Australian Financial Review
By Lenore Taylor and Brendan Pearson
The Federal Government has been forced to rethink its case-by-case process to encourage major investments after recent tough World Trade Organisation rulings on illegal export subsidies.
The Government is understood to be reconsidering how it can offer assistance for the proposed $3 billion expansion of the North West Shelf's LNG operations, because of concerns that the proposed mechanism an investment allowance could be considered an illegal subsidy by the WTO when offered to a project primarily devoted to exports.
In two landmark rulings in the last six weeks, the WTO has ruled against a $30 million capital grant provided to Victorian leather producer Howe and Co, and $US3.5 billion in tax breaks paid to several thousand US companies using so-called foreign sales corporations. The WTO has ordered Canberra to recover the grant from Howe and told Washington it must eliminate the tax breaks by October 1.
The Industry Minister, Senator Nick Minchin, said the recent WTO decisions had a "significant bearing" on the Government's case-by-case strategic investment process.
"Obviously, we are not going to continue with forms of assistance that don't meet WTO standards. We are in the process of getting options assessed against the WTO decisions," Senator Minchin said.
"We will have to have a good look at the US decision and what it means for our tax-based incentives."
The 1995 WTO Subsidies Agreement outlaws any grant, tax break or loan guarantee contingent in law or in fact on export performance. Although any package for the North-West Shelf is unlikely to contain specific export conditions, the fact that its output will be wholly or primarily devoted to exports, makes it vulnerable to challenge.
Major projects devoted to domestic sales are unaffected by the WTO rules.
Many of the North-West Shelf's international competitors are offered generous accelerated depreciation regimes, but the Government abolished accelerated depreciation in its recent review of business taxation and does not consider it politically feasible to reintroduce it on a one-off basis.
The strategic investment process was revamped after the tax review in recognition that large capital-intensive projects would need some recompense for the loss of accelerated depreciation.:
