Report
Background to the inquiry
1.1 The Textile, Clothing & Footwear Strategic Investment Program
Bill 1999 was introduced into the House of Representatives on 17 February
1999. The Bill was referred to this Committee by the Selection of Bills
Committee on 10 March 1999 [1] for examination
and report by 13 May 1999. The Senate extended the date of reporting to
24 June 1999.
1.2 In referring the Bill for inquiry, the Selection of Bills Committee
noted that the principal issue for consideration was to address industry
concern about the nature of the legislation and the scheme that will be
introduced.
1.3 The committee secretariat contacted a number of interested parties,
and received 3 submissions to the inquiry (Appendix 1 refers). No public
hearing was scheduled due to the small number of submissions.
Background to the Bill
1.4 The Second Reading speech and Explanatory Memorandum to the Textile,
Clothing & Footwear Strategic Investment Program Bill 1999 provides
the following outline and description of the regulatory objective of the
Bill.
1.5 The Bill establishes the framework for the implementation of the
Textile, Clothing and Footwear Strategic Investment Program. The program
aims to foster the development of sustainable, internationally competitive
TCF industries in Australia during the transition to a proposed free trade
environment under the Asia Pacific Economic Cooperation (APEC). It will
achieve this by providing incentives which will promote investment, innovation
and value adding in the Australian TCF industries and better exploit Australia's
natural advantages in raw materials such as wool, hides and cotton.
1.6 The assistance to be provided to the TCF industries under the Bill
is in line with Government's decision to phase-down tariffs for textile,
clothing and footwear articles from 1 January 2005. The Customs Tariff
Amendment Bill (to be cognate with the TCF (SIP) Bill) will amend the
Customs Tariff Act 1995 to give effect to the phase-down of rates of duty
for TCF articles.
1.7 The proposed TCF strategic investment program bill allows for the
establishment of the TCF Strategic Investment Program as the key initiative
for the TCF industries. The TCF Strategic Investment Program is a five-year,
$700 million package aimed at encouraging additional investment in the
TCF industries to add value to the products of early stage processing.
The program aims to help in the development of sustainable, internationally
competitive TCF industries in Australia during the transition to a freer
global trade environment, by providing incentives which will promote investment,
innovation and value adding in these industries. The program will also
provide incentives to areas that are heavily dependent on TCF manufacturing
industries, primarily regional areas.
1.8 The benefits available under the TCF strategic investment program
will be paid as cash, annually and in arrears. All firms engaged in textile,
clothing, footwear and leather manufacturing in Australia, as defined
by the Australian Bureau of Statistics, will be eligible to apply for
assistance under the program.
1.9 The TCF (SIP) Bill requires the Minister to formulate the TCF (SIP)
Scheme for the making of grants in connection with the design for manufacturing
and manufacturing, in Australia, of eligible TCF products.
1.10 The TCF (SIP) scheme will provide for 5 types of grants, namely:
- for new TCF plant/building expenditure;
- for TCF research and development expenditure;
- for TCF value-adding;
- special grants in respect of second-hand TCF plant expenditure
for communities which are heavily dependent on TCF manufacturing;
and
- special miscellaneous grants for communities heavily dependent
on TCF manufacturing industries.
1.11 The TCF strategic investment program will come into effect on 1
July 2000, following the termination of the TCF Import Credit Scheme on
30 June 2000. The benefits to be paid under the program for investment
expenditure on new plant and buildings, research and development activities
and value adding will be calculated as follows:
(i) Up to 20 per cent of eligible investment expenditure on new plant
and buildings;
(ii) Up to 45 per cent of expenditure on eligible research and development
related activities (including product development expenditure, other than
advertising and media related expenditure); and
(iii) Up to five per cent of TCF value added by the company in Australia
in the year of their claim.
1.12 In addition to the mainstream application of the program, and recognising
that restructuring of the TCF industries may have some adverse impact
on employment opportunities, the program will support two specific initiatives
to assist areas that are heavily dependent on TCF manufacturing industries:
(i) Subject to satisfying the criteria for reconfiguration and adjustment,
affected firms may apply for assistance under the SIP for the purchase
of `state of the art' second-hand plant and equipment.
(ii) Subject to meeting the specified criteria, authorised agencies in
regions affected by restructuring in the TCF industries may be eligible
to apply for assistance under the Commonwealth's existing Regional Adjustment
Program to create employment opportunities in the affected regions.
1.13 These initiatives will primarily benefit regional areas that are
heavily dependent on TCF manufacturing industries.
1.14 The Bill will also allow the Minister to make supplementation to
Government's Regional Assistance Program (RAP).
1.15 The Scheme will run for 5 financial years, beginning with the 2000-2001
year. However, grants in respect of new TCF plant/ building expenditure
may be claimed for the 1998-99 and 1999-2000 years. Grants under the TCF
(SIP) Scheme are to be made in arrears.
1.16 The TCF strategic investment program will minimise the risk of a
successful World Trade Organisation (WTO) challenge. In line with the
WTO's rules, the overall level of assistance to individual companies from
the grant program will be limited to five per cent of its total sales
of eligible products in the preceding twelve months.
1.17 To comply with Australia's obligations under the Closer Economic
Relations (CER) with New Zealand, sales to New Zealand would not receive
payments under the scheme's value added provision and would not be included
as sales for calculating the five per cent limit on overall subsidy payments.
1.18 The Commonwealth Department of Industry, Science and Resources will
administer the TCF Strategic Investment Program.
Financial Impact Statement
1.19 The total amount for the TCF (SIP) Scheme and supplementation to
RAP will be $700 million.
1.20 The overall cost to revenue of the SIP is equivalent to the aggregate
cost of the Import Credit Scheme (ICS) had it continued past its termination
date of 1 July 2000 up to 30 June 2005. The ICS Scheme will end on 30
June 2000.
Issues raised in evidence
1.21 Overall the three submissions submitted by the Council of Textile
& Fashion Industries of Australia, the TCFUA and the South Australian
Government supported the action taken by the Federal Government in providing
assistance to the TCF industry to ensure their viability beyond 2005 when
lower tariffs will apply. Each submission highlighted areas of concern
and included suggested amendments to the legislation that would improve
the Bill if these were adopted by the government.
1.22 A summary of each of the three submissions is detailed below.
The Council of Textile & Fashion Industries of Australia
Clause 3 – Simplified outline
This clause provides an overview of the main provisions of the Bill.
The Council would like a reference to supply at the second dot
point, for example “…..connection with the design and supply
of products manufactured in Australia….”
Clause 4 – Definitions
This clause provides definitions and interpretations of key terms used
in the Bill. The Council acknowledges that there is need to define the
term manufacture, but consider there is also a requirement to define processes
that are not deemed manufacturing.
Clause 8(b) – TCF (SIP) scheme
This clause provides the Minister with the power to formulate the TCF
(SIP) scheme for the making of grants relating to the design for manufacture
in Australia and/or manufacture in Australia of eligible TCF products.
The Council would like the word “or elsewhere” removed from
clause 8(b) as in its current format would appear to encourage the establishment
of design houses in Australia even if there is no intent to manufacture
in Australia.
Clause 12 – Duration of Scheme
This clause prescribes the policy objectives on the time frame for claims
for individual grants for new TCF plant/building expenditure and all other
categories under the scheme. The Council considers that this clause should
be amended to ensure that appropriate investment on second hand state
of the art equipment prior to 2000 is considered eligible.
Clause 15 – Sales-based cap for grants
This clause determines the policy objective of the sales-based cap for
grants in all categories made under the scheme. The Council wants this
clause amended to ensure that the significant eligible investment expenditure
is refunded in the shortest possible time frame than is currently anticipated.
They would like more details provided on how the maximum level of benefits
would be determined. The method to determine the maximum benefit is unclear
in cases where reconfiguration is a key.
Clause 16 – Registration for the purposes of the scheme
Subclause (1) prescribes that the scheme must impose registration requirements
on entities, while Subclause (2) specifies registration requirements that
the scheme may include. The Council would like this clause amended to
include combined submissions/entities registrations, as it appears only
individual companies may apply.
Clause 22 – Guarantees relating to payment of scheme debts
This clause prescribes that the scheme may provide that an entity's eligibility
for a grant under the scheme be conditional on receipt of a guarantee
from another entity relating to any scheme debts owed by the former entity.
Although the Council agrees with intent of the clause, the scheme itself
would limit the appearance of such entities as TCF manufacturing firms.
They do not believe there is a need to limit guarantor status to such
entities.
Clause 48 – Delegation
Subclauses (1) and (3) provides for the Secretary, in writing, to delegate
any or all of his or her power under the Bill or the TCF (SIP) scheme
to one or more senior officers of the Department or an authorised Commonwealth
contractor. The Council considers that the delegation of a Secretary's
powers to an outside party does not instil confidence in the administration
of the scheme. The Commonwealth should seek external specialist advice
when required.
The Textile Clothing and Footwear Union of Australia (TCFUA)
Section V (Explanatory Memorandum) – Details of SIP Benefits
The Union has recommended that the SIP benefits be amended to include
staff training and skill development associated with the listed areas
of expenditure as a claimable deduction under the program.
Point 6 – Section V (Explanatory Memorandum) – Special Benefits
The Union is concerned that this point appears to be contradictory and
could lead to abuse by the TCF industry. They recommend further discussions
take place on the matter so interested parties can fully understand the
proposed criteria, leading to transparency in their application.
Point 7 Section VI (Explanatory Memorandum) – Cost and Benefits
According to recent ABS data only around 300 companies have an annual
investment level above the SIP entry threshold of $200,000. Therefore
only a small number of companies will be eligible to apply for the program.
The Union is very concerned that this concentrates the benefits of the
SIP in the hands of the already well established and has recommended that
this decision be reviewed to allow broader access to the program.
Point 2 – Section IX – Implementation and Review
In addition to the strategic business and investment plans required to
be submitted by firms when applying for payment under the SIP the Union
recommends that they should include:
- an employment impact statement;
- a commitment invest and locate production in Australia; and
- observance of the Outworkers Code of Practice
The Union has also recommended a claw back provision and mechanisms for
public accountability is included if these undertakings are infringed
in anyway.
Point 6 – Section IX – Implementation and Review
The Union has suggested that the planned review scheduled for 2005 be
brought forward to 2003. This would enable those undertaking the review
to note the actions of our trading partners including the observance of
labour standards.
South Australian Government
1.23 The South Australian Government provided a detailed submission on
behalf of the TCF industries in South Australia. Their submission concentrated
on the draft guidelines and some parts of the Bill.
1.24 The Department of Industry Science and Resources (DISR) issued draft
guidelines on 15 December 1998 for comment by the TCF industry. The department
has advised that the guidelines will not be finalised until later this
month. In the meantime DISR provided a revised set of guidelines dated
28 May 1999, for the Committee's information.
1.25 They contain a number of significant changes from the original guidelines
issued in December 1998. Some of these changes appear to address the concerns
raised by the SA Government in their submission.
Objectives for the Strategic Investment Program (SIP)
1.26 The South Australian Government stated:
The guidelines and the Bill would benefit from a clear, concise, realistic
and outcome oriented statement of objectives. Neither the Bill nor the
draft guidelines send a clear message to industry or to other areas of
the government regarding what they aim to achieve.
By 2005, the Government should be in a position to report actual outcomes
against stated objectives in order that an informed decision can be made
on whether or not the program has been a success. That is, it should be
able to provide some indication of whether the industry will be able to
withstand the ongoing reduction in tariffs after that date and whether
a further period of SIP support may be beneficial. [2]
1.27 The South Australian Government is concerned that the draft guidelines
are `overly complicated and prescriptive'. [3] According to the businesses consulted they would
prefer an outcomes-based approach and provided the following example:
Sheridan Australia have expressed the view that the SIP would be much
more effective in attaining desirable results if it contained tighter
entry criteria, but more flexible definitions of eligible activities to
allow companies to be more entrepreneurial and less restricted in determining
how to apply assistance funds. [4]
1.28 These view were also supported by R M Williams and Mr Greg Patten,
Chairman, George Gross & Harry Who. Mr Patten stated in addition to
the above comment he would like companies that achieve new export markets
to receive a higher status within the SIP.
Cost of Compliance and Administration
1.29 The Committee was advised that the complexity of the draft guidelines
would lead to higher program administrative costs.
The process of registration (including lodgement of business plans and
financial reports), assessment of claims, payment of claims and auditing
is likely to involve significant numbers of administration staff with
the cost presumably drawn from program funds. [5]
1.30 The South Australian Government support lower compliance and administrative
costs and would be prepared to discuss ways this could be achieved with
the Commonwealth and other State Departments.
Small Business Access
1.31 The SA Government recognises the need for small and medium size
businesses to have access to the SIP, however the basis for setting the
minimum expenditure at $200,000 is not explained in the guidelines and
the explanatory memorandum to the Bill.
Creative, fashion-based small businesses are as much a part of the future
of the TCF industry in Australia as the large, highly capital-intensive
components of the industry. [6]
1.32 The SA Government notes that having to many small businesses involved
in the scheme could involve unacceptable administrative costs and these
should be contained. However they recommend that access to the SIP by
small business should be monitored to ensure that they are not forgoing
the program due compliance costs and cash flow problems. If this is the
case then action should be taken to rectify the situation.
Eligibility of Industries/Companies
1.33 The SA Government was concerned that the process of wet blueing
hides, and products such as blinds, curtains, soft furnishings, rugs,
car seat covers, and leather bags were excluded from eligibility under
the SIP. No explanation was provided in the guidelines and it may mean
that companies such as Sheridan Australia, a very large manufacturer of
blinds, curtains, and furnishings will be excluded for applying for assistance
under the scheme.
Eligibility of Investment in Plant and Equipment
1.34 The draft guidelines of 15/12/98 define TCF Plant and Equipment
as:
TCF Plant and Equipment is that involved directly in the manufacture
of, or research and development related activities for, TCF products,
but does not include pre and post production activities, such as warehousing,
selling, etc. [7]
1.35 Following further consultation with industry the government has
redrafted the guidelines and the definition now reads:
TCF Plant and Equipment is that involved directly in the manufacture
of, or research and development related activities for, TCF products.
It may also include plant involved in pre and post manufacturing activities
where these activities form part of an integrated manufacturing operation
(see definitions of `eligible pre and post manufacturing activities' and
`integrated manufacturing operation' in Appendix C). [8]
1.36 This new definition may satisfy the South Australian Government
concerns highlighted in their submission.
Regional Assistance
1.37 The South Australian Government considered that the State should
be eligible for regional assistance under the SIP. Although they acknowledge
that the Bill intends to introduce regional assistance in the program,
the draft guidelines of 15/12/98 did not provide sufficient detail on
eligibility and assistance. The revised draft guidelines of 28/5/99 has
added a new section titled Who Is Eligible And What Activities Are
Claimable Under The Regional Assistance Element Of Sip?. This should
hopefully clarify the situation for the SA Government.
Eligibility of Investment in Research and Development and Product Development
1.38 The South Australian Government stated that discussions with the
TCF industry revealed some concerns as to their eligibility under certain
segments of the Scheme. These included innovation, product design, process
improvement, and brand support. The revised draft guidelines provide more
detail on these activities, which should remove some of the confusion
that may have occurred by the guidelines of 15/12/98.
1.39 The Committee recommends the Bill be passed.
Senator Alan Ferguson
Chairman
Minority Report - Australian Labor Party
Background
This legislation implements the package of measures the Government announced
in September 1997 in response to the Industry Commission's report into
the textile, clothing and footwear industries.
This package included a freeze on tariffs at their 1 July 2000 level
until 1 January 2005, and an investment program to encourage TCF companies
to become more internationally competitive and to better exploit Australia's
natural advantage in raw materials such as wool and cotton. The Government
also committed itself to conducting a review of these policy arrangements
in 2005 to take account of Australia's APEC commitments and progress on
market access.
The Legislation
The TCF Strategic Investment Program Bill implements the investment
program while the related Customs Tariff Bill implements the tariff
pause.
The Customs Tariff Bill operates by retaining the tariff rates
reached on 1 July 2000 until 31 December 2004, and then reducing them
as shown in the table below:
| |
Clothing, finished textiles |
Cotton sheeting, fabrics |
Sleeping bags, table linen |
Carpets |
Footwear |
Footwear parts |
Other |
| 2000-04 |
25 |
15 |
10 |
15 |
15 |
10 |
5 |
| 2005 |
17.5 |
10 |
7.5 |
10 |
10 |
7.5 |
5 |
Note however that there is no provision for any review before these reductions
take effect.
The Customs Tariff Bill also repeals the TCF Imports Credit Scheme
from 30 June 2000.
The TCF SIP Bill operates by requiring the Minister to, as soon
as practicable, formulate a TCF (Strategic Investment Program) Scheme
for the making of grants in connection with the design for manufacturing,
and manufacturing in Australia, of eligible TCF products. This Scheme
is a disallowable instrument.
The TCF (SIP) Bill requires the Scheme to provide for 5 types
of grants, in respect of:
- new TCF plant and building expenditure;
- TCF research and development expenditure;
- TCF value-adding;
- special grants for second-hand TCF plant and building expenditure;
and
- special miscellaneous grants for TCF-dependent communities.
It also empowers the Minister to appropriate moneys from the TCF (SIP)
Scheme to the Regional Assistance Program administered by the Department
of Employment, Workplace Relations and Small Business.
The Bill provides that the TCF (SIP) Scheme is to run for 5 financial
years beginning with 2000-01, but that grants may be made in respect of
new TCF plant/building expenditure for the years 1998-99 and 1999-00.
The total amount available for grants under the TCF (SIP) Scheme and
for supplementation to the RAP is to be $700 million.
Discussion
Absence of a review mechanism:
The lack of any legislated review mechanism is a serious flaw in the
legislation.
From the outset the Opposition has argued the need for a review before
the new 2005 tariff levels come into effect – not after as the Government
proposed.
In our view, this is important for 2 reasons.
First, before Australia agrees to a further reduction in tariffs we believe
it is important to examine what reductions in tariffs and other protections
have been made by other relevant countries, particularly those into which
we export and those with whom we compete. Only then will Australia be
able to make a sensible informed judgement about further tariff reduction
in the TCF industries.
Second, we note that the TCF Investment Program – the SIP Scheme
– expires under this legislation on 1 January 2005. We believe an
inquiry is also necessary to examine whether a further investment program
is necessary beyond this time, and if so, what form that program should
take.
In order to satisfactorily address these concerns we recommend that the
TCF (SIP) Bill be amended to require the Minister, before
1 July 2003, to establish an independent inquiry into the future of the
textiles, clothing and footwear industries, which must address, in particular,
the most appropriate rates of customs duty to apply from 1 January 2005.
We also recommend that the Customs Tariff Bill be amended to ensure
that the proposed tariff reductions are not automatic. The legislation
should provide that further reductions can only be made after the Minister
has commissioned, received, considered and tabled the report of the independent
inquiry, and after he or she has determined that tariff rates should be
reduced as proposed.
The extraordinary nature of the legislation:
The nature of the TCF (SIP) Bill is truly extraordinary.
As will be gathered from the above, the TCF (SIP) Scheme is not set up
by the legislation – rather, the legislation requires the Minister
to set it up, subject only to legislated limitations in respect of the
size of the funding envelope, the types of grants and other minor matters.
The remainder is left to the wide discretion of the Minister, for example:
- the size of the funding envelope for each type of grant;
- the amount of individual grants; and
- the criteria for receiving grants.
Also, to the extent that there are problems with the Scheme when it is
formulated the Senate will not be able to amend it accordingly –
because it will be a disallowable instrument – and will either have
to accept it completely or reject it completely.
We are deeply troubled by the form of this legislation.
The lack of legislated detail about the TCF (SIP) Scheme, and the wide
discretion given to the Minister to determine details of the Scheme, are
fundamental flaws in the legislation.
We believe they are almost an abuse of the Parliament because they make
Parliamentary consideration and review of the legislation, and of the
scheme, almost impossible.
In our case the extraordinary nature of the legislation presents special
difficulties because it makes it basically impossible to address detailed
concerns by way of specific amendments. The best we can do – or more
accurately – are allowed to do, is to await the tabling of the instrument
which provides the details of scheme, and then determine whether the scheme
is so flawed that we should reject it completely (as noted above, because
this is a disallowable instrument we will not have the option of amending
it in part).
This is an appalling precedent, and one which, it is to be hoped, is
not repeated.
Detailed concerns that need to be considered:
Given the difficulty of making detailed and effective amendments to this
legislation we raise the following points for the Government to consider
and to respond to before the scheme is finalised. We note that the Government's
response on these issues will be considered by us in determining whether
we should move to disallow the entire scheme when it is finally presented
to Parliament.
- We note that the Scheme extends to products designed in Australia
for manufacture elsewhere. The Government should explain why this is
not an incentive for the TCF industry to move its manufacturing offshore
(although leaving the design work in Australia);
- The legislation is presently silent on the detail of what type of
expenditure is to be claimable under the scheme (the only detail is
the broad areas of expenditure claimable). We ask the Government to
explain whether staff training and skill development associated with
the listed areas of expenditure is claimable under the Scheme.
- One type of grant listed in the legislation is in relation to “second
hand TCF plant expenditure”. The Explanatory memorandum states
that these grants are in relation to `state of the art' second hand
plant and equipment, subject to proposed criteria. We query whether
the notion of state of the art second-hand equipment is not contradictory,
and ask the Government to explain what precisely it has in mind in this
regard.
- The Explanatory Memorandum states that entry threshold to the SIP
Scheme for TCF establishments will be an annual investment level of
$200,000 or above. This threshold does not appear to be included in
the TCF SIP Bill at all. In our view it may also be arbitrary
and inflexible, and may operate to the detriment of medium sized innovative
companies. We believe this threshold requirement must be included in
the regulations, and should provide some discretion to include companies
that do not satisfy the $200,000 limit.
- The legislation provides that Strategic Investment Plans will be required
of all participants in the Scheme, and the explanatory memorandum gives
some greater detail about what specifically will be required in those
plans. We note that as presently specified the strategic business plans
do not require any assessment of the employment prospects for the firm
seeking these SIP benefits, nor do they require any commitment to invest
in Australia and locate production here (as noted above). We believe
these issues should also be included in the strategic investment plans
when the detail is finally provided.
Senator Shayne Murphy Senator George Campbell
Deputy Chair
List of Submissions
No. 1 Council of Textile Fashion Industries of Australia Ltd
No. 2 Textile Clothing & Footwear Union of Australia
No. 3 South Australian Government
Footnotes
[1] Selection of Bills Committee report No.
3 of 1999, dated 10 March 1999.
[2] Submission No. 3, p 1
[3] Submission No. 3, p. 2
[4] Submission No.3, p.2
[5] Submission No.3, p.2
[6] Submission No.3, p.2
[7] Draft Textile, Clothing and Footwear Strategic
Investment Program Guidelines, dated 15/12/98, Section 5, p.8.
[8] Draft Textile, Clothing and Footwear Strategic
Investment Program Guidelines, dated 28/5/99, Section 6, p.10.