IN­COM­ING: AN UP­DATE FOR IM­PORTERS

Exporter - - CONTENTS - Daniel Silva, sec­re­tary of the Im­porters In­sti­tute, re­views the lat­est news head­lines af­fect­ing New Zealand’s im­port and ex­port com­pa­nies.

A roundup of news and views for New Zealand’s trad­ing com­pa­nies, com­piled by Daniel Silva of the Im­porters In­sti­tute. Topics this is­sue in­clude New Zealand’s an­tidump­ing regime, GST on im­ported goods pur­chased through web­sites, and the up­com­ing re­view of the Cus­toms Act.

Aus­tralians miss out on China FTA

New Zealand and China have a free trade agree­ment (FTA). For most items of cloth­ing im­ported from China to New Zealand, the cur­rent duty rate is 4.2 per­cent, re­duc­ing to 2.1 per­cent in 2015 and zero in 2016. How­ever, if those items are im­ported from a third coun­try – even if made in China – then the duty rate that ap­plies is ten per­cent.

This af­fects mainly Aus­tralian re­tail­ers with stores in this coun­try, who source their goods from China for both coun­tries and then sort them for dis­tri­bu­tion in their Aus­tralian dis­tri­bu­tion cen­tres. Chi­nese gar­ments shipped from Mel­bourne to Auck­land end up pay­ing a duty of ten per­cent, los­ing the ben­e­fit of the FTA pref­er­en­tial rates. The only so­lu­tion to this prob­lem is to have the New Zealand re­quire­ments shipped here di­rect from China.

Anti-dump­ing non­sense

The Govern­ment is find­ing it dif­fi­cult to have a sig­nif­i­cant im­pact on the af­ford­abil­ity of houses. The is­sue is ac­tu­ally quite sim­ple. Some city coun­cils are run by people who be­lieve that we should all be liv­ing in high rises near train lines, so we can ride a bi­cy­cle to the clos­est lentil-and-soy-latte shop. To achieve this vi­sion of life in East Berlin circa 1975, they pro­hibit people from build­ing houses where they want. Then, the cost of the re­main­ing land goes up, as­tro­nom­i­cally. As it would.

The Govern­ment does not seem to have the stomach to stem the ide­o­log­i­cal on­slaught from the cen­tral plan­ners, so some­thing else is needed to try to con­vince people that they are do­ing some­thing [about house af­ford­abil­ity]. Min­is­ter Nick Smith put out a con­sul­ta­tion paper that sug­gested ex­empt­ing build­ing prod­ucts from anti-dump­ing laws. Ap­par­ently, plas­ter­board from Thai­land and nails from China were found to have been sold too cheaply in New Zealand, so the lo­cal man­u­fac­tur­ers per­suaded an ear­lier govern­ment to pro­tect their prof­its by slap­ping a large pro­tec­tive tar­iff against com­pe­ti­tion from im­ports, us­ing the ar­cane anti-dump­ing laws.

The Min­is­ter is right when he says “I worry that high du­ties on some im­ported build­ing prod­ucts, com­bined with limited com­pe­ti­tion in New Zealand, is al­low­ing ex­ces­sive mar­gins by build­ing prod­uct man­u­fac­tur­ers.”

That is just as true when the same tar­iffs are ap­plied to canned peaches, diaries and hog bris­tle paint brushes, which are all sub­ject to anti-dump­ing du­ties.

The Min­istry said, “there is no in­ten­tion to re­form the fun­da­men­tals of [the anti-dump­ing] regime, such as by in­tro­duc­ing a full pub­lic ben­e­fit test which would mea­sure the im­pact of anti-dump­ing du­ties on New Zealand con­sumers.” So, they pro­pose to change it just for build­ing prod­ucts, pre­sum­ably be­cause hous­ing af­ford­abil­ity is al­ways in the news.

The Min­is­ter also pro­posed to cor­rupt the duty con­ces­sion sys­tem, which ex­empts duty on goods with­out lo­cally man­u­fac­tured equiv­a­lents, again just for build­ing com­po­nents, again just to be seen to be do­ing some­thing (other than the ob­vi­ous).

This prin­ci­ples-free ap­proach to pub­lic pol­icy re­minds me of Robert Mul­doon who, when con­fronted with the prob­lems caused to our ex­porters by the high costs of pro­tect­ing lo­cal man­u­fac­tur­ers, of­fered to elim­i­nate du­ties on agri­cul­tural trac­tors.

GST on In­ter­net sales: govern­ment kicks the can down the road

The Govern­ment set up a work­ing party of Cus­toms and In­land Rev­enue of­fi­cials to look at the is­sue of GST on im­ported goods bought through web­sites. It promised a con­sul­ta­tion paper by last Christ­mas, but it has now de­cided to fold this re­view into an­other larger re­view, that one charged with the im­pos­si­ble task of get­ting the likes of Face­book to pay more tax.

Cus­toms Min­is­ter Mau­rice Wil­liamson has said it would be vir­tu­ally im­pos­si­ble to col­lect GST on all goods bought on­line. That is cor­rect, as far as it goes, but it is not the is­sue. The main prob­lem is that the Cus­toms Ser­vice is al­low­ing a large num­ber of courier con­sign­ments to claim the ex­emp­tion, vir­tu­ally unchecked, even though the goods ex­ceed the $400 limit.

Re­tail­ers, who con­tinue to lose busi­ness in droves, were hop­ing to have that limit re­viewed and some sen­si­ble pro­pos­als to en­force the law at the bor­der in­tro­duced. It seems they will now have to wait un­til the is­sue of tax­ing Face­book is sorted. Prob­a­bly, never.

Re­view of Cus­toms Act

There is a root and branch re­view of the Cus­toms Act un­der way. The last Act dates from 1996 and was an up­date of a 1966 statute which, in turn, was sub­stan­tially based on one from 1913. Since 1996, 17 ma­jor amend­ments had to be made to try to keep up with a chang­ing en­vi­ron­ment.

I first reg­is­tered a web do­main name that year, but it took me a while longer to fig­ure out what that In­ter­net thing was all about – so it is easy to ap­pre­ci­ate just how much the trad­ing en­vi­ron­ment has changed in the last 20 years alone. Cus­toms law needs to keep up with a fast-chang­ing en­vi­ron­ment.

The pro­posed ap­proach is to con­fine the pri­mary leg­is­la­tion (the Act) to prin­ci­ples and pow­ers, while deal­ing with op­er­a­tional changes through sec­ondary leg­is­la­tion (reg­u­la­tions through Or­ders in Coun­cil) and through ter­tiary-level rules, made by the chief ex­ec­u­tive un­der del­e­gated author­ity. The pri­mary leg­is­la­tion could also be de­signed to be suf­fi­ciently adapt­able to cater for fu­ture bor­der sup­ply chain changes.

This ap­proach seems to us to be em­i­nently sen­si­ble, sub­ject only to ap­pro­pri­ate safe­guards to pro­tect the lib­erty of per­sons and their property from ar­bi­trary bu­reau­cratic ac­tion. Is­sues of cul­pa­bil­ity should al­ways be left to the Courts and all sig­nif­i­cant de­ci­sions should be sub­ject to sim­pli­fied in­de­pen­dent ap­peals. Given ap­pro­pri­ate safe­guards, the in­tro­duc­tion of a more flex­i­ble rules-based sys­tem will be a good de­vel­op­ment.

Cus­toms are to be con­grat­u­lated on putting a high-pow­ered team onto this task and dis­cussing these is­sues openly with a ref­er­ence group of sec­tor rep­re­sen­ta­tives. This process will take two or three years to run and there will be op­por­tu­ni­ties for sec­tor group mem­bers to com­ment, as pol­icy de­vel­op­ment pro­gresses.

The wave pick

One of the more com­mon jobs that we do at DSL Lo­gis­tics con­sists of ful­fill­ing a daily dis­tri­bu­tion list for stock to be sent out to stores. For ex­am­ple, send 12 pink blouses and six skinny jeans in a range of sizes to the store in Hamil­ton, six blouses and two jeans to Ash­bur­ton, and so on. Mul­ti­ply that by thou­sands of stock items, all in dif­fer­ent sizes and colours, be­ing dis­trib­uted to dozens of stores ev­ery day, to an aver­age of about 30,000 items per work­ing day, and you start to get an idea of how com­plex this sim­ple task can be­come.

In ded­i­cated small dis­tri­bu­tion cen­tres, it is not un­com­mon for the or­ders to be filled out straight from the shelves. That means go­ing around look­ing for the Hamil­ton goods and then go­ing around again to find the Ash­bur­ton stock. When you try to do that in a large ware­house cater­ing for mul­ti­ple com­pa­nies, you could end up with the pick­ers walk­ing the equiv­a­lent of a marathon and spend­ing much of their day bump­ing into each other.

An al­ter­na­tive is to pick the re­quire­ments for all the stores (or a group of them) all at once, take that stock to a sort­ing area, where the items are scan-packed into car­tons pre-ad­dressed to each store. The item and the car­ton num­ber are both scanned and, if some­one tries to scan the in­cor­rect item into a car­ton, the scan­ner makes an aw­ful bro­ken win­dow noise (ap­par­ently, an elec­tric shock to the sorter was not con­sid­ered good em­ploy­ment prac­tice).

This type of pick is known as a “wave pick” and is used by most third-party lo­gis­tics oper­a­tors. It is some­what counter-in­tu­itive, as the item is han­dled twice, but the ef­fi­cien­cies and gains in ac­cu­racy are im­pres­sive. We like to tell prospec­tive clients “our sys­tems are very good in­deed, as they in­clude the so­lu­tion to ev­ery sin­gle mis­take we have made in the past 15 years.”

Port of Auck­land

Daniel Silva is the Sec­re­tary of the Im­porters In­sti­tute and Man­ag­ing Di­rec­tor of DSL Lo­gis­tics, an im­port ser­vices com­pany and 3PL provider based in Auck­land. daniel@dsl.co.nz

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