Tariffs cut manufacturers deep
NATIONAL:Australian textile, clothing and footwear businesses are reportedly bracing for an onslaught of offshore competitors, as the Federal Government unleashes its next round of tariff reductions.
IBISWorld analysts have predicted that as tariffs on apparel drop from the current levels of 17.5 per cent to 10 per cent in January 2010, cheaper imports will flood the market and place greater strain on already struggling Australian manufacturers. According to IBISWorld figures, clothing imports grew by a dramatic 11.8 per over 2004/05 after a tariff reduction of 7.5 per cent.
IBISWorld analyst Raghu Rajakumar said while schemes such as the TCF Strategic Investment Program aimed to give local manufacturers a competitive advantage over offshore suppliers, further tariff reductions would pose a substantial threat to low-priced Australian made products. The TCF Post-2005 SIP scheme provides grants for value added projects such as new plant/building infrastructure and research and development.
"The level of industry protection has declined as the Federal Government [pursues] free trade policies," Rajakumar said. "Industry participants are now expressing concern about the further tariff reductions scheduled for the next five years. Intuitively, reduced tariffs enhance the ability of overseas manufacturers to compete on a price basis with local producers."
Rajakumar said IBISWorld expected to see a surge in imports from China in 2010 - with the country currently representing 62 per cent of all clothing imports - and increased market penetration from Vietnam and India. He said cost pressures such as soaring oil prices and rising wages would see a rise in the cost of shipping to foreign markets, making the latter two even more competitive.
However, Council of Textile & Fashion Industries of Australia (TFIA) general manager Lachlan Caddy said he was sceptical a reduction in tariffs would see a surge of cheap imports from Asian markets.
"The simple fact is that currently imports represent a significant portion of the supply of clothing to the domestic market place and further, these products are generally so cheap that lowering or increasing the tariff rate is likely to have little effect on the amount imported."
Caddy pointed to figures on women's outwear imports over the 2006/07 period, which saw 300 million units arrive in Australia - 92 per cent of which came from China. Although no exact figures exist on Australian production levels, Caddy estimated around 10 to 15 million items were made in Australia - a market share of just three to four per cent.
"I don't see how the market could potentially be more flooded than this," he said.
The reduction in apparel tariffs and duties, kicking off in 2010 and set to fall by a further five per cent in 2015, is expected to be well received by local businesses which manufacture offshore. In its submission to the Federal Government TCF review, intimate apparel retailer Bras N Things argued the 17.5 per cent duty rate applied to brasserie was "uncompetitive" by nature as no suitable manufacturers had existed in Australia for many years.
Merchandise manager Brad Dransfield noted there had been a removal of duties on babies napkins, certain sports footwear, gloves, mitts and mittens in Australia as no manufacturers existed to produce them.
"Removing the duty on brasserie would have a positive impact on the industry within Australia and deliver potential growth opportunities to the industry," his submission noted. "By removing the duty, increased investment in design and product development from Australian-based businesses within the industry would increase with the potential to create product that has export potential to overseas markets."
According to IBISWorld figures, imports in the clothing manufacturing industry over 2007/08 are expected to be valued at approximately $3.72 billion, an expected increase of 3.2 per cent from the previous fiscal year. There have been no quota restrictions on imported clothing since 1993.
By Assia Benmedjdoub