Import licensing argued for and against

Press, 26 July 1984, Page 26

Import licensing argued for and against

By

PATRICIA HERBERT

in Wellington

Import licensing proved a controversial subject among speakers at the Federated Farmers conference in Wellington yesterday. The managing director of Fletcher Challenge, Ltd, Mr Hugh Fletcher, argued that import licensing was desirable, and then the chairman of the New Zealand Planning Council, Mr lan Douglas, argued that it was not. Mr Fletcher said that the stakes were high in “the international game” and that to confront the problems of unemployment and falling living standards, “we simply have to earn or save more foreign exchange.” To do this, New Zealand had to compete on the export market with newly industrialising countries and, because it was impossible to achieve “perfect competition” in this arena, the theory of free trade collapsed. The Asian countries were paying low wage rates that reflected low rural incomes,, high urban unemployment and low levels of taxation for social welfare expenditure, he said. “In contrast, we set ours at a high level. It is not a market rate. It is not the rate at which everyone who wants a job can get it and get it in the town he wishes to live in. “Rather it is set at a much higher figure and includes a tax to pay for unemployment benefits and other forms of mandated social expenditure,” he said. This would persist for as

long as New Zealand had high unemployment and he believed that this would be for a long time “unless we strike an oil well somewhere.” Therefore import licensing or “very high tariff barriers” should be maintained for industries particularly vulnerable to competition from newly developed economies, Mr Fletcher said. He said that he favoured the first option and that it should be backed up with export incentives, incentives to invest in plant and equipment which would earn foreign exchange, more added value enterprises and more effective marketing. However, Mr Douglas said, manufacturers operating under the shelter of import licensing had shown a reluctance to face competition or to respond to “reasonable cost disciplines.” This had led to “the gradual imposition of unsustainable cost pressures on the exposed sectors and the eventual need to compensate them,” he said. The process set up a vicious circle. “Exporters need help and this is delivered through fiscal mechanisms. The tax load grows, budget deficits burgeon, interest rates are forced up and exporters need more help.” “The very devices which have been developed to assist them finally end up by burdening them,” he said. “It is essential that we break out of this trap.”

Mr Douglas said that experience had shown that import licensing did not induce efficiency over all. Indeed, it led to gross distortions and a serious misallocation of resources. He also rejected Mr Fletcher’s view that only low wage countries would succeed in open markets. Nt Douglas quoted Finland as an example of a small economy with wages higher than New Zealand’s and a bigger Welfare State which had been totally exposed to international competition and had flourished. It had the highest growth rate in Europe yet was competing in industries where the newly developing countries had made great gains, in recent years, notably ship building and textiles, Mr Douglas said. He also said that the argument against trading with the newly developing Asian countries implied that New Zealand “should reject the opportunity to enjoy low cost imports” and asked if this could be seriously presented as being in the national welfare. “I am not advocating the elimination of protection, nor the removal of all subsidy,” Mr Douglas said. “But I am saying that, in the interests of equity and more efficient resource allocation within the economy, we should have lower and less uneven industry assistance.” He said that for decades New Zealand had sought to insulate itself from international price levels and that, as a policy approach,

it had simply not worked. “If we are to get rational resource allocation and an acceptable level of growth, with all the prospect that can offer of a return to full employment, we need to respond to international price levels rather than seek to shield ourselves from them,” he told the conference.