Victoria accused of breaching US free trade deak

The Australian, Canberra

Victoria accused of breaching US free trade deak

By Rick Wallace, Victorian political reporter

20 November 2008

The Victorian Government has been accused of breaking Australia’s free trade agreement with the US through its "protectionist" new industry policy, which gives local suppliers an advantage over foreign competitors.

Premier John Brumby has announced plans to give local firms an advantage of up to 10 per cent on the coming purchase of new trains, and to introduce local-content thresholds for other major purchases. The policy comes just over a week after Australia signed a G20 memorandum pledging to refrain from establishing new trade barriers.

While unions and industry welcomed the policy, which includes local-content targets of 40 per cent or more, free trade advocates condemned it as a return to the days of trade barriers.

Andrew Stoler, the head of Adelaide University’s Institute for International Trade, said the policy was protectionist and could be in breach of the US trade deal.

"Certainly it’s inconsistent with the thrust of what the G20 people agreed on," he said. "The Australian Government has the responsibility to bring the Victorian Government into line."

The director of the Institute of Public Affairs’ free trade unit, Tim Wilson, said the policy would disadvantage ordinary citizens.

"All it means is taxpayers get less bang for their buck," Mr Wilson said.

"We are potentially buying products that are lesser quality at a higher price. Taking steps to erect trade barriers is a wrong step in the wrong direction."

The provisions of the FTA prohibit treating a US supplier less favourably than a local one.

The Brumby Government last night rejected suggestions it had breached the FTA, and said most states had local-content clauses, as did the US.

"We have got the most open, transparent and competitive purchasing policy anywhere in Australia and arguably anywhere in the world," Mr Brumby said.

"If you look at NSW and Queensland, they have 20 per cent local-preference arrangements. If you look at rolling stock, in Canada there is a 25 per cent minimum content, in the European Union it’s 50 per cent minimum content. If you look at China, they have very strong local-content rules. The Buy America Act has preferences in every state of 6 to 12per cent.

"I think we compare very well in the world, but we are doing a bit more ... It’s going to keep our state competitive, but it’s going to put an emphasis on local jobs."

The new local-content rules apply to strategic projects worth at least $250million. Forty per cent of the value of the trains contract must be locally sourced, with a 10 per cent selection weighting to Australian and New Zealand bidders. It is believed these limits will be adjusted for other strategic projects.

Australian Workers Union state secretary Cesar Melhem said the Government was right to support local industry, but should have excluded maintenance from what could be claimed as local content under the thresholds.

"The direction they’ve taken towards giving more preference to local companies, that’s a step in the right direction," he said.

Andy Spink, the marketing and sales director of Bombardier, a big player in train and tram construction and maintenance in Australia, welcomed the policy.

"It’s great they are confident there are companies in Australia who can manufacture according to the specifications they want," Mr Spink said.

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