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Textile, Clothing and Footwear Strategic Investment Program Bill 1999
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Textile, Clothing and Footwear Strategic Investment Program Bill 1999
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A more viable and internationally competitive TCF sector in
Australia will be able to meet the challenge of remaining
competitive when tariffs phase down on 1 January 2005 and
maintaining an effective presence in the APEC free trade
environment in 2010. SIP provides industry with the necessary
framework for this aim by encouraging increased and new investment
in innovation and R&D, which are crucial to the competitiveness
of the TCF industries.
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THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
TEXTILE, CLOTHING AND FOOTWEAR STRATEGIC INVESTMENT PROGRAM BILL 1999
(Circulated by the Authority of
the Minister for Industry, Science and Resources,
Senator the Honourable Nick Minchin)
The Bill establishes the framework for the implementation of the Textile, Clothing and Footwear Strategic Investment Program. The program aims to foster the development of sustainable, internationally competitive TCF industries in Australia during the transition to a proposed free trade environment under the Asia Pacific Economic Cooperation (APEC) by providing incentives which will promote investment, innovation and value adding in the Australian TCF industries and better exploit Australia’s natural advantages in raw materials such as wool, hides and cotton.
As a result of Government’s decision on Industry Commission Report No.59 on the Textiles, Clothing and Footwear Industries, the structural adjustment assistance to be provided to the TCF industries under the Bill is in line with Government’s decision to phase-down of customs rates of duty for textiles, clothing and footwear articles from 1 January 2005. The Customs Tariff Amendment Bill (to be cognated with the TCF (SIP) Bill) will amend the Customs Tariff Act 1995 to give effect to the phase-down of rates of duty for TCF articles.
The TCF (SIP) Bill requires the Minister to formulate the TCF(SIP) Scheme for the making of grants in connection with the design for manufacturing and manufacturing, in Australia, of eligible TCF products.
The TCF (SIP) scheme will provide for 5 types of grants, namely:
(a) for new TCF plant/building expenditure;
(b) for TCF research and development expenditure;
(c) for TCF value-adding;
(d) special grants in respect of second-hand TCF plant expenditure for communities which are heavily dependent on TCF manufacturing; and
(e) special miscellaneous grants for communities heavily dependent on TCF manufacturing industries.
The Bill will also allow the Minister to make supplementation to Government’s Regional Assistance Program (RAP).
The Scheme will run for 5 financial years, beginning with the 2000-2001 year. However, grants in respect of new TCF plant/ building expenditure may be claimed for the 1998-99 and 1999-2000 years. Grants under the TCF (SIP) Scheme are to be made in arrears.
The total amount for the TCF (SIP) Scheme and supplementation to RAP will be $700 million.
The overall cost to revenue of the SIP is equivalent to the aggregate cost of the Import Credit Scheme (ICS) had it continued past its termination date of 1 July 2000 up to 30 June 2005. The ICS Scheme will end on 30 June 2000.
REGULATION IMPACT STATEMENT
1. Australia’s TCF industries are facing a decline in the domestic market with increased import competition. This situation, together with the rapid reduction in the effective rate of protection since the 1980s, has emphasised the need for radical reform of the TCF industries in order to improve and maintain their competitiveness. The Industry Commission in its report on the TCF industries (September 1997) examined issues specific to the industry such as industry training and research and development (R&D). It acknowledged that a package of policy changes would provide incentives for the development of a sustainable, prosperous and internationally competitive TCF industry in Australia.
2. There are clear opportunities for Australia to build on its comparative advantage in the production of natural fibres and other products. The major issue for Government is the need to develop initiatives and incentives which can lever opportunities for TCF industries to take advantage of, and exploit these opportunities.
3. In response to the Industry Commission’s final report on the TCF industries, the Government on 10 September 1997, announced the framework for Post 2000 arrangements for the Textiles, Clothing and Footwear (TCF) industries (Cabinet Minute JH97/0443/CAB of 9 September 1997).
4. The package, including a tariff pause until 2005 at levels scheduled for 2000, to be reviewed in 2005, includes a range of new industry initiatives and reforms. These initiatives include; an investment support fund at an aggregate cost equivalent to the existing Import Credit Scheme (ICS), a technology development fund, a market development program, extension to the existing overseas assembly provisions, a framework for excellence in TCF training, a program for regions and employees, and the examination of tariff anomalies. This is an integrated approach the TCF industries as a whole, which will equip it to become sustainable and internationally competitive during the move to a free trade environment under APEC in 2010.
5. The decision to pause the tariff phasing from 1 July 2000 to 1 January 2005 has provided the TCF industries with an opportunity to consolidate and strengthen, by way of investing, restructuring and innovation, and identifying global business opportunities.
II OVERVIEW OF THE TCF INDUSTRIES
1. The Australian TCF industries occupy a key position in Australia’s economic and social landscape. The industries are a major employer of Australians in city and regional locations (9% of manufacturing employment nationally), and are a growing and significant exporter.
2. TCF industries incorporate every stage of the value chain from raw materials processing, through intermediate and finished goods to retail. They include large and small businesses and the full range of production strategies from raw material and technology intensive production to more labour intensive production, branding and market differentiation and end users. Products developed in Australia for local and international markets include processed wool; cotton and hides; fine yarns; woven and knitted fabrics; bed and bath products; carpets; domestic furniture and automotive leather; high fashion designer clothing and shoes. In addition there is a growing market for woven and non-woven industrial textiles.
3. Over the last decade, the TCF industries have been characterised by declining production and employment; and increasing imports and exports. Since 1987-88, gross industry product has fallen by 15% and employment by 16%. Imports have increased from $3.5 billion in 1988/89 to $5.9 billion in 1997/98 (current prices). Import share of the domestic market has continued to increase (from 29% in 1988-89 to approximately 50% in 1995-96). Total exports have nearly doubled, with exports in 1988/89 being $1.5 billion and in 1997/98 being $2.9 billion (current prices). Total employment was around 103,500 in 1997.
4. The Australian TCF industry share of manufacturing output and total economic activity is declining. This is consistent with nearly all OECD countries, including those, which have maintained higher barriers to international trade than Australia. Labour force data for February 1998 indicated that employment was down 15% on the employment a year ago. The impact of the East Asian financial crisis and currency devaluations is mixed. Export growth slowed in the December quarter of 1997, and in the March quarter of 1998, there has been a marked seasonal decline in textile and clothing exports. Total TCF exports of intermediate and finished goods were down 2.2% on a year ago, while imports are up 23.5%, with large increases from China, Hong Kong, Korea and the ASEAN. Textile exports have fallen in those countries whose currencies have devalued against the Australian dollar and improved in markets such as the USA, UK and Italy. Import prices have risen because major sources of imports (such as China, Taiwan, & Pakistan) have not devalued against the US dollar.
5. The 1987 TCF Industry Plan began the process of reducing tariff protection and supporting structural adjustment in these industries. This plan, which was varied in the 1988 Economic Statement, and the 1991 Industry Statement (which set the current tariff phase-down to 2000), led to significant reductions in tariff levels, the provision of direct assistance to firms through the Textile, Clothing and Footwear Development Authority (TCFDA) and the Industry Development Strategy from 1989 to 1996; the abolition of quotas in 1993; and the introduction of the Import Credit Scheme (ICS) in 1991 and the Overseas Assembly Provisions (OAP) in 1993.
6. In 1994 a Future Strategies Committee was established to examine the performance of the industry and the effectiveness of the Industry Development Strategy. The Committee recommended the continuation of the ICS and OAP until 2000, no further restructuring assistance and a package of enterprise improvement and training assistance under the TCF 2000 Development Package.
7. The TCFDA was wound up in February 1996 and the management of its policy and program activities were taken over by the TCF Branch of the Department of Industry Science and Resources (DISR).
8. The Government announced an Industry Commission Inquiry into the Post 2000 policy arrangements for the TCF industries in December 1996, and the Commission reported in September 1997.
9. In response to that report, the Government agreed to a package of strategically directed measures aimed at encouraging increased value added activity in natural materials processing, design, research and development, marketing and product assembly. These included a freeze on tariffs at their 1 July 2000 level until 1 January 2005 and an investment program to encourage TCF companies to become more internationally competitive and to better exploit Australia’s natural advantage in raw materials such wool and cotton. There was also agreement to examine anomalies in TCF by-laws and tariff concessions and to conduct a review of policy arrangements in 2005.
10. In the Government’s framework of partnership and outcomes, to set the framework for the TCF post 2000 policy environment, the Government, in partnership with industry, is developing forward looking action agendas for wool, cotton, leather and fashion. The aim of the action agendas is to:
· identify what can be done to make more use of Australia’s competitive advantages and skills;
· attempt to define the necessary shape and structure of TCF industries to promote sustainability in an increasingly open trading environment; and
· determine the specific measures, which can be taken to promote stronger investment and innovation and to improve our access to international markets.
Industry Assistance Implemented since March 1996
TCF 2000 Development Package
1. This package, due to run until June 2000, includes initiatives aimed at improving sector performance in an increasingly open global trading environment. The measures include:
· The TCF 2000 Benchmarking Study is a major exercise in internationally benchmarking TCF industries performance against a broad range of measures covering key business success factors. Over 200 companies worldwide, including 120 in Australia, participated in the development of the first round of this study. A comprehensive range of 50 primary performance measures supported by a further 58 secondary measures have been combined to provide powerful insights into company and industry competitive performance. Following the successful completion of the first year of the study, the Government has decided to continue its support and commitment to two further rounds in 1998 and 1999 at a total cost of $1 million, after which the project will be wholly driven by the TCF industries;
· the AusIndustry TCF Best Practice (BP) Program aims to demonstrate widely the commercial gains to be made by the TCF industries pursuing world’s best practice in all areas of their business management. Under the program, 35 companies from each sector of the TCF industries and from across Australia are undertaking major projects to advance their strategic vision for the future, and have made commitments to share their experience and outcomes with others in the TCF industries at a total cost of $7.4 million. From now to 30 June 2000, the industries will be invited to participate in a range of demonstration activities hosted by BP firms and by the Government;
· the AusIndustry TCF Supply Chain Partnerships (SCP) Program is designed to encourage companies to adopt a strategic approach to its relationship with their key suppliers and customers, as well as the internal processes by which value is added to products and services. The SCP program is funded by the Federal Government and is delivered through the State and Territory AusIndustry network. Services include professional facilitation of firms wishing to form or improve a supply chain partnership and to assist with the identification and implementation of targeted improvement activities. Approximately 75 firms and 24 projects have been supported;
· the AusIndustry TCF Quality and Business Improvement (QBI) Program addresses the ability of small and medium-sized firms in the TCF industries to acquire the information and management skills needed to enhance their international competitiveness. The QBI program is funded by the Federal Government and is delivered through the State and Territory AusIndustry network. Services available under the QBI program include general and specialised diagnostics and business improvement consulting services Three hundred firms and 450 projects have been supported;
· the Outworker Project , which provides financial support for an education campaign relating to a code of practice developed for outworkers in the local TCF industries.
· the Import Credit Scheme , to cease on 30 June 2000 provides import duty concessions to firms based on their export performance. Since 1996 concessions totalling $240 million have been provided to over 300 firms. The Government also provided a support package to Howe Leather to resolve a trade dispute with the United States which threatened the ongoing operation of the ICS; and
· the Overseas Assembly Provisions (OAP) scheme, introduced in 1992 and originally due to cease on 30 June 2000, is designed to assist the Australian textiles sector through encouraging the further development of an internationally oriented and competitive Australian clothing industry. The OAP enables eligible local firms to assemble garments overseas from pieces, which have been cut or knitted, to shape in Australia from fabric knitted or woven in Australia. The assembled garment can then be imported into Australia with a free rate of customs duty on the Australian content of the garment.
Post 2000 TCF Initiatives
1. On 7 July 1998, the Government agreed to detailed arrangements which gave effect to the Government’s support package for Australian TCF industries, announced in September 1997, in response to the Industry Commission’s final report on the TCF industries. The package of measures is comprised of 5 elements:
· TCF Strategic Investment Program (SIP) : The TCF Strategic Investment Program (SIP) provides for the establishments of a five-year, $700 million program to further encourage investment and growth in Australia’s TCF industries. This includes the acquisition of plant and building, research and development activities, and value adding to the products of early stage processing. Firms will be able to make a claim, in accordance with the following program guidelines:
· Up to 20% of eligible investment expenditure on plant and building; t
· Up to 45% of eligible research and development activities: and
· Up to 5% of the TCF value -added by firms in Australia, in the year of the claim.
- Special Benefits: Under this element of the SIP, assistance for industry reconfiguration and adjustment may be provided to firms operating in communities heavily dependent on TCF manufacturing industries. In addition, assistance may be provided to regions that are significantly affected by the restructuring of TCF industries, through supplementation of the Regional Assistance Program administered by Department of Employment, Workplace Relations and Small Business.
1. The following programs form part of the overall package of measures for TCF industries post 2000 which together with the tariff pause, and the SIP and RAP, will apply until 2005. The overall package will provide TCF industries with a stable policy platform to assist the industries in developing into a sustainable and internationally competitive industry by 2010.
· TCF Technology Development Fund: $10 million will be provided to encourage the development of new technologies that have the potential to enhance business competitiveness in TCF industries and provide a commercial benefit for Australia.
· National Framework for Excellence in TCF Training: $10 million will be provided towards strengthening the education and training infrastructure within the TCF industries.
· TCF Market Development Program: $12.5 million will be provided for the development and implementation of strategies to increase the export capabilities of Australia’s TCF industries. The main objective will be the development of a comprehensive export market development strategy to assist industry sectors in targeting niche markets and the expansion of Australian production.
· Expanded Overseas Assembly Provisions Scheme: The new arrangements expand the provisions of the existing scheme to include conversion offshore of cut or uncut fabric and leather into finished goods. The expanded scheme will take effect from 1 March 1999 and is estimated to cost around $40 million.
Net Impact of Government Policy
1. Currently, the TCF industries are facing a slow growing domestic market with increased import competition. This situation, together with the reduction in the effective rate of assistance (during the mid 1980’s some activities received 200+% and by 1994/95 it had decreased to around 40-50%), has underlined the need for reform of industry practices.
2. Government assistance to the industry has concentrated on measures aimed at improving the sustainable performance of TCF firms in this increasingly competitive climate. Post 2000 assistance measures are aimed at providing a stable policy environment for the TCF industries for the coming decade by maximising investment of Australian TCF firms and supporting product and market development to achieve a more innovative, self-sufficient presence in the world market.
III AIMS AND OBJECTIVES
The aim of the Government’s initiative is to create the necessary environment, which will lead to the development of a sustainable and internationally competitive TCF industries in Australia under a liberalised global trade.
1. Having regard to the Government’s decision to cease the ICS scheme in June 2000 and the continued need to provide adjustment assistance to the TCF industries arising from the dismantling of tariffs, the following options were canvassed on the Government’s post 2000 measures:
· Option 1: Production Subsidy
· Option 2: TCF Strategic Investment Program
1. The production subsidy or bounty was examined in the context of replacing tariffs on TCF products by the payment of a production bounty. The Industry Commission’s report into the TCF industries in September 1997 highlighted that as a form of assistance a production bounty has some advantages over tariff assistance. These include:
· Production for the domestic market would not be advantaged relative to that for exports;
· the cost is spread across the whole community instead of just to the users of TCF products; and
· it is a transparent form of assistance, facilitating open evaluation.
1. Industry and the Industry Commission highlighted problems with a bounty. The Commission’s report noted that:
· It is very inefficient as it does not encourage investment or movement to best practice;
· there are potential practical difficulties associated with paying value added bounty due to the diversity of the TCF products;
· exports may be subject to countervailing duties by other countries under WTO rules;
· bounty expenditure requires either extra taxes or foregone expenditure in other areas; and
· where it substitutes for a tariff, it would involve a reduction in duty revenue.
1. In addition, fixing the bounty rate to the equivalent tariff rate would also provide substantially greater assistance to the fabric sector than for the leather and yarn sectors. The bounty option was therefore not pursued.
2. The Strategic Investment Program was designed to encourage Australian TCF firms to become more internationally competitive and to better exploit Australia’s natural advantage in raw materials. In the development of the SIP a number of different options were examined. These included: Entitlement v Competitive Entry, Legislation v Budget Appropriation and Cash Payment v Duty Credits.
Entitlement v Competitive Entry
3. Two approaches were considered in developing the TCF Strategic Investment Program:
· A competitive entry model; and
· An entitlement model.
1. Under a competitive entry model, each application is assessed against published eligibility criteria and performance measures, within a framework where applicants are judged against each other. Under such a model, assessment and administrative procedures are more complex and require a high degree of skill. This also has the potential of allowing the more established larger firms to take advantage of the assistance being provided over smaller to medium sized companies. This is due to the larger and well established firms able to be more innovative and are usually operating within a more stable management and economic base.
2. In contrast, an entitlement program is open to all firms who meet the published eligibility criteria, with no assessment of any one firm’s application against another. This provides an environment that encourages small to medium firms to be involved throughout the life of the program.
3. A key consideration in choosing which approach to adopt was the likely effectiveness of each in leveraging the particular category of TCF industries capable of surviving and expanding in the free trade environment of 2010. A performance-based model was also perceived to be more exposed to a possible challenge under the WTO than would be the case for an entitlement scheme.
Legislation v Budget Appropriation
4. The question of whether or not the TCF SIP should be incorporated into legislation was given careful consideration. Funding by way of budget appropriation would have provided an element of policy and funding flexibility (and with regard to funding, possible carryover of unused funds at the end of each year of the program). However, industry successfully expressed their concern that a non-legislated program could be subject to reduced funding in subsequent budgets. They argued that by embodying the program in legislation, similar to that adopted for the Automotive Competitiveness and Investment Scheme, would indicate the Government’s commitment to providing funding combined with sufficient flexibility to allow carry-over of funds from year to year within the overall ceiling.
5. Recognising the added administrative costs associated with the development of the SIP legislation, it was decided that legislation would be drafted to underpin ministerial administrative arrangements for the SIP, including appropriate regulations and determinations. The proposed SIP Bill and a related Bill (The Customs Tariff Amendment Bill), which gives effect to the phasing down of tariffs to their 2000 level and that they be held at that level until 1 January 2005, are planned to be put before Parliament during the Autumn sittings in February 1999.
Cash Payments V Duty Credits
6. The industry raised the possibility of benefits under the SIP being paid in the form of import duty credits rather than direct cash payments. Moving to a revenue-based scheme would have made the SIP similar to the Automotive Competitiveness and Investment Scheme but would have opened it up to the possible criticism that there was no clear departure from the Import Credit Scheme (ICS), the existing duty credits scheme which has tainted status under the WTO. In addition, it was considered that a duty credits scheme would have favoured unnecessarily a small number of large industry players who are significant importers, at the expense of other firms that would suffer some losses associated with transaction costs inherent in trading the credits.
7. The decision to implement a cash payments scheme rather than a duty credit scheme was also due to widespread concern expressed by coordinating departments that the latter would remove transparency from the scheme and attract WTO scrutiny.
V: DETAILS OF SIP BENEFITS
1. The SIP, which will come into effect following the termination of the ICS, will offer clear incentives for continued structural adjustment in the TCF industries as they move towards further reductions in Tariff protection in 2005 and the prospect of APEC free trade in 2010. It will encourage investment and strategic research and development that are critical for the TCF sectors to meet the challenges ahead.
2. Under the program, benefits are paid in cash, annually in arrears, calculated at:
· up to 20% of total eligible investment expenditure on new plant and building;
· up to 45% of expenditure on eligible R&D related activities (including product development expenditure, other than advertising and media); and
· up to 5% of TCF value added by the company in Australia in the year of the claim, with the total value limited to the total value of benefits earned on eligible investment in plant and building and research and development related expenditure.
1. The total benefit to individual companies from these assistance measures is not to exceed 5% of sales of eligible products or services produced in Australia in the preceding twelve months. This will avoid being deemed to be causing serious prejudice under the World Trade Organization (WTO) Subsidies Agreement. Sales to New Zealand will not receive payments under the value added provisions and would not be included as sales for calculating the 5% limit on overall subsidy. This is in accordance with the CER 1998 Agreed Minute on Industry Assistance, where Australia has undertaken to exclude exports to New Zealand from bounty payments or like measures.
2. In recognition of industry concern that significant investment in plant and building is expected in 1998/99 and 1999/00, firms investing during these years will be entitled to lodge a claim for those years at the end of the first year of the SIP. This is to ensure that industry does not defer investment unnecessarily until after 1 July 2000. However, recipients of funding during this period will need to make a choice between the Import Credit Scheme (ICS), if applicable, or the SIP Program or be subject to the 5% ceiling.
3. The R & D payment under the SIP will be subject to the clawback provisions of either Section 73C of the Income Tax Assessment Act 1936, or the recoupment provisions of sub-division 20A of the Income Tax Assessment Act 1997 should they claim the 125% R&D tax concession.
4. A special benefits element is included in the SIP to provide adjustment assistance for communities heavily dependent on TCF manufacturing industries through extended eligibility to include expenditure on ‘state of the art’ second hand plant and building, subject to proposed criteria. Special miscellaneous grants will cover related grants for TCF dependent communities.
5. In addition where a clear need for regional assistance is demonstrated, supplementation for the existing Commonwealth Regional Assistance Program, administered by Department of Employment, Workplace Relations and Small Business, will be provided. This Department is currently liaising with the Department of Employment, Workplace Relations and Small Business to establish a mechanism to deliver the required services.
VI: IMPACT ASSESSMENT (COST/BENEFIT ANALYSIS) OF THE DECISION
1. The TCF Strategic Investment Program (SIP) is aimed at providing an investment incentive to leverage a cultural change towards international competitiveness and global integration of the Australian TCF industries. It provides for investment certainty to encourage TCF companies to become more internationally competitive and better exploit Australia’s natural advantages in raw materials such as wool, hides and cotton.
2. The scheme encourages TCF industries to be proactive in determining their future viability in a robust and increasingly free trading global market. It is aimed at backing Australian industry and Australian jobs and facilitating innovation, self-sufficiency and competitiveness.
3. The SIP is not a replacement for the ICS, but aims to support sustainable investment in TCF manufacturing in the development of an internationally competitive industry in an environment of free trade.
Cost and Benefits
4. The overall cost to revenue of the SIP is $700 million, which is equivalent to the aggregate cost of the ICS had it continued past its termination date of 1 July 2000, up to 30 June 2005. The expected benefit of the scheme is the transformation of TCF firms that have long-term viability by way of an appropriate investment strategy into internationally competitive enterprises.
5. The SIP is investment driven and those TCF sectors with traditionally higher investment levels (such as textile and fibre manufacture) are more likely to be in a position to fully benefit from the program, than the clothing sector, which has traditionally had low levels of investment and high value added.
A more viable and internationally competitive TCF sector in
Australia will be able to meet the challenge of remaining
competitive when tariffs phase down on 1 January 2005 and
maintaining an effective presence in the APEC free trade
environment in 2010. SIP provides industry with the necessary
framework for this aim by encouraging increased and new investment
in innovation and R&D, which are crucial to the competitiveness
of the TCF industries.
7. Recent ABS data indicates that around 96 % of all TCF establishments have annual investment levels below the SIP entry threshold of $200,000. Hence, the program will be accessible initially by only a limited number of larger firms, (estimated at around 300). However small firms under this program have the opportunity, if necessary, to build up their investment over the 5 years of the program to reach the entry limit of $200,000.
8. The ICS is an export-based benefit scheme and there are a number of companies currently receiving ICS benefits who may receive little support under the SIP, and vice versa.
9. In accordance with Cabinet’s decision of 10 September 1997, the SIP has been developed at a cost equivalent to the ICS, had it continued to 30 June 2005.
10. Formal employment in the TCF industries has been estimated at around 77,000, with an estimated additional 30,000 outworkers. The regional assistance measures provided under the SIP will help secure long term employment futures for the current TCF full time workforce by encouraging retention and development of jobs, particularly those located in the regions, as well as thousands of other jobs tied to the TCF industries.
11. The Industry Commission Report into the TCF industries highlighted that irrespective of which industry assistance policies are in place post 2000, labour adjustments in the TCF industries will continue to occur. The Industry Commission further noted that this was due to a number of reasons, which are unrelated to reductions in assistance. These include:
· the use of capital over labour (especially in the textiles sector);
· preference by consumers for imported products; and
· substantial wage differentials between Australia and developing countries.
1. While the general investment provisions of the SIP have not been specifically designed to effect a rationalisation of TCF firms, the investment incentives provided may contribute towards such an outcome. By allowing claims for regional reconfiguration and adjustment, the program gives specific recognition to the impact such structural adjustment may have in areas where TCF activity plays a significant role in the local economy.
2. A total allocation of $700 million has been made for the SIP over the 5 years of the program from 1 July 2000 to 30 June 2005 (ie at a nominal rate of $140 million per year). The program is triggered by investment expenditure, which aims at firms becoming more competitive in a free trade environment. Investment in 1998/1999 and 1999/2000 will be eligible to be claimed, and this will provide an incentive to firms not to defer this type of investment until the start of the program on 1 July 2000.
3. The SIP will reward those TCF firms that are willing to undertake eligible investment in plant and building, by assisting their adjustment to a sustainable and internationally competitive firm by 2005. Investment expenditure undertaken in the early years of the scheme will generate further eligible value adding which can be claimed in the later years.
Structure of the SIP
15 The program aims to encourage innovative product development by including payments on R&D type activities such as expenditure on Australian based product design, testing, trialing and sample production, and employment of personnel principally engaged on product development and process improvement for goods manufactured in Australia.
16 All firms applying for payment under the provision of the SIP will be required to submit a detailed strategic business plan and strategic investment plan. In addition, applicants would be required to submit audited accounts and report on compliance with their strategic plan, as well as meet registration requirements to account for plant and building expenditure that has been claimed under the program. The registration requirements for any second hand plant and building will be particularly stringent in order to preserve adequate propriety of such claims.
17 It is proposed that a pro-rata business plan may be developed to minimise the cost for all applicants. However, these requirements are unlikely to impose significant business compliance costs for small businesses. The program has been designed to encourage all firms engaged in the TCF industries, irrespective of size, to undertake eligible activities. While the de minimis rule will restrict initial entry into the program to ensure a manageable administrative workload, it does operate to allow smaller firms to build up their investment levels over the five years of the program, if necessary.
18 The SIP was developed bearing in mind the need to avoid any elements that would come within the WTO prohibited category of trade related industry assistance. The proposed program, while it could be actionable, has a low risk of challenge. Total assistance to individual firms is limited to 5% of sales per annum, thus avoiding the possibility of the subsidy being deemed to cause serious prejudice under WTO rules, and the benefits provided will have no direct or inferred reference to export or local content.
19 These safeguards ensure that the onus is placed on the complainant country to establish adverse effects to its industry if a WTO challenge against the SIP were to be mounted.
20 Furthermore, under Australia’s CER obligation, exports to New Zealand from bounty payments or like measures are to be excluded. In accordance with CER obligations, Australia is consulting with New Zealand on the effect of the SIP on Trans-Tasman competition between the respective TCF industries.
VII: RELATED GOVERNMENT MEASURES
1. The Government’s decision to maintain tariffs on TCF products at their level on 1 July 2000 until 31 December 2004, and then to reduce tariffs on 1 January 2005, will be detailed in the Customs Tariff Amendment Bill (1999), which will be introduced in the Autumn 1999 Sittings of the Parliament.
2. The Customs Tariff Amendment Bill and the SIP Bill are to be cognate.
1. The process of devising an appropriate strategic investment program involved extensive consultation between the Department of Industry Science and Resources, the Minister’s Office and the, industry. In addition, the Industry Commission which reported on the TCF Industries in September 1997 undertook significant consultation with industry and other interested persons.
2. These consultations concluded that the SIP provides a framework for the development of TCF internationally competitive firms, when tariffs phase down in 2005, and their ability to maintain an effective presence in the 2010 APEC free trade environment.
3. In finalising the Cabinet Submission on post 2000 TCF arrangements, consultation and coordination comments were sought from the Departments of Prime Minister and Cabinet; Treasury; Finance and Administration; Employment, Workplace Relations and Small Business; Education, Training and Youth Affairs; Transport and Regional Development; and Attorney General’s. These Departments all noted their support for the SIP.
4. The industry originally expressed a preference for a simple production subsidy. However, this would have favoured labour intensive clothing production over the more capital intensive sectors (such as textiles). Clothing production has a much higher level of value adding than processing of raw materials or the production of intermediate goods (such as yarn, fabric and leather). Low cost generic clothing production in Australia is unlikely to be sustainable and/or competitive in a free trade environment. An investment driven program, which encourages new and further investment in innovation and R&D, was therefore considered to be the best mechanism for ensuring that firms receiving benefits would become genuinely internationally competitive.
5. Given that WTO obligations do not permit replication of export based benefits on which the ICS is structured, it was inevitable that the profile of benefits available under the SIP would be different from those available under the ICS. However, the weightings given to investment and R&D in the SIP are designed to focus company activities on those areas which approximate the regimes adopted by internationally competitive and export oriented firms.
IX: IMPLEMENTATION AND REVIEW
1. It is anticipated that AusIndustry, the service delivery agency of the Department of Industry, Science and Resources (ISR), will administer the SIP. However, the general overall policy aspects of the program will remain under the control of the TCF Policy Unit, Industry Division A, ISR. Regional assistance measures under supplementation to the RAP will be administered jointly with the Department of Employment, Workplace Relations and Small Business.
2. Applicants under the SIP will be required to keep adequate records of eligible investment, product development and value added activities. As part of the program’s eligibility criteria for investment assistance, applicants will be required to provide:
· A Strategic Business Plan (incorporating an ‘Investment Plan’ for the period up to and including 2005);
· Audited accounts for the previous three years;
· A statement from a registered accountant as to the firm’s future financial viability;
· Australian Registered Body Number , date of incorporation, and information on firm size, based on employment level and turnover; and
· Information on other Government benefits received or applied for.
1. Monitoring based on outsourcing is considered to be the most cost effective means of undertaking the complex financial compliance issues involved.
2. All Departments and agencies that are likely to have a role in implementing or enforcing the requirements under the program have been identified. ISR is currently finalising the details of the resource requirements and administrative costs.
3. The draft SIP Program Guidelines were provided in December 1998 to the TCF industries for their comments prior to finalisation in March 1999.
4. As part of its September 1997 initiative to implement post 2000 arrangements for the TCF industries, the Government also decided to undertake a review in 2005 of assistance measures implemented, ahead of the move to free trade under APEC. The review will have regard to:
· the effectiveness of assistance programs in developing internationally competitive TCF industries in Australia; and
· international developments in protection for TCF industries, in order to consider appropriate tariff levels for TCF beyond 2005, (including international moves towards free trade under APEC, and the degree to which signatories have met their commitments under the Agreement on Textiles and Clothing (ATC), and the implications for Australia).
1. Under the ATC, developed countries have a commitment to remove all quotas on imported textiles and clothing by 31 December 2004.
2. The review will also provide an opportunity to develop and recommend further policy options the Government might adopt in meeting its commitment to free trade under APEC by 2010.
3. Mechanisms will be developed to undertake an annual review of the SIP. The review will be based on detailed criteria, which will measure the program's effectiveness and what changes have occurred to individual firms under the program. A formal review of SIP will be undertaken at the end of the program, which will measure the program's effectiveness and achievement in meeting its aims.
X: CONCLUSION AND RECOMMENDED OPTION
It was agreed that the proposed SIP program provides the best means of bringing about the cultural change in Australia’s TCF industries on the necessity for an investment ethic which would lead to the development of a sustainable and internationally competitive sector in the coming free trade environment.
NOTES ON CLAUSES
Part 1 - Introduction
Clause 1 - Short Title
1. This clause provides for the short title of the Bill.
Clause 2 - Commencement
2. This clause provides that the Act commences on the date of Royal Assent.
Clause 3 - Simplified outline
3. This clause provides an overview of the main provisions of the Bill.
Clause 4 - Definitions
4. This clause provides definitions and interpretations of key terms used in the Bill.
Clause 5 - Continuity of partnerships
5. This clause provides that a change in the composition of a partnership does not affect its continuity.
Clause 6 - Crown to be bound
6. Subclause (1) provides that the Crown is bound in each of its capacities. However, Subclause (2) provides that the Crown is not liable for prosecution for an offence under the Bill.
Clause 7 - External territories
7. This clause provides that the Bill has application in all external territories.
Part 2 - TCF (SIP) scheme
Division 1 - General provisions
Clause 8 - TCF (SIP) scheme
8. This clause provides the enabling power for the Minister to formulate the TCF (SIP) scheme for the making of grants relating to the design for manufacture in Australia and/or manufacture in Australia of eligible TCF products.
Clause 9 - $700 million cap
9. This clause provides the total dollar ceiling for all grants paid under the TCF SIP scheme. The ceiling is $700 million less the total supplementation payments under the Regional Assistance Program determined under Clause 33.
Division 2 - General policy objectives for the scheme
Clause 10 - General policy objectives for the scheme
10. This clause lists clauses which set out the policy objectives to be achieved under the scheme, namely clauses 11,12,13,14 and 15.
Clause 11 - Types of grants
11. This clause sets out the policy objectives in the scheme in relation to categories of grants under the scheme, namely:
- new TCF plant and building expenditure;
- TCF research and development expenditure;
- TCF value-adding;
- special grants for second-hand TCF plant and building expenditure;
- special miscellaneous grants for TCF-dependent communities.
1. Special grants for second-hand TCF plant and building expenditure will be limited to entities in communities that are heavily dependent on TCF manufacturing. Special grants will primarily benefit regional areas heavily dependent on TCF manufacturing industries. Special miscellaneous grants will cover related grants not specifically covered by the grants for second-hand TCF plant and building expenditure in respect of TCF-dependent communities. It is intended that TCF dependent areas would include those communities where TCF employment constitutes more than 10% of the total manufacturing employment, or where the unemployment percentage is in excess of the national average, and TCF employment constitutes more than 5% of total manufacturing employment.
2. Subclause (3) ensures that the categories of grants specified in Subclause (2) do not limit the range of matters for which grants may be made under the scheme.
Clause 12 - Duration of Scheme
3. This clause prescribes the policy objectives on the time frame for claims for individual grants under the scheme. For new TCF plant and building expenditure, grants to entities may be made in respect of activities undertaken during 1998-1999 through to 2004 - 2005 income years. For all other categories, grants can only be made in respect of activities undertaken during the entity’s 2000-2001 income year and ending in their 2004-2005 income year.
Clause 13 - Grants to be made in arrears
4. This clause sets out the policy objectives on the time frame for claims for individual grants under the scheme. Subclause (2)(a) provides that grants for new TCF plant and building expenditure cannot be made to an entity for expenditure incurred in respect of the entitlement periods 1998-99 and 1999-2000 unless the entity claims the grant after its 2000-2001 income year.
5. Subclauses (2)(b) and (2)(c provide that for all other categories, grants cannot be made to an entity for expenditure incurred in respect of entitlement periods 2000-2001 through to 2004-2005 unless the entity claims the grant after the end of the income year in which the expenditure was incurred.
Clause 14 - Cap for grants in respect of TCF value-adding
6. This clause sets out the policy objectives on cap for value-adding for grants under the scheme. Total grants for TCF value-adding made to an entity regarding activities undertaken by the entity in a particular income year are equivalent to the lesser of the sum of the total grants for new and second hand TCF plant and building expenditure and TCF research and development expenditure, and five percent of the entity’s total eligible TCF value added for that year. It is intended that the sales of eligible products to New Zealand will not be eligible for inclusion in value added claims for the purpose of meeting CER obligations.
Clause 15 - Sales-based cap for grants
7. This clause sets out the policy objective of the sales-based cap for grants in all categories made under the scheme, which is equivalent to five percent of sales revenue of eligible TCF products during the previous income year. It is intended that sales of eligible products to New Zealand will be excluded from the sales revenue.
Division 3 - Registration for the purposes of the scheme
Clause 16 - Registration for the purposes of the scheme
8. Subclause (1) prescribes that the scheme must impose registration requirements on entities. Subclause (2) specifies registration requirements that the scheme may include. These are the need for registration by the entity, the need to provide a statement as to the entity’s future financial viability, the need to provide any additional information which may be specified in the scheme, and to provide for a registration fee.
9. Subclause (3) provides that entities not complying with particular registration requirements may be ineligible for a grant, have its grant eligibility restricted or reduced, or have the time of payment of a grant deferred. The scheme will specify the consequences.
Division 4 - Strategic business plans and audited accounts
Clauses 17 and 18 - Strategic business plans and audited accounts
10. These clauses provide that an entity is not eligible for a grant unless it has complied with any requirements under the scheme in relation to contents of strategic business plans and variations of such plans, submission of audited accounts and financial statements and registration. It is intended that there will be a minimal audited accounts compliance.
Division 5 - Other matters relating to the scheme
Clause 19 - Scheme may confer administrative powers on the Secretary
11. This clause enables the scheme to provide discretionary power to the Secretary to make administrative decisions, including power to determine the amount of claims for grants.
Clause 20 - Reconsideration and review of decisions
12. This clause requires the scheme to provide a mechanism for internal review of a decision by the Secretary affecting an entity. The power of delegation under Clause 48 will allow the Secretary to delegate this power to reconsider a decision to appropriate senior departmental officers or a panel consisting of such officers.
13. Subclause (1)(a) provides that an entity dissatisfied with a decision may request reconsideration by the Secretary within a period specified in the scheme.
14. Subclause (1)(b) requires the Secretary to reconsider the decision and confirm, revoke or vary the decision.
15. Subclause (1)(c) provides for external review of the Secretary’s decision by the Administrative Appeals Tribunal.
16. Subclauses (2) and (5) specifies a period of 30 days for both the submission by an affected entity of a request for reconsideration by the Secretary of a decision and the consideration by the Secretary of such a request. Failure by the Secretary to take action within that time is taken to be confirmation of the decision.
17. Subclause (3) requires that the scheme specify that any request for reconsideration of a decision under Subclause (1)(a) must include reasons for making the request for a review.
18. Subclause (4) has the effect of deeming any request made under Subclause (1)(a) to be an application for review under the Administrative Appeals Tribunal.
19. Subclause (6) requires that the result of any reconsideration of a decision, the Secretary must notify applicant the reasons for confirming, revoking or varying the decision.
20. Subclause (7) provides that where a decision has been confirmed the Secretary, section 29 of the Administrative Appeals Tribunal Act 1975 applies to the effect that the 28 day application period under the AAT is deemed to commence from the date of the decision.
Clause 21 - Statement to accompany notification of decisions
21. Subclauses (1) and (2) contain the requirement that notification of a decision under the scheme, or reconsideration of a decision under the scheme, must be accompanied by a statement of appellant rights under the Administrative Appeals Tribunal Act 1975 .
22. Subclause (3) provides the validity of a decision where such a statement has not in fact been provided.
Clause 22 - Guarantees relating to payment of scheme debts
23. This clause prescribes that the scheme may provide that an entity’s eligibility for a grant under the scheme be conditional on receipt of a guarantee from another entity relating to any scheme debts owed by the former entity. This particularly relates to subsidiaries.
Clause 23 - Non-arm’s length transactions
24. This clause enables the scheme to provide that where an amount of expenditure derives from a non-arm’s length transaction, it may be deemed to be the amount that could reasonably be expected to have been incurred in a normal arm’s length transaction.
Clause 24 - Grant by way of bounty
25. This clause does not prevent a grant under the scheme being a grant by way of a bounty.
Clause 25 - Grants to be inalienable
26. This clause enables the scheme to provide for grants under the scheme to be inalienable except with the approval of the Secretary.
Clause 26 - Miscellaneous Matters
27. This clause prescribes the scheme may provide for various miscellaneous matters, including imposition of a time limit for lodgement of grant claims, the need for accompanying audited statements to verify eligible expenditure, apportionment of expenditure in accordance with entitlement under the scheme, the adjustment of eligibility for grants resulting from transfer of beneficial ownership of the whole or part of a business, and times when grants become payable.
Clause 27 - Ancillary or incidental provisions
28. This clause enables the Minister to provide for any ancillary or incidental provisions in the scheme as necessary.
Clause 28 - Scheme-making power not limited
29. This clause ensures that the general powers under Clause 8 to provide for matters under the scheme are not limited to those matters specified in Clauses 9 to 28.
Clause 29 - Fee must not amount to taxation
30. Clause 29 provides that the amount of a fee under the scheme must not be such as to amount to taxation.
Clause 30 - Variation of scheme
31. Subclause (1) allows the scheme to be varied but does not confer power to revoke. Subclause (2) however does not limit the application of Subclause 33(3) of the Acts Interpretations Act 1901.
Clause 31 - Scheme to be a disallowable instrument .
32. This clause provides that the scheme is a disallowable instrument for the purposes of Section 46A of the Acts Interpretation Act 1901 .
Clause 32 - Appropriation
45. Provides for grants made to eligible firms to be drawn from the Consolidated Revenue Fund (CRF). The annual profile of benefits to be agreed with the Minister of Finance.
Part 3 - Supplementation of the Regional Assistance Program
Clause 33 - Supplementation of the Regional Assistance Program
46. Subclause (1), (2) (3) and (4) provide that the Minister from time to time may appropriate from the TCF SIP money ($700 million) to the Regional Assistance Program administered by the Commonwealth. The Minister must table a copy of his determinations in Parliament.
47. Subclause (5) defines the Regional Assistance Program (RAP) for the purpose of this Bill. RAP is administered by the Commonwealth Department of Employment, Workplace Relations and Small Business.
Part 4 - Information - gathering powers
Clause 34 - Secretary may obtain information and documents
48. Subclause (1) deals with information on a document which may be relevant to the operation of the scheme.
49. Subclause (2) outlines the Secretary’s power to seek such information or the document in writing, from the individual or body corporate.
50. Subclause (3), makes it an offence if a person contravenes the requirement of the Secretary under subclause (2).
51. Subclause (4) provides that any notice under Subclause (2) by the Secretary to request information or a document must set out the penalty provisions noted in subclause ( 3) and in Clause 45 False or misleading information, Clause 46 , False or misleading evidence and Clause 47 False or misleading documents .
Clause 35 - Copying documents - reasonable compensation
52. This clause provides compensation to persons or body corporate for the costs incurred in complying with the requirements under Clause 34.
Clause 36 - Self-incrimination
53. Subclause (1) provides that an individual cannot be excused from giving information on assistance or providing a document under Clause 34 on the ground that the information will incriminate the individual or body corporate or expose the individual or body corporate to a penalty.
54. Subclause (2) however provide that the information, evidence or document provided by the individual is not admissible as evidence against the individual in criminal proceedings. Subclause (2) (c) and (d) provide that such information is admissible if the criminal proceedings are for an offence under Subclause 34 (3) or Clause 46 or 47, or clause 45 that relates to this part.
Clause 37 - Copies of Documents.
55. This clause allows the Secretary to inspect, make and retain copies or extracts from a document which are produced in accordance with the requirements of clause 34(2)(c).
Clause 38 - Secretary may retain documents
56. Subclause (1) allows the Secretary to retain documents obtained under clause 34., which are relevant to the SIP Scheme.
57. Subclause (2) provides that a person entitled to possession of the document is entitled to receive a certified copy of the document.
58. Subclause (3) provides that the certified copy is to be received as the original document in all courts and tribunals if presented as evidence.
59. Subclause (4) if a certified copy of the document is not available, the person/entity or their authorised delegate, who is entitled to the document may inspect, copy or take extracts from it.
Part 5 Recovery of scheme debts
Clause 39 - Repayments of conditional grants
60. This clause provides that a grant under the TCF scheme may be paid subject to a condition. If that condition is not met the grant recipient is liable to repay to the Commonwealth the grant amount or part of the grant.
Clause 40 - Scheme debts are debts due to the Commonwealth
61. This has its natural meaning.
Clause 41 - Recovery by legal proceedings
62. This clause allows for the Commonwealth to recover debts using the court system.
Clause 42 - Recovery by set-off
63. This allows the Commonwealth to deduct money owed to it from one or more grants that are due to the entity under the TCF SIP Scheme.
Clause 43 - Commonwealth may collect money from a person who owes money to an entity
64. Subclause (1) allows the Commonwealth to collect money from another person/entity (third party) who owes money to the entity that has a scheme debt with the Commonwealth.
65. Subclause (2) permits the Secretary to direct a third party who owes money to the entity that has a scheme debt to pay all or some of the money owed directly to the Commonwealth. The entity with the scheme debt must be provided with a copy of this direction.
66. Subclause (3) provides that the Commonwealth cannot require a third party to pay an amount to the Commonwealth before it is owed by the third party to the entity.
67. Subclause (4) provides that the third party which is directed by the Secretary to make a payment to the Commonwealth must comply with this direction as far as the third party is able to do so.
68. Subclause (5) provides that a third party can be convicted in a court for refusing or failing to comply with Subclause (4) and that in addition to a penalty being imposed the court may order them to pay the Commonwealth up to the amount involved in the refusal or failure of the third party.
69. Subclause (6) provides indemnity to the third party for the payment made to the Commonwealth under this Bill to the extent that the payment has been made with the authority of the entity.
70. Subclause (7) states that the Secretary must inform the third party immediately if the scheme debt is discharged by the entity prior to any payment being made by the third party.
71. Subclause (8) defines when a third party owes money to the entity whether or not the payment of the money is dependent on a pre-condition that has not been fulfilled.
72. Subclause (9) defines that money which has been paid by a person to a building society for the issue of withdrawable shares in the capital of the Society but has not been repaid is taken to be money payable on demand.
73. Subclause (10) defines a building society for the purpose of this clause.
Part 6 -Offences
Clause 44 - Application of Criminal Code
74. This clause applies Chapter 2 of the Criminal Code and the relevant penalty provisions to all offences under this Bill.
Clause 45 - False or misleading information
75. This clause provides that a person is guilty of an offence if the person provides information, in the knowledge that it is false or misleading in a material particular, to another person exercising powers under the scheme or in pursuance of a request by the Secretary under Clause 34.
Clause 46 - False or misleading evidence
76. This clause provides that a person is guilty of an offence if the person provides evidence, in the knowledge that it is false or misleading in a material particular, to another person in pursuance of a request by the Secretary under Clause 34.
Clause 47 - False or misleading documents
77. Subclause (1) provides that a person is guilty of an offence if the person provides a document, in the knowledge that it is false or misleading in a material particular, to another person in pursuance of a request by the Secretary under Clause 34.
78. Subclause (2) provides an exemption from the operation of Subclause (1) if the document is accompanied by a written statement that the document is, to the knowledge of the person producing the document, false or misleading in a material particular, and sets out or refers to that material particular.
Part 7 - Miscellaneous
Clause 48 - Delegation
Delegation to senior officers of the Department or an authorised Commonwealth contractor
79. Subclauses (1) and (3) allow for the Secretary, in writing, to delegate any or all of his or her power under this Bill or the TCF (SIP) scheme to one or more senior officers in the Department or an authorised Commonwealth contractor.
80. Subclause (2) and (4) note that the delegate, in exercising such delegated power, is subject to the directions of the Secretary.
81. Subclause (5) provides that any person who is a delegate under this clause is deemed to be a person performing services for the Commonwealth for the purpose of application of relevant sections of the Crimes Act 1914 relating to a Commonwealth officer.
82. Subclause (6) defines, for the purpose of this clause of the Bill, an authorised Commonwealth contractor, senior employee and senior officer.
Clause 49 - Uniformity of bounty
83. This clause ensures that the power bestowed by this Bill on the Minister or the Secretary in relation to any bounties is exercised uniformly throughout the Commonwealth, consistent with paragraph 51 (iii) of the Constitution.
Clause 50 - International Obligations
84. This clause provides that in the exercise of powers conferred upon the Minister, the latter must have regard to Australia’s international obligations, including the WTO and CER.
Clause 51 - Regulations
85. This clause provides the standard regulation making power. Under the clause, the Governor-General may make regulations on prescribed matters which are either required or permitted, or are necessary or convenient for carrying out or giving effect to this Bill.