of audited accounts and financial statements ( clauses 17 and 18 ).
Clause 2 0 provides a mechanism for the internal and external review of decisions by the Secretary. An entity dissatisfied with a decision of the Secretary under the Scheme may request the Secretary to reconsider the decision. The Secretary must confirm, revoke or vary the decision. Applications may be made to the Administrative Appeals Tribunal for a review of decisions that have been confirmed or varied. An application for a review must be made within 30 days of the entity becoming aware of the decision. Reasons must be given by an applicant for seeking a review. Where the Secretary does not confirm, revoke or vary a decision within 30 days of receipt of a review request, the Secretary will be taken to have confirmed the decision. The Secretary is required to notify an applicant within 30 days of receipt of a review request of the result of the review.
The Scheme is a disallowable instrument ( clause 31 ).
The effect of clause 33 is to provide the Minister with power to determine, before 1 July 2005, that an amount is appropriated from the Consolidated Revenue Fund for the purposes of the Regional Assistance Programme. Each House of the Parliament is to be notified of a determination. The object of the clause is to allow the diversion to the Regional Assistance Program of some of the $700 million that is available for the Scheme.
Parts 4-6 of the Bill ( clauses 34-47 ) are, for the most part, provisions common to legislation of this nature relating to the administration of the Scheme. Major provisions provide:
- the Secretary with power to require a person within a specified period and form any information relevant to the operation of the Scheme ( clause 34 )
- offences, punishable by a maximum fine of $2,200, for the non provision of information and documents ( clause 34 )
- for the repayment of conditional grants ( clause 39 )
- the Secretary with power to direct a person who owes, or may later owe, money to an entity that has a Scheme debt (ie. a grant overpayment to an entity, or repayment of a conditional grant) to pay some or all of the money to the Commonwealth (Note: a direction to a third party cannot require a payment at a time before it becomes owning by the third party to the entity) ( clause 43 ).
The Government is riding a fine line between its d ifferent policy measures for the TCF industries. Its long run policy is to reduce TCF tariffs and this will discourage resource use in this industry relative to other industries. The Government’s medium term policy, however, is to use SIP and some related initiatives to encourage new investment, R&D and value adding in those parts of the textile industry that have good prospects of being internationally competitive. A strong administration and careful scrutiny will be necessary to ensure the assistance is being used to facilitate expansion in the areas of potential competitiveness and avoid the leakage of funds to areas which will never become competitive.
The Minister in the Explanatory Memorandum (page 10) states the SIP is not a replacement for the existing Import Credit Scheme. This may be strictly correct but it is worth noting the similarities as well as the differences between the two schemes. The two schemes would involve the same cost to the taxpayer; the bulk of the benefits appear likely to go to the larger 300 or so firms in the industry; and the introduction of SIP is partly in response to the perceived threat of a World Trade Organisation challenge to the Import Credit Scheme. Against these similarities, are some clear differences, namely that the existing scheme is an export-based benefit program while the new SIP scheme is investment driven and should favour textile and fibre manufacture relative to clothing.
Finally, the proposal to subsidise the purchase of second hand equipment in certain ‘problem’regions appears to be a high risk venture. How does the administrator ensure that the benefits are passed on to the communities in these regions are not absorbed by the buyer or seller of the equipment, for example, by setting an artificial price for the equipment or by the buyer disposing of the equipment soon after its subsidised purchase.
1.Transcript of the Prime Minister the Hon. John Howard MP Press Conference, Bonds Industries Wentworthville, Sydney, 10 September 1997.
2.Seco nd Reading Speech by the Minister for Defence, the Hon. John Moore MP, on the introduction of Textile, Clothing and Footwear Strategic Investment Program Bill 1999, p.2.
3.Council of Textile & Fashion Industries of Australia, Press Release, ‘TCF Industry Applauds Government Initiatives’, 10 July 1998.
Mike Emmery & Ian Ireland
5 March 1999
Bills Digest Service
Information and Research Services
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