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Customs Tariff Amendment Bill (No. 4) 2001

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1998-1999-2000-2001

 

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

CUSTOMS TARIFF AMENDMENT BILL (NO. 4) 2001

 

 

 

 

EXPLANATORY MEMORANDUM

 

 

 

 

 

 

 

 

 

 

 

 

 

 (C irculated by the Authority of the

Minister for Justice and Customs, Senator

the Honourable Chris Ellison )



CUSTOMS TARIFF AMENDMENT BILL (nO. 4) 2001

 

 

 

GENERAL OUTLINE

 

The purpose of this Bill, which consists of seven schedules, is to enact a range of amendments to the Customs Tariff Act 1995 (the Customs Tariff).

 

Schedule 1 amends the Customs Tariff to reflect the cessation of the Administrative Arrangements to the Year 2000 for the Automotive Industry (the Administrative Arrangements) and the commencement of the Automotive Competitiveness and Investment Scheme (ACIS) on 1 January 2001.

 

Schedule 2 contains a technical change to the Table in subsection 19(1) of the Customs Tariff to incorporate the customs tariff subheadings and excise items which have been created to implement the Product Stewardship for Waste Oil (PSO) initiatives from

1 January 2001

 

Schedule 3 implements the Government’s decision on a scheme to ameliorate the impact of the cessation of the Textiles, Clothing and Footwear Import Credit Scheme on island countries within the South Pacific Forum.

 

Schedule 4 amends item 17 in Schedule 4 to the Customs Tariff to reflect the cessation of the Export Facilitation Scheme for the automotive industry and the commencement of the Automotive Competitiveness and Investment Scheme (ACIS).

 

Schedule 5 inserts a new item 69 into Schedule 4 to the Customs Tariff to provide for the duty free entry of specified goods for use in space projects.

 

Schedule 6 amends Schedule 4 of the Customs tariff to implement the new Project By-law Scheme.  This Schedule also consolidates the present provisions in the Customs Tariff relating to goods consigned to Australia in one or more shipments.

 

Schedule 7 contains technical amendments to subheadings 2709.00.10 and 2710.00.11 of Schedule 3 to the Customs Tariff.

 

 

REGULATION IMPACT STATEMENTS

 

A Regulation Impact Statement  in respect of space related goods is at Attachment A.

 

A Regulation Impact Statement in respect of the Project By-law Scheme is at Attachment B.



FINANCIAL IMPACT SATEMENT

 

The amendments in Schedule 1 are of an administrative nature.  These amendments give effect to the cessation of the Administrative Arrangements to the Year 2000 for the Automotive Industry and the commencement of the Automotive Competitiveness and Investment Scheme (ACIS).  This transition was previously costed in the ACIS Administration Act and the present amendments will have no further financial impact.

 

The SPARTECA (TCF Provisions) Scheme (in Schedule 3 of the bill) has been developed to provide a budget neutral outcome.  Administration costs for the Scheme are estimated at $350,000 per annum.

 

In respect of the amendment in Schedule 5, relating to the new concessional item for space-related goods, it is estimated the duty foregone will be $10 million per annum.

 

The financial impact of the introduction of the new Project By-laws Scheme in Schedule 6 is estimated to be $45.5 million in 2002-03.  Forward estimates make provision for a three per cent increase per year in revenue forgone.

 

The consolidated split consignment provisions are estimated to have negligible financial impact.

 

The remaining amendments, in Schedules 2, 4 and 7 are technical amendments and have no financial impact.

 

 

 



CUSTOMS TARIFF AMENDMENT BILL (NO. 4) 2001

 

 

NOTES ON CLAUSES

 

A Bill for an Act to amend the Customs Tariff Act 1995 , and for related purposes.

 

Clause 1   - Short Title - Customs Tariff Amendment Act (No. 4) 2001 .

 

Clause 2   - Commencement

 

         Subclause 1 - This Act commences on the day on which it receives the Royal Assent.

 

         Subclause 2 -  Schedule 1 is taken to have commenced on 1 January 2001.

 

         Subclause 3 -  Schedule 2 is taken to have commenced immediately after the commencement of Schedule 1 to the Customs Tariff Amendment (Product Stewardship for Waste Oil) Act 2000) (on 1 January 2001).

 

         Subclause 4 -  Schedule 3 is taken to have commenced on 1 March 2001.

 

         Subclause 5 -  Schedule 4 is taken to have commenced on 1 April 2001.

 

         Subclause 6 -  Schedule 5 commences, or is taken to have commenced on

1 August 2001.

 

         Subclause 7 -  Schedule 6 commences on 1 July 2002.

 

         Subclause 8 -  Schedule 7 commences 14 days after the Bill receives the Royal Assent.

 

Clause 3   - Schedules

 

This clause is the formal enabling provision for the Schedule to the Bill, providing that each Act specified in the Schedule is amended in accordance with the applicable items of the Schedule.   The clause also provides that the other items of the Schedule have effect according to their own terms.

 

NOTES ON SCHEDULES

 

Schedule 1 - The amendments in this Schedule are taken to have effect from 1 January 2001.

 

The amendments contained in this Schedule were notified in Special Commonwealth Gazette S644 on 20 December 2000 and were tabled in the House of Representatives in Customs Tariff Proposal No. 1 (2001) on 28 February 2001.

 

.      Covers        On 1 January 2001, industry assistance measures contained in the “Administrative Arrangements to the Year 2000 for the Automotive Industry” (the Administrative Arrangements) were repealed and replaced by the Automotive Competitiveness and Investment Scheme (ACIS).  These alterations terminate the Administrative Arrangements and give effect to new measures for ACIS.

 

                          Item 41A in Schedule 4 to the Customs Tariff allowed for concessional entry of certain automotive products under the Export Facilitation Scheme (part of the Administrative Arrangements).  Under this Scheme, customs duty credits could be earned in relation to eligible exportations that occurred before 1 January 2001.  The amendment to item 41A allows these credits to be utilised until 31 December 2001 for the concessional entry of eligible automotive products.  Item 41A is also amended to extend the range of eligible automotive products to include original equipment automotive components in addition to replacement components.

 

                          This amendment was necessary to facilitate the smooth transition from the Administrative Arrangements to the new assistance arrangements under ACIS, which commenced on 1 January 2001.

 

                          Item 41B in Schedule 4 to the Customs Tariff provided for the duty free entry of original equipment automotive components under the “passenger motor vehicle producer 15 per cent duty free entitlement” which forms part of the Administrative Arrangements.  This amendment sets a closure date of 31 December 2000 for use of the concession.

 

                          Item 41B also allowed for the duty free importation of certain goods for inclusion in the manufacture and assembly of heavy commercial motor vehicles.  This concession will continue, but from 1 January 2001 will be contained in item 41F.

 

                          Item 41C in Schedule 4 to the Customs Tariff provided for goods used in the testing, quality control, manufacturing evaluation or engineering development of passenger motor vehicles to be entered duty free.  These provisions were closed on 31 December 2000 when the Administrative Arrangements expired.  New item 41G, which takes effect from 1 January 2001, will continue to provide concessional entry for goods of this type under the new assistance arrangements for the industry.

 

                          This alteration inserts two new items into Schedule 4 to the Customs Tariff.  These items, 41F and 41G, will maintain the concessional entry of goods for inclusion in the manufacture and assembly of heavy commercial motor vehicles and for goods imported for testing and experimental purposes respectively.  These concessions were previously provided through items 41B and 41C as set out above.

 

Schedule 2 - The amendment in this Schedule is taken to have commenced immediately after the commencement of Schedule 1 to the Customs Tariff Amendment (Product Stewardship for Waste Oil) Act 2000) on 1 January 2001.

 

The amendments contained in this Schedule were notified in Special Commonwealth Gazette S644 on 20 December 2000 and were tabled in the House of Representatives in Customs Tariff Proposal No. 1 (2001) on 28 February 2001.

 

.      Covers        This item contains changes to the Table of paired customs tariff subheadings/item and excise items in subsection 19(1) of the Customs Tariff.  Section 19 allows the customs rate of duty to be adjusted automatically in line with movements in the Consumer Price Index, which are reflected in the excise rate of duty for similar goods.  This amendment contains consequential changes to the Table resulting from the imposition of the Product Stewardship Waste Oil levy.  This amendment takes effect immediately after commencement of the Customs Tariff Amendment (Product Stewardship for Waste Oil) Act 2000 , on 1 January 2001.  The changes incorporate the customs tariff subheadings and excise items, which have been created to impose the levy.

 

Schedule 3 - The amendment in this Schedule is taken to have commenced on

1 March 2001.

 

The amendment contained in this Schedule was tabled in the House of Representatives in Customs Tariff Proposal No. 1 (2001) on 28 February 2001.

 

.      Covers        The textiles, clothing and footwear (TCF) industries are major employers of the local population in Forum Island Countries (FICs) which receive assistance through the South Pacific Regional Trade and Economic Co-Operation Agreement (SPARTECA).  Trade in TCF goods with Australia is important to the economies of FICs.  The cessation of the Import Credit Scheme (ICS) without a replacement scheme would severely impair the viability of the TCF industries in FICs.

 

                          The Government decided, subject to Fiji’s early return to democracy, to create a new scheme, the SPARTECA (TCF Provisions) Scheme (S-TCF Scheme), to assist FICs following the cessation of the ICS.  As a result, exports of TCF products from FICs to Australia will fall, to about 80 per cent of current levels, but not to the extent that would have occurred without this initiative.  Steps have been taken to ensure that the S-TCF Scheme does not compromise Australia’s TCF industries.

 

                          Item 68 in Part III of Schedule 4 of the Customs Tariff Act 1995 is being created to provide the legal basis for concessional entry under the S-TCF Scheme.  Goods entered under this item must meet the terms of the S-TCF Scheme.

 

Schedule 4 - The amendment in this Schedule is taken to have commenced on

1 April 2001.

 

The amendment contained in this Schedule was tabled in the House of Representatives in Customs Tariff Proposal No. 4 (2001) on 6 June 2001.

 

.      Covers        Item 17 in Part II of Schedule 4 to the Customs Tariff provides concessional re-entry for imported goods that have been exported from Australia and reimported in an unaltered condition.  The item excludes goods on which duties, taxes and charges of the Commonwealth have not been paid.

 

                          Item 17 provides separate sets of conditions for each of a number of uniquely different reimport transactions.  One of these transactions is for goods, or parts of goods, which, when first imported, claimed concessions under the Export Facilitation Scheme for the automotive industry (EFS).  The measures provided through EFS will be phased out by 31 December 2001.

 

                          ACIS (the Automotive Competitiveness and Investment Scheme), the new scheme for the automotive industry, commenced on 1 January 2001.  The amendment to item 17 is to introduce a new reimport concession for goods, or parts of goods, which, when first imported, utilised duty credit owned under ACIS.  This transaction is contained in paragraph (d) of the item.  Present paragraph (d) is relettered as paragraph (e)..

 

                          The amendment is effective from 1 April 2001 when duty credits under ACIS were first available for issue.

 

Schedule 5 - The amendment in this Schedule is taken to have commenced on

1 August 2001.

 

The amendment contained in this Schedule will be tabled in the House of Representatives in Customs Tariff Proposal No. 5 (2001) during the week commencing 25 June 2001.

 

.      Covers        This amendment inserts a new item into Schedule 4 to the Customs Tariff.  New item 69 will provide for the duty free entry, from 1 August 2001, of specified goods for use in space projects, authorised by the Minister for Industry, Science and Resources.

 

This amendment inserts a new item into Schedule 4 to the Customs Tariff.  New item 69 will provide for the duty free entry, from 1 August 2001, of specified goods for use in space projects, authorised by the Minister for Industry, Science and Resources.

 

The new item also satisfies a requirement under the “Agreement between the Government of the Russian Federation and the Government of Australia on Co-operation in the Field of the Exploration and Use of Outer Space for Peaceful Purposes” to provide duty free entry for certain goods.

 

The concession will only be available for goods imported for use in space projects.  Also, it will not be limited to goods imported from the Russian Federation but will apply to all goods imported into Australia, for use in space projects, regardless of country of origin or whether there is an international agreement in place.

 

Access to the concession will be through determinations made by the Chief Executive Officer of Customs or his Delegate.

 

Schedule 6 - The amendments in this Schedule will commence on 1 July 2002.

 

.      Covers        The new Policy and Project By-law Scheme is a positive response by the Government to the Productivity Commission's Review of Australian General Tariff Arrangements.  The objective of the Policy and Project By-law Scheme is to allow for the importation of goods or components, without payment of customs duty, provided the goods are not made in Australia or are technologically superior to those made in Australia, for use in eligible projects undertaken by eligible industry sectors.

 

The policy objectives of the new item are to:

 

·         encourage and enhance investment in the establishment of world class operations;

·         encourage the involvement of Australian industry in supplying goods and services;

·       lower input costs for industry where there are sound reasons for doing so; and

·       facilitate Australian industry participation in domestic and international supply chains.

 

The new project by-law scheme will significantly benefit Australian industry and streamline administration processes.

 

This Bill provides the legislative basis for the new scheme.  The Bill establishes the new Project By-laws Scheme and provides for the administration of the tariff duty concessions

 

The new Project By-law Scheme (item 71 in Schedule 4 of the Customs Tariff Act 1995 ) will replace the existing Project By-law Scheme (items 45, 46 and 56 in Schedule 4 of the Customs Tariff Act 1995 ).  It will deliver on industry requests for expanded eligibility in sectors and goods covered, remove the limiting criteria for separate consignments, and reduce compliance costs by consolidating administration in a one-stop-shop through the Department of Industry, Science and Resources' program delivery agency, AusIndustry.

 

Eligible projects will be able to import eligible goods or components that are integral to the project, up to the project’s commissioning date.

 

It will also facilitate Australian industry participation in projects and global supply chains through an Australian Industry Participation Plan, which will provide Australian industry with full, fair and reasonable opportunity to provide goods and services to projects.

 

This Schedule also creates a new item 70 in Schedule 4 to the Customs Tariff which combines elements of present items 43 and 52.  These items permit the entry into Australia, as a single unit, of goods that, because of their nature or size, have been forwarded to Australia in different shipments.  Items 43 and 52 have been amended to introduce a closure date of 30 June 2002.  The new item 70 will clarify and streamline the operation of this concession.

 

Schedule 7 - The amendments in this Schedule will commence 14 days after Royal Assent.

 

.      Covers        Subheadings 2709.00.10 and 2710.00.11 refer to petroleum oils for use as petroleum refinery feedstock at a factory specified in a licence granted pursuant to section 34 of the Excise Act 1901 .  These licensing provisions have been amended by the Excise Amendment (Compliance Improvement) Act 2000 .  The amendment to each of subheadings 2709.00.10 and 2710.00.11 reflects the changes in the Excise Tariff Act.  The new reference in subheadings 2709.00.10 and 2710.00.11 is to Part IV of the Excise Act 1901 .

 

 

 



ATTACHMENT A

 

 

REGULATION IMPACT STATEMENT - SPACE-RELATED GOODS

 

Problem

 

What is the problem being addressed?

 

Need for Bilateral Arrangement

 

At least five companies are proposing to establish commercial space launch facilities in Australia:

 

•           Asia Pacific Space Centre on Christmas Island;

 

•           Kistler Aerospace Corporation at Woomera (in South Australia);

 

•           Spacelift Australia at Woomera;

 

•           United Launch Systems International at Hummock Hill Island (near Gladstone in Queensland); and

 

•           The Falcon Project at Woomera.

 

Three of the five projects envisage the use of Russian launch technology. However, the sensitive and dual-use nature of the technology requires agreement between governments to facilitate its release and ensure control of access. Without a bilateral arrangement, the Russian Government will not transfer the technology and expertise to Australia, blocking the development of three space launch projects which are based on Russian systems, and depriving Australia an opportunity to capture a share of the lucrative global satellite market.

 

A draft Agreement (which will have the status of a treaty) has been negotiated between the Russian Federation and Australia to provide a legal and organisational framework for the transfer of space technologies, equipment and expertise to the Australian commercial space launch industry. Key provisions include procedures to negotiate liability for damage resulting from activities covered by the Agreement, protection of intellectual and physical property, the exchange of information, and the settlement of disputes. provides a description of the proposed Agreement, by clause.

 

Need for Duty-Free Entry of Space Equipment

 

The proposed Agreement also provides for the duty-free entry of space-related goods and equipment to be used in projects conducted in either country. Launch vehicles, satellites, scientific equipment, telemetry and guidance equipment can currently enter Australia free of duty. However, specialised equipment such as transporter-erectors, launch vehicle lifting gear, fuel handling equipment and instrumentation for mission control centres, attract an Australian duty of up to 5 per cent. The Russian Government applies import duties of up to 30% on space-related goods. The Russian duties will only be waived if reciprocated by the importing country and if the commitment to a mutual exemption is reflected in a bilateral treaty (international obligations override domestic law in Russia).

 

The relief from duty is a threshold issue to the Russian Government and they will not sign the Inter-Government Agreement without provision for it. Accordingly, duty relief is required to facilitate the signature of the Agreement and development of the domestic industry.

 

The obligations on Australia arising out of the Treaty need to be implemented by domestic legislation, including the relief from customs duty. The Agreement, which will have effect for ten years, makes provision for authorisation of parties to access the Agreement and separate agreements covering both individual projects and particular issues, such as protection of intellectual property and the security of technology. A Technology Safeguards Agreement will be negotiated shortly with the Russian Government, and this may require a separate Regulation Impact Statement (RIS). This RIS is, however, limited to the proposed Agreement between Australia and Russia on space cooperation and the enforcement of obligations arising out of the Treaty, including the introduction of a mechanism to provide relief from duty.

 

Why is government action needed to correct the problem?

 

The emerging Australian space launch industry operates in a highly competitive global environment. Its commercial success is critically dependent on access to relevant technology, such as the ability to access technical data and to import launch vehicles and satellites. Three of the five potential launch proponents intend to use Russian launch technology. An umbrella agreement at the government level is crucial to the development of the domestic industry, as it will facilitate the transfer of sensitive technology and establish a basis for scientific collaboration and technology development.

 

The Russian Government is actively seeking partners in the use of its technology, and its preference lies with Australia at this stage. However, there is intense international interest in cooperation with Russia on commercial space activities, given the availability of the technology and its relative low cost. Australia is thus competing with a number of other countries to host projects drawing on Russian technology. Specifically, relief from duty is necessary as a mutual treaty-level obligation to remove the significant import duties imposed by Russia on space-related imports and to facilitate signature of the Agreement. The introduction and application of customs duties, and the provision of relief from duty, are the responsibilities of the Commonwealth Government.

 

Objectives

 

What are the objectives of government action?

 

The objective is to provide a coherent and robust framework for commercial space

launch operations in Australia using Russian technology and to facilitate the secure transfer of technology, expertise and equipment between the two countries.

 

Government action will aim to ensure that potential launch proponents can access the benefits conferred by the Treaty and, in particular, provide duty-free importation for all space goods and equipment used in activities under the proposed Agreement. In the case of relief from duty, the objective is to trigger a reciprocal exemption from Russian import duties, facilitating signature of the Agreement and provision of technology to enable the Australian space industry to compete in the international market.

 

Is there a regulation/policy currently in place?

 

Australia maintained an agreement with the former Soviet Union covering basic cooperation in space research (that is, the Agreement between the Government of the Union of the Soviet Socialist Republics and the Government of Australia on Cooperation in the Field of the Exploration and Use of Outer Space for Peaceful Purposes of 1 December 1987). The Agreement is outdated, extremely narrow in its scope, and thus insufficient to facilitate the transfer of space launch technology to Australia. The proposed Agreement will replace this arrangement.

 

Implementation in Domestic Law

 

There are no mechanisms in place to implement the obligations imposed by the Treaty. Accordingly, amendment to existing legislation, such as the Space Activities Act 1999 , or the introduction of new legislation will be required. It should be noted that the appropriate arrangements will be determined by the Office of Parliamentary Counsel.

 

Duty Relief

 

Currently, there is no regulation or policy able to provide relief from duty for items to be imported under the Agreement for commercial purposes and which are currently subject to duty. Options utilising existing customs duty concessions and programs have been extensively canvassed, but are not suitable for the purposes of providing the required relief from duty.

 

The Tradex Scheme Act 1999 exempts imported goods from duty and other taxes, provided that the goods are subsequently exported or incorporated in other goods that are exported. However, given that the goods and equipment to be used in the construction and operation of domestic commercial spaceports would not be exported, the Tradex Scheme does not provide appropriate relief from duty. This scheme also makes provision for capital goods only, hence some of the proposed items to be used in the construction and operation of a commercial spaceport may be excluded.

 

Item 16 of Schedule 4 of the Customs Tariff Act 1995 provides for the duty free entry of goods to be used for scientific purposes under an agreement or arrangement between the Australian Government and the government of another country on cooperation in the field of science and technology. This could be utilised in certain circumstances where cooperation is in respect of some, scientific projects. However, as the proposed Agreement with the Russian Federation is largely concerned with the facilitation of commercial space activities, it could not be used to facilitate the duty-free importation of commercial goods.

 

Options

 

Bilateral Agreement on Space Cooperation

 

There are a number of factors, which severely limit the options available to the Australian Government in facilitating the exchange of technology and expertise between Australia and Russia. The Government could elect not to enter into a bilateral agreement with Russia, and rely on existing international conventions for the conduct of commercial space launch operations in Australia. However, these conventions do not provide the framework to facilitate trade between countries, and address instead, such matters as the apportionment of liability and the registration of space objects. Moreover, participation in these conventions is voluntary.

 

By contrast, the sensitive and dual-use nature of space launch technology requires agreement between governments to facilitate its release and ensure access and control. Without an agreement, the Russian Government will not transfer space technology to companies seeking to establish commercial space facilities in Australia.

 

Provision of Relief from Duty

 

Key to ensuring the operation of the Australian space launch industry is a reciprocal obligation for relief from duties on space-related equipment in a bilateral agreement. Given that existing customs duty concessions are not sufficient to provide the required relief from duty, there are three possible options:

 

1.       Insert a new item to Schedule 4 of the Customs Tariff Act 1995 , which provides access for authorised projects and for By-laws in respect of each authorised project;

 

2.       Extend the Tradex Scheme Act 1999 to cover space-related goods and equipment; or

 

3. Provide grants to space proponents equal to the imposed cost of Australian and Russian duties. This is a possible non-regulatory option.

 

Impact Analysis

 

The proposed Agreement will have an impact on:

 

•     the (emerging) Australian space launch industry;

 

•      Australian industry; and

 

•      Government agencies with direct involvement in space-related activities.

 

In general, the proposed Agreement will facilitate mutually beneficial cooperation between Australia and Russia in the development and use of space technologies and equipment for peaceful purposes. At present, APSC, Spacelift and ULSI are directly affected, however any future projects will also be impacted upon. In the absence of an umbrella agreement and relief from duty, these companies (and future proponents) will not be able to obtain space launch technology, nor access the expertise required to set up and conduct space launch operations. As a result, the Australian industry will fail to establish a share in the global launch market.

 

In respect of options to implement the relief from duty:

 

•      Option 1 involves the insertion of a new item into Schedule 4 of the Customs Tariff Act 1995. Under this arrangement, the Minister for Industry, Science and Resources or his delegate would authorise projects to access the concession under policy guidelines to be developed for this purpose. The Department of Industry, Science and Resources would certify goods to confirm that they are for use in authorised projects.

 

•      Option 2 requires amendments to the Tradex Scheme 1999 and will allow the importation of goods which are used to manufacture, rather than goods used in manufacture. This is contrary to the policy intent of the Tradex Scheme. There may also be WTO implications associated with changing the policy supporting this Scheme.

 

•     Option 3 is non-regulatory.

 

All options would be consistent with Australia's obligations under the WTO if it is ensured that the concession would be extended to all goods for use in space-related projects irrespective of the country of origin of the goods and would be implemented in such a way that prohibited subsidies are not provided.

 

Relief from duty may have some impact on Australian industry, however, this should be minimal (only one of the current proponents is expected to make significant use of the customs provision). Australian industry capabilities in the relevant sectors are either limited or non-existent, especially in relation to the supply of specialist launch technology and support equipment. In the medium-term, the proposed Agreement may enhance Australian industry prospects in high technology areas such as remote sensing and satellite manufacturing by fostering clusters of expertise around the space launch sector.

 

Likely Benefits and Costs

 

Removal of impediments for the space launch industry by the Agreement and the creation of a competitive environment should generate significant economic benefits, regional development, new research activity and employment  Up to A$1.5 billion in national benefits could be generated by the industry over the next 11 years, if it achieves 20 per cent of the international launch market. The National Benefit Cost Ratio is estimated at $7.44 per dollar of investment. The positive contribution to the balance of trade is estimated at up to A$2.55 billion. An estimated 779 new jobs would be created in the first year of operation, peaking at 4,278 in year three and averaging at 2,232 jobs over subsequent years.

 

In the absence of an umbrella agreement, and if relief from duty is not provided, Australia would be foregoing an opportunity to enter an expanding, high technology, and high value-added industry that requires considerable investment and a long-term commitment to Australia.

 

By providing relief from duties for specialised space equipment, competition in the market would be increased and consumer welfare enhanced. The relief from duty is expected to cost $10.2 million in revenue foregone over five years. In respect of each option:

 

•      Option 1 is clear, transparent and not difficult to administer within existing arrangements. It would also facilitate consideration of local sourcing. Option 1 does, however, require the development of new policy guidelines and certification of goods by the Department of Industry, Science and Resources. To comply with Australia's WTO obligations, this option would also need to be implemented on a Most Favoured Nation basis.

 

•      Option 2 (amend the Tradex Scheme Act 1999) requires the amendment to legislation. Such amendments would be a departure from the policy intent of the Scheme, which is to provide a mechanism to facilitate temporary importation of goods without paying duty. Amendment to the policy underpinning the Scheme may have WTO implications.

 

•      Option 3 (provision of grants) would involve significant expenditure by the Commonwealth Government, given that both Australian and foreign duties would need to be offset. It would be consistent with our WTO obligations if implemented to ensure that prohibited subsidies were not provided. This option is, however, unlikely to satisfy the Russian Government.



Distributional Effects

 

The five space projects are establishing facilities in regional Australia, that is, in areas with limited alternative employment opportunities. In the short-term, direct and indirect employment will be generated by the construction of facilities, which will, in turn, stimulate local economies. Ongoing launch operations would foster employment opportunities, both at the spaceport and in support activities. The Regional Impact Statement, at Attachment J, encapsulates the anticipated distributional effects.

 

Economic data has been sourced from The Potential Economic Contribution of an Australian Space Launch Industry , an analysis conducted by Pricewaterhouse Coopers for the Commonwealth Department of Industry, Science and Resources.

 

Consultation

 

There has been extensive consultation with Government and industry during the negotiations of the proposed Agreement.

 

In regards to the provision of relief from duty, consultation was necessary with the four firm launch proponents (Kistler, Spacelift, Asia Pacific Space Centre and United Launch Systems International), given that they are furthest advanced and that this matter directly affects the establishment of their businesses in the short term. Given that the specialist technology and equipment to be imported under the proposed Agreement is primarily not produced domestically, consultation with broader industry groups was viewed unnecessary. Consultation with the Falcon Group has not been undertaken as that company is still in an early developmental stage and does not intend to use Russian technology. Other Government agencies have also been extensively consulted, given the need to introduce a new Item in customs legislation and the need to ensure that any measures are consistent with Australia's WTO obligations.

 

The three firm proponents intending to use Russian launch technology (APSC, Spacelift and ULSI) are of the view that they will be unable to establish launch facilities in Australia and compete on an international basis, if there is no bilateral agreement and if technology cannot be sourced at comparable prices. This requires relief from duties on space-related goods and equipment for the construction and operation of commercial spaceports. These companies are strongly advocating the early conclusion of the Agreement.

 

Conclusion and Recommended Option

 

Australia's only viable option is to enter into a bilateral Agreement with Russia to establish a coherent and robust framework for the conduct of commercial space launch operations in Australia, as well as to facilitate scientific cooperation and joint technology development. In the absence of an umbrella agreement, the Russian Government will not transfer technology and expertise to Australia, blocking the three space launch projects based on Russian systems and depriving Australia an opportunity to capture a share of the expanding global satellite market.

 

Under the proposed Agreement, cooperation with Russia (a key space-faring nation) will foster the development of the Australian space industry, with potential significant economic benefits. To ensure the competitiveness of the domestic industry, relief from customs duty for space-related goods imported into Australia under Article 11 of the Agreement is required. Without relief from duty, the Russian Government will not sign the Agreement and technologies and expertise will not be transferred to the domestic launch proponents. In addition, future co-operation with Russia will be placed in jeopardy, given their significant import duties, which can only be waived if an exemption is reciprocated and included in a treaty-level agreement.

 

Each of the options would provide the required relief from customs duty. Option 1, the new item proposed for Schedule 4 of the Customs Tariff Act 1995, is clear, transparent and provides control over parties' ability to enter goods. Option 2 (amend the Tradex Scheme Act 1999) facilitates competitiveness and revenue foregone is minimal. The third option proposes a compensatory arrangement, involving the provision of grants to offset the duty paid by proponents, and would require significant expenditure by the Commonwealth Government.

 

On this basis, Option 1 is the preferred mechanism given that it provides broad relief from duty for space-related goods and equipment that would otherwise be subject to duty, and meets the needs of the Russian Government. Option 1 represents a low-cost, clear, and straightforward option in terms of its introduction and implementation. Minimal costs are imposed on business, competition is enhanced, and revenue foregone is minimal.

 

The preferred option is self-limiting as it involves relief from tariffs in a climate where, broadly speaking, tariffs are decreasing over time.

 

Implementation and review

 

Under the proposed Agreement, the Cooperating Agencies are the Russian Aviation and Space Agency (on behalf of the Government of the Russian Federation) and the Commonwealth Department of Industry, Science and Resources (on behalf of the Government of Australia). These agencies may designate other organisations to be involved in activities under the Agreement. Activities will be conducted in accordance with Australia's current legislative and administrative arrangements. However, new legislation will also be required to implement some of the obligations on Australia arising out of the Treaty.

 

The proposed implementation and administration arrangements for the new Item in Schedule 4 of the Customs Tariff Act 1995 are clear and comprehensible, and easily understood by the launch proponents, the broader industry, and the Russian Government. There is no cost to business, rather a reduction in costs. Administration of the arrangement is expected to be minimal, as it will involve parallel processing by business in notifying the Department of Industry, Science and Resources of shipments of goods and equipment at the same time as preparing certificates of trade.

 

The effectiveness of the Agreement may be judged by the development of an Australian space launch industry. This will be assessed at least yearly by the Commonwealth Department of Industry, Science and Resources.



ATTACHMENT B

 

REGULATION IMPACT STATEMENT - NEW PROJECT BY-LAWS 

 

Problem

 

The Productivity Commission’s Review of Australia’s General Tariff Arrangements was delivered to the Treasurer in late July 2000.  The Government responded to the report's two recommendations on 19 December 2000.  In its response, the Government announced that it would consider changes to the Project and Policy By-laws Schemes (PBLs), in line with the Productivity Commission’s suggestions, in the new year.

 

The PBLs allows duty concessions to be made for capital equipment which is not available from Australia for projects in particular industry sectors, as well as capital equipment where the imported good is technologically superior to that available in Australia (Item 45, 46 and 56 of Schedule 4 of the Customs Tariff Act 1995 ).  Mining, resource processing, agriculture, food processing and food packaging sectors have access to capital goods not made in Australia whereas most industries classified as manufacturing sectors (including wood and wood products, printing and publishing, and transport equipment) also have access to the other concessions.  Split consignment provisions (Items 43 and 52) are also available for the importation of goods which, for certain reasons, are unable to be shipped in a single consignment.

 

The PBLs were designed to enhance industry development opportunities by lowering input costs for major project developers where there are sound reasons for doing so, through the encouragement and enhancement of investment in Australia and where the entry of capital equipment is considered to contribute to the Government's overall industry policy objectives.  Industry sector specific policy items were introduced in the period from 1988 to the late 1990s on the basis that the sectors were export oriented or import competing.  These concessions were also administered so as to encourage local industry involvement in supplying goods to large projects and to encourage the establishment of strategic, long term industry development arrangements where relief from duty was not available from the Tariff Concession System (TCS).  The PBLs concessions have been given for specific goods, for specific use and for a finite period of time.

 

The revenue forgone from the PBLs has declined in recent years (see Table 1).  No applications for Item 52 have been lodged over the past three years and only a limited number for Item 43.  The number of applications for Items 45 and 46 has also declined considerably over the period, and use of Item 56 was negligible in 1999-00 (see Table 2).

 

Table 1: Duty under selected By-laws, 1995-96 to 1998-99, $m

Concessional Item

1995-96

1996-97

1997-98

1998-99

Item 43

14.0

5.8

2.0

0.2

Item 52

0.2

0

0

0

Item 45

42.5

9.3

16.8

10.7

Item 46

2.0

1.3

1.5

2.1

Item 56

5.1

3.9

4.8

1.0

Productivity Commission, Review of Australia's General Tariff Arrangements, 2000, p. 111.

Table 2: Workload data for Project By-laws, 1995-96 to 1999-00, number of applications lodged

 

1995-96 (a)

1996-97

1997-98

1998-99

1999-00 (b)

Project advice

 

 

 

 

 

Item 45

3

41

37

11

8

Item 46

1

13

7

5

2

Item 56

1

9

8

6

2

Goods request

 

 

 

 

 

Item 45

 

88

233

170

45

Item 46

1

12

24

16

11

Item 56

 

12

13

17

1

Productivity Commission, Review of Australia's General Tariff Arrangements, 2000, p. 112

(a)     Accurate complete data for 1995-96 are not available as the reporting database became operational in 1996-97.  Data are for period to 9 March 2000

 

The Productivity Commission in its Review of Australia's General Tariff Arrangements found that participants favoured these by-laws on the grounds that the reduced costs improve the general competitiveness of Australian industry, especially in respect of major capital projects.  However, some participants considered that the criteria had been tightened and interpreted too narrowly in recent years and called for a more liberal approach to be taken.

 

Participants suggested a number of ways of increasing the practical scope of the by-laws, including:

(a)     reducing to $5m or removing the project threshold for capital equipment; 

(b)    expanding the interpretation of ‘project’ and ‘capital equipment’; and

(c)     removing some of the limiting criteria for split consignments.

 

Objective

 

 

The PBLs were designed to enhance industry development opportunities for major project developers.  The Government is seeking to better align the administration and concession of the PBLs with the underlying policy objectives, and to introduce an additional policy objective which reflects changing global commercial practices.

 

The Government’s Response to the Productivity Commission’s Review

 

The Government has decided to retain the general tariff rate at 5 per cent and to retain the 3 per cent duty on imported business inputs under the Tariff Concession System.

The Productivity Commission (PC) suggested that, if the general tariff remains at 5 per cent beyond 2003, the current PBLs be reviewed.  In line with industry submissions, the Commission’s final report supports expanding the scope of the PBLs by broadening the range of goods eligible for concessional entry and lowering or removing the $10m threshold.



Project and Policy By-Laws

 

Schedule 4 of the Customs Tariff Act 1995 sets out the circumstances in which goods can be imported at concessional rates.  Included in Schedule 4 are Items 45, 46, and 56, which are known as the Project By-laws Scheme.  This Scheme provides duty free entry for capital equipment which is not made in Australia or which is 'state of the art'.  Two further Items are known as the Split Consignment Provisions (Items 43 and 52).  They do not provide a duty free concession, but allow for the duty that would have been applied to the whole good to be applied to the components when there are sound reasons for the components being shipped separately (such as size or inadvertent delay).  The PBLs are administered by AusIndustry, in the Industry, Science and Resources portfolio.  The Australian Customs Service administers the Split Consignment Provisions. 

 

The PC considered the current PBLs arrangements and found that they are likely to be beneficial overall, provided that their scope is confined to unprotected domestic production.  What the PC means by unprotected domestic production is unclear - it could be assumed that it is all industry sectors that benefit from a tariff of 5% or less on competing imports - which leaves the passenger motor vehicle (PMV) and textiles, clothing and footwear (TCF) sectors being 'protected' domestic production.  This has little bearing on the role of the PBLs.  As stated earlier, the PBLs allow for the importation of capital equipment that is not made in Australia or is technologically superior to that made in Australia.  The PBLs do not provide concessions for other inputs to production nor for finished goods which would be sold in the domestic market.  Both of the protected domestic production sectors currently have access to the 'state of the art' concession.  Under the options outlined below, both sectors will be able to apply for a wider concession as they will be able to obtain concessions for capital equipment not made in Australia and for  'goods integral to the project'.  While this may marginally increase the tariff assistance provided to these sectors, stated government policy is to encourage new investment and innovation in viable TCF and PMV activities and the PBLs encourage this.

 

The PC suggests that the PBLs could be expanded by:

 

(a)     reducing to $5m or removing the project threshold for capital equipment; 

(b)    expanding the interpretation of ‘project’ and ‘capital equipment’;

(c)     removing some of the limiting criteria for split consignments; and

(d)    reviewing the compliance and assessments costs associated with applications. 

 

The Department of Industry, Science and Resources has reviewed the public submissions to the PC and conducted a series of roundtable consultations with stakeholders on future directions for the PBLs.  Consideration was given to a range of options which were evaluated against the following policy objectives:

 

(a)     to encourage and enhance investment in the establishment of world class operations;

 

(b)    to encourage the involvement of Australian industry supplying goods and services;

 

(c)     to lower input costs for industry and major project developers where there are sound reasons to do so; and

 

(d)    to leverage Australian industry into domestic and global supply chains.

 

Only the fourth objective (d) is additional to the existing policy objectives of the PBLs.  The objectives reflect the need to align the PBLs to changing commercial practices and to facilitate their function as an industry development tool.  This additional policy objective of leveraging Australian industry into domestic and global supply chains is also one aspect of the national Australian Industry Participation Framework, which was developed in response to a request by Commonwealth, State and Territory Industry Ministers in February 2000.

Consideration was also given to the following underlying principles for possible changes to the PBLs:

 

(a)     the capacity to streamline administrative processes, including reducing compliance costs for industry;

 

(b)    the capacity to achieve equity across sectors and project sizes;

 

(c)     the capacity to ensure consistency and transparency between policy objectives and administrative processes; and

 

(d)    fiscal responsibility.

 

Current PBL Arrangements

A summary of the current PBL arrangements for are outlined in the table.

 

Eligibility

Concession

Items 43 and 52

Split consignments.

Applicable duty rate of whole good applied to shipment of parts of the good.

Items 45 and 46

Capital equipment (defined as goods classified to particular chapters in the tariff), not manufactured in Australia, for use in:

-         mining and resource processing; 

-         agriculture; and

-         food processing and food packaging projects.

Zero duty

Item 56

‘State of the art’ capital equipment which has a clear performance advantage over domestically produced versions, for use in:

-         mining and resource processing; 

-         agriculture;

-         food processing and food packaging projects; and

-         most industries classified as manufacturing.

Zero duty

 

Each Item is subject to a number of conditions that restrict its scope.  In general, the goods to be imported must satisfy the terms of the relevant Item and the granting of the concession must be consistent with prevailing government policy.  In addition, there are also specific conditions which apply, such as:

(a)     a request for Item 56 must include an independent technical assessment quantifying the perceived performance advantage of the imported goods over locally produced goods;

 

(b)    with Items 43 and 52, it may be necessary to demonstrate that there are logical and economically sound reasons to import complete equipment in separate consignments;

 

(c)     a $10m project threshold applies for Items 45, 46 and 56; and

 

(d)    applications must be made before the equipment is imported.

 

Under the current arrangements, projects such as the Papua New Guinea-Australia Gas Supply pipeline and the General Motors Defense Australia project are ineligible for the PBL concessions.  Likewise, pipelines and conveyor belts, even if they are integral to the project, are excluded from the current definition of eligible capital equipment.

 

In order to address the issues raised by the Commission and by industry, two options have been developed which are outlined below. 

 

Options

 

1)    Streamline the PBLs into a single new Item, include goods integral to the project, broaden the sector eligibility, and require an Australian Industry Participation Plan.

The Government considered streamlining the current PBLs into one Item, expanding the definition of capital equipment and broadening the concession to many sectors.  To implement this option it would be necessary to:

(a)     revoke the PBLs Items 45, 46, and 56, and insert a single new Item in the Customs Tariff Act 1995.   The new Item would provide concessional entry for goods integral to the project across nearly all sectors; and

 

(b)    revoke the Split Consignment Provision Items 43 and 52, and insert a single new Item in the Customs Tariff Act 1995.   The current eligibility criteria would be retained.

Concessions for capital equipment (Items 45, 46 and 56)

The current arrangements would be streamlined into the one Item administered by AusIndustry.  The $10m threshold for capital equipment concessions would be maintained.  The scope of the PBLs would be extended in the following ways:

(a)     eligibility would be extended to all industry sectors excluding office, retail and residential building and construction;

 

(b)    the definition of capital equipment would be broadened to include capital equipment and components which are integral to a project.  Transportation activities, such as pipelines which are integral to projects, would therefore become eligible;

 

(c)     project applicants would be required to submit an Australian Industry Participation Plan (AIPP) to demonstrate that Australian industry has been given full, fair and reasonable opportunity to participate;

 

(d)    the test of availability from Australian suppliers would be conducted on whole items of capital equipment, rather than goods as they cross the wharf; and

 

(e)     where a concession is given for whole items of capital equipment, its component parts could be imported from any number of ports and any number of suppliers, in any number of shipments until the project is commissioned. 

 

Split Consignment Provisions (Items 43 and 52)

The concession provided by the two Items would be amalgamated into the one Item and the legislation for this new Item would be worded so as to be better aligned with the present policy intent, as currently specified in the By-laws, for split consignments.  That is, the new concession would limit present eligibility for concessions to goods ordered from, and shipped by a single supplier and be available as an identifiable, whole good at the place of manufacture or export at the time of its export.

 

Comparison to the current PBL Scheme

 

When compared to the current PBLs, Option 1 provides concessions to a greater number of industry sectors and allows them to import a wider range of capital equipment items.  Where there is currently limited access to Items 45 and 46 for capital equipment not manufactured in Australia, this would be opened up to allow all industry sectors, except building and construction for office, retail and residential purposes, access to this concession.  Likewise access to the Item 56 concession ('state of the art' capital equipment which has a clear performance advantage over domestically produced versions) would be also be expanded to a wider range of industry sectors and a wider range of capital equipment items.  Sectors eligible for the Split Consignment Provisions (Items 43 and 52) would not change.

 

This option would see an increase in the number of applications lodged for a concession as both the eligible industry sectors have been expanded along with the expanded capital equipment definition.  This would reverse the recent trend, which has seen the number of applications fall (see Table 2).

 

This option would also allow projects such as the Papua New Guinea-Australia Gas Supply pipeline to apply for the PBLs concession, and pipelines and conveyor belts that are integral to the project would also be covered under the expanded capital equipment definition.

 

Addressing the Productivity Commission suggestions

 

The changes outlined to the Items above would address the main issues raised in the Productivity Commission's review.  By expanding the sectors eligible to all industry sectors, with the exception of building and construction for retail, office and residential, and by expanding the capital equipment definition, Option 1 addresses the Productivity Commission's concern about the scope of the PBLs.  In addition, by allowing split consignment of capital equipment it would remove the limiting criteria noted by the Commission.

 

However, this option does not address the Productivity Commission suggestion to reduce to $5m the project threshold for capital equipment.  Projects with under $10m in capital equipment expenditure would remain ineligible for the PBLs concessions.  The reduction in the threshold was considered but not implemented due to the high administrative burden it would place on AusIndustry (as a result of an increased number of applications) and on industry in relation to the costs associated with it compared to the concession available.

This option also addresses many of the concerns of industry that were noted during the industry roundtable discussions with the exception of lowering the threshold.

 

Summary of Option 1

 

Streamlining the PBLs would address many of the administrative and compliance costs for industry.  Extending the sector coverage and the range of goods eligible for concessional entry would address many of the limitations of the present PBLs.  It would remove as far as possible potential distortions that the sector restrictions may cause with regard to investment decisions, and would recognise new and emerging industries.  Option 1 meets all the policy objectives across all sectors excluding building and construction for office, retail and residential.  

 

Impact Analysis for Option 1

 

Option 1, by extending the sector coverage to all sectors excluding building and construction for office, retail and residential purposes, provides the greatest equity.  Additionally the extended range of projects eligible for the PBLs would maximise opportunities for increasing Australian industry participation and for leveraging Australian industry into domestic and global supply chains.  This option would also send a positive signal to investors and Australian industry.

 

The building and construction sector for office, retail and residential purposes is excluded from this option as this sector is not a large user of items of capital equipment, the difficulty of defining capital equipment for this sector and the large numbers of building projects being undertaken in Australia would lead to high administration costs.  This sector is currently not covered by the PBLs and would therefore remain ineligible for PBLs concessions.

 

Streamlining the PBLs would benefit industries investing in new projects by reducing administration and compliance costs.  As the new PBLs facilitate consideration of whole items of capital equipment rather than goods as they are imported, this would also reduce industry’s administration costs.

 

Expanding the definition of capital equipment would reduce project costs and the broader community would benefit from an increase in GDP flowing from higher productive investment, leading to employment creation and in many cases further exports. 

 

Broadening the sector coverage of the PBLs allows imports of capital equipment by all sectors (excluding building and construction for office, retail and residential) and would remove any potential distortion against emerging industries and encourage the adoption of innovative technology.  The broader community benefits of the PBLs would be increased as the Scheme is utilised by a wider range of industries.  Similarly, the policy objectives of the PBLs would be enhanced by an expanded sector coverage.  The three key drivers of growth in the Australian economy: investment, exports, and innovation, would all be boosted by this proposal.

 

Investment in Australia should increase under this option as the Government is sending a clear message to industry that it is encouraging new investment in all sectors of industry with the exception of building and construction for office, retail and residential purposes.  Projects that were once outside the scope of the current PBLs would now be eligible to apply for concessions. 

 

The benefits to the Australian economy range from increasing employment and the associated spin-offs to decreasing Australia's external trade balance.  Innovation in Australian industry would be enhanced as more industry sectors would be able to bring in state of the art capital equipment and capital equipment not made in Australia.  This has benefits in that Australian industry would be able to update capital equipment at a lower cost and increase productivity.  Australian industry should also become more competitive in the global market.

 

The inclusion of an AIPP in the application process would benefit Australian industry through levering local industry participation into domestic and global supply chains.  An AIPP would require project proponents to demonstrate that Australian industry has been given full, fair and reasonable opportunity to participate in a project. 

 

The AIPP supports the principles of the national Australian Industry Participation Framework, which was developed in response to a request by Commonwealth, State and Territory Industry Ministers in February 2000.  The central objective of the Framework is to provide Australian industry with full, fair and reasonable opportunity to participate in significant private sector investment projects.  The Framework recognises that maximising Australian industry participation creates new opportunities for growth and employment, and contributes to the creation of stronger, sustainable and internationally competitive Australian industries. 

 

The requirement for project proponents to develop and implement an AIPP would assist in achieving the Framework’s objectives by encouraging project proponents to consider and, where appropriate, utilise Australian capabilities, and to develop strategies for integrating local industry into the supply chains that now dominate major investment projects.  In developing an AIPP, proponents would also be encouraged to address longer-term industry development objectives, such as the building of consortia to gain critical mass.  This would assist Australian industry to build its competitive strengths, giving it increased opportunities to participate in future investment projects.

 

By requiring project proponents to consider capable Australian firms as potential suppliers, the AIPP would also respond to the market failure that exists in respect to information on Australian industry capability.  Evidence suggests that project investors and developers are often unfamiliar with the capabilities of Australian industry.  Requiring proponents to develop an AIPP would help address existing market failures by brokering linkages between project proponents, global supply chains and Australian industry.

 

The costs of the AIPP would be mainly in the form of compliance costs to industry.  The compliance costs associated with the preparation of an AIPP would be offset by allowing concession for whole items of capital equipment.  Instead of seeking a concession for each and every good as it is imported, proponents would only need to seek concessions for items of equipment as a whole thus reducing the amount of paperwork involved.  This reduction in effort would vary between projects but is expected to be more significant the larger the project.  In addition, to help minimise these costs, the Government would assist major project proponents develop and implement an AIPP.  Moreover, it is anticipated that compliance costs would decrease over time as project proponents become more proficient at fulfilling the requirements of the model AIPP.

 

Because it does not mandate a certain level of Australian content, the requirement for an AIPP would not have a negative impact on economic efficiency by excluding competitive foreign suppliers.  Under an AIPP, project developers would not be required to engage Australian suppliers where those suppliers are not competitive in terms of quality and price.  Developers would simply be required to demonstrate that Australian industry has been given full, fair and reasonable opportunity to participate in a project.

Additionally, a $1.5m initiative to assist major project proponents meet the criteria under the AIPP is proposed.  Under this proposal, manufacturing and resource projects, where capital equipment expenditure is expected to exceed $50m and which there is potential for significant local sourcing, would be targeted.  This proposal would assist proponents identify capable, competitive Australian suppliers, and develop options for integrating local industry into global supply chains.  Under the proposal, proponents would be encouraged to develop strategies to incorporate local industry through all tiers of supply (i.e. through design, procurement, construction, operation and whole-of-life support), and to address longer term industry development objectives, such as skills transfer and the building of consortia to gain critical mass.

Option 1 meets all the policy objectives, provides equity to almost all industry sectors and effectively contributes to leveraging Australian industry into domestic and global supply chains.

 

Option 1 is estimated to cost $19.6m in 2001-02 in additional revenue forgone and Departmental costs, and $100.4m in subsequent years.   These additional revenue forgone and Departmental costs are in addition to the costs incurred by the current PBL program.

 

2)       Streamline the PBLs into a single new Item, expand the definition of capital equipment, and broaden the sector eligibility, and require an Australian Industry Participation Plan.

The streamlining and legislative changes outlined in Option 1 will also apply to Option 2.  The main difference between Option 1 and Option 2 is outlined below.  

 

Comparison to Option 1

 

There is one significant difference between Option 1 and Option 2.  Where Option 1 expands the eligible sectors to all sectors excluding building and construction for office, retail and residential purposes, Option 2 limits the sector eligibility only to sectors which are classified as mining, resource processing, agriculture, food processing, food packaging, manufacturing and the gas supply sector, i.e. less sectors are eligible under Option 2.

 

Comparison to current PBL Scheme

 

When compared to the current PBLs, Option 2 provides concessions to a greater number of industry sectors and allows them to import a wider range of capital equipment items.  Where there is currently limited access to Items 45 and 46 for capital equipment not manufactured in Australia, this option would allow all industry sectors classified as mining, resource processing, agriculture, food packaging, food processing, manufacturing and the gas supply sector access to this concession.  This is over and above what industry sectors are currently available.

 

Likewise access to the Item 56 concession, state of the art capital equipment which has a clear performance advantage over domestically produced versions, would be also be expanded to all industry sectors classified as manufacturing and including the gas supply sector and they would also be eligible for the new expanded capital equipment definition.  Access to the Split Consignment Provisions, Items 43 and 52, would not change.

 

This option would also allow projects such as the Papua New Guinea-Australia Gas Supply pipeline to apply for the PBL concession and pipelines and conveyor belts that are integral to the project would also be covered under the expanded capital equipment definition.

This option would see an increase in the number of applications lodged for concession as both the eligible industry sectors has been expanded along with the expanded capital equipment definition.  This would reverse the recent trend which has seen the number of applications fall (see Table 2).



Addressing the Productivity Commission suggestions

 

The changes to the Items outlined above to would address the main issues outlined in the Productivity Commission's review.  By expanding the sectors eligible to industry sectors classified as manufacturing and the gas supply sector, and by expanding the capital equipment definition, Option 2 addresses the Productivity Commission's concern about the scope of the PBLs.  In addition, by allowing split consignment of capital equipment for eligible projects it would remove the limiting criteria noted by the Commission.

The treatment of other Productivity Commission suggestions are as set out in Option 1.

 

Summary of Option 2

 

Streamlining the PBLs would address some of the administrative and compliance costs for industry.  Extending the sector coverage and the range of capital equipment eligible for concessional entry would address many of the limitations of the present PBLs.  It would go some way towards removing potential distortions that the sector restrictions may cause with regard to investment decisions, and would recognise more new and emerging industries.  The AIPP would encourage consideration of Australian industry capability, and would assist in leveraging Australian industry into domestic and global supply chains.  Option 2 meets all the policy objectives across a wide range of sectors. 

 

Impact Analysis for Option 2

 

Option 2 would achieve all that is achieved in Option 1 but across a slightly narrower range of sectors as outlined above.  Option 2 would:

 

(a)     enhance equity across mining, resource processing, agriculture, food packaging, food processing, manufacturing and gas supply sectors;

 

(b)    enable streamlining of the PBLs;

 

(c)     provide a broader definition of capital equipment and recognise split consignments which is consistent with today's commercial realities;

 

(d)    lead to higher GDP flowing from higher productive investment, leading to employment creation and in many cases further exports; and

 

(e)     require an AIPP.

 

By strategically targeting the expansion of the PBLs to industries classified as mining, resource processing, agriculture, food packaging, food processing, manufacturing and the gas supply sectors only, Option 2 enables a streamlining of the PBLs while still extending eligibility to a wide diversity of industries (e.g. wood and paper, printing and publishing, chemicals, non-metallic minerals, metal products, transport equipment, and other machinery).  These sectors would now become eligible for concessions on capital equipment not made in Australia (Items 45 and 46) and in some cases, such as the non-metallic minerals and other machinery sectors, access to the Item 56 concession. The gas supply sector would now be eligible for Items 45, 46 and 56.

 

The AIPP requirement for projects would be the same for Option 1 and Option 2.

 

Some of the industry sectors excluded from Option 2 include transport infrastructure, power generation and water supply.  These sectors have large projects run by a smaller number of project proponents.  The main reason that these sectors have been excluded is the additional cost to revenue and the increased administration costs.  These sectors are not currently covered by the PBLs and would therefore remain ineligible for the PBL concessions.

 

The proposal is estimated to cost an additional $11.1m in 2001-02 in import duty foregone and Departmental costs, and $45.5m in subsequent years in revenue forgone and Departmental costs.  These additional revenue forgone and Departmental costs are in addition to the costs incurred by the current PBL program.

Consultation

 

The Department of Industry Science and Resources held round table discussions with stakeholders on future directions for the Project and Policy By-laws in Melbourne, Sydney and Canberra.  Participants in these discussions were drawn from businesses and their agents who have practical experience of the present PBL system, and from industry representative bodies.  The Australian Customs Service, AusIndustry, Treasury, and the Department of Foreign Affairs and Trade were also represented at these discussions.  There was broad consensus that streamlining the PBLs, as outlined, would reduce business costs and enhance Australian industry competitiveness.  There was also general support from stakeholders for a ‘one stop shop’ approach and for a greater range of goods to be eligible for concession entry under the PBLs.  Participants at these discussions did not raise any concerns with the proposals.  In addition, there have been a number of         bi-lateral consultations.

 

Conclusion

 

Streamlining the PBLs, expanding the definition for capital equipment and the sector coverage, and requiring an AIPP represents the best option.  Streamlining the PBLs lowers administration and compliance costs for industry, the expansion of sectors and capital equipment eligible for a concession encourages investment by lowering input costs for project proponents, and the AIPP requirement encourages opportunities for Australian industry participation.

 

Both proposals provide greater industry and economic benefits than the existing PBLs.  Given the current fiscal constraints Option 2 is seen as being the best option to address the Productivity Commission suggestions while being financially responsible. 

 

Implementation and Review

 

The streamlining of the PBLs would require a new PBLs Item and a new Split Consignments Item to be inserted in Schedule 4 of the Customs Tariff Act 1995, and several existing Items to be revoked.  There would be a 6 month transition period from the implementation of the new PBLs which would take account of those projects already approved under the existing guidelines and those projects who are advanced in their purchasing contracts and may not be able to complete a satisfactory AIPP.  Currently, when applicants make a request for a concession, they need to provide independent advice that verifies that the piece of capital equipment they want to import is either not made in Australia or is technologically superior to that made in Australia.  If the applicant can not meet this criterion then they are not eligible for the concession.  This process would be continued with the introduction of the AIPP.

 

During the transition period, applications would be accepted under either of the PBLs; however, all goods approved under the existing PBLs must be imported within the 6 month period to be eligible for concessional entry.  Following the 6-month transition period, all PBLs applications and all concessional entry of goods must be under the new PBLs.

 

It is proposed that the new PBLs be implemented on 1 January 2002.  Existing PBL' users would be notified of the changes and a marketing program would be implemented to inform those sectors not currently eligible of the broadened PBL coverage.