Bank Discusses Import Control

Press, Volume CIV, Issue 30803, 15 July 1965, Page 18

Bank Discusses Import Control

Progressive removal of import control has been a stated objective of New Zealand governments ever since licensing was extended to cover all imports in January 1958, but foreign exchange reserves have at .no time been sufficient to justify major action towards this end, although administration has been streamlined, and some relaxations made, says the Bank of New South Wales in its quarterly review.

In the schedule for the year to June 1966, a major step was taken with the complete exemption from control of some £4sm worth of imports, covering a substantial proportion of the items in the imports schedule. Although preliminary announcements had indicated the Government’s intention to work towards this objective, such major action was surprising.

At the end of April, net overseas assets of the banking system stood at only £80.3m, sufficient to service less than three months’ imports at recent rates, while developments in export markets suggest that even maintenance of payments at the level of the past year would demand substantial overseas borrowing. Nevertheless, growing criticism on both administrative and economic grounds was considered to justify action, and the Government has already committed itself to exercising its initial drawing rights of £22m from the International Monetary Fund if necessary. Some further overseas borrowing may yet be needed. Although some two-thirds of New Zealand’s imports still remain subject to selective control, the 1965-66 licensing schedule greatly broadened the area now freed from limitation. Items newly exempted totalled 90. The almost bewildering complexity of the present fabric of controls in part explains their unpopularity, and the desire of the Government to work towards their dismantling. But there are more fundamental criticisms. In more recent years imports have twice exceeded by wide margins the levels sought when the schedules were announced. Traditionally, licences have been issued for a figure over and above that sought to provide for non-utilisation, but experience in 1961 showed that past experience was no guide to the appropriate proportion to allow for this in a year when internal demand was high and investment expenditures were heavy. Prices May Change Another weakness is that overseas prices may change during a year, rendering some licences redundant and others insufficient. Under a licensing system, redundant licences tend to be used to build up stocks, while a case am readily be made out for additional licences if prices rise, and where factory output or employment depends on the issue of those licences, such a case may prove irresistible. Another criticism is of the protective effect of import licensing. It would be grossly unfair to suggest that New Zealand manufacturing industry generally, or even a significant proportion of it, has con-

sciously taken advantage of this protection, but the existence of import licensing has had a major impact on the pattern of industrial developments over the last 10 years, and some new industries would never have been established but for the protection afforded by exclusion of competing imports. Moreover, any system of import licensing based on past importing experience has two major weaknesses. It tends to impart rigidities by assuming that the pattern >f imports in a recent past year is still appropriate, while it encourages importers to utilise their licences fully, regardless of need or sales, in order to protect their allocations in a subsequent year when more restrictive practices may be adopted. An attempt to overcome this last difficulty has been made in the Ministerial announcement which accompanied the latest schedule. For the first time, it has been indicated that, the relaxations are intended to be permanent, so that the Government has committed itself to a longer-term policy on specific imported items. Even so, some over-import-ing seems likely in the context of current high economic activity and excess demand for labour. The Government has taken a calculated risk. On its outcome will depend any future moves toward the further dismantling of controls on imports. Not Encouraging The prospects do not appear notably encouraging. In spite of recent falls in export prices for wool and dairy produce and the achievement of a substantial fiscal surplus in the year to March 1965, spending in New Zealand remains confident, and importers are likely to find a ready sale for an increased volume of goods in the coming year. New Zealand's balance of payments problems may not be insoluble, but if they are to be overcome in the absence of direct limitation of imports, economic policy in New Zealand will need to be oriented consciously so as to hold demand to levels which' can be met from local resources and current foreign exchange earnings. The stability which this implies may well prove incompatible with other basic objectives of New Zealand economic policy, ■ notably the maintenance of full employment in its.most generous interpretation, the expansion of production, and the avoidance of extreme economic policy measures. Yet the weaknesses of direct control are serious, quite apart from its oeriodic ineffectiveness. The attempt to do away with it at a time which does not appear especially propitious is a bold one. and given co-operation from all concerned, it may succeed, the bank adds.