JOHN MENADUE Talking free trade and practising protection.

Feb 6, 2018

Malcolm Turnbull and Julie Bishop often talk about the importance of free trade and what they have done in numerous free trade agreements.  The benefits of these have been exaggerated, but there have been some marginal benefits. But the continual habit of rent seekers who seek protection tells a different story-such as the second-hand car sector.

The most recent example of the extolling of free trade agreements is the revival of the Trans-Pacific Partnership which looked to be dead and buried when Donald Trump withdrew the US.  But it is now possible that the TPP will be revived despite the US.  What seems likely however in TPP Mark 2 is that the Investor State Dispute Settlement provisions will remain, which give considerable advantages to multinational companies to defend their interests in friendly business jurisdictions.

But the record of the government on protection is quite contrary to the language it uses.  Last week the government announced a $20 million subsidy to help overseas military arms supplies as well as helpful financial credit through a government financial institution.

The most infamous however of the government’s protection policies is the 300% effective rate of protection that the government is providing to facilitate the building of French submarines in Adelaide.  Yes 300%!  That is more about protecting Coalition seats in Adelaide than defending Australia

The government continues to provide an $11 billion p.a. subsidy to the grossly inefficient private health insurance industry which enables the wealthy to jump the hospital queue.

But one glaring and continuing protection of rent seekers is the under the radar protection of second-hand car dealers in Australia.  What a contrast this is to New Zealand which allows tens of thousands of very good imported second-hand cars, particularly from Japan.  But Australians are denied this opportunity.

The Australian Motor Industry Federation and the Federal Chamber of Automotive Industries have successfully lobbied the Australian government to continue restrictions on the imports of second-hand vehicles.

The Turnbull government accepted many of the recommendations of the Harper Review into competition policy, but it decided to continue Australia’s archaic system where there is a $12,000 specific customs duty on second-hand vehicles. Retailers are further restricted because they can only import a single second-hand vehicles at a time.

The Productivity Commission recommended that Australia should progressively relax these ‘parallel import restrictions’ and scrap the $12,000 excise duty straight away. It pointed out that New Zealand abolished these sorts of restrictions on importation of second-hand cars 25 years ago.

A large number of quality used cars could be imported for example from Japan where the ‘Sharken’ system stipulates that when the registration of a new car expires, it must be rigorously tested at that time and every three years thereafter. To support their car manufacturers, Japanese governments encourage Japanese consumers to buy new cars and sell their old cars. That is what Sharken is designed to do. As a result there are a large number of quality second-hand cars on the market in Japan. But it is very hard for Australian retailers and consumers to access this market.

Australia’s restrictions on used car imports might have been justified to some degree to support our motor vehicle production industry. But the forced closure of our car manufacturing industry by the Coalition makes a continued restriction on second-hand vehicles even more indefensible.

The rent-seekers tell us that these import restrictions are necessary for safety and emission control reasons. But our own safety controls do address these issues. Furthermore, the emissions standards in many overseas vehicle manufacturing countries like Japan are more rigorous that ours.

In short, the actions of the Australian Motor Industry Federation and the Federal Chamber of Automotive Industries in opposing liberalization of second-hand vehicle imports is a clear example of the power of rent-seekers to extract wealth from consumers. And they are getting away with it. As a result, consumers will have to continue to pay a lot more for used cars and with much less choice.

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