It was one of those “did I just read that?” moments: the Australian Customs Service has publicly urged the government to drag the country back to the dim dark ages of the 1960s and ’70s with a recommendation of a 15% tariff on imported steel to protect BlueScope Steel from “dumped” steel.
So far, only The Australian Financial Review has cottoned on to the story’s importance, although even its journalists seemed to struggle to fully convey what’s happening. But its editorial calling for the end of protection was, for once, spot on. The usual suspects who line up to pass judgment on the economy and bemoan our many problems — like the Business Council, ACCI, Warwick McKibbin, et al — missed it.
The Customs Service’s preliminary advice to the government proposed a tariff of up to 15.45% on hot rolled coil imported steel depending on the product and the country of origin. Its recommendation went to the Minister for Home Affairs, Jason Clare. The government has 110 days to respond to the Customers recommendation. But under the dumping rules, companies started paying the tariff from today (by way of a bond, which is set aside until the government decision). If the government rejects it, the bond is repaid,. If it accepts the recommendation, the bond turns into a tariff payment (a small and relatively painless to trim the budget deficit?)
Anti-dumping is one of the single most insidious forms of protectionism, and one that Australian industry and unions — and even, on occasion, the federal opposition — have been increasingly exploiting in recent years. Like Hanns Johst and “culture”, when you hear the term “anti-dumping”, it’s time to reach for your gun.
The proposal is, as several industries including the mollycoddled automotive sector noted, inflationary and will distort policymaking. It drags Australia back to the bad old days of the 1960 through early 1980s when powerful, well-connected industries and companies shaped industry policy through their connections with the Liberal Party (remember car parts maker Repco, whose chairman in the 1970s, Sir Charles McGrath, was a bigwig in the Liberal Party) and an unholy alliance with unions in cars, steel, textiles, clothing and footwear, chemicals, you name it.
But as the TV ad says, “wait, there’s more”. The federal government is considering dumping cases covering aluminium wheel rims and coated steel. BlueScope is asking for protection from foreign-manufactured coated steel. And will companies in other industries under pressure from imports made cheaper by the high value of the Aussie dollar, follow BlueScope’s lead and get in for their chop?
Tariffs, and quotas (which restrict the volume of imports), cost the country hundreds of millions of dollars a year. They add to costs, which are paid for by consumers, workers and owners of businesses forced to use or sell the restricted or more expensive products. But those companies grabbing the protection (their shareholders and unions and members) do not use the protection to restructure or make themselves more efficient. The money flows to management and unions and shareholders via higher wages, dividends, bonuses and salaries.
The result is the cost structure of the economy worsens, productivity declines and when the impact of the first round of protection runs out of puff or expires, the same cast of rent-seekers return with even greater claims and demands for help. We’ve seen it for generations from the international car manufacturers, threatening to close their local plants unless we look after them.
Don’t forget BlueScope received its $100 million carbon tax compensation from the federal government in August of last year, ahead of schedule to help it handle the financial impact of closing a blast furnace at Port Kembla and some facilities at Westernport. That saw BlueScope exit the export sector. And earlier this year, BlueScope did a deal with Nippon Steel of Japan covering its Asian steel-processing and distribution business that raised valuable capital. Yet here it is again with its hand stuck out.
What does the Federal Treasury think of this attempt by another Federal department to take the country back to the bad old days of tariffs and other policy distortions? Treasury led the fight over the decades to rid us and policy-making of these “mates’ deals”. In Perth this morning, the head of Treasury, Dr Martin Parkinson was making another of his speeches where he very nicely tells us things aren’t as bad as they seem, but we need to have a debate and make some tough decisions about revenue, spending and the growing entitlement culture:
“Importantly, we need to ensure that we maintain the right strategy for medium-term fiscal sustainability — in particular, how we will reconcile increasing demand for government expenditure with the fiscal pressures facing governments at all levels.
“To reap the full advantage of these opportunities, in a fiscally sustainable way, we need to have a considered, mature national conversation on the role of government, the sustainability of our tax system, and our preparedness for the global changes that are occurring.
“If we can’t do this, we run the serious risk of being overwhelmed by the challenges we face and missing the opportunities open to us.”
The government’s response to this rubbish from Customs will tell us a lot about its capacity to have the sort of conversation Treasury thinks we need.