Address by The Hon Tim Fischer MP, Deputy Prime Minister, Leader of the National Party, Minister for Trade, to the Federation of Automotive Products Manufacturers Annual Convention, Canberra, 16 June 1997

I am delighted to be here today to open the 1997 Federation of Automotive Products Manufacturers Annual Convention.

The manufacturing sector of the automotive industry accounts for about five per cent of total manufacturing value added and about one per cent of Australia's GDP. 20,000 people are employed by the four vehicle manufacturers and 25,000 people are employed in manufacturing automotive components - the companies represented by FAPM. So clearly it plays a significant role in the Australian economy.

As the Prime Minister made clear in his announcement of 5 June, this Government is committed to encouraging the development of a sustainable, prosperous and internationally competitive automotive manufacturing industry in Australia.

We are also concerned to ensure that Australian consumers have access to good quality, competitively priced vehicles.

Today I'd like to set out for you:

• First, details of the stable policy platform we have provided for the automotive industry;
• Second, the industry's export successes in an increasingly globalised industry;
• Third, the future for the components industry in this vibrant region; and
• finally, what the Government is doing to improve market access in emerging markets.

A Framework for Industry Growth

Industry has argued that an important precondition for development is to have the necessary certainty of industry policy settings on which to base investment decisions.

This is what the Government has now provided through its announcement on 5 June of post-2000 industry arrangements, in response to the report of the Productivity Commission.

There are several elements to the Government's arrangements for the automotive industry, which combine to provide a comprehensive policy environment for the development of the industry - encompassing both vehicle and components manufacturers. These measures include tariff support, direct financial assistance and an extensive program for export market development.

The current schedule of PMV and components tariff phasing will continue through to 2000. From 1 January 2000, the tariff rate will be held at 15 per cent for a period of five years when it will be reduced to 10 per cent. This reduction will be the subject of legislation to ensure that industry has absolute certainty that it will receive tariff support at 15 per cent for five years from 2000, with tariff support remaining at the end of that period.

The Export Facilitation Scheme or EFS will end in 2000. The Government will be providing support to the automotive industry, including component manufacturers, through a new program, which will be fully consistent with Australia's WTO obligations, and which will run to 2005. This removes a further potential source of uncertainty.

The Government will develop a market access strategy in close consultation with industry. Central to this strategy will be a new Automotive Trade Council, to identify the priority market access issues that you want addressed, and to work out and direct coordinated approaches to address them.

The Government has also decided to appoint a special automotive trade access negotiator. The negotiator will report directly to the Automotive Trade Council, and work closely with individual automotive companies and the Government's overseas network of embassies and trade offices to help overcome barriers to export sales.

I will be consulting closely with my colleagues, in particular the Minister for Industry, Science and Tourism, John Moore, to finalise as soon as possible these arrangements for enhancing our efforts to achieve better market access for this industry.

The automotive industry has received strong support from Government and it is your responsibility to take full advantage of this support. We want to see this industry meet its commitment to supply quality, affordable products to the domestic market, and build much greater export success.

Export Success in an Increasingly Globalised Industry

Like most other industries in Australia today, the automotive industry operates in a global context. While it has long been the case that many countries have had an automotive manufacturing capability, over the past decade highly sophisticated intra-firm and intra-industry linkages have developed to the point where yours is increasingly a truly global industry.

Australia is something of a small player, representing less than one per cent of world production, and must inevitably be carried along by international developments. Australia's strengths lie in its skilled, efficient workforce and our research and development capabilities.

The one real weakness is scale - with a domestic market of 19 million people this can only be overcome through exports. Australian industry therefore needs to become fully integrated with the global industry to maximise its future prosperity.

There is no doubt that Australia's auto industry has responded well to the challenges posed by global markets and global suppliers. This is best evidenced in the dramatic increases which have been achieved in automotive exports. Last year, Australia's automotive exports exceeded $2.15 billion - more than four and one half times the level of annual exports achieved just a decade earlier, when exports amounted to only $463 million.

And automotive components, including engines, accounted for more than $1.1 billion of last year's exports.

Companies located in Australia have shown that they are capable of producing and delivering world class products in terms of price, quality and service. Clear recognition by the global industry of Australia's capabilities is provided by the increasing quantity and diversity of export sales.

While traditional markets in Japan, Europe and North America remain important, it is clear that automotive exports are growing most quickly to relatively new markets in our region. This is particularly the case for export sales by FAPM member companies. For example, South Korea has grown to become Australia's most important customer for automotive components. At the same time, exports to ASEAN countries are also growing strongly.

The Components Industry's Future

In recent years components have made up the bulk of Australia's automotive exports - something which is to the credit of FAPM members. Last year, component exports again exceeded exports of cars but it was also pleasing to see that there was very strong growth in exports of completely built up cars.

This is good news for the components producers as Australian made components comprise 60 to 85 per cent of every Australian made car. I welcome the relationship which has been built up between components and passenger motor vehicle producers and which is now working to your mutual benefit in the export arena. I hope that in the future both car and components exports can expand together to meet the industry forecast of export earnings worth $6 billion a year by 2005.

Even Greater Success is Within Reach

If the success story I have just outlined is anything to go by we can expect the Australian auto industry to go from strength to strength within the stable policy framework which this Government has now established for it. There will be many opportunities around the region.

South Korea is already a major producer of passenger motor vehicles. It has plans to lift Korea and Korean companies operating offshore into the first rank of automotive producers during the next decade.

Likewise, automotive production in other countries, notably ASEAN countries such as Thailand, Malaysia and Indonesia, as well as India and China, will expand strongly. With this expansion will come increased demand for a broad range of high quality automotive components.

Certainly some of this demand will be met by domestic producers in each of these markets but a large and growing quantity of components will need to be sourced from imports, just as is the case now in Australia.

The challenge for the components industry will be to take advantage of the opportunities which are there and which will increase in the future. Just as you have developed profitable, mutually beneficial linkages with Australian based car manufacturers you will need to develop similar linkages with current and future customers in our region.

In some cases these customers could be subsidiaries of precisely the same manufacturers which you supply here in Australia - that is Toyota, General Motors, Mitsubishi and Ford, which means you would already have "a foot in the door". In other cases you may need to consider investing directly in these markets to help provide the leverage to win contracts.

A good example of this "networking" in practice can already be seen in Indonesia where Australian companies are looking to become integrated with the fledgling national passenger motor vehicle industry. Millard Design Australia has won selection as prime contractor for the Maleo project for a "people's car" with contracts valued at $120 million. A number of Australian component suppliers are now positioned to supply this new market.

Competition will be fierce, because you do operate in a global industry, and there can be no guarantees of success. What is certain, however, is that there will be opportunities.

Our products are as good as any from North America or Europe and we have the advantage of proximity. Also, the scale of operations in regional developing country markets fits well with the production scales and experience of Australian companies.

Market Access

To ensure we win our share of this business we have to make certain that barriers to market access do not unfairly favour other players.

The Government recognises that at present there are many barriers, tariff and non-tariff - formal and informal, which operate to limit market access for Australian automotive exporters to many markets. Improving market access conditions in other countries is a major priority for the Government, particularly for the Department of Foreign Affairs and Trade.

The International Business Development Working Group of the Automotive Manufacturing Council, chaired by Mr Bruce Griffiths of Air International, has completed a very comprehensive analysis of the global trading environment for the automotive industry.

The formal barriers and other measures which exist are now well known and we, together with other interested countries, are addressing them in a range of multilateral, regional and bilateral forums.

Negotiations with those countries wishing to accede to the World Trade Organization provide us with particularly good opportunities to make headway. You would be aware that, beginning from this year, Taiwan has granted interim access to 2,000 Australian cars annually, expanding to at least 6,000 when they accede. On accession, Taiwan has also agreed to reduce the tariffs on a range of components, including engines, wheels and brake parts.

In bilateral trade exchanges on automotive issues with regional trading partners, I consistently emphasise the capabilities of Australian suppliers and the benefits which would flow from encouraging closer integration through lower trade barriers.

Industry representatives have participated directly in these meetings - for example Mr Malcolm Stewart, the Director of FAPM, gave a presentation at last year's Joint Trade Commission with Malaysia.

These efforts are bearing fruit - the general trend in industry protection is downward as countries recognise that their successful integration into the global industry is dependent on enabling their own domestic industries to become internationally competitive. It is no accident that most cars are exported by those countries with the lowest tariffs. Indeed it is very difficult to produce internationally competitive cars if an industry has to pay a large tariff premium on the components with which they are built.

Despite the general downward trend in protection, different markets are liberalising at different rates. Developing countries will lag behind developed countries in this regard and significant barriers will remain in many developing country markets for a number of years. Within APEC, developing country members have made a commitment to free trade and investment by 2020, fully ten years beyond the equivalent 2010 commitment made by developed countries.

In these circumstances Australia will have to work hard to gain access to the emerging markets, despite the barriers, against strong competition.

Conclusion

I would like to conclude today by noting that Australia's auto industry has had to contend with declining protection for some time now. In the face of that competition it has emerged as a world-class producer of cars and car components.

The uncertainty over the future is now behind you. This Government has given you a stable platform on which to plan for a bright future.

Increasing globalisation of your industry will continue to provide challenges but the opportunities to be found in our region are immense. I am sure that Australian car and parts manufacturers will not be deterred from driving towards a very prosperous future.