Can we learn from the past?

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Chris_Moore
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Joined: Tue Oct 11, 2022 11:46 pm

Can we learn from the past?

Post by Chris_Moore »

Protectionist sentiment in the 70s and 80s led to a import tariff of 57.5% which worked to grow the sector, but also led to angst from Australia's international trade partners, and led to reciprocal tariffs on unrelated Australian exports. These tariffs resulted in sections of Australian exporters lobbying for lower import tariffs. History shows who had the best lobbyists, to Australia's detriment!

The motor vehicle tariff on imported vehicles was set at 57.5% in the early 1980s but decreased until the tariff was steady at 10.0% from 2005 through 2009, but was halved to 5.0% in 2010. Through to the current situation of 5% on some imports, plus Luxury Car Tax of 33% above the threshold and the standard GST on all!

Australian industry is also particularly susceptible due to the volatility of its national dollar. As billions poured in from resource extraction between 2001 and 2011, Australian currency doubled in value. Suddenly, Australian manufacturing competitiveness took a hit and a shift towards a profitable, large-scale vehicle exporting scheme was out of the question.

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The alternative tools for achieving protectionist objectives, namely non-tariff barriers, anti-dumping measures and assistance through the Budget (sometimes referred to as State aid or Public Support for Industry). Compared with other Western countries, Australia is an almost negligible user of non-tariff barriers but a major user of anti-dumping measures. Anti-dumping duty is determined by the dumping margin--the difference between the import/sales price in Australia and the domestic selling price in the exporting country.

Free trade agreements between Australia and numerous trading partners only sped the demise of Australian Manufacturing!

None was more brutal than the deal with Thailand introduced in 2005. Since Australia agreed to lift the import tariff on cars from Thailand, more than two million Thai-made vehicles have been imported; brands such as Ford, Holden, Toyota, Honda, Nissan, Mitsubishi, Mazda, BMW, Mercedes and others.

In return, Australia shipped to Thailand just 100 Ford Territory SUVs. That’s because Thailand maintained hidden, non-tariff barriers while Australia opened its borders completely. Ingeniously, Thailand continued to impose higher registration fees on cars with larger engines – such as those made by Ford and Holden. Toyota already had a Camry factory in Thailand so wouldn’t export cars there.

In 2019, cars imported to Thailand were subjected to an 80% import tax while parts and components enjoy 30% duties. In addition, only new cars can be legally imported for commercial purposes, imported used cars for sale was prohibited, though Thais still imported exotic high end cars. The Customs Department reported that personal used car imports in 2018 totalled at 100 units.

Coincidentally the Thai Government introduced cheap and easily accessible car loans, which supercharged their manufacturing sector. To the point they have put unforeseen pressure on their road infrastructure.

Thailand – now regarded as the ‘Detroit of Asia’ – is now the second-biggest source of motor vehicles in Australia after Japan and ahead of South Korea, and has the ability to suffocate any EV manufacturing startup in Australia.

There is a good argument in having total transparency in funding and political will of organisations who have the ability to set agendas affecting national interests. For instance, is it a coincidence that members of The Centre for International Economics (CIE), a think tank that provided a glowing recommendation to then Australian Government on the Thailand-Australia Free Trade Agreement, were also proponents of ending subsidies for Australian Car Manufacturing?

The final nail in the protection coffin is the Federal Chamber of Automotive Industries claim scrapping import duty and the luxury car tax would deliver a much-needed boost to car sales, which they claim have been stuck in reverse. Again, an organisation whose title suggest their membership and purpose are firmly in Australia's interests?

The Federal Chamber of Automotive Industries (FCAI) is the peak representative organization for companies who distribute new passenger vehicles, light commercial vehicles and motorcycles and all-terrain vehicles in Australia. With 68 brands offering 380 models, sold and serviced by New vehicle distributors and Australian new car dealers employ more than 75,000 employees. Which is a similar number to those directly employed by Car Manufacturing, before local vehicle production ceased in 2017 and all vehicles sold in Australia are now imported. Those 75,000 employees are now at risk as dealers and their service departments will be redundant under the sales and service model being utilised by EV manufacturers.

The map below shows the number of countries that Australia can export the vehicles made specifically for the Australian market. The major markets are Japan, India, Pakistan, Thailand, Indonesia and Malaysia which have their own vibrant car manufacturing sectors.

The remaining countries will require left hand drive vehicles that can't be manufactured for and sold in Australia!

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The way forward!

Australia is at a watershed moment. How to provide manufacturing industry assistance without putting our exports of predominantly raw materials: Iron Ore ($79.6B), Coal ($36.4B), Petroleum/Gas ($26.8B), Gold ($17.7B), and Frozen Beef ($4B) at risk of sanctions?

Certain governments may tax smaller targets, such as wine and seafood imports in retaliation to actual and perceived grievances.

Given the current global shortfall and crisis, the fossil fuel component would be exempt in the short term, and phased out as alternatives come on line!

Foreign sanctions on Iron Ore would be counterproductive, as the majority of it's value is added overseas!

Which leaves beef, and given that of the 53 million hectares of foreign held land, 45 million hectares of that land is used for livestock, sanctions may prove to be an own goal. China has the largest holding of total Australian agricultural land of 2.3%, followed by the United Kingdom with 2.2%, the United States of America with 0.8%, Netherlands with 0.7% and Canada with 0.6%

The upside!

The car manufacturing industry does not operate in isolation. In 2009-2010 there were approximately 73,772 full-time employees in the motor vehicle industry (which includes the production of other transport equipment as well as parts), producing a total gross output of approximately A$20 billion. The output and employment multipliers in this industry are two and seven respectively, suggesting that $1 million in additional final demand can directly and indirectly generate $2 million extra output and seven jobs in the economy.

Importantly, the motor vehicle industry can positively impact the viability of the PSTS industry. Providing services in scientific research, architecture, engineering, computer systems design, law, accounting, advertising, market research, management and other consultancy, veterinary science and professional photography. Scientists in this sector, including CSIRO staff, are mainly involved in R&D activities.

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The Solutions?

The demise of the car manufacturing had a less visible but more devastating effect on a recovery strategy. The component manufacturers have either pivoted to alternate products or ceased trading. The author of this report has spent 2 years attempting to source Australian manufactured automobile related components. And despite the number of companies espousing "Australian Made" batteries, motors etc etc, ALL were importers. At best they were design houses importing components and assembling here, at worst they import and distribute finished products.

Australia has one of the lowest population densities in the world (3 persons/km2), only 0.33% of the total world population, a well paid workforce, and is isolated from potential markets. All of which add to final cost. As such we have to think outside the square, in our inventiveness, application and incentives!

To kickstart the motor vehicle manufacturing industry, Australia requires a global export unicorn. A product so unique that any cost inefficiencies are negligible.

The Prime Minister, Mr Anthony Albanese told voters he wanted to "lead a country that made things again", that we must keep Australian ideas in Australia to build our sovereign manufacturing capability. The implication of this statement is the efforts of the previous government and their agencies fell far short of providing a foundation for growth. Investigation indicates that most of the initiatives backed in the last 10 years have either been in medical devices or gone offshore, or both! https://www.businessnewsaustralia.com/a ... ramme.html

The failure appears to be that innovations have been measured by accountants on the financial wherewithal or apparent success of the applicant. Rather than being examined by subject matter experts, where innovations can be judged on potential. It would be difficult for a person devoid of imagination or entrepreneurial spirit to recognise a unicorn in it's basic form.

There is a real need for restructured programs, which may be a grant, investment, repayable loan or a combination, that can be multiples of the applicants own funding.

Include accelerator programs with access to work spaces, mentors and applicable workshops, ie mechanical, IT or medical. Possibly through assisted funding utilising existing TAFE and University facilities.

Establishment, rent and payroll assistance, both direct and through tax relief.

Income bridging loans based on both export and local sales not tied to a businesses longevity. In today's world an idea can go from thought to a million dollars in sales in 6 months. The number of restrictions on who can receive a grant and what grants can be spent on forces possible applicants to seek assistance from larger, mostly foreign companies.

GST exemption for Australian manufactured goods during startup period or exemption based on R&D spend for long term businesses.

A special economic zone (SEZ) similar to https://en.wikipedia.org/wiki/Batam could be set up near Darwin with the aim of increasing trade, employment, investment, job creation and simplified administration. To encourage businesses to set up in the zone, financial policies that encourage investing, taxation, trading, quotas, customs and labour regulations. Additionally, offer tax holidays, where upon establishing themselves in that zone, a company is granted a period of lower taxation, for itself AND employees.

Encourage Australian assembly and components in imported vehicles through pro rata tax exemption, even where a component is exported and bought back in an assembled vehicle.

Tax and financing incentives for individuals when purchasing an Australian manufactured vehicle

The author of this report!

Chris Moore is the founder of FARSTE DRIVE, which represents 2 unique opportunities to EXPORT Australian manufactured goods, both are potential 🦄 s:

The FARSTE DRIVE was initially developed for the FARSTE MICRO in response to imported low quality motors. And is a truly disruptive development, limited only by Australia's competitiveness.
There is a huge global market for re-birthing existing internal combustion engine (ICE) vehicles to Electric.
Globally there are nearly 1.5 Billion vehicles in daily use, and FARSTE DRIVE can speed the transition to low emissions. The fitting of FARSTE DRIVE to a ICE vehicle is comparatively simple and inexpensive.
The FARSTE DRIVE is 98% efficient where the rubber meets the road, in both driven and regeneration modes, adding up to 40% to an EV's range over any current EV drive system.
The reduction in weight by removing the entire ICE drive train and fuel tank/s allows more batteries to be fitted without altering the tare weight.
The fitting of a FARSTE DRIVE and batteries will be less than the purchase of an ICE replacement and substantially less than the purchase of a corresponding new EV.
FARSTE DRIVEs are scalable and can also be pitched to the manufacturers of the 120 Million per annum global new car, light commercial and truck market

The FARSTE MICRO EV
Global motorcycle sales will reach 70 million per year by 2025
A vehicle such as the FARSTE MICRO can be exported to both left and right hand drive markets. The FARSTE MICRO will provide car like comfort in a footprint as small as a motorbike. Small enough even to pass through a conventional 700mm wide door, to allow charging or as a power source.
The western view that only poor people ride mopeds ignores the reality and a problem that was hundreds of years in the making.
A significant number of roads in Asia, the sub-continent and in Europe were constructed centuries ago. So narrow that access can only be by bicycle, motorbike or pedestrian traffic (see pic below).
Millions of motorcycle owners can afford cars, but have no access or parking available and reside in areas that suffer gridlock.
The majority of FARSTE's market is overseas, and most of the Australian manufacturing output can be exported as semi assembled units to foreign owned assembly facilities.

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Sources:
https://www.businessnewsaustralia.com/a ... ramme.html
https://anthonyalbanese.com.au/my-plan/ ... ustralia-2
https://www.dfat.gov.au/trade/agreement ... -agreement
https://www.spacer.com.au/blog/populati ... -the-world
https://www.abc.net.au/worldtoday/conte ... 865267.htm
https://firb.gov.au/about-firb/publicat ... -30-june-3
https://www.afr.com/politics/federal/ti ... 218-p541ua
https://www.swinburne.edu.au/news/2016/ ... -industry/
https://www.roadandtrack.com/car-cultur ... mber-2020/
https://www.autocar.co.uk/car-news/busi ... went-wrong
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