Who Will Protect Consumers From Protectionists?

Import News from the Importers Institute of New Zealand

9 October 2003 - Who Will Protect Consumers From Protectionists?

(This article was first published in The Independent, 8 October 2003)

Once upon a time our trade policy was designed to protect manufacturers from competing imports. Now, it's designed to promote the agendas of ideologues.

Not long before the 1999 election, Alliance Leader Jim Anderton proposed a tariff increase of five percent on all imports, excluding Australian goods.

That proposal was over-ruled by Labour, but one of the first measures of the Labour-Alliance government was to stop all previously scheduled tariff reductions.

Last week, Economic Development Minister Jim Anderton announced that tariff reductions will resume after the next election.

Tariffs for clothing and shoes were frozen at 19% of the value of the imports.

Some items of clothing are subject to even higher tariffs. For example, in the last year we imported approximately $36 million of cotton t-shirts from China. Of that, imports worth $26 million were subject to the 19% tariff.

The remaining $10 million were shirts with an average FOB cost of $2.41 each. The "alternative specific" tariff on those shirts is 65 cents each, an average rate of 27%. The cheaper the shirt, the higher the tariff.

Tariffs of this type were scheduled to have disappeared long ago, but remained in place during the freeze.

The government has now decided to eliminate "alternative specific" tariffs from 1 July 2005 and replace them with the 19%. Those will, in turn, be reduced to 10% in four steps, between 2006 and 2009, unless a future coalition decides to apply another freeze.

The main purpose of tariffs is to protect New Zealand manufacturers competing with imports.

So why have we had a 27% tariff on cheap t-shirts? Who are we protecting from import competition? There are no significant manufacturers of cheap t-shirts in New Zealand. There haven't been any for years.

Consumers are paying millions of dollars more than they need to - and will continue to so for several more years - so that politicians can please a vocal constituency of people opposed to trade, on principle.

Those opposed to trade are not just manufacturers who benefit by being able to increase their prices (and profits) behind the tariff walls.

They include the Greens and other card-carrying members of the caring classes. Green co-leader Rod Donald labelled the government's decision a "mad pursuit of free trade" and predicted (again) a slow death for the New Zealand clothing industry.

Oxfam called for a general reduction in tariff peaks, so that no tariffs applied against developing country exports exceed 5%. It also asked for market access for textiles and garments, "which are the main labour-intensive exports of the developing world".

That call collapsed the main pretext used by anti-trade activists to justify protectionism. Some of them appear to be more interested in punishing Western democracies for winning the Cold War than improving the lot of poor people in developing countries.

Donald said: "We do want to help these people, but not at the expense of our own people." So, there you have it, Green compassion has definite limits.

Likewise, some trade union officials condemned the decision. CTU economist Peter Conway said: "Previous tariff cuts have resulted in the loss of thousands of jobs in the textile, clothing and footwear sector."

Never mind that previous tariff reductions coincided with historically low unemployment. One possibility is that people previously employed in dead-end, protected industries are now doing some useful work.

Of course, it is also possible that they all found jobs as "environmental planning officers" in our burgeoning local government industry, or spend their days sitting in Industry New Zealand meetings, in which cases they are still outside the productive sector of the economy.

One thing is for certain: predictions that earlier tariff reductions would cause massive unemployment were wrong.

It is difficult to discern the reasons why the government considered tariff reductions to be a bad thing in 1999 but a good thing in 2006.

The flip-flop is symptomatic of a muddled trade policy. The first real test of this government's commitment to free trade was presented during the negotiations with Hong Kong for a free trade agreement.

Some local clothing and shoe manufacturers worried that the agreement could result in some goods from mainland China coming in duty free.

Our negotiators demanded that only goods that were finished in Hong Kong and shipped direct from there to New Zealand would qualify for duty free entry. As garments designed and made in Hong Kong are usually sent to factories in Southern China for finishing, that request amounted to much the same as excluding the clothing sector from the agreement.

This was not acceptable to the Hong Kong government and the negotiations stalled.

New Zealand stood to get substantial benefits from opening up trade in services, but the interests of the small clothing protectionist lobby prevailed. The government failed that test of its commitment to free trade.

Next, the government's strategic realignment experiment is moving New Zealand away from the US/Australia/UK defence orbit, effectively putting paid to any hope that we ever had of a free trade agreement with the United States.

The trade and investment distortions that will be created when Australia and the US sign a free trade agreement will be profound and will affect New Zealand adversely.

We can not rely on multilateral mechanisms to reduce tariff barriers. The WTO is fast becoming another global talk-and-posture shop in United Nations-style, as the collapse of the talks in Cancun illustrated.

APEC remains committed to the goal of free and open trade and investment in the region no later than 2010 for the industrialised economies.

That goal is probably not shared by Japanese rice growers or American sheep farmers, but it can be achieved if the leaders exercise leadership and stand up to self-interest lobbies.

But Trade Minister Jim Sutton said there is "international uncertainty surrounding tariff liberalisation" in APEC.

Economic Development Minister Jim Anderton went a step further and likened the prospect of attaining the APEC goal to "pigs flying."

The government's decision to end the freeze is a late and hesitant step in the right direction.

Our future as a trading nation should not continue to be mortgaged to the narrow self-interest of a small number of protected businesses or the demands of the anti-capitalist rabble.

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