Dodgy FTA’s helped kill the car industry

By Leith van Onselen

From Robert Gottliebsen (“Gotti”) comes an interesting titbit on the role that Australia’s dud Free Trade Agreements (FTAs) played in the car industry’s demise:

The first Toyota closure reason was actually the so-called “free trade” agreements that Australia signed. Probably these agreements had more of an effect on Japanese executives in Nagoya than anything else.

The Japanese could not understand why we kept signing “free trade” agreements that were not free trade agreements at all. John Howard signed the Thailand free trade agreement, which allowed free entry of Thai motor parts into Australia but whacked huge tariffs and other restrictions on exports of Australian motor parts and cars into Thailand. We were conned.

General Motors in Australia complained that the so-called US “free trade” agreement prevented unfettered access of Australian cars to the United States. Conned again.

In 2013-14, the Japanese believed that the looming Korean — and indeed Japanese — “free trade” deals would see the Australian motor industry unfairly disadvantaged once again.

Australia could overcome the effect of these “free trade” deals with massive subsidies. The Japanese could never work it out and assumed that Australians were either stupid or did not want a motor industry.

To be fair, there are other factors mentioned by Gotti that also facilitated the car industry’s demise, such as: the high Australian dollar; antagonism from the Abbott Government; as well as restrictive union practices. But the role of FTAs is important.

I worked as the Australian Treasury’s trade guy in the early-2000s when the Thailand-Australia and the Australia-US FTA’s were negotiated. And I distinctly remember the former included a clause giving Thailand unfettered (but unreciprocated) access to the Australian market, which subsequently helped fuel the explosion of imported commercial utes into Australia (let alone car parts).

In general, dropping barriers like tariffs isn’t necessarily bad, as long as it is reciprocated and preferably not on a preferential basis (i.e. to one country only, while leaving barriers for other nations in tact).

Sadly, Australia’s FTAs have not delivered in this regard, creating unequal access to the auto market, diverting trade from more efficient markets (not subject to preferential treatment), as well as raising compliance costs through complex rules of origin.

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Comments

  1. Last night on QandA, my jaw dropped when the pane mentioned there is no tariffs (one way) on the export of guns and ammo from the USA. So much for John Howard’s strong gun laws and how powerful the NRA is.

    • It was Tim Fischer who mentioned it. But yes, staggering.

      The US DTA was highlighted at the time as being an abomination.

    • How does that matter? Which nation allows people to have automatic guns? AUS does not even allow semi-automatic guns.

    • Licensing laws are strong compared to most places & seemed to have worked so far thankfully. The restrictions have probably doubled+ prices here & helped selected importers (rellies of pollies) make off like bandits!

  2. If, as Gotti says, “we was conned”, there must be some dim people doing complex deals. Even if unlikely it raises the question as to why such deals allow unequal terms which have consequences. The aim of a deal is to gain something which is hitherto unavailable: if the team doing the negotiating can’t see the ramifications 1-10 years ahead, it would seem Straya is the dumb white trash of APAC.

    • It’s all political. John Howard wanted to be seen to be doing something and wanted some “announceables”, so rammed these shoddy agreements through (amid Treasury opposition). The costs are always revealed a decade down the track, long after politicians have left office.

      • I witnessed some of these Thai car plants being built. The GM plant and the AutoAlliance (Ford-Mazda JV) down at the Eastern Seaboard Industrial Estate Chonburi where built when I had a expat role in Thailand with an Australian EPC.
        The thing which struck me at the time, about 5-6 years before the Australian-Thai FTA was these two plants were export facilities, sure there was some capacity for domestic Thai sales but the volume of these plants were geared towards export sales. “So where would these exports go” I once asked.
        The Chinese, Korean, Japanese, Malaysia, Indian, Indonesia, Vietnamese markets were and still are heavily protected.
        The answer I was given was the Middle East and Australia/New Zealand along with lesser European exports.
        Dare I say these car manufacturers were given private assurances from the Australian government that the Thai-Australian FTA would see duties reduced on Thai made cars well before the FTA was ever signed? Cannot see the boards of these companies taking a punt with a massive capex budget in Thailand in the hope that a FTA would materialize. Even when these plants were built, it took a few years to commission them, a sizable investment, they must have been given assurances.

      • So the Utopia script writers got their ideas from little johnies diary that he left behind the desk. Wouldn’t surprise me!

    • dumb is the answer for sure – not only did we gift the dual cab ute market to Thailand which Australia could of been a massive manufacturer of, the govt allows these utes to be FBT free, so nearly every second car on the road is a dual cab ute made in Thailand. Toyota, Ford and Holden could have been flat out making 1 ton dual cabs right now in straya

    • Bear in mind that the Andrew Robb, the trade minister who negotiated the most recent deal with the Chinese got a sweet $780,000 a year “consulting” deal with a Chinese state company just after he resigned.

      Perhaps this has some bearing on the fact that the trade deal didn’t help his own country, perhaps it is just coincidental.

  3. How about the politicians who signed these dud deals being held accountable? And pigs might fly. How far has our country fallen?

  4. Every time the republican debate lights up all the galahs in the pet shop start squawking over what is – except in extremely rare cases – a ceremonial position. And all the while there is a steady bleed of real sovereignty in the form of the so-called “free-trade” agreements.

    Australians patted themselves on the back recently in their victory over plain packaging of tobacco products. But that involved a trade agreement with tiny Hong Kong and an industry which was on the nose internationally.

    Does anyone imagine that a small country like Australia would ever win a case involving a politically powerful industry under a treaty with China or the US or the EU?

    And how many Australians could name even one member of the arbitration panel which ruled on our right to implement domestic health laws??

    The EU began as a free-trade agreement. But once such entities are created an “Iron law of Megalomania” takes over. They attract to themselves the sorts of aggressively narcissistic, machiavellian individuals who have an insatiable desire to exercise dominion over other people.

    And then who makes the decisions? In the EU, the member states say they’re bound by EU law. The EU says it’s simply responding to the demands of member states.

    It is enlightening to watch the fate of “citizens’ initiatives” brought under the provisions of the Lisbon Treaty. On every occasion the EU Commission has said that there can’t be a referendum because the matter is not one within EU competence. Even when it involves the EU negotiating an FTA with the US! If that’s not within EU competence, then what is??

    Who actually wields power in such entities? And to whom are they accountable? In such murky environments informal power-brokers thrive.

    On an ever more crowded planet there is clearly a need for cooperation on many issues. But we are currently sleepwalking towards a super-state over which we have no control.

    • Ronin8317MEMBER

      In the case of HK, the HK government didn’t support the Tobacco companies as they are merely borrowing the ‘jurisdiction’ to launch a case, and the court threw it out on that basis. It would be a very different story if the tobacco company is a Chinese one listed on the HK stock exchange.

  5. reusachtigeMEMBER

    Hey, youse may think we Aussies we are dumb but that’s because youse have never been smart enough to invest in housing and gain the massive rewards on offer! Who is really dumb? I rest my case. LOLOLOLOL!!!

  6. Is it true that Thailand puts a big import tax on Aussie and American cars? Or does Thailand simply put a big tax on all big engines (including Thai-built ones) – thus severely limiting the market for American and Aussie cars?

  7. Why is there still a tariff on imported cars?
    Why are there still parallel import restrictions on cars?
    Why is there still an LCT?

      • Yup!!! Rudd and Ken Henry gave the car dealers $2 BILLION!!! I never heard ANYONE complain about it except ,me!!!

      • St JacquesMEMBER

        Yeah Pat, the answer is that the whole decision was political, dressed as economics, but of course you knew that.
        Flawse I wasn’t aware of that, ugh…it’s merde as far as the eye can see. The car making game had a rent seeking aspect to it but at least it made stuff, exported over a billion dollars of stuff a year, maintained loads of high end skills, lots of jobs etc…. oh I just want to chunder. This country is certifiable.

  8. Over in NZ, it has been revealed that some of the Free Trade Deals that have been done handed out the right to “their” citizens to buy NZ property as part of the “quid pro quo” for, say, more access to “their” markets for NZ primary produce.

    This is how low you end up getting dragged when you leave your economic future hitched to primary produce, for which the terms of trade have been moving against you for decades, and on which you have been helpless “price takers” on global markets a lot of the time already.

    Has Australia matched this stupidity? Anyone know?

  9. “The Japanese could never work it out and assumed that Australians were either stupid or did not want a motor industry.”

    The or fallacy in all its glory. Australians are stupid AND don’t want a car industry.

    • I would estimate GM and Ford the US parents of Holden and Ford (of course), which built the Thai factories, really wanted a brand saving way of shuttering manufacturing in Australia and safely moving manufacturing volumes to Thailand at lower cost.
      No point in them being the bad guy when our politicians will rig the game for them and blame it on organised labour.
      Voila….fcuk the voters and feather thy policial nest.

  10. Redundancy matters in complex systems. If you don’t have it, the entire system WILL catastrophically fail at some point and then the cost savings achieved by eliminating redundancies in the system will be obliterated by the cost of systemic failure.

    Every engineer understands this, it’s the bean-counters who don’t.

    Our chief bean-counters have convinced themselves that “free trade” is a wonderful thing as it destroys all those inefficient, redundant sectors within the global economy. Oh, the marvellous efficiency gains to be realised by concentrating entire industries into single geographic locations!

    Idiots.

  11. What cars have we all been buying for the last say 25 years?
    Would be good to have a poll of MBers re what cars they have ever owned. I’d wager an outcome that it doesn’t favour OZ made cars.