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Carr strives to end unfair trade deals

Thai bind: Products from the Mazda/Ford Auto Alliance arrive Down Under without fuss, but the return fare has proven difficult for Ford Australia.

Industry minister to broker fairer FTAs after concern over Thailand trade imbalance

General News logo7 May 2008

THE Rudd government will not make the same mistakes as the previous Howard government when it comes to negotiating future free-trade agreements and protecting the interests of Australian car manufacturers, according to federal industry minister Kim Carr.

Speaking exclusively to GoAuto in Melbourne last week, Senator Carr moved to assure the Australian automotive industry that the federal Labor government would learn from the 2005 free-trade deal with Thailand, which he acknowledged was a cause for concern among local car-makers and had resulted in a one-way flow of vehicles from the South-East Asian manufacturing hub to Australia.

“I think it is fair to say that there are some concerns, particularly in automotive, about the relationship between the Thai government assistance programs and the operations of the free-trade agreement, particularly the issues in regard to excise,” Senator Carr told GoAuto.

“While there has been an exponential growth of imports from Thailand, we have no measurable export of motor vehicles to Thailand.

“Passenger vehicles imported from Thailand since the agreement was signed in 2002 have increased by 356 per cent, whereas we have no recognisable exports to Thailand.” Senator Carr said the federal government was committed to ensuring that future free-trade negotiations produced “agreements that do allow for proper access (for Australian manufacturers)”. He pointed to non-tariff barriers as issues that would need to be considered in future agreements.

Senator Carr’s comments come as the Rudd Government embarks on a series of new free-trade negotiations in the Middle East and Asia – including China – and at a time when former Victorian premier Steve Bracks is conducting a review of the Australian automotive industry.

Thailand is now the second-largest exporter of vehicles to Australia – second only to Japan – and shipped 155,000 cars here last year, up from just over 103,000 in 2006.

Figures released this week from the Federal Chamber of Automotive Industries’ VFACTS statisticians also revealed that a Thai-built vehicle – the Toyota HiLux – was Australia’s biggest-selling vehicle last month. This was the first time a duty-free imported vehicle had taken the honour.

 center imageFrom top: Ford Verve concept a.k.a. the 2009 Thai-built Fiesta, Mitsubishi Triton exports from Thailand, Holden FE exports to Thailand c.1959.

In response to the Thai free-trade situation, Ford Australia president Bill Osborne told GoAuto last week that the Thai government had violated the spirit of the agreement by increasing taxes on the type of cars Australia produces soon after the deal was signed. He described such barriers as “archaic”.

Ford Australia had moved to export the Victorian-built Territory SUV to Thailand after the free-trade deal was signed, but less than 30 cars were shipped before the plan was abandoned.

A change in tax structure made after the free-trade deal was signed meant the excise payable on a vehicle such as the Territory in Thailand changed from a standard 29 per cent to 50 per cent, owing to the fact that it has a large-capacity engine.

At the same time, the excise payable on the rival Toyota Fortuna SUV, which is locally built, dropped to 15 per cent. Holden also sold a small batch of VZ Commodores into Thailand, but the export program also wound up.

Senator Carr said the government was concerned with the situation between Australia and Thailand car-makers and would work to ensure a better deal with other countries, taking into account non-tariff barriers. “The government is concerned that the free-trade agreements take more account of these issues,” he said.

“That is not the only area of concern to the Australian automotive industry there are a number of areas in the Asia-Pacific region that concern the industry.” With a number of free-trade deals under consideration, including a controversial agreement with China – a country which will next year embark on its first major automotive push into Australia via Chery Automobile – and with Japan, Senator Carr moved to reassure the industry that its concerns would be considered.

“I think that in regard to China it will be important that there is a comprehensive arrangement and that the access issues are able to be dealt with in an equally comprehensive way,” he said.

Mr Osborne told GoAuto that Ford was open to free-trade agreements as long as they “open up new market opportunities, with moderate risk to our domestic industry”.

He described non-tariff barriers as pervasive and said that unless they were tackled “any agreements to reduce tariffs may be little more than of academic interest”.

Mr Osborne said that in future negotiations the federal government should protect the Australian industry against non-tariff barriers such as those put in place by the Thai government.

“Obviously the excise tax in Thailand caught us all by surprise,” he told GoAuto. “What they did was essentially apply an excise tax on vehicles of larger size so it disproportionately affected the (Australian) domestic industry,” he said.

“From our standpoint, this is clearly a violation of the spirit of any bi-lateral free-trade agreement.” Mr Osborne said future free-trade agreements must involve some form of dispute resolution mechanism to maintain fair trade and suggested that tariffs could even be re-introduced if the trade partner was not abiding by the spirit of the agreement.

“The part of the strategy that we think needs to be advocated by the government is to make sure that a dispute resolution mechanism is in place that will prevent prolonged unfair trade practices,” he said.

“If you identify a non-tariff barrier, the tariffs come back up until that resolution is fulfilled.” Mr Osborne said it was important that the federal government be aware of the measures a country could introduce to shelter its own automotive producers.

“It is important that some of the policy makers understand some of the arcane mechanisms that some countries use to restrict trade. That’s why a dispute resolution mechanism is so important. You can’t possibly know ‘a priori’ all the particular barriers any particular nation would raise,” he said.

“For example, at one point in time it came to our attention in South Korea that purchases of foreign vehicles were subject to income tax audits. You would never see that in any trade agreement, so you need to dig very closely into the policy of your trade partners to understand how arcane some of the mechanisms are.” Senator Carr was careful not to criticise the Howard government’s handling of the still-active free-trade agreement with Thailand, but said his government would learn from it.

“There is no point in crying over spilt milk. These agreements have been signed. It is a question of any new agreements – learn from past experience,” he said. Senator Carr also said the Rudd Government was actively pursuing new agreements in the Middle East and Asia that would open up access to new markets.

“We are in the business of encouraging access to markets particularly in the Gulf, to pursue free-trade agreements with Gulf states, we are currently engaged in conversations with China and Japan, so there are a range of issues that are currently being pursued and we will obviously explore those,” he said.

“Our fundamental approach is to encourage a multilateral approach with Doha (free-trade agreements), and where there are bi-lateral discussions to learn from experiences that we have picked up from other areas.” The representative of the Australian vehicle importers’ group, Lindsay Smalley, who is also the senior director of Honda Australia – itself a major vehicle importer from Thailand – defended the country’s vehicle tax structure on ABC radio last month.

“What we see in Thailand is a government strongly committed to the best possible environmental outcomes – certainly making it more difficult in the marketplace for people to own large, heavy fuel consumption vehicles,” Mr Smalley said.

“The types of cars that we manufacture in Australia don’t generally fit into that marketplace.”

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