CER: time to get real
Letters to the editor (cont...)
The article on the cover of Ragtrader
last month (February 24, 2006) was just a tad sensational and needs clarification. It seemed to suggest that planned enhancements to the Closer Economic Relations (CER) agreement would suddenly result in New Zealand becoming a cheap manufacturing source for Australian brands. This is far from the case.
The move to a "change of tariff code" or "substantial transformation" method of assessment of country of origin for CER has been a long time coming. The New Zealand industry lobbied for this change to happen back in the early '90s but was rebuffed by the Australian industry at that time.
The old "factory cost" approach has become simply unworkable in the modern trading environment and many garments made on both sides of the Tasman would potentially have fallen afoul of the previous regulatory structure if the rule had been aggressively policed by customs.
Put simply - under the old factory cost method, if a garment had $10 imported fabric content and $10 labour, it would qualify for duty free entry under CER, as 50 per cent of the factory cost was local. Simply increase that fabric value to $12 and the equation is no longer 50/50 and the garment wouldn't qualify - even if made by the same sewing line in the same factory conditions.
So it is high time that the rules changed, moving CER into line with other, more modern bilateral trade agreements, although it is disappointing that men's suits will be excluded from any CER enhancements at this time to support the remaining Australian menswear lobby.
So why won't New Zealand suddenly become a major CMT source for Australian garments? Because fundamentally the situation hasn't changed.
The New Zealand industry has always been able to draw back any duty paid on imported fabrics and there are not significant labour cost saving on this side of the Tasman once freight and logistics are taken into account. I expect that that the status quo will prevail.
Ultimately New Zealand and Australian manufacturing in recent years has moved to the only area in which it remains competitive, which is in the very upmarket or time-sensitive sectors. Therefore improvements to CER are simply legislation coming into line with reality.
This is not to say that there aren't opportunities for Australian companies to CMT garments from New Zealand. There is a small but effective infrastructure in New Zealand which could undoubtedly make high quality garments for Australian brands, but it is wrong to assume a major surge will occur.
Also, how your cartoonist managed to break the North Island of New Zealand into three islands is anyone's guess.
Publisher
NB: Paul Blomfield is a New Zealand industry consultant and was previously CEO of the Apparel & Textile Federation and is a current board member of Fashion Industry New Zealand.
