THE PRESS SATURDAY, APRIL 14, 1984. Changing view on imports

Press, 14 April 1984, Page 18

THE PRESS SATURDAY, APRIL 14, 1984. Changing view on imports

The move from import licensing to tariffs has been taken one cautious step further in the document made public yesterday. During the annual convention of the New Zealand Manufacturers’ Federation in November, initial agreement was reached with the Government on the principle that there should be a gradual move from the remaining import licensing to tariffs. A Government paper, “Philosophies, Objectives, Strategies,” was presented to the manufacturers by Mr Templeton, the Minister of Trade and Industry. This was the document that was accepted in principle. The paper was the result of consultations among Ministers and manufacturers conducted over a number of months. No fewer than five Ministers attended the talks regularly and the Prime Minister occasionally took part. Talks have continued since then. The new step is an agreed document, drawn up by Government and manufacturers’ representatives to show how the change would be implemented. Manufacturers’ groups throughout New Zealand will have the document’s contents explained to them. Implementation is still some time away. The document is called “Import licence tendering and tariff testing procedures,” and its general tone is one of trying to ensure that no toes are trodden on. The last thing that the document could be accused of is being visionary, or even mildly hopeful. It is not about opportunities, but about what will happen if the move is not made. The main intention of the move is to make a better use of New Zealand resources, to be more competitive in the domestic market, more competitive in export markets, and to conform better to international trade rules and practices, which generally favour tariffs rather than import licences. International trade rules and practices are an element that is emphasised in the document and in discussion of the document. This is not surprising because manufacturers would not generally want to be thought inefficient, and inefficiency could be argued to be a component in each of the other main reasons for the change. Import licensing and tariffs are both ways of protecting the domestic market. Under import licensing, a foreign producer who wants to export to New Zealand has either to obtain a licence or find someone who holds a licence and wants the goods. Often, an unofficial price is set on the use of that licence. Under a tariff system the exporter has to pay a tax — a charge at the gate as it were — which is then passed on to the New Zealand consumer. Either way, the competitor in New Zealand is given protection from imports; and either way the consumer stands to pay more for imports. The State gets the benefit of a tariff; traders tend to get the benefit of any higher charge for goods imported under valued licences. The tendering system alters this in favour of the State and taxpayer. Licensing should be a more precise way of governing imports. Official decisions can be made to shut out some items entirely, or to ration the flow to conserve funds or to protect a local industry. It does not necessarily take into account the preference of consumers; it may mean that the allowed funds are stretched by importing cheaper lines. This may,.not protect local industry at all. A tariff system runs closer to the market’s preferences; but fixing the level of the tax is critical. The method chosen by the Government to determine the level of the tariffs arises from a system that was introduced in 1979 of tendering for import licences. Under this system, the Government makes import licences available and importers make bids for the licence. The highest bidder gets the licence or sets the price. Not all import licences are dealt with in this way. Most of the import licences under tender have been additional licences. So the scheme is to put more licences out for tender, to see what the tender prices are, and gain from these some

indication of what level of tariff protection will be needed to make sure that the domestic market is not swamped by imports at the expense of local manufacturing. The tender prices are also a measure of what the market will bear. The method will be closely monitored and there will generally be a period of licence on demand — that is, still import licensing but licences given as requested — before import licensing is removed. From time to time, arguments are raised about the wisdom of the gradual lowering of protection of New Zealand manufacturing. The problem with the New Zealand economy is that the country imports too much for its export income. This would appear to strengthen the view that import licensing would serve the purposes of the country well. The argument that would seem to need the greatest attention, however, is that import licensing has protected employment. The period of New Zealand’s highest level of employment coincided with the time of the most rigorous import licensing. Yet changes in the world’s economy make this too simple a view. For many years, New Zealand managed to survive on its agricultural exports. It earned more than it spent in very few years; but its earnings and its expenditure were not too far apart. However, the economy of the world was gradually turning against the interests of countries such as New Zealand and it became clear that agricultural exports could no longer keep the country in the manner to which it had become accustomed. Something had to be done. A drive for exports of manufactures was begun. Many manufacturers supported this drive with enthusiasm and some others supported it mainly because of the export incentives that they were offered. The drive was a success and exports of manufactures form a substantial and increasing amount of New Zealand’s export income. Yet it became clear, as the drive continued, that there were a number of structural aspects of New Zealand manufacturing which meant that it was hard for a New Zealand company to export at prices that were profitable. The export incentives were part of the community support given to the manufacturers, but the style of protection appeared to make it very difficult for the economy to develop without serious distortions. This is one of the reasons why the idea of freeing up the economy took hold. Import licensing, though greatly reduced, was considered to be holding the economy rigidly and there no longer seemed to be any hope of surviving economically at prevailing standards of living. The price of agricultural goods just did not keep up with the rises in the price of manufactured goods, with the cost of processing, or with the cost of imports. It would be possible, by strict and extensive import controls, to live within the country’s income. New Zealand would then be a country in which life would be a great deal more primitive than most New Zealanders are used to, and one in which the hopes of employment at something more than a subsistence level would be slight. Isolation from the world market, exclusion of imports that keep New Zealand manufacturing on its toes, and failure to produce useful and desired products at competitive prices would be no guarantee of higher employment; it would certainly ensure that such exports as we can achieve now would become less and less competitive. The whole country’s standard of living would declinp. Some would argue that this is fair enough standards decline for all in socially just proportions — the reverse of the desire for a socially just distribution of increases in national production and wealth. Within the capabilities of New Zealand to increase its earnings by efficiency and enterprise, a system that keeps the country in the real world of trade and competition is surely to be preferred.