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Issue No. 135 | 10 May 2002 |
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The Costs of War
Interview: Squaring Off Industrial: Heroes Betrayed History: At The Coalface International: Wobblies With Chinese Characters? Politics: Dancing with Trotsky Economics: You Are What You Eat Poetry: Alexander's Bragtime Band Satire: Stott Despoja Celebrates Engagement With Minor Party Review: Painting Paradise
The Soapbox The Locker Room Postcard Bosswatch Week in Review Tool Shed
 Heaps and Heaps of Hate MailNo ChoiceWho Rules Australia?No Wrap for Song Comp Abbott's Contempt
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Economics You Are What You Eat
************* Globalisation. Sorry to use the word. Particularly in relation something close to everyone stomach - food. But recent articles are asking does trans nationality matter? ' The Ausbuy website points out that the level of foreign ownership in the Australian food industry is high. For example: Abattoirs 80%, Baby Food 100%, Baked Beans 80%, Beef Processing 75%, Beer 50%, Biscuits 90%, Bread (Major) 50%, Breakfast cereals 65%, Cheese 50%, Frozen vegetables 85%, Meat Pies 40%, Pet Food 85% Does this matter? Dick Smith, he backer of Ausbuy, claims he doesn't object to foreign companies, but he does say he is fighting back against the use by foreign companies of the Australian made label. He says that Australian owned is also very important. Smith copped plenty of flak for his stance from the Australian Food and Grocery Council, News Ltd journalist Denis Shanahan, Stuart Littlemore and Tim Fischer. Smith set up his own label to counterattack against Kraft, for example, using Aussie icons. Bill Pritchard and Jonathan Pickering address the issue of whether this should be a concern for us and whether it is a threat to Australian culture in two complementary articles in the latest issue of the Journal of Australian Political Economy (no.48, 2001). Pickering begins with the beetroot in his look at the mixed harvest of globalisation for Australian culture. The McOz was hailed by some as the Australianisation of McDonalds, after it has been the cause of the demise of the Australian milkbar hamburger. McDonalds had to withdraw the burger not long after its introduction because of a shortage of beetroot, but it has returned triumphant. The Aussiness of this burger goes to the point that Dick Smith raises. McDonalds remains a transnational food company, but is it somehow "Australian" because it creates an Aussie version of its muck, or because it sources its products locally. It has also released a Kiwiburger in NZ. Pickering argues that globalisation is not a wholly bad or good thing for Australia or Australian culture, and also crucially points out that "Australian culture" is not necessarily a good thing either. Globalisation can be a problem of limiting political and social space but can also mean, as many of the much maligned anti-globalisation movement point out, the focus for a true internationalism. Noam Chomsky pointed out that the World Social Forum in a sense provides the focus for a new International, this time not controlled by Stalinist apparatchiks. The role of corporations in all this is another matter. Pritchard refers to the work of political economists such as Bryan and Rafferty, who have pointed out that capital is not national or international, but rather "weaves its way through various institutional (state and non-state) structures, become implicated and immersed within its contradictions." Policy makers these days tend to try and wash their hands of involvement in this kind of economic issue, saying it's a matter for the market. Pritchard emphasizes that TNCs are social actors who have large financial power over people and resources. Pritchard attempts to get at the newly developing structure of TNCs by describing the framework of 'alliance capitalism". Nike has been seen as the archetype of this, with the lead company acting as a co-ordinating agent between sub-contractors and contractors. The type of trade that exemplifies this structure of transnational business is called related party international transactions (RPITS) or more generally known as a form of transfer pricing.. RPITS give TNCs the scope to shape and control the terms of their international trading relationships, in particular, their internal price or royalty structures. RPITS also can give rise to the opportunity for tax minimization. In the food industry in Australia, Nestl� and Simplot are the major examples Pritchard uses to highlight key issues in the globalisation and national culture debates. Nestl� are a very well known, ostensibly Swiss based company, who own such well known brands as Yoplait and Peters. Nestl� use the RPITS to minimise tax in an aggressive and have been subject to much scrutiny by the tax office, so far unsuccessfully. They claim an arms length approach is taken in the operation of its Australian interests, but Pritchard shows how the ATO tried to get at invoices that came through a Nestl� subsidiary in the Bahamas. After initially successfully challenging the company, the decision that Nestl� had unpaid tax liabilities of $20m, the decision was set aside by the Federal Court. A wholly locally based company would have been unable to benefit from these arrangements. Simplot is the owner of such brands as Edgell Birdseye and Herbert Adams. They provide the potatoes for the afore mentioned McDonalds, sourced from contracted potato growers in Tasmania. They are a US based company and the Australian subsidiary has never paid a dividend to the US parent and has posted an operating loss in Australia and never paid tax here. The crucial thing for Nestl� and Simplot is the brand assets. These have all been transferred offshore to Switzerland and to the US. Royalty payments on these brands are also thus relocated to the offshore bases. These trademark royalties for Simplot moved $a30m and $a54m to Simplot's parent company in 1998 and 1999. This was a lot of cash for the Australian operation but it all went to the US office, thus putting financial pressure not noticed before on Australian operations, which, as we have seen, were running at a loss. The ATO has been trying to look at these related party royalty transactions as a way looking at TNC accounts, but the face many obstacles. The Australian company San Remo is an example of the way the "Australianness" of a food company does not guarantee the interests of Australian people either. The ATO has been taking on San Remo about the way they have used RPITs to reduce their Australian tax liabilities. Using the Tax Act the ATO was able to investigate and amend company tax assessments if they thought transfer pricing had occurred. The ATO thought that San Remo had been importing pasta at artificially high prices. The ATO amended their assessment at what they deemed to be arm's length prices. Pritchard notes that the San Remo case how companies deliberately construct transnationality as a corporate strategy for competitive advantage. San Remo directors had incorporated a Swiss company to act as purchasing agent in the mid 1980s for the purpose, as the ATO saw it, of making possible these transfer pricing arrangements and using the Swiss tax haven status. We see from all these cases how corporations have been using transnationality to improve their competitive advantage, and at the same time using the branding power of the companies they purchase or have established at a national level to market their products. Dick Smith has taken aim in a savvy way to at transnational takeovers, but Pritchard, whilst not criticising Smith's business strategy, points out that from a national economic interest point of view, Australian ownership does not guarantee the business acting in an ethical way. Pritchard outlines the policy implications of these transnational tax strategies. Many of our largest companies and wealthiest individuals have been moving to paying no tax at all. These companies and individuals often like to parade their Aussie credentials, whilst at the same time acting in a transnational way to avoid tax obligations. Pritchard points to the need for increased financial and legislative clout to be given to the regulatory agencies such as the ATO, the Australian Securities and Investments Commission (ASIC), Intellectual Property Australia and the Australian Customs Service. Cost cutting has hit these and many other public sector regulators hard and professional staff have left and have gone to professional accounting firms, the ones who advice on corporate structures to avoid tax. A great need is there to improve these strategically critical national institutions within our increasingly open economy. See Journal of Australian Political Economy; no. 48, December 2001. Available from PO Box 76, Wentworth Building, University of Sydney 2006. (Jonathan Pickering's article won the Wentworth Medal at the University of Sydney in 2001 for the best essay on a specified topic) Dick Bryan and Michael Rafferty. The Global Economy in Australia. (St Leonards: Allen & Unwin, 1999)
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