National angers some its best friends
By Richard Harman (author)
The Government is offside with the business and manufacturing lobby, traditionally core supporters of a National Government.
A move which seems prompted by Housing Minster, Nick Smith, designed to lower the cost of building materials is being described as anti-business, and there is a warning it could cost jobs.
Commerce Minister Paul Goldsmith is responsible for a Bill which will provide for counter vailing duties to be imposed on products which have been “dumped” in New Zealand by exporting countries like China.
Dumping means that the products are selling for less in New Zealand than in their country of origin.
The Bill appears to be a routine piece of legislation, updating the procedures under which the Ministry of Business, Innovation and Employment would deal with a complaint from a New Zealand manufacturer that products have been dumped.
But it adds a highly controversial “public interest” test.
The test would allow for broader public interest elements, such as competition and consumer welfare, to be considered before an anti-dumping or a countervailing duty was imposed.
Goldsmith says it has its origins in a 2012 inquiry by the Productivity Commission into housing affordability.
Among the things it suggested that might lower construction costs to improve affordability were regulatory changes that allowed a greater use of internationally traded house components and building supplies.
"After that the Ministry of Business, Innovation and Employment did a construction sector market study and one of their recommendations was the public interest test,” he says.
But Catherine Beard, executive director of Manufacturing NZ believes there was an element of ideology in the insertion of the clause by MBIE and that the Ministry’s bureaucrats don’t really understand manufacturing in New Zealand.
"In New Zealand, if you take a manufacturer out there's a whole big knock on effect,” she says.
Another origin of the decision to insert the public interest clause was thee experience of the Christchurch earthquake.
Writing in “The Herald” last week, John Nowlan, the General Manager of NZ Steel, said his company had to face up to the surge in Chinese steel production which had seen China increase its production to 800 million tonnes per annum or half of the world's total production.
“The consequences are being directly felt through tens of thousands of job losses worldwide,” he wrote.
“Complicating this is a host of other factors that make for a "perfect storm" for the New Zealand steel industry, including our dependent trade relationship with China, our third largest trading partner.
“Exacerbating matters, as part of an effort to stimulate lower prices for the Christchurch rebuild, the NZ Government opened the floodgates by suspending dumping penalties for three years, ordinarily one of the key remedies available to combat dumping.
“The current bill goes even further by making it potentially much harder for New Zealand businesses to gain remedies by the inclusion of a uniquely defined Public Interest test (so that in the cases where it is deemed to be of "Public Interest" dumped goods may be allowed) which is unlike any other adopted by our comparable neighbours such as Canada, US or the EU. Importantly, Australia, our closest trading partner, has twice rejected the need for a Public Interest Test.”
But Goldsmith argues that things are not quite as draconian as Beard and Nowlan suggest.
"It's a very high threshold for the public interest consideration comes in,” he says.
“The presumption is in favour of imposing the duties.
He says the public interest test would only cut in if the costs of imposing the countervailing duties materially outweighed any benefit to the domestic industry.
But Beard argues that if the Government thinks there are parts of the New Zealand economy dominated by monopoly suppliers, then the Commerce Act is available to be used to deal with that.
The Government has certainly been determined to increase conception in the building supplies market.
Gib board is most often cited as one area where competition is needed.
The Productivity Commission found that Australians paid 40% less for plaster board than New Zealanders.
But there were other big cost discrepancies, particularly in hardware.
Housing Minister Nick Smith has been critical of what he has argued was a local manufacturing monopoly on setting standards for building components because Standards NZ did not have the financial resources to include independent advisors in its standards-setting process.
Last year he had Parliament pass a Bill which changed the funding basis for Standards NZ to allow that to happen.
That move needs to be seen alongside the public interest clause in the anti-dumping legislation.
The purpose of both is clearly to get cheaper building materials even if it means that some New Zealand businesses will have to shut down.
Beard says this approach contrasts with that taken by Australia.
She says the Government there provides funding and market research and other assistance to companies which undertake anti-dumping actions.
“They are sending a signal to business that ‘we value you, we want to support you, we want you here’.
In contrast, she says the New Zealand Government is sending a bad signal to the manufacturing sector and to business more generally.
The Bill is to go to the Commerce Select Committee where already there is a heavyweight lineup of business groups waiting to present submissions opposing it.
These include Business New Zealand, NZ Steel, the New Zealand Building Industry Federation and Heinz Wattie.
There is support for the Bill, principally from the big retailers, the Warehouse and Foodstuffs.
Nevertheless, the opposition of Business New Zealand, with its huge affiliated membership, many of whom are National Party suppliers and donors, is a problem for the Government.
But Goldsmith is philosophical about that.
"Any change has always got an element of political risk," he says.