An international trade perspective on user pays road network charges

James Bushell posits that if the road sector is subsidised by the wider economy in a non-equitable way, this could become an area of trade risk for Australia if it is seen as inconsistent with World Trade Organization (WTO) rules.

The Australian agricultural sector, in particular barley producers, were shocked when China applied import tariffs on exports to China, on the basis that Australia was dumping barley into Chinese markets.  These tariffs appeared to be geopolitical, coinciding with Australia’s calls for an independent investigation into the source of coronavirus.  However there are other factors at play, including food security and protection of the Chinese domestic economy, and it may be that China would have levied these tariffs anyway.  There are many possible ways of arguing a dumping action, but they are all basically about whether goods sold into a country are done so at less than cost.  This cost may be influenced through a range of factors, but a common one is government support (direct or indirect).

Funding provided through government programs may be one such trigger in the barley case.  As reported, the Sustainable Rural Water Use and Infrastructure Program was originally an environmental one, but subsequently altered to address social and economic problems too.  In doing so, the door may have been opened to foreign governments to make a case that these programs were being used as back door support to industries.  Now this case is perhaps weak – there are claims that clear evidence in Australia’s favour has not been considered by China, (e.g. the impact of domestic corn and wheat subsidies, extensive pricing data provided by Australia to China, and that the above program targeting irrigation productivity would have had very little impact on a dryland crop), But it seems that China has stepped through that door, even if to test the waters, and in doing so, harmed the Australian barley industry by levying tariffs, and denying the Chinese market to Australian barley producers.

But what does this mean for Australian roads and road user charging?  Under current institutional arrangements, Australian roads are funded through a multitude of mechanisms, but none of these related to direct road use.  We don’t yet have a truly user pays, equitable system of road funding where the users of the road pay for that road.  Instead we have a complicated mirage of a system where different road users cross subsidise each other.  State government grants, local road maintenance budgets, and Federal government funding allocations all form the basis of road funding but there is little reference when planning that spending to who benefits from this underlying use or need.  And in all cases, without a clear nexus to the returns that would have been earned directly from users.  In our system, not everyone pays their equitable share.

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