Policy effects on Australian Industry

Assignment Requirements

 

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Executive Summary

 

This report considers the advantages and shortcomings of the governments proposed policy of implementing a 20% penalty duty on imported good, if the manufacturer is not reducing their carbon emissions by 2% annually. An insight into the policy’s effects on the industry, companies, competition, employment levels, prices and international trade relation’s shows as a broad assessment of the advantages and disadvantages of implementing the proposed policy. It is essential to understand how it will affect society at large in order to accept or reject the plan.

The process of accepting the policy involved an analysis covering the effects in Australian industry, company concerns, the aims of the government and the effects on society. It provides a case study on Nikon, which has implemented various environmentally friendly policies as well as a consideration of other measures to sustain the environment, such as the Kyoto Protocol. Because China is one of Australia’s main trading partners and the biggest producer of manufactured goods in the world, it was also necessary to recognize how this policy would change Australia’s relationship with China.

In accepting this policy, we took the stance that along with China’s ‘Twelfth Five-Year Plan’; the penalty duty has the potential to strengthen the relationship with China as it is assisting domestic Chinese companies to reduce their carbon emissions. Additionally, long-term effects of a failure to remain environmentally friendly are critical to society at large. It is a global initiative to reduce these effects, and businesses should play a large role in this reduction.

Finally, some alternative solutions have been provided, and include:

• A preference for Australia to take a leadership role and be lenient when dealing with developing countries;
• Australia should work with international partners to quantify carbon emissions through various frameworks; and
• A hope that penalties collected will contribute to cleaner and more efficient technology in Australia.

And finally, in conclusion the Australian manufacturing association believe [insert brief summary of actual conclusion here. Also, if anyone wants to add/take out stuff from the exec. Summary feel free, ive probably repeated myself 1000 times!! J ]

Table of Contents

Introduction:…………………………………………………………………………………………………………………………….. 1

Policy effects on Australian Industry:……………………………………………………………………………………. 1

[1.0] Price Effects and Challenges1

[1.1] Benefits in the Industry         2

[1.2] Effects on Product Supply     2

[1.3] Business Relations with other Countries        2

[1.4] Potential for Increased Competitiveness        2

[1.5] In Relation to China: Advantages and Disadvantages          3

[1.6] Other Policies: Kyoto Protocol          3

Government Plan:……………………………………………………………………………………………………………………. 3

[1.7] Carbon Emissions in Australia           3

[1.8] Policies on Environmental Sustainability       4

[1.9] Nikon Case Study      4

Company Concerns:……………………………………………………………………………………………………………….. 4

[2.0] Challenges      4

[2.1] Potential Damaging Effects   5

[2.2] A Contrasting View: Reduction in Australia’s Competitiveness       5

Effects on Society:………………………………………………………………………………………………………………….. 5

[2.3] Benefits of Trade Liberalisation and Association with APEC          5

[2.4] Disadvantages of Trade Liberalisation           6

[2.5] Effect on Employment           6

[2.6] Societal Effects in China        6

[2.7] Relations with China  6

[2.8] The Public and Climate Change         7

MODIFICATIONS/ALTERNATIVE SOLUTIONS………………………………7

[2.9] Effect on Regional Trade Relations   7

[3.0] Developing an International Carbon Reduction Framework8

Conclusion:……………………………………………………………………………………………………………………………… 8

 

 

 

 

 

 

 

 

Introduction:

The Australian government’s proposal to introduce penalty duties of 20 percent on all manufactured imports under circumstances where importer fails to prove that manufacturer is reducing its carbon emission by at least 2 percent annually will be associated with various repercussions. Although the policy will be thought to be a huge stride in the fight for better global environment, certain aspects will greatly affect business and relations with other countries. In other words, there will be both benefits and costs associated with implementation of the new plan.

Policy effects on Australian Industry:

[1.0] Price Effects and Challenges

After implementation of the policy, business will greatly change. To begin with, consumers will be greatly affected because various commodities will experience a shortage. Since price is normally fixed due to interplay of demand and supply mechanisms, cost of certain manufactured goods will possibly go up. The reason is that demand will be greater that supply, leading to increased prices. Notably, other existing policies meant to reduce carbon emission are still applied within the industry. To date, various aspects of the policies have not been implemented. Thus, introducing a new policy to the Australian economy will increase confusion and administration challenges to various government agencies.

[1.1] Benefits in the Industry

The new policy may also be associated with a wide array of benefits to the Australian economy. Because many manufactured goods will be charged higher tariffs, then many local products will have a chance to win preference of consumers. Reduced level of global competition will give many local companies a chance to establish their businesses and prepare to expand their market share against many global participants (Healey, 2014). Local manufacturing industry will experience a boom at the expense of the consumers.

[1.2] Effects on Product Supply

The consumers will be forced to experience low living standards because they will have a small range of substitutes at a higher price. As local manufacturers will be rushing to take advantage of the opportunity, the economy will experience inefficiency and low quality products. Under such conditions, the government will find it difficult to protect its consumers from exploitation and falling standard of living (Kreiser, 2012).

[1.3] Business Relations with other Countries

Implementation of the new policy might force Australian business community to reconsider their business relations with other organizations from countries that are yet to enforce carbon reduction policies. In the process, initially established free trade agreements will be greatly jeopardized. The decision may deeply affect business relations with many Asian countries because most of them are yet to enforce serious measures to curb carbon emission (Healey, 2014). The Asia-Pacific region produces one of the leading trading partners to Australian economy. The new policy might put Australia in a risky situation because it will miss creating prosperity, enhancing innovation, international competitiveness, increasing productivity and accessing highly skilled personnel.

[1.4] Potential for Increased Competitiveness

On the other hand, the nation may use the new policy as a tool for improving international competitiveness. As a signatory to the Asian Pacific Economic Corporation (APEC), Australia will be at the forefront of accessing its benefits. APEC is concerned with pursuing technical assistance, economic cooperation, business facilitation and trade liberalization. APEC is widely influential throughout the Asian Pacific region and one of its recent achievements was creation of a list for tariff reduction by the year 2015. The list featured nations that had exhibited commitment towards achieving environmental sustainability (Philander, 2012). Australia’s commitment as one of the members of APEC is likely to spark international competition as other countries rush to create such stern policies in a bid to win favor, admiration and competitive edge.

[1.5] In Relation to China: Advantages and Disadvantages

It is highly probable that new policy will affect free trade agreement with China. China, which is recognized as the world’s manufacturing center has been a source of imports to Australia because most of its manufactured goods are priced lower than other goods from various global competitors. Although China has taken notable strides in an attempt to protect the environment, many of its manufacturers are yet to adhere to required environmental standards (Chao, 2013). Imposing tariffs on imported products from China may be perceived as an attempt to breach free trade agreement between the two nations.

Conversely, the policy may assist the Chinese government to force many of its manufacturers to adhere to international standards of reducing carbon emissions. Not long ago, China released its ‘Twelfth Five-Year Plan’ that encompassed numerous issues regarding its development. Some of the priority areas were clean energy, use of nuclear energy, environmental protection, energy conservation and high-end equipment manufacturing. The Chinese ‘Twelfth Five-Year plan’ proved that the nation was seriously involved in environmental sustainability because it sought to reduce energy usage to only 3.5 percent per unit of GDP (KPMG.com, 2014). In addition, the plan covered strategies for reducing carbon dioxide emissions. In light of the statements, implementing the Australian tariff policy may enhance trade relations with China because the two countries will force its business community to align their operations with underlying policies. Many Chinese manufacturers will have no choice but adhere to required standards. The manufacturers will lack protection from their government because the country is also committed towards achieving a cleaner, efficient global environment

[1.6] Other Policies: Kyoto Protocol

         Although we propose that the policy will be beneficial to society, some businesses may not comply and view the policy as a possibility to increase import to Australia. When exploratory other options, the effort to reduce carbon emissions is not a unitary action by the whole world, rather it is an effort of some few countries under the Kyoto Protocol (Meng, Siriwardana, & McNeil, 2013). Other industrial countries, especially Asian countries are not obligated to abide by the Kyoto protocol. The increase in imports to Australia is a result of high cost production owing to the carbon tax. Most energy utilized by Australians is derived from fossil fuels and the imposed tax will result in an increase in price. Therefore, buying carbon products in the country will be more expensive as compared to importing them from countries where they are not obliged to reduce carbon emission (Saddler, Muller & Cuevas, 2012). The increase in imports will also result from industries investing outside Australia. Imposition of the tax will increase the cost of production, and this reduces their productivity. The country will face a deficit of carbon products and they will be forced to import so as to satisfy their energy requirements.

Government Plan:

[1.7] Carbon Emissions in Australia

As Australia releases one of the highest percentages of carbon emissions per person this will take effect on products coming in lowering each persons, per year carbon emission percentage. Putting taxes on manufactured goods coming into this country stops Australia from doing business with companies in China who have not made a plan for reducing carbon emissions on manufactured goods. Besides this policy, Australian scientists have come up with another to take one step further in reducing emissions, “For minor amounts of energy embedded in commodities purchased such as food and personal services, the carbon ration will already have been paid by the manufacturer, and its costs built into the end price for the consumer,” (Spratt, 2007, 37). This was a problem scientists encountered that manufactures in Australia would just pay the extra duty because they would charge a higher price to buyers. With this information known, buyers looking to buy from China can look for manufacturers doing that.

[1.8] Policies on Environmental Sustainability

Australia has taken interest in the Clean Development Mechanism (CDM)  which, (…Allows developed countries to invest in emissions reducing projects in developing countries, and to obtain certified emissions reductions (CERs) towards meeting there targets under the Protocol,” (Lyster, 2008,118). This aids Australia from seeking imports from countries that have focused on reducing carbon emissions in manufactured goods. China is a developed country that has taken initiative into reducing carbon emission when manufacturing goods but this plan allows for other businesses worldwide to lend a hand in reducing emissions therefor allowing Australian’s to branch out to import from companies reducing the most emissions.

[1.9] Nikon Case Study

For example, the Nikon company out of Japan, “The Nikon Group has been making a concerted effort to reduce its CO2 emissions based on the basic policy of “passing on a sustainable and healthy environment to future generations,” (Nikon,2013). Although the focus is on China and companies within, this company is one to focus on. Nikon has put a team together that has created different ways to reduce carbon emissions when manufacturing cameras, etc. They have started using well water, renewable energy, steam less HVAC systems, and replacing equipment more frequently in order to achieve there goals of reducing carbon emissions on a yearly basis. If Australians were to import from Nikon they would by default be excused from the new duty being put on imported goods.

 

Company Concerns:

[2.0] Challenges

This new proposal has new issues arising every time new policies are enforced within the plan. Outside the plan are other policies that government is enforcing within trade in Australia and exporting to other countries. In all whether its export or import to or from Australia it all falls under the same concerns that employees are now facing. The newly implemented Carbon Reduction Commitment (CRC) has brought some unanswered questions and anxious people. The original proposal and the now anticipated costs over time have now been changed significantly. Employees are now anxious about getting this money over a shorter period of time, “DECC originally proposed recycling the money to companies 18 months later, but this was reduced to six months,” (End Report, 40). The government has been changing policies after they’ve already been made about deadlines and this has caused businesses to fail to meet requirements because they have less time then they were originally told. The few issues regarding importing from China and this new regulation is that business now have to dig through information regarding the business they are buying from.

[2.1] Potential Damaging Effects

This information is not always accurate or accessible putting a burden and strain on people harming their businesses. This is supposed to be helping the environment but in fact it could be damaging business because all the details have not been fully worked out. This was implemented before business were able to get a handle on exactly what their new role was regarding the environment and trade. This new policy also puts a strain on the exporter where as they must now spend more money reducing carbon emissions, which then reduces their profit. Companies in China as well as other countries live on profit and reducing there ability to make high profits causes all sorts of issues within companies.

[2.2] A Contrasting View: Reduction in Australia’s Competitiveness

On the other hand, Australian industries will be effected as the 20% carbon tariff will reduce the competitiveness of the Australian products in the carbon product market (Saddler et al., 2012). Industries dealing with carbon products will suffer from loss of competition, both internationally and regionally. Competitiveness of any product in the market is driven by ease of trade and low cost of production, hence low market prices. In a report by Australian Industrial Group (2013), an introduction of the tax resulted in a 49% increase, in the input. Internationally, industries in Australia will suffer from extra costs incurred either in payment of a carbon tariff or processes to regulate carbon emission. This increase will result in high price products, in the international market. Consumer countries will import carbon products from other nations where the prices remain low. Regionally, an increase in product cost will drive people to look for alternative energy sources. Therefore, industries dealing with coal and carbon products such as petroleum product will face a decrease in the market. This decreased production will affect the availability of the product in the market, which results in increased cost of the product hence reduced competitive power.

 

Effects on Society:

[2.3] Benefits of Trade Liberalisation and Association with APEC

Trading internationally can assist in creating prosperous, innovative societies with increasing productivity, international competitiveness and a highly skilled, high wage workforce (Healey, 2014, 1). Asia Pacific Economic Corporation (APEC) is pursuing trade liberalization, business facilitation, economic cooperation and technical assistance throughout the region containing Australia’s main trading partners. The private sector of many countries is closely engaged with APEC, which is highly influential on international trade through the Asia Pacific region (Healy, 2014, 4). A recent achievement by APEC is the list of environmental goods for tariff reduction by 2015. Evidently, this list shows that nations committed to APEC are influenced to abide by their advances with relation to environmental sustainability, and cooperating with these objectives would not reflect badly on any nation. If a nation and/or business are committed to lowering their carbon emissions, not only will it help their competitive advantage as they are seen to be progressive, but society as a whole will be benefitted in the long run due to the vast environmental benefits of lowering carbon emissions.

[2.4] Disadvantages of Trade Liberalisation

On the contrary, tariff reductions are used to establish an open, competitive economy provided with an array of substitutes, which boosts the living standards of Australians (Healy, 2014, 6). An economy is exposed to international competition, resulting in lower prices for any given imported good, and an increase in competitiveness among domestic businesses. It is clear that the imposition of the 20% tariff on imported goods where the producer fails to reduce their carbon emissions by 2% per annum would result in a large increase in prices for domestic businesses, and therefore, consumers. As a result, Australian business may not be able to import from cheaper manufacturing businesses, and therefore face the cost of a higher cost of production in Australia. Inefficient businesses throughout Australia would be profiting, and this has potential to result in a potential deficit of manufactured products. Additionally, it has been estimated that since trade liberalisation in the 1990’s, the average Australian family has saved one thousand dollars per year (Healy, 2014, 26). However, does this short-term saving equal the benefits of a sustainable society for future generations? It is a matter of personal opinion, and whether one can place a monetary benefit on the loss of the environment.

[2.5] Effect on Employment

The imposition of tariffs has been used throughout the world as a way of defying unemployment (Fender and Yip, 1989, 806). Because employment is demand-based, this proposed tariff could result in higher domestic employment levels as Australian manufacturers will be able to produce cheaper products than those imported and therefore, will need to employ more to allow for efficient production.

Over recent decades, China has become the worlds manufacturing center, and it has resulted in lower prices manufactured goods being imported from China to Australia (Healy, 2013, 23). This is of great benefit to Australian businesses and consumers alike, as the option to purchase cheaper products is always appealing.

[2.6] Societal Effects in China

China’s ‘Twelfth Five-Year Plan’ outlines the nations economic, social and environmental aims from 2011 to 2016 (kpmg.com, 2011, 1). The plan has raised many issues with regard to China’s development, with a main concern being questions of sustainability; namely pollution, intensive energy use and resource depletion. It lists some priority issues for the next five years, including nuclear energy, energy conservation and environmental protection, high-end equipment manufacturing and clean energy vehicles (kpmg.com, 2011, 2). In the immediate future, China’s ‘Twelfth Five-Year Plan’ seeks a reduction in energy use of 3.5 percent per unit of GDP, with the same percentage for a reduction in carbon dioxide emissions (kpmg.com, 2011, 3).

[2.7] Relations with China

These aims show that China is taking environmental sustainability very seriously, and begs the question of whether the proposed tariff would actually cause a large amount of harm to business? If the Australian government, like the government of the People’s Republic of China, is committed to environmental sustainability, it could be seen that the imposition of the tariff would be assisting China in reaching their emission reduction targets. Not only is this a productive goal in the area of environmental sustainability, but also it may strengthen the political and social relationship between China and Australia and it reflects well on Australian society as a whole allowing Australian consumers to keep the benefits flowing from an open, liberalized trade economy.

[2.8] The Public and Climate Change

Problems arise in technicalities in solving the problem of climate change, something that will affect society as a whole in the long term. Obviously, science can only answer so much and what will be necessary in the future may not yet be established. Because the public is not aware of the extreme difficulty in solving the climate change issue, they may be inclined to embrace unsustainable approaches that will need to be altered in the long term (Carlin, 2007, 1404). As a result of this, it seems better to outline difficulties involved and then find the best available solution (Carlin, 2007, 1404) and it is clear that a tariff of this kind may be an example of the above issue.

 

Modifications/Alternative Solutions:

         As detailed in this report, the tariff the Australian government is proposing may have a range of different effects on the manufacturing industry and foreign relationships that Australia has acquired through our history of importing and exporting. Whilst our association agrees that the tariff would overall be beneficial for the manufacturing industry (and Australian society at large), there are a number of modifications that the government should consider before implementing this proposed legislation. There are also alternative solutions that the Australian government should be considering to minimize long-term damage to the manufacturing industry.

 

[2.9] Effect on Regional Trade Relations

Of serious concern to the industry is the effect that this may have on our foreign relations, especially with countries in the Asia-pacific region. More specifically, this could result in a strain on our relationship with China, who currently contribute to 18.8% of our total imports. (ABS,2013). The Australian Climate Change Policy that was released in 2007 gives a thorough look at the Australian government’s guidelines for an effective international response framework in regards to climate change and control. Detailed in this framework are a number of principles of which the second is that Australia’s pursuing of a global response to climate change ‘must take into account differing national circumstances’. (Barton, 2007). The Australian government also acknowledges that “an approach suitable to post-industrial Western Europe may not be appropriate to rapidly industrialising such as China…” (Barton, 2007)but the legislation that the Australian government is proposing is not reflecting of this understanding. The discussion of societal effects of this report mentions that the combined efforts of Australia and China in combating climate change may strengthen our relationship, however this should not be at the expense of our trade agreements and the Australian manufacturing industry. Instead, it is preferred that Australia takes a leadership role in regards to this issue and is lenient in its total emissions in the cases of dealing with producers from developing countries who do not have the technology to drastically lower emission production in the way that developed countries are able to.

[3.0] Developing an International Carbon Reduction Framework

In combination with the proposed tariff, Australia should also work with international partners to develop framework that supports an effective carbon measurement scheme so that carbon emissions can be quantified. Due to an unreliable international system, information that is received from China may not be accurate (Lynch, 2009) and therefore the system could easily be exploited. This would result in carbon tariffs only being reasonably imposed to primary energy or basic products rather than final manufactured goods (Lucenti, 2008) and Australian manufacturing companies would see little-to-no benefit when it comes to cost advantage (Morrison,2002) as detailed in section (insert)

It is also the Manufacturing Association Industries hope that any penalties imposed would contribute to developing cleaner emission technology in Australia which would greatly reduce local manufacturing emission and costs rather than off-handing efforts to our international partners.

Conclusion:

The need to prevent climate change and create sustainable nations and businesses is of priority to the Australian government. This is the reason it has proposed a 20% penalty duty on any imports whose producer has no policies or interventions to reduce carbon emissions by at least 2% annually. However, the move seems to elicit a lot of debate in business, scholarly, government and the media spheres amongst others. This is because the move has several impacts on different arms of Australia as nation and Australia as a member of a global commerce village. These arms include businesses, consumers, the economy, the population and the relationships with other nations of the world.

It is therefore important that the government analysis the advantages and disadvantages, benefits and costs, pros and cons of such an imitative. This is because such an initiative will have far reaching consequences which are either desirable or undesirable. For instance, the penalty duties may occasion increases in prices, hinder trade relations with other nations such as China and other developing countries in Asia, low quality products, inefficiency in the manufacturing sector and a low quality of lifestyle amongst others.

On the other hand, the penalty duties may occasion the increased sustainability of Australian businesses, foster local industries growth, create employment, foster global carbon reductions, improve our relations with other environmental nations and cement our place in the Asia Pacific Economic Corporation (APEC) amongst others. However, the most critical issues are our relations with other countries in APEC where initiatives to reduce carbon emissions are not pervasive such as in developing Asia-Pacific countries. Secondly, our relations with China are of outmost importance as 18.8% of our imports are from the nation. Therefore, the government should evaluate this initiative comprehensively and soberly. Such evaluations should be based on these relations with our trade partners, the plight of our macro –economic factors, the manufacturing sector and other factors mentioned above (Robson, 2013).

References
 

1. Barton. (2007). Australia’s climate change policy: our economy, our environment, our future, A.C.T.: Department of the Prime Minister and Cabinet.
2. Business airs concerns over CRC impacts. (2009). ENDS (Environmental Data Services), (413), 40-41.
3. Carlin, A (2007) Global Climate Change Control: Is There a better strategy than reducing Greenhouse Gas Emissions?, University of Pennsylvania Law Review, 155 (6), 1401-1497
4. Chao, C. (2013). Environmental policy, international trade, and factor markets. Amsterdam: Elsevier.
5. China’s 12th Five-Year Plan: Overview. (n.d.). Retrieved May 5, 2014, from http://www.kpmg.com/CN/en/IssuesAndInsights/ArticlesPublications/Publicationseries/5-years-plan/Documents/China-12th-Five-Year-Plan-Overview-201104.pdf
6. Fender, J., & Yip, C. K. (1989). Tariffs and employment: an intertemporal approach. The Economic Journal, 806-817.
7. Healey, J. (2014). Free Trade and Globalisation. Roselle, N.S.W: Spinney Press.
8. Kreiser, L. A. (2012). Carbon pricing, growth and the environment. Cheltenham. UK: Edward Elgar.
9. Lucenti, K ‘Carbon tariff might be legal as a VAT’, Financial Post, 30 April 2008, retrieved 18/11/09 at <http://network.nationalpost.com/np/blogs/fpcomment/archive/2008/04/30/carbon-tariff-might-be-legal-as-a-vat.aspx>.
10. Lynch, E (2009) ‘The US Climate Change Bill: International Trade Implications & China’, China Law & Policy, 7 September 2009, retrieved 18/11/09 at <http://chinalawandpolicy.com/2009/09/07/the-u-s-climate-change-bill-international-trade- implications-china/>.
11. Lyster, Rosemary. Domestic and international carbon offsets under the Carbon Pollution Reduction Scheme: what prospects? [online]. University of Tasmania Law Review, Vol. 27, No. 1, 2008: 111-139.
12. Morrison, J. (2002). The international business environment: diversity and the global economy. Houndmills, Basingstoke, Hampshire: Palgrave.
13. Nikon Corporation ‘Reducing CO2 Emissions’ http://www.nikon.com/about/csr/environment/plants/plants_01/index.htm
14. Philander, S. G. (2012). Encyclopedia of global warming & climate change (2nd ed.). Thousand Oaks, Calif.: SAGE Publications.
15. Robson, A. (2013). Australia’s Carbon Tax: An Economic Evaluation. Brisbane: Griffith University.
16. Spratt, David. Close to the edge [The consequences of climate change and the impact of controls on carbon emissions.] [online]. Dissent, No. 23, Autumn-Winter 2007: 32-37

 

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