2. Participants' Views
10. This section identifies the issues raised during consultation. This included meetings, submissions and case studies covering a range of organisations and firms throughout New Zealand. The issues are analysed in subsequent sections.
2.1 Support for Tariff Retention
11. Most submissions5 saw value in maintaining some form of tariff protection. The majority of those in favour of tariff protection maintained that the freeze should remain in place until other countries lowered their tariffs. This view was held among business associations, industry organisations, unions and manufacturing firms in the TCFC, furniture, plastics, engineering equipment, automotive component, building materials ([Text deleted due to confidentiality]) and processed food industries. A small number wanted tariff increases.
Macroeconomic Impacts
12. A number of submissions argued that the allocative efficiency gains from further tariff reduction would be minimal and saw no justification for further reduction beyond July 2005. This view was more pronounced in submissions received following the release of the Infometrics report with which the submissions took issue.
13. A number of submissions which favoured retaining tariffs argued that there would be no further substantive benefits for consumers because:
- tariffs were already low and therefore any further tariff reductions would have only a minimal effect on prices;
- importers and retailers would be unlikely to pass lower supply costs on to consumers;
- choice and availability for consumers was already significant; and
- quality of goods would fall as volumes of cheap, low-quality imports increased.
14. Supporters of the above views maintained that the argument of tariffs being a "tax on exports" was no longer sustainable because:
- inputs were already duty free; or
- duty was now so low that it was insignificant.
Reciprocity
15. Some who made submissions, while philosophically in favour of tariff reduction, stated that they were not comfortable with a unilateral approach to tariff reduction ahead of New Zealand's trading partners. They argued for a more "pragmatic approach". Consultation in general indicated that even those who were most opposed to tariff reduction could better accept reductions if New Zealand's trading partners reduced their tariff rates to similar levels. This view was usually based on the perception that:
- New Zealand was already ahead of the rest of the world in terms of tariff reduction and had undergone a relatively sharp adjustment period;
- there was too much uncertainty about what other economies were doing, including their intentions of meeting the APEC Bogor Goals;
- the playing field was not level as New Zealand exporters faced higher cost structures and non-tariff trade barriers, subsidies and high tariffs in export markets; and
- the remaining tariffs, even though low, provided New Zealand with some form of negotiating coin in international trade negotiations.
Impact on Business Performance
16. A large number of manufacturers held that tariffs were still important to their firms even though they were generally low and only one of a number of factors affecting their businesses. Some maintained that confidence in their industry could be undermined, with a consequential detrimental effect on investment decisions, if tariffs in their industry were reduced further. These included firms in the plastics, TCFC, building products ([Text deleted due to confidentiality]), heavy engineering equipment, automotive component and food processing industries.
17. Some companies, across a range of industries, stressed that their businesses were already streamlined with low cost structures. They argued that further efficiency gains would be very difficult to achieve. These firms stressed that an adequate adjustment period was necessary to improve their productivity as efficiency gains could only be made through incremental changes.
18. Following the release of the Infometrics report, a number of submissions from TCFC firms, particularly clothing manufacturers, stressed that a reduction in tariffs would have a detrimental impact on the TCFC industries. They maintained that a serious risk of tariff reduction was that the infrastructure necessary to sustain the TCFC industries would be stripped away.
19. A number of motor vehicle component manufacturers held that their overseas principals would rationalise trans-Tasman manufacturing operations if New Zealand's tariffs fell faster than Australia's. Separate operations in New Zealand and Australia were only justifiable while New Zealand maintained tariffs. If New Zealand had zero tariffs while Australia retained tariffs, New Zealand's appeal as an investment destination would diminish. They also stated, however, that New Zealand had significant labour advantages over Australia.
Employment and Social Impacts
20. Some submissions suggested that, if tariffs were reduced, there would be negative employment consequences either at the industry or firm level. This would in turn result in negative regional, ethnic and gender impacts. Unions and TCFC, automotive component and building materials ([Text deleted due to confidentiality]) firms submitted that the unemployment resulting from further tariff reduction would disproportionately affect certain regions, ethnic minorities and women. Some submissions also highlighted indirect employment losses for trades people and service providers. Following the release of the Infometrics report significant concern was expressed about the impact tariff reduction would have on the Horowhenua district.
2.2 Support for Tariff Removal
21. The remaining submissions argued for continued unilateral tariff reduction. This group included agricultural organisations representing meat, spirits and grain and seed, several business organisations, importers and a number of food processing companies. This group maintained that making tariff reductions dependent on reciprocity delayed welfare benefits and efficiency gains. A key issue for most was the perceived unfairness of using tariffs to assist some sectors of the economy at the expense of others.
Macroeconomic Impacts
22. A number of submissions argued that New Zealand's remaining tariffs led to a misallocation of resources and reduced national income by keeping capital and labour employed in inefficient areas of the economy. They maintained that these resources could be used more productively in other areas of the economy. In the long term, New Zealand should concentrate on what it was good at as this would increase overall economic wellbeing.
23. Many submissions maintained strongly that tariffs continued to impact negatively on consumers by inflating prices, reducing quality and restricting variety. They argued that inflated prices disproportionately affected lower socioeconomic groups who spent a relatively higher proportion of their income on high tariff items such as clothing and footwear.
Tax on Exports
24. Some submissions maintained that tariffs lowered the competitiveness of exporters by inflating costs.
Reciprocity
25. Those in favour of a continued unilateral approach considered the benefits of unilateral tariff reduction outweighed any benefits of reciprocal tariff reduction. They maintained there was no logic in pursuing a policy of reciprocity and denying New Zealand the benefits of unilateral tariff reduction. New Zealand was, in their view, too small to influence the behaviour of others in negotiations. Some argued that New Zealand would increase its international standing by removing tariffs.
Industry Policy
26. Several submissions argued that tariffs did not assist infant industry because firms did not have adequate incentives to improve their efficiency while protected. In order for highly innovative firms to develop, it was essential to expose them to competition. Furthermore, they argued that the protection provided by low tariffs (5-7 per cent) was minimal and that the tariff was simply an unnecessary nuisance and cost.
Adjustment Costs
27. A number suggested that adjustment costs would be small because:
- tariffs were generally already low;
- not all manufacturers would be adversely affected by tariff cuts because many had already made the necessary adjustments to compete in a zero tariff environment;
- start-up firms were not basing decisions to establish their businesses on the basis of tariffs;
- firms were expecting tariffs to be removed; and
- some businesses were not even aware that they benefited from tariffs.
28. Some submissions advocated that targeted one-off assistance packages could be made available to those negatively affected by tariff reduction - either to help businesses transform or to assist dislocated employees with relocation to other jobs/areas and/or retrain. They saw this one-off cost as preferable to continuing to impose longer-term costs on the economy by retaining tariffs.
2.3 Other Issues Raised
Expectations
29. Discussions with firms indicated a general expectation that tariffs were likely to be eliminated by 2010, but not earlier than this, in accordance with the APEC Bogor Goals. The majority, however, were opposed to New Zealand leading the way and unilaterally meeting this commitment without evidence that other developed APEC members were also planning to meet the goals by 2010.
30. Firms uniformly and strongly emphasised the importance of knowing a clear direction on tariff policy beyond 2005 that recognised a sufficient adjustment period, and that provided confidence for taking efficient business investment decisions.
Exchange Rate
31. The volatility and appreciation of the New Zealand dollar were two of the leading concerns of New Zealand firms. The variability of the dollar made planning difficult and the rising dollar detrimentally affected export earnings. Several companies maintained that the tariff, in providing some protection to their domestic market share, was a useful "buffer" to counter exchange rate uncertainties.
Australia
32. Several submissions supported tariff alignment with Australia on the basis of the growing integration and increased harmonisation with Australia. A smaller number maintained that alignment of external tariffs with Australia was necessary to ensure that there was no lowering of competitiveness against third countries.
Rules of Origin (ROO)
33. Many firms and business organisations expressed their concern with the CERROO. A large number of firms were finding it increasingly difficult to meet the 50 per cent area (Australia/New Zealand) content requirement as domestic infrastructure dwindled and as business models were changed to seek greater international competitiveness.
34. Concern was expressed that, if New Zealand adopted a zero tariff regime (or even lower tariffs than Australia), New Zealand companies would be at a disadvantage relative to their Australian competitors. It was contended that Australian manufacturers would not have to be concerned with CERROO in exporting to New Zealand whereas New Zealand firms would still be required to meet CERROO.
TCFC Strategy
35. Unions and TCFC businesses involved with the development of the Strategy maintained that there needed to be a continuation of the tariff freeze. This would provide a further period of stability to the TCFC industries, help promote confidence in the industries and support the achievement of the Strategy goals. This view was stated even more strongly following the release of the Infometrics report. Many warned that further tariff reduction would have an adverse effect on infrastructure within the TCFC industries. This would make it difficult to achieve the Strategy goals as it would leave firms, including those engaged at the top end of the market, without key domestic support/supply.
36. Textiles New Zealand expressed concern at the impact of tariff removal at a time when the wool processing industry was being restructured. They considered that the off-farm R&D funding reductions as a consequence of the restructuring would hinder the TCFC industries' ability to adjust to a lower tariff environment.
Infometrics Report
37. A clear majority of submissions received following the release of the Infometrics report maintained that the report's findings were inconclusive, based on an ideological/theoretical approach and did not justify the recommendation to remove tariffs. In defence of retaining tariffs, a large number of these submissions cited the small gains to the economy overall. They noted that further reductions would simply have a negative impact on the clothing and footwear industries.
Back to Top