Fraser Live: Call of duty

On January 1, 2010 the highest duty rate on clothing will drop from the current 17.5 per cent to 10 per cent. On the face of it, that is a significant reduction but, in reality, it will hardly cause a ripple in the cost structure of clothing in Australia.

Already many developing countries export clothing to Australia duty free, and that includes rising star, Bangladesh.

Chinese goods, of course, will benefit but, in the price sensitive sector where China does most of its business, prices are so low now that a 7.5 per cent Australian duty reduction won’t make much difference. A shirt, for instance, which currently lands in Australia at $5 will only come down by about 40 cents.

That kind of variation could be easily out-gunned by a number of other factors like a currency fluctuation or a change in China’s internal export incentives.

Of course, reality won’t stop the major retailers in Australia demanding lower prices for goods landing after New Year’s Day. Any excuse for tightening the screws on suppliers is acceptable, but they will find, from their own direct importing, that lopping a big percentage off the clothing duty will have little flow-on effect.

The change could have more interesting consequences for logistics folk. Shipments which would normally be cleared in November and December will take the scenic route to Australia and, if possible, arrive at the wharves just after various state governments have poured money into fireworks to welcome in the new year.

In Sydney there won’t be much fireworks money collected for traffic congestion fees from Port Botany. November and December could be deathly quiet in all Australian ports as far as clothing imports are concerned, but January will bring havoc as importers choke roads with containers that should have arrived earlier.

The clothing workers union (TCFUA) has been strangely quiet in the face of the duty drop. Either it has calculated that the damage has already been done to the local garment industry, which is in the position of “you can’t fall off the floor”.

However, after the union’s righteous indignation over local manufacturers not having paperwork in order, I expected some media squawk over the duty drop which left local manufacturers aghast some years ago when it was mooted.

It no longer threatens to upset the relationship between locally made and imported clothing. Even nil duty rates will not affect it – remembering a large number of Australia’s suppliers, including Bangladesh, export their clothing to Australia duty free already. Volume local production has well and truly died, leaving an industry which makes its sales from short runs and quick delivery rather than price.

At the beginning of the import tsunami 15 years ago the mercurial Ian Lin preached the value of short-run, quick-turnaround production, with textile supply to back it up in terms of short runs on prints and knits. He even tried to sell the concept’s export potential and organised hearty discussions with theDepartment of Trade.

His argument was that if Australia still needed short-run, quick-turnaround garment production, then so must a number of other developed countries. Since we were set up for it we could export plenty of crumbs rather than containers of bread. In theory, he might have been right but, sadly, nobody bought the idea.

My friend who imports T-shirts sees the duty drop as being a disincentive to undervalue for duty. In the days when clothing paid 55 per cent duty, undervaluing was rife because cheating paid. But now, with the top end of the scale only being 10 per cent duty, there is little point in taking the risk on being caught – not that customs cares much anyway.

The game of making in China and shipping through some remote duty free country is similarly doused, as is the Marrickville factory, of undeclared address, that will change country of origin labels for a reasonable fee.

All of a sodden

One of our few remaining textile wholesalers has found a novel way to make money in these tough times. The idea came to him when, after heavy rain, a leak in the roof of his warehouse flooded and ruined a few thousand meters of fabric.

He called upon his insurance company – as one does in such circumstances – to pay a claim, which it did without bothering to inspect the sodden goods. Rather than dispose of the fabric, the wholesaler left it where it was and awaited the next serious downpour and another welcome payout.

One should be careful about augmenting the effects of a flood with a garden hose, however. Insurers are well aware of this possibility and can test the water to determine where it came from. A word of warning: rainwater does not contain additives like fluoride, found in tap water, and insurers know it.