Import tariff costs ‘small’

Press, 11 February 1986, Page 11

Import tariff costs ‘small’

PA Wellington Further cuts in protection to domestic industry would bring little benefit to the economy, said the Manufacturers’ Federation when releasing a study by the Wellington economic consultant group, BERL. The study showed that the cost of protecting domestic industry was nothing like what other reports had suggested, the federation said.

The study was commissioned to discover the costs and benefits of cutting the existing level of import protection. Using a Victoria Uni-versity-based econometric model, BERL measured the effects of various levels of import protection.

It found that the elimination of tariffs would bring an influx of cheaper imports replacing many domestically made goods, the federation said.

“On the assumption that the displaced labour and capital were not permitted to lie idle, a substantial increase in exports would have to take place, possibly at lower prices. "Wage rates would fall and the country’s terms of

trade and exchange rate would also move down,” the federation said. BERL said the alternative would be a distortion in the balance of trade and idle labour and capital.

It noted that the removal of import licensing was already well under way so that much of the benefit would be secured by established policies.

Further cuts in tariffs to nil would produce a further 0.4 per cent rise in the level of private consumption. The study also examined the impact of protection on the costs of different sectors of the economy.

It found that contrary to assumptions stemming from the 1983 Syntech Report commissioned by the Treasury, the cost of protection in no case reached the assumed 20 per cent of value. Compared with theoretical free trade, the cost of import licensing and tariffs to exporters, local industry and consumers rarely exceeded 10 per cent.

The cost penalty was 7.5 per cent for manufacturing and 2.2 per cent for agriculture. BERL said the cost

penalties declined sharply in a move from existing import licensing plus tariffs to existing tariffs alone.

The study found that the present removal of import licensing was securing the main portion of available cost and price efficiencies.

BERL said the findings suggested the “small” cost to the farmer was more than offset by the farmer’s own benefits from protection. Protection was not bad-

when its purpose was to improve the competitive position of domestic producers relative to overseas suppliers on the domestic market.

“Provided it is evenhanded or uniform, it did not misallocate resources, nor, provided it took the form of tariffs, would it necessarily prevent competition from imports,” BERL said.

The federation’s president, Mr Keith Tyrrell, said the study showed that the cost to the community

of protecting jobs in domestic industry was obviously nothing like what had been suggested previously. The existing level of

tariffs was a protective device used by all countries and was not a burden, he said. Through closer economic relations and the gradual abolition of import licensing, manufacturing had toughened it-

self to compete with overseas suppliers — provided that competition was fair.