Sunday, 1 January 2017

A good idea hits a snag

'Dumping'. What a good word for those wicked, wicked manufacturers overseas who 'dump' their goods here at lower-than-fair prices and drive our honest battlers to the wall. And when they've driven our fellows out, they have the market to themselves and can rip us off. Good job we've got anti-dumping laws to protect us, eh?

But hang on a minute. Let's just suppose you're in Malaysia and you make diaries. How likely is it, really, that one day you'll wake up in Kuala Lumpur and say to yourself, "I think I'll flood the New Zealand market with ultra-cheap diaries, and when I've cornered the market, I'll jack up prices and make a killing"?

Because there are two eentsy problems with that plan. One is you'll be making lower than normal profits (or even losses) in New Zealand when you could be making normal ones in New Zealand or somewhere else. And the other is that if you do indeed corner the market with temporarily low prices, the minute you try to jack up prices someone will come in and undercut you. After all, if the New Zealand market is so easy to enter and dominate, anyone can get into that game, including your mates on the other side of town when they spot what you're up to. Low profits now for high profits later doesn't look a realistic runner.

The reality is that 'predatory pricing' strategies like the Great Malaysian Cunning Diary Plan are likely to be rare and unsuccessful. If things turn up in New Zealand at unusually low prices, it's more likely that the low prices come from a genuinely cheap producer, and one who might well be sweetening the pot, if trying to break into a new market, with especially sharp pricing: nothing wrong with that. Or it could be that there's a temporary glut of something - tomatoes, peaches, steel - and producers everywhere are trying to shift what they're lumbered with for whatever it will fetch. Nothing wrong with that, either: you'd do the same. And in both cases New Zealand consumers (including businesses who use the cheap goods as industrial inputs) are the winner, and it's the effect on consumers that ought to be front of mind when we're thinking about policy issues like 'protection' from 'dumping'.

If only. At present, our anti 'dumping' legislation ignores consumers. If a Greek peach canner sells peaches in Athens for say $1 a can, and sells them in New Zealand at say 90 cents a can, a New Zealand peach canner can cry "Dumping!" and get MBIE to slap an import duty on the Greek peaches, even if consumers would have been happy to fill their trolleys with them. And our domestic monopoly peach canner, Heinz Wattie's, has indeed been protesting about those pesky Greek imports since 1998, and very successfully too. MBIE renewed the anti-'dumping' duties in July 2015 and lately there have been no Greek peach exports to New Zealand at all.

And those Malaysian diaries, by the way, are also a real life example. Malaysian diaries from a range of Malaysian makers - and from a range of Chinese ones, which proves my point about the Malaysian guy being unable to corner the market because others both in Malaysia and in China would undercut him - have been hit by anti-'dumping' duties from 2007 to 2015, as you can see on the MBIE web page listing all the completed anti-'dumping' investigations.

The anti-'dumping' law is long overdue for a fix which would allow competition and consumer benefits to be weighed in the balance, and not just the comfy position of the domestic incumbent. And it got one: it took them forever, but MBIE finally got round to it in August 2015. As I posted at the time, 'A good idea finally gets the nod', and you'll find links there to the history of the process. The guts was that there would be a new public interest test:
In future...domestic producers won't be able to have cheap peaches or tomatoes or building materials shut out of the New Zealand market unless they can show that the damage to them is more than the damage to New Zealand consumers. Which it often won't be: there's only a  few of them, and there's lots of us. A process that has been much abused for protectionist reasons, both here and abroad, is finally getting defanged
And then the politics kicked in, when the proposed legislation landed before Parliament's Commerce Select Committee. As the National Business Review reported,  'Politicians split on dumping penalties bill in run-up to Chinese steel inquiry': the National members wanted to go ahead, the Opposition members didn't. They split 5-5, deadlock: "we were unable to agree on whether to recommend that the bill be passed". The Committee's full report on their deliberations is here.

It's kind of strange how things have lined up. National might be thought of by some as in the pockets of big business, yet its members on the Commerce Committee took the pro-consumer side, while Labour, the Greens and NZ First, who some might expect to champion the consumer against the corporation, took the "protect New Zealand businesses" position.

To be fair, the Committee had to give due weight to the submissions in front of it, and the submissions were, as the Opposition members said in the report, "overwhelmingly opposed to this bill, warning that it would be likely to tilt the playing field in favour of dumped or subsidised imports rather than supporting local producers and jobs".

But of course the submissions were overwhelmingly opposed. They were overwhelmingly from the usual suspects (including Heinz Wattie's).That's precisely the problem.

As is often the case in policy matters (and overwhelmingly the case in trade policy ones) the small group of producers adversely affected by change make an unholy racket: the 99.5% of the population who'd quite like cheaper diaries or cheaper peaches don't get heard from.

This time, too, the consumer viewpoint went largely unheard, other than through The Warehouse Group's submission. True, it had its own barrow to push - it had been on the receiving end of various anti-'dumping' measures, including, as it happens, both diaries and tinned peaches - but even so it got to the right answer, that the new public interest test
is necessary to ensure that the legitimate interests of all stakeholders and the wider economy are routinely considered and balanced before punitive duties are imposed.
Yes, there will be genuine instances where domestic producers are getting unfairly shafted (overseas governments' subsidies to their exporters being an example) and we ought to have some backstop protection. Yes, we as a country resort far less to anti-'dumping' protectionism than other places do (notably Australia), so it's not a massive rort that needs a lot of fixing. And yes, you have to feel some sympathy for folks who might lose out from cheaper imports, as you will, for example, if you read the submission from people who grow the peaches for Wattie's. The solution is transitional help for people affected by policy changes, which should be part and parcel of all trade reforms but often isn't (and which has consequently helped provide the political oxygen for the protectionism of the Trumps and the Le Pens).

But for all that, the direction of reform is nonetheless right, and I'd say the same thing (just to be clear) if it were the Labour/Green/NZ First people for it and the Nats against. The process shouldn't cater solely to the "Woe is me" reactions, and it should take account of greater competition, greater choice, and lower prices.

The politics, however, is iffy, as the split on the Commerce Committee showed. Reform could conceivably be presented in a voter-friendly way - as making family budgets go further, for example, or as reducing input costs for New Zealand businesses. But the vocal views of the protected producers make it an uphill sell. Whether the government will have the bottle to keep on the right path in election year remains to be seen.

2 comments:

  1. "overseas governments' subsidies to their exporters being an example" Why? If overseas taxpayers are lowering our cost of living I say we thank them and tell them to carry on. I think it was Milton Friedman who once asked, Who do you want to be, the dumper or the dumpee? Looked at this way the answer seems clear, the dumpee. The dumper is the one carrying all the costs while the dumpee gets the gets the benefits.

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  2. Hi Paul and best wishes for 2017 BTW.

    Quite agree about dumpees being the (at least short term) winners. I suppose the distinction I'm making is about whether 'dumping' damages the competitive process itself. In many cases, I doubt that it does - quite the contrary, it IS competition (albeit sharp priced competition that incumbents don't like). But I'm not sure you can say the same about government subsidies, which have the potential to permanently skew the competitive marketplace.

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