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Tuesday, 7 December 2004
Page: 69

Senator STEPHENS (4:18 PM) —These bills give effect to key elements of the package of measures that the Howard government announced for the textiles, clothing and footwear industries in November 2003. The Textile, Clothing and Footwear Strategic Investment Program Amendment (Post-2005 Scheme) Bill 2004 extends the TCF strategic investment program for a further 10 years effective from 1 January 2005. Under this program, $575 million will be provided to support eligible industry investments in R&D expenditure. The SIP bill also provides for the establishment of a $25 million TCF small business program. The Customs Tariff Amendment (Textile, Clothing and Footwear Post-2005 Arrangements) Bill 2004 provides for further TCF tariff reductions in 2010 and in 2015.

The substance of the bills currently before the Senate was introduced by the government on 16 June this year, and on 24 June both bills were passed in the other place after a Labor amendment to split the bills was defeated. On the previous day, the bills had been referred by the Senate to the Senate Economics Legislation Committee. That committee reported on 30 August and included minority reports from Labor and Democrat senators. Senator Ridgeway has elaborated on those concerns. But the 2004 federal election was called before the Senate could consider either the bills or the report, so the bills should be seen as a single package. Legislatively, they are linked through the commencement clause in the SIP bill.

Before addressing the bills in detail I would like to say something about the recent history of the TCF industry and the competitive challenges it will confront in the future. The TCF industry provides a wide range of goods, including basic yarns and textiles, carpets, clothing, footwear and sophisticated technical textiles. The profile of TCF firms is equally diverse, ranging from large factories employing hundreds of people to a multitude of small to medium sized enterprises. While estimates vary, TCF firms employ at least 58,000 people in the formal sector and another 25,000 or so outworkers. The industry's revenue in 2000-01 was over $9 billion. TCF firms make a substantial contribution to a number of regional economic centres, including Geelong, Ballarat and Bendigo, Victoria; Albury, New South Wales; Devonport, Tasmania; and the Gold Coast, Queensland. Many TCF manufacturers can also be found in our major capital cities.

In the decade following World War II, steep protective barriers and other forms of industry support shielded the TCF industry from international competition. These policies skewed and distorted the development of the industry, encouraging an inward-looking orientation and a fragmented, high-cost and ultimately unsustainable industry structure.

Since the early 1970s, Australia's TCF industry has been progressively exposed to greater competition, and Labor governments have played a decisive role in this process. Change in the TCF industry has also been driven by market forces. Responses within the TCF industry to these policy changes and market trends have not been uniform. Some TCF firms have adapted well, building a strong competitive advantage in niche areas, including some technical textiles, but others have struggled in the face of imports from low-cost competitors.

In overall terms, there has been some rationalisation in the industry. Between 1996-97 and 2000-01, TCF employment and production levels fell and TCF imports secured an increased share of the local market. Over the same period, however, TCF firms lifted productivity levels and increased exports, albeit from a low base, but high levels of protection have not inoculated the industry from employment reductions and greater import competition. While the TCF industry has plainly been through a difficult period of adjustment, there can be no turning back to its highly protected, high-cost and uncompetitive past. The key to the industry's survival and prosperity lies in investment and innovation, in high value-added production and niche marketing and in phased adjustment away from uncompetitive activities. This is the only way to ensure secure, sustainable jobs for the thousands of Australians employed by TCF firms.

In November 2003 the Howard government announced a $747 million package of measures for the TCF industry. Key components of this package included an extension of the strategic investment program, SIP, for a further 10 years effective from 1 January next year. Under the new version of the SIP, the number of grant types will be reduced from five to two, with subsidies to be provided for capital investment type 1 grants, representing a 40 per cent subsidy, and R&D expenditure type 2 grants, with an 80 per cent subsidy. Also, there is a $25 million TCF small business program for companies that cannot meet the $200,000 threshold for SIP claims. There will be further reductions in TCF tariffs in 2010 to 2015, with tariffs applying to all TCF products, except for clothing and finished textiles, falling in 2010 to five per cent—the general manufacturing rate. Tariffs on clothing and finished textiles will fall to 10 per cent in 2010 and five per cent in 2015. There is also a $50 million structural adjustment program to assist displaced workers and encourage community restructuring.

The bills now before the Senate implement the first three elements of this package—the extension of the SIP, the establishment of the TCF small business program and the tariff reductions in 2010 and 2015. The government's TCF assistance package provides substantial support for needed investment and innovation within the industry. It is worth noting that the government's proposed further TCF tariff reductions will not take place until 2010, giving affected firms time to prepare and adjust. Under already existing legislation, tariffs for all TCF producers—save for makers of clothing and finished textiles—will fall to between five and 10 per cent on 1 January 2005. While tariffs for clothing and finished textiles remain substantially higher, this part of the industry is being given longer to adjust—until 2015—to reach the target tariff rate of five per cent.

Tariff reductions inevitably entail adjustment pressures for local TCF firms. It is increasingly widely recognised, however, that they will not be the main source of competitive pressures that these firms face in coming decades. The short- to medium-term outlook for the TCF industry is being shaped by three non-tariff related factors: the appreciation of the Australian dollar; regional and global trade liberalisation trends, including a possible free trade agreement with China; and other non-tariff barriers affecting Australian TCF exports.

I turn to Labor's position on the TCF bills. Labor supports the package of the government's TCF bills currently before the Senate. Passage of the SIP bill will deliver much-needed certainty for the TCF industry. With this legislation in place, TCF firms throughout Australia can plan, finetune and implement their investment strategies with confidence. As I mentioned earlier, further TCF tariff reductions in 2010 and 2015 are part of the government's TCF legislative package.

On 15 November this year the shadow minister for industry, infrastructure and industrial relations wrote to the Minister for Industry, Tourism and Resources suggesting that the government split its two TCF bills. This would have allowed the time-sensitive SIP bill to be passed before the end of the year and consideration of the TCF tariff bill to take place in 2005. The minister confirmed that the government would not accept Labor's proposal to split the TCF bills. The minister subsequently indicated that the government would agree to Labor's proposal that a review of the TCF industry be conducted in 2008. Some of those opposed to Labor's position on this legislative package have drawn attention to language adopted at the ALP national conference in January 2004 which called for TCF tariffs `to be held at current levels pending a review to be undertaken by a new Labor government' and flagged Labor's opposition to `the government's TCF legislation to be introduced ... prior to the next election which further reduces tariffs'.

The simple, yet powerful, point I would make about this language is that it was premised on Labor winning the 2004 federal election. With that election lost, we have rethought our approach. In particular, we have confronted two unarguable facts. First, with the government securing a majority in the Senate from 1 July 2005, further tariff reductions for the TCF industry will be an inevitable legislative consequence of this parliament. Second, failure to pass the government's TCF legislative package before the end of the year will delay the extension of the SIP—denying the TCF industry much needed certainty and disrupting investment plans predicated on SIP assistance.

An important outcome of the opposition's discussions with the minister was his agreement to hold a review of the TCF industry in 2008, if in government. In a letter to the shadow minister for industry, infrastructure and industrial relations dated 29 November, Minister Macfarlane states:

The Government is prepared to agree to a Review on the operational effectiveness of the TCF post-2005 Assistance Package in 2008 in return for the Australian Labor Party's support for the passage of these Bills.

The Review would consider the effectiveness of the programs in assisting the industry to improve its competitive position and would take into account changes in the global competitive conditions at that time. It would not extend to the Government's program of tariff reductions or the level of financial assistance made available to the industry as part of the TCF post-2005 Assistance Package.

Given the lack of support from the industry and the Australian Labor Party for this Review being conducted by the Productivity Commission, I am proposing that the Review be undertaken by government officials, either from my portfolio or from relevant Government Departments.

The minister subsequently gave this undertaking to the House of Representatives. The effect of this commitment from the minister is that a review of the TCF industry is now a bipartisan commitment. On the basis that Labor wins the next election, such a review will still take place.

Labor is strongly supportive of a proposed 2008 review. The review will be well timed, taking place after the extended SIP program has been in operation for three years but before the 2010 round of tariff reductions comes into effect. The review represents an excellent opportunity to take stock of the competitive pressures that the TCF industry will face in coming years, including pressures resulting from the state of the Australian dollar, the expected ASEAN-CER FTA and a possible FTA with China. It will also enable the government's TCF assistance package to be carefully scrutinised, including those elements of this package which Labor has reservations about.

I will single out two aspects of the government's assistance package for particular attention here: first, the 10-year, $50 million structural adjustment program, SAP, to assist displaced workers and encourage industry restructuring; and, second, the exclusion of leather and technical textile firms from R&D grants under the SIP. The $50 million quantum of assistance provided under the SAP is geared to the government's estimates of expected job losses in the TCF industry. According to the government, the SAP supplements assistance already available through the Job Network and in addition provides customised support for retrenched TCF workers. The program replaces the TCF labour adjustment program, or LAP, which operated between 1990 and 1996.

Serious questions have been raised about the SAP's size and effectiveness. In submissions to the Senate Economics Legislation Committee, the Victorian state government and the City of Geelong, for example, expressed concerns that the SAP, which over its 10-year life will provide an average of $5 million per annum, might not be adequate to meet expected demand for this assistance. The TCF Union of Australia has also been critical of the SAP, arguing that it has not been properly consulted on this scheme. During his discussions with the shadow minister for industry, infrastructure and industrial relations on the government's TCF legislative package, Minister Macfarlane indicated that he would be happy to discuss the design and implementation of TCF labour adjustment measures with the relevant unions. He said he had an `open door' to the unions and would be happy to discuss any concerns that they might have about these measures. Given his commitment, the opposition urges Minister Macfarlane to meet with the TCF Union of Australia and other interested unions as soon as possible.

Another part of the government's TCF assistance package which has attracted critical attention is its exclusion of leather and technical textile producers from R&D grants under the extended SIP. This matter was raised by Labor senators in the Senate Economics Legislation Committee report on the government's TCF bills. The government's rationale for this exclusion is that SIP support is intended for those parts of the TCF industry facing the most serious adjustment pressures. Leather and technical textile firms, which are already subject to five per cent tariffs, do not, in the government's view, fall into this category. The leather and technical textile industry associations—the Technical Textile and Nonwoven Association and the Australian Association of Leather Industries—have disputed this, arguing that their members must continue to invest in R&D, and therefore access the type 2 grants, to be internationally competitive. This matter, together with the effectiveness of the structural adjustment program for displaced workers, should be examined carefully in the 2008 TCF review.

The competitive environment facing the TCF industry has changed markedly over recent decades. The pace and scale of change will only intensify in the coming years as globalisation deepens, China and India continue their emergence as major economic powers, consumer preferences evolve and technology is transformed. The survival and future health of Australia's TCF industry depends on investment, innovation, a highly skilled work force and international competitiveness. If there is one overarching lesson from the 20th century's economic history it is that protectionism is not a sustainable industry strategy and not an effective way to guarantee jobs. Australia's economic success over recent decades has been built on openness to global trade and investment flows, greater competition in local markets and the emergence of a more innovative, entrepreneurial and efficient business culture.

The Hawke and Keating governments' economic reforms played a decisive role in fostering these changes. The TCF industry and its employees have taken significant strides in meeting the restructuring challenges set by those Labor governments. The Howard government's TCF assistance package provides continued support for the industry's efforts and its workers' efforts. The success or failure of this package will hinge on its capacity to foster a competitive, efficient and dynamic TCF industry—an industry able to offer sustainable jobs to the thousands of Australians who work in its factories and workshops. Labor supports the passage of the two TCF bills before the Senate. They will ensure certainty for the TCF industry and foster investment in sustainable jobs. And Labor strongly supports the proposed TCF review in 2008. I commend the bills to the Senate.