Labor’s Proposed $1 Billion Australian Manufacturing Fund – Throwing Stones in Glass Houses

Labor’s Bill Shorten and Kim Carr have promised a $1 advanced billion manufacturing fund, a so-called Australian Manufacturing Fund, to back Australian manufacturers if it wins the next election. Ostensibly this is to assist Australian manufacturing industries having difficulty obtaining finance from traditional resources such as banks.
However, what are implications of such a fund under WTO agreements?

Under the WTO Agreement on Subsidies and Countervailing Measures, this funding would clearly constitute a subsidy under Article 1 of that Agreement. That is, it would constitute a financial contribution by the Australian Government or by a public body or a direct transfer funds and a benefit would thereby be conferred upon the recipients.

The effect of this would be that recipients of this subsidy that export their products would be exposed to countervailing duties in an amount equal to the amount of the subsidy received.
In addition, the provision of the subsidy could give rise to a so-called “particular market situation” under the WTO Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994. That is under Article 2.2 of that Agreement, where a “particular situation exists”, which is not defined but is usually taken to mean the domestic selling prices are distorted by some form of government intervention, then domestic selling prices are not used for comparison with export prices to determine whether dumping is occurring. Instead, a constructed price based on the cost of production plus a reasonable amount for administration, selling and general costs and for profits. This invariably leads to a higher amount to compare with export prices and a higher dumping margin.

These approaches have frequently been used in Australia in, for example, aluminium and steel products exported from China and, most recently, exports of A4 Copy Paper from Indonesia.

It seems unusual that the Labor Party is proposing to adopt a policy that it condemns other countries purportedly use to the potential detriment of Australian manufacturing seeking to export their products.
For example, Kim Carr has commented on exports of A4 Copy Paper from Indonesia:

Labor’s proposed Australian Manufacturing Fund would seem inconsistent with WTO agreement and to Australia’s approach to exports from overseas countries in similar circumstances.

A case of throwing stones in a glass house?

Comments are closed.