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FTA 'suicide' For Local Car Industry

December 1, 2003, Australian Financial Review, By Ben Schneiders

A free-trade deal between Australia and the US that cut automotive tariffs quickly would be "suicide" for the local industry, says Ken Asano , the chief executive of Toyota Australia.

With the final round of talks starting in Washington today, the US has offered Australian negotiators a cut to zero automotive tariffs in both markets from the start of any free-trade agreement.

The federal government also supports strong reductions in automotive tariffs, with Trade Minister Mark Vaile saying in October that an FTA would "broaden the range of vehicle exports to the US". But Mr Asano said in an interview that he wanted a slowly staggered cut.

"The [Australian] government wants [to go from] 10 per cent to 0 per cent within five years," he said. "I say that's too quick, we are going to suicide."

Automotive tariffs are already due to fall from 15 per cent to 10 per cent in January 2005, before being reduced to 5 per cent in January 2010, after another Productivity Commission review.

Mr Asano says the US FTA should go no further.

He said the reason Toyota Australia was so worried was not so much because of competition from other local car makers but from Toyota's US operations. Toyota US produces vehicles comparable to its Australian counterpart, but it produces 10 times more.

He said he was worried that Toyota's Australian operations would be seen as superfluous to those of the head office.

Mr Asano said Toyota Australia needed about 10 years, or two generations of car models, to be internationally competitive.

While Toyota Australia and also Mitsubishi Australia are concerned by a quick cut in tariffs, its key US-owned rivals, Holden and Ford, are not.

ANZ senior economist Ian James said Holden and Ford were likely to get the most out of any deal as they would be able to leverage off the relationships with their North American parents.

Holden, in a private submission to the Department of Foreign Affairs and Trade, said an FTA would boost the economy and hence car sales.

Exports now account for about 30 per cent of local Australian car production, compared with less than 10 per cent a decade ago. Since 1995 tariffs have been reduced from 27.5 per cent to the current level of 15 per cent, while employee numbers have fallen by 25,000 to 54,000.