Trade and Assistance Review 2005-06

The Australian Government assists industries through an array of mechanisms, including tariffs and regulatory restrictions on imported goods and services, as well as subsidies and tax concessions for domestic producers.

• Assistance generally benefits the industry that receives it but can penalise other Australian industries, as well as taxpayers and consumers.
• Some types of assistance, such as R&D funding, may deliver net community benefits; others entail net costs to the community.

While industry assistance has declined greatly over recent decades, assistance provided by the Australian Government remains significant.

• In 2005-06, the government measures covered in the Commission's latest series of estimates provided assistance to industry equivalent to $14.4 billion in gross terms, and $7.5 billion in net terms.

Tariffs provided (gross) assistance equivalent to $8.2 billion in 2005-06.

• Virtually all of this was directed to manufacturing industries.
• The resulting higher prices of manufactured inputs meant that net tariff assistance to most industries in other sectors (agriculture, mining and services) was negative.

Estimated budgetary assistance to industry totalled $6.1 billion in 2005-06.

• Activities assisted included R&D (which received 28 per cent of measured budgetary assistance) and exporting (11 per cent). Sectoral and industry-specific assistance together accounted for 35 per cent of the total.
• Manufacturing, primary production and the (much larger) services sector each received around one third of this assistance.

The measured rates of combined assistance to manufacturing and primary production industries were, on average, roughly equal at around 5 per cent in 2005-06.

• In manufacturing, the automotive and textiles, clothing and footwear industries attracted the highest effective rates of assistance, ranging up to 15 per cent.
• The measured rate of assistance to primary production has increased in recent years, partly reflecting the provision of substantial drought relief.

The current (Doha) round of multilateral trade negotiations has reached an impasse.

• While the causes are many, a key underlying problem is a lack of understanding in most WTO member countries of the source of benefits that arise from trade liberalisation, which helps sectional interests to trump the national interest.
• This could be alleviated by instituting mechanisms in all member countries to bring greater transparency to the costs and benefits of trade liberalisation.

In line with a global trend, Australia has recently concluded a number of preferential trade agreements with particular countries, with more in prospect.

• The outcome for Australia from such arrangements depends on detailed design features, including 'rules of origin' embodied in the agreements.