CER a rough playing field for Kiwi manufacturers

CER a rough playing field for Kiwi manufacturers
Wellington's doctrinaire "hands-off" approach to export assistance contrasts markedly with Canberra's generous help to its manufacturers. Brian Fallow reports.

Does CER spell Complete Eventual Ruin for New Zealand manufacturing?

It sounds far-fetched, given that Australia took $3 billion or 46 per cent of New Zealand's manufactured exports last year.

But for some New Zealand firms CER (closer economic relations) - combined with the two countries' wildly divergent attitudes to Government assistance to industry - means they face unfair competition at home and have powerful incentives to relocate across the Tasman.

While the New Zealand Government emphasises level playing fields and no picking of winners, Australia has the Institute of Sport approach.

"I have come to the conclusion reluctantly that what CER has really been is a job creation scheme for Australia," says the chief executive of the drug-maker PSM Healthcare, Kim Campbell. "You can see that from the number of companies that leave New Zealand to go there."

When PSM tenders to supply Pharmac, the centralised buying agency for the public health sector, it has to compete with subsidised Australian firms.

The Australian Government subsidises research and development and training costs for Australian pharmaceutical firms in the export trade.

Mr Campbell says Canberra spent $650 million on these over the past three years.

"We of course get no such assistance. I'm not saying I want any, but these guys come in and tender against us here and we have lost substantial business to them. I say that is not fair, and certainly not in the spirit of CER."

Mr Campbell's beef is not with the Australians but with the New Zealand Government. "All I get from them is a lot of doctrinaire, stage-one economics theory."

He proposes a system where local drug manufacturers - there are a few, though realistically they could supply only about 10 per cent of the country's needs - are given the opportunity to undercut the lowest bid in any Pharmac tender.

Australian export subsidies are also a sore point in the textile industry.

The federal Government's growth plan for the textile clothing and footwear industry includes export subsidies of between 10 and 20 per cent.

In deference to CER, exports to New Zealand are excluded when the subsidies are calculated.

But New Zealand manufacturers argue that it is impossible to quarantine the recipient firms' trade with New Zealand from the effects of the subsidy on their profit margins and pricing.

In addition, semi-finished garments can be shipped to Fiji, complete with Australian export subsidy, finished and re-exported to New Zealand duty-free.

Although direct export subsidies are to be phased out in the middle of next year, they will be replaced by a scheme that provides Australian textile exporters with assistance in re-equipping and in developing export markets. Some $700 million has been set aside for that programme over five years.

Designer Textiles managing director Kerry Harding would rather have some of that largess than compete, all unsubsidised and pure, with those who already get it.

At both the Commonwealth and state level he has found government across the Tasman more pragmatic and business-friendly than here.

"We had trouble getting [duty-free] access under CER anyway," Mr Harding says. "We import all our raw materials, so it is hard to get the 50 per cent New Zealand content required.

"That left us struggling to gain a foothold in Australia, so we decided to invest directly.

"In 1996, we bought a company in Brisbane about the same size as our New Zealand one. Since then we have invested about $5 million to grow that business - five times as much as here. With the help of export incentives and a kinder Government climate that company is exporting about 40 per cent of its turnover," he says.

"In New Zealand we are limping along, trying to develop an export foothold, but it is much more difficult."

Mutual recognition of product standards is another area in which the practice of CER differs from the theory.

Legislation that came into effect last year in both countries enshrines the principle that if a product can be legally sold in one country it can legally be sold in the other, without further testing or regulatory impediment. It is intended to remove a non-tariff barrier to trade.

Whole industries, however, remain in the "too hard" basket, exempted from the operation of the law.

They include motor vehicles, hazardous substances, industrial chemicals, gas appliances and therapeutic goods.

Officially the line is that with the mutual recognition legislation less than a year old it is too early to gauge its impact on transtasman commerce.

"Cooperation programmes" have been set up for New Zealand and Australian officials to determine whether regulations and standards in the exempt sectors can be harmonised or mutually recognised, or whether the exemptions need to be made permanent.

In Mr Campbell's experience, however, the Australians expect their standards to prevail.