Trade deal stitches up Kiwi suitmakers

Menswear manufacturers have been locked out of new rules giving clothing makers duty-free entry to the Australian market.

While women's apparel exporters are rejoicing over the liberalisation of transtasman trade, those who make men's and children's wear are still tied up by costly red tape after being outmuscled by their Australian competitors.

The changes come under the new Rules of Origin agreement under the Closer Economic Relations (CER) free trade agreement between New Zealand and Australia, and take effect from January next year.

The rules were agreed when the two countries held their annual CER talks last month.

Most clothing manufacturers will now no longer have to meet a rule requiring a minimum 50 per cent of product content to be sourced from NZ in order to be exported duty free to Australia under CER. Products exceeding the 50 per cent limit for import content now face a 17.5 per cent tariff to cross the Ditch.

But, under the new rules, it will no longer matter where the original material comes from. If it is substantially transformed through manufacturing in this country - called a change of classification - it will qualify for duty-free entry to Australia.

Fabric imported from Italy and made into a dress here would be reclassified as a dress and the maker would not have to pay duty on the fabric when it is sold into Australia.

Commerce Minister Lianne Dalziel said the new rules were a major advance for Kiwi manufacturers and put them on equal terms with their Australian counterparts.

"For local manufacturers, it's fantastic because it means where they're having to import a significant amount or all the raw materials it's a huge benefit."

However, menswear manufacturers are disappointed they have been blocked by a strong lobby group of rival producers in their biggest market.

The lobbying effort prompted the Australian Government to insist in negotiations last month that menswear and children's wear were exempt from the new rules.

Cambridge Clothing and Rembrandt - two of the country's biggest menswear manufacturers - said it was not the first time Australian clothing-makers had campaigned against them. They believed the lobbying campaign was the result of their success across the Tasman in the past decade.

Cambridge managing director Joe Macky said Australia's menswear manufacturing sector was only one-fifth the size of New Zealand's.

"That's what's so galling about the whole thing, that the fifth mounted a lobby that was considerably more effective than what we could here."

The Australian High Commission was unable to comment on the changes.

New Zealand exported $307 million worth of apparel, footwear and clothing to Australia last year.

Dalziel said that although the liberalisation had not been extended to menswear manufacturers, the Government would keep the matter under review.

The next official review of the CER rules will be in 2010.

In the meantime, the suit-makers will continue with the complicated process of itemising the costs of fabric, thread, tickets, labour, overheads on every suit they send across the Tasman to ensure regional value content exceeds 50 per cent.

Currency fluctuations mean a garment could qualify one day and exceed the limit the next.

Macky estimated the compliance costs to his business at around $100,000 a year.

Cambridge exports more than 50,000 suits to Australia a year.

Although the Auckland-based company may look to increase the amount of overseas production from 20 per cent, it has no plans to quit local manufacturing altogether.

"Obviously, we're not too happy about the result," said Macky, "but we do feel the politicians and the officials did what they could and can understand that, in the end, the greater good had to prevail because you can see the rules are a hell of a lot simpler and for many people it will make a significant difference."

The system limited the styles Cambridge could export to Australia and the quality of fabric.

"If we pay duty, you're adding almost 20 per cent, which may well put it out of reach for customers."

David Lyford, managing director of Lower Hutt-based Rembrandt, said the system did not promote best practice.

"Efficiency means lower costs and that means lower New Zealand costs but this rule wants you to do the opposite - raise New Zealand costs.

"Basically it promotes inefficiencies, which seems illogical."

For women's clothing makers, however, the change is long awaited.

One of the country's largest privately owned fashion companies, Hart Manufacturing, which exported 49,500 garments to Australia last year, said its reliance on imported fabrics made the 50 per cent regional value content threshold difficult to achieve.

"The fabric is much more expensive as a rule than the making of the product these days, so the equation never worked properly," said owner Walter Hart.

"Now, take that out of the equation and it makes it simplistic for us to export to Australia."

Pumpkin Patch, the country's biggest children's clothing manufacturer, said it was not affected by the changes because the labour content of its garments was higher than the fabric content in most cases.


Kissing cousins

* The Closer Economic Relations (CER) agreement between New Zealand and Australia was signed in 1983.
* Under CER, New Zealand companies have been able to export their products to Australia without paying customs duty as long as they meet specific rules of origin.
* The rules of origin ensure the products come only from New Zealand.