Australian Cars in a Global Economy

Lobbyists for car industry protection argue that Australia should delay reducing tariffs until trading partners have 'reciprocated', but in reality, trade liberalisation and import expansion have been increasing East Asian and global markets for competitive Australian suppliers of automotive products. This reality is one reason why the car industry is a success story of Australian reform, with quality improving, real value added rising and exports increasing strongly over the past decade, as protection has fallen rapidly.
The recent government decision to suspend the reduction in protection from 2000 to 2005, and over the five years taken as a whole greatly to reduce the rate of decline, is a symbol of a more general reform malaise in Australia.
The car manufacturers said that they would have 'accepted' larger reductions in protection in the context of more vigorous pursuit of efficiency-raising reform in other areas, notably in taxation. It is time for the government to take the industry at its word: to commit itself to replacement of more distorting indirect taxes by a value added tax; and to use this congenial context to restore momentum in the reduction of protection.