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World Trade Organization |
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WT/TPR/S/104 26 August 2002 | |
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(02-4500) |
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Trade Policy Review Body |
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TRADE POLICY REVIEW AUSTRALIA Report by the Secretariat |
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This report, prepared for the fourth Trade Policy Review of Australia, has been drawn up by the WTO Secretariat on its own responsibility. The Secretariat has, as required by the Agreement establishing the Trade Policy Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the World Trade Organization), sought clarification from the Government of Australia on its trade policies and practices. Any technical questions arising from this report may be addressed to Mr. S. Stamnas (tel. 022-739 5382) or Mr. M. Daly (tel. 022-739 5077). Document WT/TPR/G/104 contains the policy statement submitted by the Government of Australia. |
Note: This report is subject to restricted circulation and press embargo until the end of the meeting of the Trade Policy Review Body on Australia.
CONTENTS
Page
SUMMARY OBSERVATIONS ix
(1) Economic Environment ix
(2) Trade Policy Framework ix
(3) Trade Policy Developments x
(4) Sectoral Policy Developments xii
(5) Prospects xiv
I. Economic environment 1
(1) Overview 1
(2) Recent Economic Developments 1
(i) Growth, productivity, incomes and employment 1
(ii) Prices 5
(3) Main Macroeconomic Policy Developments 5
(i) Monetary and exchange rate policy 5
(ii) Fiscal policy 7
(4) Main Structural Policy Developments 7
(i) Tax reform 7
(ii) Corporatization and privatization 8
(iii) Labour market reforms 8
(5) Balance-of-Payments Developments 9
(i) Current and trade accounts 9
(ii) External liabilities/debt 10
(6) Developments in Merchandise Trade 11
(7) Trends and Patterns in Foreign Investment 11
II. trade policy regime: framework and objectives 15
(1) Overview 15
(2) General Constitutional and Institutional Framework 15
(3) Structure of Trade policy Formulation 16
(i) Executive branches of government 16
(ii) Advisory bodies 16
(4) Trade Policy Objectives 17
(i) General trade policy objectives 17
(ii) Sectoral trade policy objectives 17
(iii) The WTO Agenda 17
(5) Trade Laws and Regulations 19
(6) Trade Agreements and Arrangements 20
(i) Multilateral agreements 20
(ii) Preferential, regional and bilateral arrangements 20
(7) Trade Disputes and Consultations 23
(8) Foreign Investment Regime 23
Page
III. trade policies and practices by measurE 27
(1) Introduction 27
(2) Measures Directly Affecting Imports 28
(i) Registration and documentation requirements 28
(ii) Tariffs 29
(iii) Customs valuation 39
(iv) Other levies and charges 39
(v) Import prohibitions, restrictions, and licensing 39
(vi) Government procurement 41
(vii) Local-content requirements 44
(viii) Contingency measures 44
(ix) Standards and other technical requirements 46
(3) Measures Directly Affecting Exports 53
(i) Registration and documentation 53
(ii) Export prohibitions, restrictions, and licensing 54
(iii) State trading 55
(iv) Export assistance 60
(4) Measures Affecting Production and Trade 64
(i) Taxation 64
(ii) Production assistance 68
(iii) Competition and consumer policy 74
(iv) Intellectual property rights 76
(v) Other measures (environmental) 82
IV. trade policies by sector 84
(1) Overview 84
(2) Agriculture, Livestock, Forestry, and Fisheries 85
(i) Features 85
(ii) Main policy issues 86
(iii) Selected agricultural and livestock items 93
(iv) Forestry 95
(v) Fisheries 96
(3) Mining and Energy 97
(i) Mining 97
(ii) Energy 97
(4) Manufacturing 99
(i) Textiles, clothing, and footwear 105
(ii) Pharmaceuticals 105
(iii) Automotive 106
(iv) Shipbuilding 108
(v) Information technology 108
(vi) Printing and publishing 108
(5) Services 109
(i) Features 109
(ii) Domestic support 109
(iii) Overall commitments under the General Agreement on Trade in Services 113
Page
(iv) Agreement with New Zealand 114
(v) Financial services 114
(vi) Communications 117
(vii) Transport 121
(viii) E-commerce 123
REFERENCES 125
APPENDIX TABLES 129
CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 Exchange rate developments, 1995-2001 6
I.2 Product composition of merchandise trade, 1998 and 2000 12
I.3 Direction of merchandise trade, 1998 and 2000 13
I.4 Stock of foreign direct investment by sector, 1997-2000 14
I.5 Stock of Australia's overseas investment by destination, 1997-2000 14
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Distribution of MFN tariff rates, 1997/98 and 2001/02 31
III.2 Average applied MFN and final bound tariff rates, by HS section, 1997/98 and 2001/02 34
III.3 Share of customs duties collection in total import value and indirect taxes on international trade, 1995-02 35
III.4 Tariff escalation by 2-digit ISIC industry, 1997/98 and 2001/02 36
III.5 Anti-dumping cases, 1 January 1998 – 31 October 2001 45
IV. TRADE POLICIES BY SECTOR
IV.1 Tariff averages by 2-digit ISIC category, 1997/98 and 2001/02 88
IV.2 Major banks' domestic interest spread, 1994-2001 116
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Economic developments, 1997-01 2
I.2 Structure of the economy, 1997-01 3
I.3 Balance-of-payments, 1997-01 9
I.4 Net foreign debt structure, 1997-01 10
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
II.1 Foreign direct investment (FDI) requirements and limitations, as of May 2002 25
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Tariff structure in Australia, 1997-02 30
III.2 Duty forgone by scheme, 1997-01 37
III.3 Australian MFN and preferential regime, 1997-02 38
III.4 Main import prohibitions, restrictions and controls, as of May 2002 40
III.5 State (Commonwealth or territorial) and other forms of privileged involvement in the economy, 2002 55
III.6 Commonwealth assistance to exporters of goods and services, 1997-02 61
III.7 Structure of tax revenue, 1996-01 64
III.8 Excise rates 66
III.9 Overall budgetary assistance, 1997-02 69
III.10 Subsidies notified under WTO provisions, 1995-01 70
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IV. TRADE POLICIES BY SECTOR
IV.1 Developments in domestic support to agriculture, livestock, forestry, and fisheries, 1997/98-2001/02 90
IV.2 Usage of domestic support and export subsidies, 1995-00 92
IV.3 Developments in domestic support to mining, 1997-02 98
IV.4 Developments in domestic support to manufacturing, 1997-02 100
IV.5 Developments in domestic support to services, 1997-02 109
IV.6 Structure of the assets of the financial system, June 1996-June 2001 115
APPENDIX TABLES
II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
AII.1 Involvement in the WTO dispute settlement mechanism, 1998-02 (June) 131
IV. TRADE POLICIES BY SECTOR
AIV.1 OECD indicators of support to Australian agriculture, 1999-01 133
AIV.2 Levies affecting agriculture, livestock, forestry, and fisheries, 2002 134
AIV.3 State-trading activities in agriculture, livestock, forestry, and fisheries, 1995-98 138
AIV.4 Tariffs and budgetary assistance net subsidy equivalents by manufacturing industry, 2000/01 140
AIV.5 Main support schemes to manufacturing, 2002 141
1. Australia's trade and trade-related policies as well as their formulation are, by and large, highly transparent. In the interests of public accountability, information on the nature, if not the effects, of various policies is usually available in published documents and from web sites operated by most public sector entities, many of which are referenced in this Report. Moreover, the Freedom of Information Act allows public access to non-confidential government documents. The transparency of policies, practices, and measures is further enhanced by organizations such as the Productivity Commission, the main independent review and advisory body, which reports on and conducts evaluations of the economic impact and/or effectiveness of protection, government assistance, and regulations. The Secretariat has drawn heavily on such publicly available documents in preparing its Report for this fourth Trade Policy Review of Australia.
(1) Economic Environment
2. Since its previous Review in 1998, Australia has successfully weathered the Asian financial crisis, despite the severe slowdown elsewhere in the region. Real GDP growth, generated largely by domestic demand and rising multi-factor productivity, remained strong until 2001, when a temporary decline in residential construction activity and the global economic slowdown adversely affected Australia's short-run outlook for growth and employment. Nonetheless, unemployment has continued to fall and inflation has remained low.
3. Australia's impressive economic performance is due in large part to sound macroeconomic policies in combination with some far-reaching structural reforms that have reinforced past unilateral trade liberalization. Fiscal surpluses have dropped, however, as a result of outlays growing faster than tax revenues, the latter reflecting the budgetary cost of the major taxation reform package. Australia has proceeded with the corporatization and/or privatization of government-owned facilities in electricity, natural gas, and telecommunications. Other noteworthy structural reforms have been undertaken in competition policy, labour markets, and technology.
4. The steep fall in world commodity prices, which followed the weakening of global demand after the outbreak of the Asian crisis, put considerable downward pressure on the Australian dollar exchange rate, thus improving Australia’s international price competitiveness and benefiting import-competing sectors. The outcome was an export driven shift in the trade account from a deficit to a surplus. Concurrently, the current account deficit fell to its lowest annual level in 20 years, reflecting the recent narrowing of the saving-investment gap. Net foreign debt has continued to grow as a consequence of increased borrowing by the private sector.
5. The patterns of foreign trade and direct investment have hardly changed. Australia has remained largely dependent on commodity exports and manufactured imports. Most of its merchandise trade has continued to be conducted with Asia-Pacific Economic Cooperation (APEC) partners, with some reinforcement of trade with East Asia in the wake of the Asian crisis. Despite the Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), New Zealand's share of Australia's merchandise trade has dropped. As regards FDI, some effort has been made to ease remaining barriers in sensitive areas and to improve notification and examination requirements.
(2) Trade Policy Framework
6. Since its previous Review, Australia has continued to implement trade reforms so as to strengthen competition in the domestic market and thus improve economic efficiency. These reforms were undertaken partly in line with the scheduled implementation of Australia's WTO commitments, but also unilaterally in accordance with domestic policy goals.
7. Australia has maintained its preferential trading arrangements with New Zealand and other countries in the South Pacific, Canada, and developing and least developed countries (under the Australian System of Tariff Preferences). The value of preferential tariffs has been eroded in recent years, however, as Australia’s applied MFN tariffs have been reduced. Recently, more emphasis has been placed on exploring the prospects of broadening and deepening Australia's bilateral trade relations with Japan, Korea, Singapore, Thailand, and the United States, as well as regional relations through the Closer Economic Partnership linking ASEAN and CER economies, and the trans-Pacific regional agreement.
8. Australia's highly transparent legal and institutional framework for trade and investment has been further improved through a legislative review undertaken to ensure that the regulatory framework (marketing of agricultural products, food labelling, finance and insurance, trades and professions, and gambling regulation, and local government planning processes) does not restrict competition. Action has also been taken to reinforce the means available for increasing public awareness (and interaction) and taking advantage of the market opening and defence possibilities available under the rules-based multilateral trading system. For this purpose, a WTO Disputes Investigation and Enforcement Mechanism under the Department of Foreign Affairs and Trade (DFAT) and a WTO Advisory Panel (comprising representatives from industry, community NGOs, academia, and the media) have been established. Australia has continued to participate actively in all aspects of WTO work, favouring the launching of a round focused on further liberalization of agriculture, manufacturing, and services. The Council of Australian Governments (COAG) has continued to facilitate consultation, cooperation, and policy coordination between the Commonwealth, States, and Territories with a view to avoiding potential inconsistencies. As of April 1998, the Productivity Commission has replaced the Industry Commission as the principal review and advisory body on structural policy and regulation.
(3) Trade Policy Developments
9. The customs tariff remains Australia's main trade policy instrument, albeit a minor source of tax revenue (accounting for 2.3% of total tax revenues). Some 96.2% of tariff lines are bound, thereby imparting a high degree of predictability to the tariff. The average applied MFN tariff is currently 4.3%, down from 5.6% in 1997/98; further unilateral reductions in the rates applied to passenger motor vehicles and textiles, clothing and footwear are envisaged by 2005. Whereas the average applied MFN tariff for agricultural products is 1.2%, that for industrial products is of the order of 4.7%. The tariff rates applied to passenger motor vehicles, textiles, clothing, and footwear are two to three times higher than the average for industrial products. On the other hand, unilateral tariff reductions have brought about 86% of tariff rates within the zero to 5% range. The customs tariff has also been considerably simplified through the reduction in the number of rates. However, these changes have done little to reduce tariff escalation. Applied tariff rates currently fall short of bound rates by an average of 6.2 percentage points; while the consequent gap between bound and applied MFN rates provides considerable scope for the authorities to increase applied tariffs within bindings, this does not appear to have happened during the period under review. Indeed, the widening of this gap since 1997/98, despite the reduction in bound rates, is the result of even greater unilateral reductions in applied rates; applied rates have been increased in very few, if any, instances.
10. WTO-related agricultural tariff quotas for five cheese items and non-manufactured tobacco have apparently been applied in a flexible/liberal manner. Recourse to non-tariff protection has been confined mainly to agricultural, livestock, and food products.
11. Documentation requirements have remained minimal, and computerized customs clearance has facilitated virtually all imports and exports. Self-assessment is allowed for import duty and export clearance. The transaction value has been mostly used for customs valuation purposes.
12. Import prohibitions and restrictions in the form of stringent quarantine or technical requirements have remained in place to preserve, inter alia, public health, safety or security. Efforts have been made to align certain compulsory standards to international standards (including for motor vehicles) as well as to improve international coordination and cooperation through WTO notification and mutual recognition agreements. Despite the Commonwealth/State Agreement on Mutual Recognition, it seems that there are residual areas where regulations power concerning standards certification (including State-based point of sale requirements, banning orders under consumer protection legislation) differs between the Commonwealth and States. Following institutional and procedural changes, recourse to anti-dumping and countervailing actions has dropped; no safeguard measures were adopted during the period under review.
13. Australia has remained a non-signatory of the WTO Government Procurement Agreement (GPA). Commonwealth and state governments continue to use their procurement as a major instrument of economic policy with the aim of fostering industrial development (e.g., information and telecommunications technology) by means of preference margins (10% or 20% depending on the State) for local (and New Zealand) suppliers, compulsory sourcing from small and medium-sized enterprises (SMEs) and local-content requirements (which have also been attached to broadcasting).
14. Export controls or quantitative restrictions operated by public sector entities affect certain primary and therapeutic goods; they are intended, inter alia, to ensure adequate domestic supply and to enforce standards. Australia has maintained the export ban on merino ewes and embryos for breeding purposes except to New Zealand under ANZCERTA and for approved scientific purposes. State involvement in the economy has been maintained with a view to promoting and regulating trade in certain agricultural goods.
15. Export assistance, consisting of direct grants (through Export Market Development Grants, Supermarket to Asia Strategy) and tax concessions (Tradex, Passenger Motor Vehicle Export Facilitation Scheme), has been maintained and revised. Export finance is conditional upon local-content requirements as well as "national interest" and environmental protection criteria; export credit terms seem to be in line with OECD guidelines. Incentives in free-trade zones are tailor-made for each project and may, inter alia, include establishment or relocation subsidies.
16. Support for trade and production has been provided through tax and non-tax incentives with increased emphasis on export promotion and investment, especially in R&D. During the period under review, Australia's schemes for the concessional entry of imports have become more generous. Non-tax assistance has been increased in certain broad areas (notably export promotion, investment, and R&D) and maintained for several specific activities. Low energy prices to producers have been ensured through state involvement in electricity and increased presence of private sector operators, as well as through tax exemptions and grants for several categories of diesel fuel users. Price controls have seemingly been reduced so that they now cover air navigation, airport, postal, and harbour towage services; certain pharmaceuticals have also been subsidized.
17. Perhaps the most important structural policy development during the period under review has been tax reform, notably implementation of The New Tax System, which has inter alia involved the rationalization and simplification of the indirect tax structure, thereby rendering it more neutral, especially with respect to international trade. The centrepiece of this reform involved the replacement of the Wholesale Sales Tax (WST) levied on manufactured goods by a broad-based Goods and Services Tax (GST). However, the special Luxury Car Tax, which seems to be biased against imports, remains in place. Personal and corporate income taxes have also undergone substantial reform as a consequence of The New Tax System. Their bases have been broadened and the rates of tax cut. As a consequence, the top personal tax rate has been reduced from 43% to 30%, while the corporate tax rate has been cut from 36% to 30%, thereby bringing it more into line with rates in several neighbouring countries. Insofar as high personal tax rates constitute a disincentive both to work and save, cuts in the top rates could lead to increased work effort and higher personal saving, thereby reducing the saving-investment gap. The combination of a broader corporate tax base and lower tax rates would tend to reduce the assistance delivered through the corporate tax system, thereby rendering it more neutral, and thus potentially less distorting, with regard to firms' investment decisions. However, special deductions for companies involved in mineral exploration and development have been maintained.
18. Australia has sought to strengthen protection of intellectual property rights (IPRs) by expanding its international commitments and ensuring the enforcement of such protection at the border. At the same time, parallel imports have been further liberalized.
19. Australia's competition policy framework has also been updated and put into effect so as to ensure, inter alia, that the regulatory framework does not restrict competition and that the majority of Government Business Enterprises adhere to the principle of "competitive neutrality".
(4) Sectoral Policy Developments
20. The overall level of government assistance to agriculture, livestock, forestry and fisheries has remained low since 1998. Average nominal applied MFN tariff protection has remained negligible. Total support (TSE) to agriculture amounted to only 0.3% of GDP in 2001, the lowest percentage among all OECD countries, while Australia's overall producer support estimate (PSE) was 4%, the second lowest. Around 96% of domestic support involves so-called "green" subsidies that have little, if any, distorting effect on production or trade; such support was predominantly general services (e.g., infrastructural, extension, advisory and R&D services and environmental programmes).
21. Australia's SPS and quarantine requirements have been criticized by a number of its trading partners on the grounds that they are unduly stringent and therefore protectionist. But with Australia heavily dependent on agriculture and a major exporter of agricultural commodities and agri-food products, which receive relatively little government assistance and are sold at world market prices, these measures are believed to be necessary to ensure that Australia's reputation as a reliable exporter of high quality agricultural products is not jeopardized by pests and diseases. Changes have been introduced to SPS and quarantine requirements to cover, inter alia, animal diseases, genetically modified organisms and biotechnology; a stringent import-risk assessment requirement has also been introduced, further reducing access to the market for agricultural products.
22. Production and exports of certain items (meat, grain, horticulture, dairy, fishery, and forestry) are subject to levies earmarked for the funding of R&D and other sectoral activities. Trade distorting domestic support albeit with de minimis levels, for wheat (direct payments for shipping costs to Tasmania), pigmeat, and lamb meat, has varied but remained far below WTO reduction commitments. Particular emphasis has been placed on support for biotechnology. Exports of almost all wheat, barley (until 2001), rice, and sugar have remained under the exclusive control of statutory authorities or public firms operating under single-desk arrangements. By contrast, the dairy sector has been deregulated, and producers have received a structural adjustment package; they have apparently thrived as a consequence. In forestry, it would appear that reforms of the public forest agencies have improved competitive neutrality, although anti-competitive practices seem to persist.
23. Mining remains one of Australia's most efficient and least assisted sectors as well as a major contributor to exports. The sector receives hardly any tariff protection (except for certain stones subject to 5% tariff) and the little domestic support it does receive has been declining. A Petroleum Products Freight Subsidy Scheme, a Diesel Fuel Rebate Scheme, and a Diesel and Alternative Fuels Grants Scheme have been operated in line with different policy objectives. A centralized wholesale electricity market is being put in place progressively, with increased private sector involvement; the mandatory purchase of increasing amounts of electricity generated from renewable energy sources has been in force since 2001.
24. Since 1998, border protection for the manufacturing sector has been reduced so that the average applied MFN tariff rate is only 4.6% (based on the ISIC) and further tariff cuts on sensitive items are envisaged. Nonetheless, the tariff rates applied to passenger motor vehicles (PMVs), textiles, clothing and footwear (TCF) are two to three times higher than this average for industrial products. Government support, in the form of direct financial assistance (certain export incentives, input subsidies) and tax expenditures, has been maintained and reinforced not just for PMVs and TCF, but also for other specific industries (such as printing pharmaceuticals, shipbuilding, and information and telecommunications technology), and for manufacturing activities in general. In several instances, namely PMVs, TCF, and pharmaceuticals, industry-specific support schemes have been revised or replaced with similar programmes. However, such assistance is expected to fall in line with announced tariff cuts and revised support plans.
25. In the period under review, Government support to the services sector, through direct financial assistance, tax expenditures, and funding to public-sector institutions, has risen; the main recipients have been finance and insurance, cultural and recreational, transport and storage, property, and business and communication services. Several access restrictions have remained in force. Financial services reforms (e.g. prudential rules, institutional) have been pursued in several areas in the light of recommendations made in 1997. Liberalization of telecommunications has led to further privatization of state-owned firms, increased entry of private sector operators, and lower tariffs; however, operational costs relating to the universal service obligation have been a concern. Support for domestic advertisement and film producers has been maintained through local-content requirements in television broadcasting as well as film production funding. As regards maritime services, state involvement seems to have been reduced; financial assistance to shippers of freight between Tasmania and the mainland has been maintained. Maritime road, and rail transport have also benefited from tax rebates on fuels. Efforts have been made to reduce air transportation costs and improve the quality of services through more operators and airport leasing. E-commerce is being promoted through network funding and bilateral arrangements.
26. Since its previous Review, Australia's comprehensive commitments in its GATS Schedule have remained unchanged. The Schedule covers 90 activities within the financial, business, communication, construction, distribution, transportation (including maritime, road, air, and pipeline transport), tourism, recreational, health, educational, and environmental services sectors. Australia's GATS Article II MFN exemption remains with respect to arrangements with Canada, France, Israel, New Zealand, and the United Kingdom for co-production of film and television programmes.
(5) Prospects
27. Trade liberalization measures together with far-reaching internal structural reforms that were begun in the mid-1980s have undoubtedly contributed to Australia's impressive economic performance during the past decade or so. As a consequence of both unilateral and multilateral trade liberalization, Australia is a relatively open economy. For example, its average applied MFN tariff is only 4.3% and most rates are between zero and 5%. This means that, except in the case of tariffs on passenger motor vehicles and textiles, clothing, and footwear, the economic benefits from further reductions are likely to be modest. During the last review period, the Government announced unilateral phased reductions in PMV and TCF tariffs, with a five-year pause in between 2000 and 2005; it remains to be seen whether the final 5% reductions of 7.5 percentage points (TCF)
and 5 percentage points (PMV) are implemented on schedule on 1 January 2005. Non-tariff border measures are also few and far between; in particular, total support for agriculture is the lowest among OECD countries. Moreover, Australia is, by and large, open to foreign investment. Hence, the benefits from the further liberalization of non-tariff distortion to trade and the removal of remaining barriers to foreign investment might be rather modest too.
28. Internal policies, however also have a bearing on trade and foreign investment. With the tax reform largely complete, the Government's attention has turned to additional reforms including further corporatization, if not privatization, of state-owned enterprises, efforts to complete reform of competition policies, continued gradual deregulation of the labour market (together with an overhaul of the welfare system) and measures to encourage technological excellence/innovation. Such reforms should help to provide the basis for the sustained growth of the Australian economy in the future.
