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ETMs

February 26th, 2003

Anyone who followed the economic policy debate in the late 1980s, will remember the phrase “elaborately transformed manufactures”. One of the claims about microeconomic reform was that it would lead to the development of a strong manufacturing export sector to replace the import-competing sector that was contracting rapidly as a result of reductions in tariff protection.

Some early figures on manufacturing exports looked promising until it was discovered that the statistical definition of “manufactures” included things like meat and flour. So attention was focused on “elaborately transformed manufactures (ETMs)”. Despite the impressive name, this does not refer solely to high-tech products. In fact, virtually anything that you would naturally think of as a manufactured product would qualify. The Australian Bureau of Statistics gives as its examples “clothing, motor vehicles, machinery, paint ”

Throughout the late 1980s, the growth rate of ETM exports was impressive – as much as 30 per cent in some years. But, as the catchphrase of the day had it “albeit from a low base”. Since ETM exports had been virtually zero in the 1970s, the total value of exports was still small even after several years of rapid growth. But the assumption was that growth would continue and offset the loss of jobs in the import-competing sector.

ETMs were a favorite of the Hawke-Keating government and I hadn’t heard much about them since 1996, but I didn’t know whether this reflected the change of government or the lack of any real news. Checking the data, which you can find in a PDF file here, the answer is the latter. ETM exports grew to between 20 and 25 per cent of total exports of goods (a bit under 20 per cent of exports including services) in 1993-94 and have remained around the same level ever since. The biggest single item is exports of cars, which are effectively subsidised through schemes in which exports can be used to offset concessional imports of parts.

Exports of $25 billion to $30 billion* are not to be sneezed at, and without them the contraction of manufacturing employment would have been even more rapid. Nevertheless, optimistic rhetoric about the growth of a strong ETM sector forming the core of an export-oriented economy has not been converted into reality.

*Since the figure above is gross, the net contribution to GDP will be smaller (by the value of inputs) as will the net contribution to the current account (by the value of imported inputs).

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