PROTECTION OF N.Z. INDUSTRY

Press, Volume XCIII, Issue 27988, 7 June 1956, Page 11

PROTECTION OF N.Z. INDUSTRY

Manufacturers’ Case To Board Of Trade

“TARIFFS ALONE NOT ADEQUATE”

"The Press" Special Service WELLINGTON, June 6. Customs tariff should be used as a means of encouraging, promoting, and protecting the existence and development of New Zealand s manufacturing industries; and, over and above equalising costs of production between the Dominion and overseas, must provide a margin of preference for domestic industries, the New Zealand Manufacturers’ Federation submitted to the Board of Trade today. Tariffs alone would not be adequate protection, said the federation. It favoured a combination of tariffs and selective import licensing in its case, presented by the general secretary (Mr A. R. Dellow) at the opening of the board’s public hearing on general tariff principles. Industry did not ask for special favours, Mr Dellow said. It believed it was entitled to protection from unequal and unfair trade practices, and from low-cost production in other countries. It also believed that, provided industry itself measured up to its responsibilites, it was entitled to preference in its home market. Above all, the security and employment of those engaged in industry and their general standard of living must be safeguarded.

The Government had an interest, Mr Dellow stated, because it received approximately half the total of company income in the form of taxation, and almost half the total income tax collected in recent years had come from companies.

The federation asked that duties fixed as a result of the review should restore the protection lost through appreciation of New Zealand currency end take full account of the widening gap in costs of manufacturing between New Zealand and other countries, particularly the United Kingdom. It suggested that an increase of approximately 15 per cent, ad valorem would be required on existing duty rates.

The most favoured nation and general rates of duty on raw materials and equipment not manufactured in New Zealand should be reviewed, and existing margins of preference reduced or abolished where the United Kingdom was not the main source of supply, where the United Kingdom could not supply or • where discriminatory prices were charged, the federation submitted.

Industry was the largest employing group in the country, and had a rapidly-growing labour force. Mr Dellow said. It was reliably estimated that the number of workers in the country would have increased by 375.000 in 1975. and that manufacturing industries would have to provide jobs for another 135,000 men and women. To make steady expansion possible, industry must have an enlightened plan and a consistent policy for its protection and development. Too frequently it had to face disconcerting changes in policy and fluctuating shares of its own home market. “The customs tariff must be so designed and so used as to tonserve overseas exchange and ensure its best possible use.” Mr Dellow said. “There is r.o reason why the tariff should not be used in this way. for We have the examples of many overseas countries to follow. U.S. Tariffs’ “In New Zealand we have comparatively low tariff rates —low compared, for example, with those of the United States, whose development as an industrial nation has been made possible by substantial protective uties fearlessly, and at times almost ( uthlessly. applied to protect an industry. primapr or manufacturing, *vithout the twisted measuring rods of j economic’ and ‘worthwhile’ so often pplied unrealistically and inaccurately in our own country.” Of the country’s standard of living. Mr Dellow submitted that the advantages could only be paid for and supported by production. They could not ne retained if New Zealand’s policy was to sell on the dearest possible market and buy her own requirements in the cheapest. A New Zealand worker could not expect to retain his present 40-hour week if he preferred to buy goods made by foreign workers working a 45 or 48 hour week at a lower rate of wages, without social security benefits, without statutory paid holidays, without morning and afternoon tea breaks and without some of the other amenities and social legislation which existed in N*=*w Zealand. If there was no domestic industry producing goods of a type required, overseas suppliers . knew they had no local competition to meet and could charse what they thought the market would stand, Mr Dellow said. New Zealand was geographically removed from the larger centres of population and presented a market which was attractive for disposing of surplus production from other countries, but also a market not large enough to be carved up between local and overseas manufacturers. Obviously New Zealand could never be entirely self-supporting, but it might be necessary to afford special protection to certain industries because in times of national emergency the country simply could not afford to be without them. “Uneconomic” Industries Mr Dellow said that “uneconomic” was a word sometimes glibly linked with the word industry—particularly by people not engaged in industry themselves. More recently there had been a tendency to drop the word and refer to “unnecessary” industries, or tn attempt to draw a distinction between “worthwhile” industries and those presumably,not. “Is an industry to be classed as un economic because it is producing what are sometimes, classed &s luxury goods?” Mr Dellow asked. “This presupposes a clear definition of what is a luxury and that can often vary according to circumstances. “Is an economic industry one which uses predominantly local raw materials? If that is the criterion, manv of the old-established industries of Britain and other manufacturing countries would have to be regarded »s uneconomic. “If it is determined on a question of price, the matter can only be decided after a very thorough investigation into the whole field. “An.- process thereby the application of labour to raw materials results in creating ‘added value’ in a form acceptable to the public makes some contribution . to the economic life of the country The fact that the amount of such ‘added value’ in industrial production has now reached approximately £185.000.000. 50 per cent cf which is salaries and wages, is an indication of the contribution made by the manufacturing industries to the welfare and standard of living of New Zealand.” Trade with Britain On a population- basis. New Zealand .Was by far the largest importer of

United Kingdom goods, the federation said, and the country was already importing up to the limit overseas earnings allowed. Manufacturers were at a loss to understand the reason why the United Kingdom was so vocal in urging further liberalising of imports by New Zealand. Although the level of New Zealand import trade remained high, its pattern was changing. United Kingdom manufacturers and New Zealand agents handling consumer goods probably found their prmortion of the trade being reduced, while those handling raw materials and capital goods had found better openings than ever before for New Zealand sales. Mr Dellow submitted that the only way by which New Zealand could, as a long-term policy, achieve permanent balance in overseas payments without, lowering standards of living was by exporting as much as possible of the country’s own raw materials in a processed state—woollen goods instead of wool, leather or leather goods instead of hides—and by importing as much as possible of the requirements in the form of raw materials or partlyprocessed goods, thus ensuring for the New Zealand consumer the maximum amount of goods for the minimum expenditure of overseas funds. Of the exchange rate, manufacturers considered that the restoration of New Zealand currency to parity with sterling had reduced the protection of New Zealand industries, Mr Dellow said. In the general tariff review, the protection lost should be restored, as the Prime Minister (Mr Holland) said in 1949 it would be. Farming Industry

Sound and prosperous farming industries were vital to New Zealand’s economy, Mr Dellow stated. It was to the farming industries’ advantage to have flourishing and efficient manu facturing industries to service their requirements. Manufacturing industries could not give the service requifed by farmers on a basis that I|iey were used only to. supply special types or odd lines that importers did not carry.

“Because of the importance of farming industries in the general economy, they have received very full encouragement and protection by successive Governments in many ways, including import protection and import prohibition, prohibition of sale of competing substitutes, subsidies and other financial marketing assistance, tax and freight concessions,’* he said. “If the board decides, on the facts of a case,/ that a certain in dustry warrants protection, whether by import licencing or by tariff or both, such protection should not be withheld simply because of considerations of end use. The industry must be given adequate protection to enable it to exist and compete in its market.” Mindful of the. interests of the consumers, manufacturers were always striving by improved methods and by keeping in touch with overseas developments, to make available the best possible quality, range and variety of goods at fair prices, he said. Statements were often made about the consumers’ freedom of choice, which really meant freedom for the importer to decide what he would import. Actually there was no perfect freedom of choice—no freedom to decide to have butter or margarine, no freedom in many cases for a manufacturer to decide if he will have his goods carried by rail or road, and because of the preferential tariff system manufacturers were not free to buy their materials from world sources, on equal terms. However, consumers had a wide range of choince from New Zealand production in most fields, and a policy of protection for industries did not necessarily mean a complete prohibition on imports of overseas goods. Protection Methods New Zealand was described as just a babe in arms when it came to learning how to use various methods of protection, Mr Dellow said. Greater use could be Iflade of means not directly related to the tariff system, but just as effective. He listed the main methods as tariffs, import , licensing, quota restrictions, import prohibition, and subsidies or bounties to domestic consumers. Customs tariffs were a means of protecting industry, but effective to a limited - extent only, he said. Since the First World War, it was difficult to find a period not subject to some abnormality that did not reflect the inadequacy of tariffs as a protective device, and such a situation existed today. An adeouate tariff would not only equalise differences in costs of production. but include a substantial margin over and above for preference or protection. In fixing rates of duty today, if the 1933 rates were taken as a starting point, extra allowance should be made for a margin of preference or protection in favour of New Zealand producers to counteract the irrational appeal of a foreign label: an allowance for protection lost through exchange appreciation: and extra duty to compensate for increases in wages and overhead costs which had risen more in New Zealand than in the United Kingdom and most other countries, and shorter working hours Wage costs on an average m New Zealand were 80 per cent, higher than in Britain, he said Import Licensing Whatever might be the disadvantages of import licensing, the federation said it involved selective importing, and surely was sound when overseas

funds were short. Tariffs alone could not give sufficient protection to all industries in all circumstances. It would need to be an extremely high tariff which would provide a strong enough protection against imports from Eastern countries with low wage rates and low standards of living. Under the Ottawa Agreement, New Zealand was bound to extend to some of those countries, such as Hong Kong. Singapore and India, the same concessions and preferences as were extended to Britain. Unless those commitments were modified, import control remained the only safeguard against imports from those sources and should be retained.

“We envisage the future pattern of trade and protection as a combination of tariffs and selective import quotas.” Mr Dellow said. “Manufacturing is essentially a long-term activity, and cannot flourish under a policy of day-to-day expediency. It requires a longterm policy under which industry can plan for the present and the requirements of an expanding population.. This policy is found in a combination of tariffs and selective'import licensing.” The federation urged a strengthening of legislation to prevent dumping. International Agreements

After discussing the Ottawa Agreement, the federation said that since the bulk of New Zealand’s export trade went to the United Kingdom and the bulk of imports came from there a system of reciprocal- preferences was a logical development. But preference to the United Kingdom involved protection on the New Zealand market for the United Kingdom manufacturers. If the New Zealand market was worth protecting for them, surely it was much more worthwhile protecting the New Zealand manufacturers.

On trade with India. Pakistan. South Africa. Hong Kong, Malaya,, and Singapore, the federation said, benefits under the Ottawa Agreement . were very much more in those countries’ favour than in New Zealand’s.

As qualification for British preferential tariff, the federation recommended a similar system to Australia’s, to give preference to genuinely British goods and not to foreign materials processed or assembled in Britain while New Zealand manufacturers had to pay foreign rates of duty if they imported the identical materials.

Mr Del’ow dealt briefly with the General Agreement on Tariffs and Trade, and said it was a one-sided bargain operating to the disadvantage of both the primary and manufacturing industries of New Zealand. “Nowhere in any part of GATT or the Organisation for Trade Co-operation is there any reference to permanent safeguards which New Zealand could invoke,” Mr Dellow said. Price Control Price control had considerably weakened the ability .. of some industries to comnete against; imports, he said. It should be axiomatic that where an item was removed from import licensing it should also be exempt from price control. There were ample avenues in New Zealand for training people t© a high degree of technical ability, but unless the necessary opportunities were provided in industry New Zealand would lose many of them to overseas. Industries such as the engineering industry, the electronic -field and the chemical industries must be protected in the national interest. ‘ They were among the industries which helped to develop the technical knowledge and skill and to keep it in New Zealand for New Zealand’s benefit.

Imports by or on behalf of the Government were not liable for duty, Mr Dellow said. In Government purchasing. preference should be given to local manufactured goods, at least to the extent of the equivalent rate of duty. s