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Tariff torque: debate on the current position

MAXINE McKEW: While consumers might relish the savings they'd make on new cars if tariffs continue to fall, Australia's car-making centres say it would be disaster.

GERRY SMITH: This city just cannot stand any more. You know, we're running better than 2 per cent of the national average of unemployment, and we're just not going to stand for it.

MAXINE McKEW: For the last six months, the Federal Government has been on the receiving end of a furious lobbying campaign, taking views from all sides.

DAVID VINCENT: Car tariffs raise the price of cars to the average consumer.

MAXINE McKEW: Now it's time to make a decision and stop the tariff torque. That's our story tonight.

When you head out tomorrow morning to fire up your car, imagine how much more you'd enjoy driving it if it cost you $3,000 less. Why? Well, if you believe the Productivity Commission, that's the effect of subsidy we pay through tariff protection to keep a car industry in Australia. Every time a car comes into the country, the importer must pay 22.5 per cent of its value to the Government. Introduced 50 years ago, car tariffs were intended to protect a fledgling, domestic industry. Labor began dismantling them in the 80s, but now it's John Howard and his Cabinet that must decide the kind of car industry we want and the level of protection needed to sustain it.

Now, it wouldn't surprise you to know that the Government's been deluged by conflicting advice. The car makers say anything below 10 per cent will destroy them. Farmers, miners and other manufacturers, though, say the car industry shouldn't be treated as a special case and that it needs to work with the same levels of protection offered to most other industries.

And just to add to the confusion, the Productivity Commission, the Government's chief source of advice on these issues, is divided as well; and so, it seems, are key members of Cabinet. Earlier tonight, Treasurer Peter Costello refused to be drawn on the issue, so while the Government holds fire, we're going to talk to three people with very different perspectives on the issue.

But first, this report from Ticky Fullerton.

TICKY FULLERTON: The Ford Motor Company is the heart of Geelong's manufacturing industry. Market leader of Australia's four car companies, it makes almost 100,000 cars a year. Yet, with changes to protection down the road, Geelong is a city under threat. Here town and company are united. Geelong's mayor says it's not just the 3,500 Ford workers at risk. There will be a massive flow-on effect in jobs.

GERRY SMITH: They're coming down to at least 10,000 at the end of the day. But it doesn't stop there. I mean, that's an academic figure. It goes on past that into real estate, into people leaving the town, into just about everything that could would happen.

TICKY FULLERTON: Tariffs, or taxes on imported cars, have been falling steadily from 57 per cent in 1982 to today's 22.5 per cent, and are set to drop to 15 per cent in the year 2000. But what happens after that is what the row is all about.

If the Productivity Commission gets its way, tariffs will fall to 5 per cent by 2004, all but wiping out protection. The car manufacturers want a freeze on tariffs at 15 per cent - that's four times the protection offered to most other manufacturers. To justify their case, our car makers say they've battled with a double whammy of falling tariffs and a rising Australian dollar. And the days of sloppy management hiding behind the protectionist umbrella are long gone.

IAN VAUGHAN: I guess in the last four years we've really come out from a low point to a high point. We've made a lot of gains in quality and productivity and we're still market leader.

TICKY FULLERTON: But if Ford is looking for support to hold the tariff line, it won't get it from Geelong's Federal Liberal MP. Oddly enough, Stewart McArthur argues further tariff reductions are needed to bring yet greater efficiency.

STEWART McARTHUR: If they're efficient, if they're productive and if they're profitable, then the Ford company will stay in Geelong; if they're not, they'll leave.

TICKY FULLERTON: That's a very dry and, if I might say, courageous line for you to take, given that you're elected by people in Geelong.

STEWART McARTHUR: Well, let me put it to you this way, that my position is quite clearly that I want Ford to stay in Geelong, I want them to be there in the long term. I don't want them to get some short-term benefit from a particular tariff.

TICKY FULLERTON: The industry fears it's being swamped by imports like the Hyundai Excel from Korea. They point to imports now taking up 55 per cent of the market. And there's a strong view that while auto industries of our Asian neighbours enjoy tariff barriers of up to 200 per cent, and many non-tariff barriers, we'll lose our bargaining chip for free trade.

It may well be a powerful argument from Ford, but just an hour up the road from Geelong, still in Stewart McArthur's electorate, we hear a very different side to the story.

SCOTT CHIRNSIDE: We've got a mob of ewes and lambs and a crop of canola down the bottom end, and they're support proven ground over there, actually.

TICKY FULLERTON: While Ford have been good neighbours to farmer Scott Chirnside, like so many other primary producers he's no fan of car tariffs.

SCOTT CHIRNSIDE: Well, Australia has gained a large amount of credibility with overseas markets in the last number of years by being prepared to open up a large number of its markets in various products.

DAVID VINCENT: The mining industry, the farming industries, many other manufacturing industries, many service industries throughout the economy use cars as an input into production. If we make them more expensive then we tax those industries and we reduce their competitiveness, we reduce their output, their employment and their capacity to generate income.

SCOTT CHIRNSIDE: Our wool and our barley and our canola and our sheep meats are all sold on the export markets, where all the buyer is really interested in is the quality and the price and the consistency of supply. So it's very difficult for us, in 1997, to absorb the inefficiencies in our inputs and the things we use in our day to day life, while competing on an outside and big world market.

TICKY FULLERTON: Economists like David Vincent have been arguing about the hidden costs of tariffs to the economy for years, and with governments still undecided, they've been thrashing it out again at an economic conference yesterday.

DAVID VINCENT: Car tariffs raise the price of cars for the average consumer. Now, if consumers have to spend more money on their cars they have less money to spend on other goods and services, and that means reduced employment. The job gains in the car industry are eroded by job losses in these other industries. And they're the hidden costs of car industry protection.

TICKY FULLERTON: The problem is if the car industry collapsed, job losses would be very visible. Mitsubishi in Adelaide is reportedly the weakest of the four car makers. Next year it has to decide whether to invest another $400 million to continue producing the Magna to the year 2003. And that could mean jobs on the line.

JAMIE SMITH: If this place closed down, I'd either have to go back to school because I've forgotten what I used to do or I'd be sitting on a dole queue just trying to find anything.

SIMON CREAN: If you look at the Peter Costello view of life - and he's the one driving the Productivity Commission model the furthest of the lot - he's asked the question: 'Well, why not let Mitsubishi go?'

TICKY FULLERTON: One reason government may not let Mitsubishi go is a South Australian election just around the corner. Federal Minister, John Moore, has put himself at odds with the Treasurer. He's quietly had the Automotive Manufacturing Council preparing a report of its own.

And there's speculation of a compromise that might slow the rate of tariff reductions to one per cent a year. Labor says the industry is half-cocked. It's announced a Button-style industry plan that opts for a freeze at 15 per cent until 2005 and other incentives that have won support from the industry.

SIMON CREAN: Our car plan is about increasing jobs by 10,000 on top of what's there and trebling exports. The two most important economic issues are jobs and balance of payments. The car plan addresses both - why not embrace it?

STEWART McARTHUR: Simon Crean and former Prime Minister Keating were the greatest advocates of free trade, and it was the Labor Party that reduced tariffs from 57 per cent down to 15 per cent, as it will be in the year 2000. It was they who championed the cause of free trade, and yet when they're in Opposition they've now sold out.

TICKY FULLERTON: For all the criticism of Labor, back in Stewart McArthur's Geelong electorate, there's little doubt which option the city folk would choose. They want a long-term commitment from Ford.

IAN VAUGHAN: We've committed a billion dollars over the next five years to invest in Falcon and a new model Falcon which we'll be bringing to the public.

TICKY FULLERTON: So that's going to stay, come hell or high water?

IAN VAUGHAN: We're pretty much down the road on that investment now.

TICKY FULLERTON: Mayor, Gerry Smith, isn't taking any chances. He wants more than five years, and yesterday led a business delegation to Canberra, facilitated by, of all people, the anti-tariff MP. In meetings with Ministers Moore, McLachlan, Downer and Reith, his message has been clear.

GERRY SMITH: This city just cannot stand any more. You know, we're running better than 2 per cent of the national average of unemployment, and we're just not going to stand for it.

MAXINE McKEW: That report from Ticky Fullerton. And now to my guests. David Morgan is President of Ford Australia, the company he's worked for since 1959; he's also President of the Federal Chamber of Automotive Industries. Chris Gallus is MP for the Federal seat of Hindmarsh in South Australia. Two of the big four car manufacturers have plants in her state and employ around 10,000 South Australians. And Lauchlan McIntosh is Executive Director of the Australian Automobile Association, the national umbrella body for the country's motoring clubs and associations. And all of my guests tonight join me from Canberra. So welcome to all of you; thanks for joining us.

Now, David Morgan, I'm sure you saw this. Today's cartoon in the Australian pictured the four car manufacturers as slightly threatening old ladies saying to John Howard: 'Help us over the road, sonny, or else.' Now my question to you would be: isn't the Government entitled to say: 'It's about time you could cross the road by yourself?'

DAVID MORGAN: Well, first off, I was a bit disappointed to see myself in a dress, but that really isn't the point. I mean, we had not threatened the Government. There seems to be a belief around that the only discussions we are having are one of threat. We've basically had a lot of good discussions with the Government on what are the likely situations we'll face in the future if we continue to reduce tariffs down to 5 per cent, if we don't recognise the level of import competition we're currently facing at 55 per cent of the market. It is a very competitive industry that we're in. And they're the discussions we're having.

MAXINE McKEW: But couldn't other industries put a similar argument? I mean, does that mean that you'd be happy to, say, pay the ... if we continue to see across the board protection, would you be happy to pay the extra costs as a consumer and as an exporter?

DAVID MORGAN: Well again, you were saying earlier, I noticed, in the interview that tariffs create higher prices for vehicles. But if we look at the vehicles we produce here, for example the Falcon, it's the same price as a Taurus in the United States, which is an equivalent vehicle. So we're totally competitive in the price of the vehicles we do produce here. The difference in price tends to be driven by wholesale sales tax.

MAXINE McKEW: But you're asking for a level of protection that's higher, four times higher than other manufacturing industries. How do you justify that in this ....

DAVID MORGAN: Well, again, what's the cost of protection? I noticed again in the report that you showed earlier that we spoke of protection of over $3,000 a unit, and yet there's also studies that show the cost as $85 a unit, for that protection to provide the employment, provide the investment, provide the technology that the industry brings to Australia.

MAXINE McKEW: Well, the question has to be: have you convinced Peter Costello of this?

DAVID MORGAN: We're certainly having those discussions at the moment.

MAXINE McKEW: Chris Gallus, what's your sense of where the Government's thinking is on this? I noticed Peter Costello tonight talked about a sensible compromise. What do you think his idea is of a sensible compromise?

CHRIS GALLUS: I'm not sure. I haven't talked to Peter about that today. I think they've been looking at the one per cent coming down after the year 2000. I think that was one of the ones that certainly were attractive. There was also a mention, of course, in the paper today of starting at one per cent next year and taking it down from one per cent then.

From the point of view that I can see it, it doesn't matter how much you slow it down as long as you do slow it down and get to our agreement which is the 5 per cent in 2010. I think we can afford to slow it down because I think there are very good arguments to the Government that the industry have put for the reasons why it should slow down, those tariffs should slow down.

MAXINE McKEW: What's the most compelling reason?

CHRIS GALLUS: I think the most compelling reason is that we need a car industry. I mean, a car industry is an essential industry in Australia. Not only does it provide jobs - and it provides lots of jobs all round Australia, not only in the major manufacturers but in the component manufacturers - it also provides a technological base and a skill base. And if our manufacturers move offshore, we lose that technological base and that skill base, and with it goes a lot of spin-off industries, not just in the car component parts but in an awful lot of other industries. And we just can't afford to do that.

MAXINE McKEW: But if the Government doesn't continue, say, the fast phase down to, say, 5 per cent by 2005, isn't there a huge problem of inconsistency for the Government? I mean, in last year's budget we had Peter Costello making a great point of curtailing what he called business welfare. Now, how can the Government reasonably say to one group in the community, one business group in the community: 'You can't have your RD but we can support a car industry?'

CHRIS GALLUS: Maxine, if I can answer that. We've heard earlier on in your program about the farmers saying the costs of the car industry. But have a look at the support the farmers get. They get drought relief, the Rural Adjustment Scheme, the diesel fuel rebate. These are all assistances to the primary industry because we want to keep our primary industry and we want to keep it healthy.

MAXINE McKEW: What about assistance to manufacturing?

CHRIS GALLUS: Well, that's exactly the same.

MAXINE McKEW: Coming down 5 per cent.

CHRIS GALLUS: When an industry needs help, and an industry as important to us as the car industry, we should, as a nation, say: 'Let's get it over a hump.' There is a hump at the moment. There is over-capacity round the whole world, and other countries are going to be, at this time, supporting their car industry. The countries that don't support their car industries will lose them, and at great cost to those countries.

MAXINE McKEW: Lauchlan McIntosh, is that right?

LAUCHLAN McINTOSH: Well, I think there's a whole lot of issues there, Maxine, that make it very difficult. But let me pick up on your point ....

MAXINE McKEW: Well, number one, let me ask you: do we have to have a car industry? Is it viable?

LAUCHLAN McINTOSH: It is important. It's like having a lot of industries, and we should. Australian motorists want to have Australian cars, we know that. There's a large number of people buy Holdens and Falcons and Toyotas made here in Australia. So that is important. But I think Chris made the very interesting point there that said that where we need to help people we should do so. But the problem with tariffs is that it's a hidden tax and I think Peter Costello was saying tonight we're going to have some big debate on tax reform in Australia. Well, we should have a more open debate on the issue of tariffs because it's hidden. No one understands where the tariffs come in.

David Morgan made the point that the cost of the tariff on a car is between $85 and $3,000, it depends on which report you read. But it would be better, it would be far better if we had a simple bounty where if you want to buy an Australian car, and because we need to protect it, you will pay it up front, so we could all see where the benefits are.

This debate is really, it shouldn't just simply be about tariffs. It's an issue - and the Commission has been asked to look at a whole range of issues from Australian design rules, from safety and environmental issues, to look at tariffs on used cars. There's a whole range of issues yet to be explored, and we still haven't seen the final report.

MAXINE McKEW: I was going to say it would be good idea if we could see that report, wouldn't it?

LAUCHLAN McINTOSH: Well, I think so. That would be ... I mean, I really think seeing the final report, everybody's made a lot of comments on the draft report, and the draft report was months ago. There's been a lot of new evidence, a lot of new information put in. We've all had a go at it. Where is the final report?

MAXINE McKEW: Chris Gallus, can you help us on that one?

DAVID MORGAN: Certainly we haven't seen the report yet, I know that - sorry Chris - but we've not seen the report and we don't know what's in the report. We don't believe that the report would be very different from the original draft. Certainly our discussions following the draft report being issued would not indicate any great change of mind.

I'd just like to take something up that Lauchlan said. It should recognise it isn't just a tariff debate. We are talking about a lot of other features of the industry with the Government, believing that there are things that also can be done to help the industry in total and to provide a stronger vehicle industry for Australia in both domestic production and also for export.

MAXINE McKEW: Chris Gallus?

CHRIS GALLUS: Maxine, what was interesting that Lauchlan said, he wouldn't say we didn't need a car industry, and I think that is the important thing, that we agree we need a car industry. Let's have a look at all the ways we can go about keeping that car industry. And I think the problem we've got with the Productivity Commission is they're coming from such an ideological point of view that they believe that tariffs are wrong, that it seems like the reports are written to meet those conclusions. They didn't derive the conclusions, they started with the conclusions to drive the arguments. And when the arguments in the draft report haven't stood up to analysis, what I think we're going to get are new arguments to reach exactly the same conclusion.

DAVID MORGAN: If I could take that point up. It's very, very true that exports of vehicles last year were just over $2 billion, vehicles and components. That's a tremendous level of exports in any industry. We believe, given a strong local industry between now and the year 2005, those exports can grow to $6 billion, and that would be equal to the exports of most other products that we produce. So the potential for Australia to be a very strong exporter, not only of vehicles but also components, is very real, but we must have a strong and viable local industry for us to be able to do that.

LAUCHLAN McINTOSH: But David, isn't it better to actually have the tariff issue as more obvious? I mean, the ordinary consumer doesn't understand what a tariff is, they don't understand where it applies. It's difficult to work out where it flows through. Wouldn't it be better to be more up front and, I think as Chris made the point, farmers, if you like, get specific drought relief, maybe it's better to give a straight handout to the car industry, up front, where we can see it.

MAXINE McKEW: What do you mean by that, Lauchlan, a straight handout? You mentioned a bounty before.

LAUCHLAN McINTOSH: Well, a bounty, you might say: 'Well, every time you buy an Australian car you get a voucher which gives you $1,500 cash back from the Government, direct from Peter Costello.' That would be a nice move from Peter Costello.

MAXINE McKEW: David Morgan?

DAVID MORGAN: I was wondering whether I was going to get it or whether the consumer was. But certainly tariffs are a mechanism that's used to control the flow of imports. We can't hide from that fact. The fact is, if you want to have a viable industry - shown right round the world in the most mature markets, that people do have tariffs on motor vehicles. The United States, the biggest market in the world, has a 25 per cent tariff on all commercial vehicles.

LAUCHLAN McINTOSH: Yes, but not on private vehicles.

CHRIS GALLUS: Yes, but it has it on pick-up trucks, Lauchlan, and pick-up trucks are 40 per cent of their market.

LAUCHLAN McINTOSH: But in Australia we only have a 5 per cent tariff on four-wheel drives, and those four-wheel drives are actually competing against our ordinary market. The Industry Commission has been asked ....

CHRIS GALLUS: We were talking about the protection in the States, Lauchlan, which is 25 per cent.

LAUCHLAN McINTOSH: No, let me tell you ... Chris, the issue is here, we have a very high level of protection on some cars and not on others. Small vehicles we don't make in Australia for environmental reasons. The Commission's been asked: 'Why don't we reduce to 5 per cent on our small micro cars that people want to buy?'

CHRIS GALLUS: And why don't we have small cars in Australia now?

MAXINE McKEW: That's a good question.

CHRIS GALLUS: It's the result of the Button plan ....

LAUCHLAN McINTOSH: You can ask David Morgan.

CHRIS GALLUS: As the result of the Button plan we no longer have the small cars because they didn't make the 30,000 which they needed to get the export benefits from.

MAXINE McKEW: David Morgan, is that right? Why don't we have small cars, which appears to be the preference of many consumers?

DAVID MORGAN: I think it's very simple. If you opened the market up to manufacturers to come into this market, obviously the consumers will have a much wider choice. People love choice. We have 28 different manufacturers selling in the Australian market. We don't have that number of manufacturers selling in the American market. And the majority of vehicles they've brought into this market are small cars. It's got to the stage, the choice is so fragmented that there isn't a volume available for local production of that size vehicle.

When you look at the vehicles we do produce here two of them, the Falcon and the Commodore, are very unique vehicles to the Australian market; and in the Magna and in the Camry we have two vehicles which form the upper medium, the family vehicle of the past. So there are four very specialised vehicles being manufactured here.

LAUCHLAN McINTOSH: Isn't it true though that in that share of the market we are holding about 80 per cent of the market which we have had for the last almost 20 years, that in the upper to medium and the larger vehicles, that size market is holding. What's falling, correctly, is the smaller vehicles which people want but the fleets are buying it.

Now, on the other hand we are, as you say, David, beginning to export those bigger cars, and I think that's really important. We've doubled those in the last few years, last year actually, and I think it would be really ... what we should be doing is talking up the positive side of it and looking for those opportunities, taking away the barriers that are restricting us - some of the micro-economic reform issues - and being up front about the subsidies so we can see them. The problem is the ordinary person doesn't see the problem that we have at the moment with the tariffs.

CHRIS GALLUS: Can we discuss what Lauchlan's saying, because he keeps saying 'the subsidy.' I mean, he has made the very legitimate point that the consumer doesn't understand, but if you listen to Lauchlan I think the consumer is going to think that that tariff is immediately put on the imported cars and handed to the local car manufacturers. Remember, it acts as a tax.

LAUCHLAN McINTOSH: No, it's a tax.

CHRIS GALLUS: It's a tax, that's what I am saying, it is a tax.

LAUCHLAN McINTOSH: And it's handed to your Government.

CHRIS GALLUS: It's handed to the Government, and that's what I'm saying.

LAUCHLAN McINTOSH: And goodness knows what the Government does with it.

CHRIS GALLUS: That's what I'm saying, Lauchlan. You're talking as if it was a subsidy to the local industry. It isn't, it is a tax.

LAUCHLAN McINTOSH : It goes to you in the Government.

CHRIS GALLUS: And if that tax is removed from the cars, it has to come back in some other way.

MAXINE McKEW: Why does it?

CHRIS GALLUS: Because that is part of Government revenue. All those moneys that they get on every single car ....

MAXINE McKEW: Chris Gallus, this is a government that is committed to helping business, not putting more taxes onto it.

CHRIS GALLUS: But that tax is ....

MAXINE McKEW: Why would the revenue forgone have to be found somewhere else?

CHRIS GALLUS: Because we have a certain expenditure and a certain income, and if you take part of that income away you have to replace it with another income.

MAXINE McKEW: And Peter Costello is looking at a surplus in a year and half, isn't he?

LAUCHLAN McINTOSH: It's a hidden tax, it's a secret tax.

CHRIS GALLUS: It may be, but it is still part of government revenue, and if you take it away you replace it with another one. It's not as if it disappears.

LAUCHLAN McINTOSH: Then make it more open and honest.

CHRIS GALLUS: Now that's a different question. We're just clarifying what exactly it is.

MAXINE McKEW: David Morgan, could I ask you this: what do you see as the implications of, say, a 10 per cent tariff reduction to 2005, the implications, say, for jobs?

DAVID MORGAN: Implications of going to 10 per cent?

MAXINE McKEW: Yes, as opposed to the 15 per cent freeze that the industry's asking for.

DAVID MORGAN: That's of deep concern to the industry as a whole. I think we'd find it very difficult to be able to operate at the levels we are operating today. In other words, I would expect to see the level of investment in the Australian industry reduce if we got to a point of a 10 per cent or lower tariff in the future.

MAXINE McKEW: So you couldn't even live with a compromise figure of 10?

DAVID MORGAN: We'd find it very difficult.

MAXINE McKEW: What figures have you done on that? What do you see as, say, the effect on employment?

DAVID MORGAN: We haven't done the figures on employment. What we do know ....

MAXINE McKEW: How do you know the impact, then?

DAVID MORGAN: Because we know the level of investment would be less. We would not be able to afford the one billion dollars we have to pay today to put a new vehicle on the road. We would not be able to afford that level of investment. Therefore, we'd have a lower level of investment, eventually we'd have a lower level of sales and therefore a lower level of employment.

MAXINE McKEW: So 10 per cent, that's it, you're out?

DAVID MORGAN: Ten per cent, I didn't say we'd be out at all, I said we'd have a lower level of investment.

MAXINE McKEW: Okay. Lauchlan McIntosh, with the jobs argument, obviously with unemployment at 8.7 per cent and higher in a state like South Australia where Chris Gallus comes from, why would any government countenance a further reduction?

LAUCHLAN McINTOSH: I agree that is a concern, and it's something we've got to work through. But the report is about a lot of issues, it's simply not just about that lower level of investment. There may be other opportunities for the companies to create export opportunities, and we already see a lot of people leaving the industry because of the labour turnover. People leave and don't come back, and they move to other jobs.

MAXINE McKEW: No, but let's be realistic. Why does a displaced car worker in Elizabeth do? One would have to say for that sort of person it's a very, very difficult labour market, isn't it?

LAUCHLAN McINTOSH: Sure, but it's difficult for people all around the country accepting change. I think all motorists understand that and, as I say, we're not opposed to supporting the industry if it needs support, but let's not have it in this hidden way. I think we are concerned about losing more jobs in this country, but equally, let's try and develop an export industry where we can be, as David Morgan says, exporting $6 billion worth of car in a few years time, or even more. I mean, there is a potential to grow rather than always this business of stopping things.

I mean, David Morgan spoke there about saying if the tariff rate is reduced there will be less investment, but it seems to me if we were to seek out more opportunity to sell our cars overseas, maybe we could grow better. What is it that we can do to facilitate that?

DAVID MORGAN: That's a very simplistic approach to the world market. Currently the world has an excess capacity of 22 million cars, so the opportunity to export full-size vehicles into the world market is very limited. If you look at the markets where we best have access to, physical access to, it would be the Asian markets. That's where we face tariffs of up to 200 per cent against the vehicles. They don't just rely on tariffs, they also rely on some fairly sophisticated non-tariff barriers.

LAUCHLAN McINTOSH: Sure, but the Asian market doesn't want big cars, they want little cars.

DAVID MORGAN: ... any sort of car. If you want to try and export into those markets, then you have to find a way of gaining access to the markets.

LAUCHLAN McINTOSH: Sure. Well, let's see how we can do that collectively. Surely we can say as consumers ....

DAVID MORGAN: The other thing to realise is with 22 million excess capacity, six million vehicles being produced by the Koreans for a local industry of less than two million, they've got to find somewhere to sell the other four million vehicles.


DAVID MORGAN: And that's what's happening in the industry round the world.

LAUCHLAN McINTOSH: Sure, but you're importing those Korean cars. And the other thing is we're exporting engines to Korea and reimporting them back in cars. I mean, Daewoo, as I understand it, are our biggest customer for engines. So it's a very complicated issue, as you well know probably more than I do. I just think we should be talking up the industry, trying to develop better opportunities and move forward, otherwise the consumer confidence in Australia will fall away.

DAVID MORGAN: Certainly I don't disagree that we should be talking up the industry.

MAXINE McKEW: Lauchlan, when you say that the consumer confidence will fall away, what sort of comments are you hearing? Are people putting off decisions about buying new cars because of this debate?

LAUCHLAN McINTOSH: I think that's right. I actually heard today from a member suggesting that he wasn't going to buy a new car until the tariffs came down because he thought there was going to be cheaper in the future. There are other members saying: 'Well, what's the point of buying a car if, for instance, one of these industries is going to close?' I think we've got to be more positive and say: 'Look, we've doubled our exports in the last few years, these cars are great cars to buy.' And let's be positive, let's stand on the front foot more often.

MAXINE McKEW: Okay. David Morgan?

DAVID MORGAN: Certainly I'd agree with Lauchlan that we should be very positive about the industry. As I said, the potential of the industry in an export sense is tremendous. But we have to have a good strong local industry to provide the basis for doing that. We have some very successful component suppliers in Australia. They are being successful in countries like America, Europe, Japan, exporting in good volume to them.

MAXINE McKEW: Chris Gallus, I want to come back to the jobs issue and, painful as it is for the individuals affected, I mean, we are talking about an industry that employs, I think it's less than one per cent of the work force, and if we go to a 5 per cent tariff we're talking of employment within the industry being affected by 6 per cent. But the latest economic modelling we heard out of Melbourne yesterday suggests there will still be growth.

CHRIS GALLUS: It depends which model you believe, Maxine. And if we take the first industry ....

LAUCHLAN McINTOSH: No, that's not right, Chris. All those models ....

MAXINE McKEW: Lauchlan, just hang on.

LAUCHLAN McINTOSH: All the models said growth.

CHRIS GALLUS: All the models said growth, but there was a total difference, Lauchlan, of what they said would be the outcome. And the difference between the Econtech report and the Access Economics and the Monash was quite different, quite marked. And if you have a look at the first Monash report where they had the GDP growth in billions and then brought it down to 75 million, you've got a problem there where you have the difference.

And yes, if we lose that employment; but it is just not small growth and losing some of the employment. Remember, this year we're already 10,000 units below what the industry needs to remain viable. If that keeps coming down, then we're going to lose one of those major manufacturers. If we lose those major manufacturers, the component manufacturers are going to be affected because they need all four to stay in business, and we're going to have a rolling effect from that. It's not just a simplistic, a few jobs here and a few jobs there.

MAXINE McKEW: While we're talking about jobs though, Chris, isn't it also a fact that car tariffs are a tax on other export manufacturers? They have a tax that inhibits their employment abilities.

CHRIS GALLUS: You have to look, Maxine, at the whole picture, because if you start getting unemployment in the industry, especially if you have a look in South Australia and Victoria, you're then replacing that, you're actually paying those people on the dole. That becomes a tax on the whole country.

Now, let's say that we did, we lose our manufacturers or we start paying for these cheaper, imported cars. What happens to the current account deficit? It goes up, the dollar drops down and all the costs of those cars then go up again with the fallen dollar. So you're exactly back where you started. But if you're further down the track, you've lost your manufacturers and you haven't got the choice of going back to a cheaper local manufacturer.

MAXINE McKEW: So the Government should support jobs in the car industry in South Australia and Victoria but not support steel jobs in Newcastle?

CHRIS GALLUS: No, it should support jobs all round the country. The car industry is a very integral part of that - for jobs, for technology, for skills. And that's why we have to find ways ... Lauchlan is right. Don't let's just look at tariffs, have a look at the industry and see what it is we need to save our industry, because if we don't we'll be in the same position as Spain who played it hard, lost their car industry and then paid billions of dollars to get it back, to pay Ford and Volkswagen to come back into Spain.

We don't want to get into that situation, so let's have a look at the industry and see what there is that we can do to help it - if it's not tariffs, then some other way. But let's keep the industry and keep the jobs.

MAXINE McKEW: Lauchlan, a quick response on that?

LAUCHLAN McINTOSH: Well, I think, as I said when we started, we need to see the full report. There are a lot more issues than tariff in all this activity. Remember, ordinary cars are essential for people. They're too expensive at the moment. We've got the oldest fleet in the world just about, and it's time we did something serious about that. It really is important to get people into newer, safer and cleaner cars.

MAXINE McKEW: Chris, finally, how far away is a decision?

CHRIS GALLUS: I'm not sure. It could be as soon as next week or it could be in three weeks time. We'll have to wait and see.

MAXINE McKEW: So this suggests there's quite a bit of arguing between John Moore and Peter Costello to go on?

CHRIS GALLUS: I think there is a very lively debate on this issue.

MAXINE McKEW: Okay. Thank you all for joining us this evening.