Explanatory Memorandum
(Circulated by authority of the Minister for Justice and Customs, Senator the Honourable Amanda Vanstone)Regulation impact statement
Proposal to remove tariffs on items identified in the Nuisance Tariff Review 1998-99
Background
In July 1998, the then Industry Minister, the Honourable John Moore MP, identified lower business input costs as a key area for future reform. In this context, the then Department of Industry, Science and Tourism was directed to undertake a review of nuisance tariffs. For the purposes of the review, nuisance tariffs were defined as tariff items that attract a duty of 5 per cent or less; raise less than $100,000 in revenue a year (in 1996-97); and apply to items where there are few or no local producers. The purpose of the review was to identify and remove the tariff on items that offer little or no protective benefit to industry. A preliminary list of 1058 nuisance tariff items was compiled in consultation with the Australian Customs Service (Customs) and released in August 1998 for consultation with industry and the Industrial Supplies Office Network (ISONET). Following industry consultation which identified local producers for a number of these items, a final list of 268 items was announced on 8 December 1999.
Higher business input costs resulting from nuisance tariffs
A tariff is a duty paid on an imported item. It is designed to protect local manufacturers by making their products more competitive against similar imported products. However, where there is no domestic producer to protect, the tariff is solely a cost to those local manufacturers who use the imported item as a business input and/or consumers.
Government action is needed to instigate legislative changes to the Customs Tariff to remove the duties on those nuisance tariff items. Removing those tariffs will aid business by reducing their input costs and by reducing the compliance costs associated with the various existing tariff concession schemes.
No action will require business to continue to pay inflated prices for their imported inputs, even where there are no local producers to protect. This cost is ultimately passed on to consumers in the form of higher sales prices.
Primary objective: improve the competitiveness of local industry by lowering business input costs.
Subsidiary objective: provide consumers with better priced products.
The Government has identified lower business input costs as a key area for future reform in improving the competitiveness of local industry. In this context, the former Minister for Industry, Science and Tourism announced a review of nuisance tariffs in July 1998. The review excluded tariffs covered by other Government announcements, including those tariffs relating to the passenger motor vehicle and textiles, clothing and footwear industries.
The purpose of the review was to identify and remove nuisance tariffs on items that offer little or no protective benefit to industry.
Removing the duty on those items identified in the nuisance tariff review requires amendments to the Customs Tariff. This is the only option to achieve the objectives of the Government's nuisance tariff review.
A tariff exists to protect domestic producers. Where there is no domestic producer to protect, the cost of the tariff is passed on to local manufacturers who use the imported item as a business input. Ultimately, this cost is then passed on to domestic consumers in the form of higher sales prices. Alternatively, where an imported item is placed directly on the market, consumers are also required to cover the cost of the tariff in the final sales price.
In addition, compliance costs are incurred by businesses that wish to use the various tariff concession schemes. This adds to business costs, which again, are ultimately passed on to consumers.
Government is the only party to benefit from a nuisance tariff, namely from the revenue it collects on the imported items (estimated to be $7.2 million for the 268 tariff lines on 1998-99 figures). In the short-term, while the removal of the tariff on the 268 items will result in $7.2 million of Government revenue forgone, local industry is likely to benefit in the long-term through improved competitiveness.
Removing the duty on those items identified in the nuisance tariff review will benefit industry in the form of lower input costs and reduce compliance costs associated with current tariff concession schemes. It will also benefit consumers in the form of lower sales prices.
There will be no additional costs to business and consumers. The only cost will be borne by the Government in the form of an estimated $7.2 million annual revenue forgone (based on 1998-99 figures) from the removal of the tariff on the 268 items identified in the review.
There will be no significant change in administrative costs for Customs as a result of the proposed amendments to the Customs Tariff, as it costs much the same to administer a zero rate of tariff as it does a positive one. While some administrative savings may result from a reduction in claims by business for tariff concessions, these savings are expected to be minimal.
A preliminary list of nuisance tariffs was released in August 1998 for consultation with industry.
The consultation process involved:
- •
- the then Industry Minister writing to peak industry groups requesting that they identify which items on the preliminary list of nuisance tariffs should be retained;
- •
- the Industry Department sending a similar letter and the tariff list to second tier industry associations;
- •
- placing press advertisements in major newspapers;
- •
- including details of the review on the Department's website; and
- •
- the Department providing information about the review to interested parties.
Following the completion of consultations with industry, the Government received a total of 89 responses, a number of which were consolidated responses from industry associations. This process identified a number of items from the original list for retention.
In November 1998, the Department of Industry, Science and Resources consulted ISONET to check the validity and comprehensiveness of the responses to the review.
A second round of industry consultation identified further items for retention on the basis of local production. This left a final list of 268 tariff items for removal. Customs duty was removed from these tariff subheadings by the tabling of Customs Tariff Proposal No. 7 (1999) in the House of Representatives on 8 December 1999. The reductions in the rates of duty took effect on 15 December 1999.
6. Conclusions and recommended option
Removing the duty on those items identified by business in the nuisance tariff review is the preferred option to achieve the objectives of the Government's review. This option will require amendments to the Customs Tariff to remove the duty on those items identified in the review.
The incorporation of the amendments contained in Customs Tariff Proposal No. 7 (1999) in the Customs Tariff is required within 12 months of the tabling of the Proposal - ie by 8 December 2000.
The Productivity Commission (PC) is currently conducting a review of Australia's General Tariff Arrangements. The terms of reference for the review require the Commission to inquire and report by 20 July 2000 on the scope for a post-2000 reduction in the general tariff (covering all rates of 5 per cent or less, and excluding the Passenger Motor Vehicle and Textiles, Clothing and Footwear Sectors). The PC has been asked to consider the community-wide costs and benefits of options for future general tariff arrangements. A draft report was released for public comment on 25 May 2000. The Government will take into account the Commission's findings and the recommendations of its final report when considering future general tariff reforms.