78 Letter from New Zealand Automotive Component Manufacturer's Federation to Clark

11 December 1979

Recently this Federation along with other trade groups affiliated to the New Zealand Manufacturers' Federation had the opportunity of discussing with Departmental officials, developments in the study the Government is carrying out gauging the effects of a customs union or a free trade arrangement with Australia.

As you will be aware this industry is also a party to the motor vehicle industry study and any change in the relationship with Australia could have profound implications on this industry.

It was for this reason the Federation felt it important to write to you, particularly commenting on the current study by Government as a predicate to the Prime Ministerial meeting in March and the implications of this on the motor vehicle study.

The original equipment component industry is essentially a multi-national industry in its own right with component companies having international links through parent companies, joint ventures or franchise agreements that are not solely restricted to Australia.

The component industry operates separately and internationally from the multi-national vehicle companies although there are obvious and intimate connections world wide between the two industries.

Therefore any policy changes which occur in New Zealand must take cognisance of these factors which will increasingly manifest themselves in more rapid technological change.

Although the New Zealand component industry recognises the importance of exports to re-establish growth in the economy, it is believed that this can only be achieved by industry specific policies to maximise the growth potential of any industry. The component industry believes a more global trade orientation is necessary for the industry to take advantage of technological change and that Australia will not necessarily be the source of that technology. The corollary of this is that substantial investment probably will be required in the component industry and there must be some offsetting advantage for that investment particularly increased volumes to third markets. Currently the Federation is examining the possibility of designating West Germany or Canada as export target markets.

The policy, the Federation sees in this context, is the retention of the mandatory deletions system modified by an export facilitation procedure to allow component companies to import componentry or source material inputs on a worldwide basis.

Such a scheme would allow the component manufacturer to rationalise production by reciprocal exports with the overseas company and significantly expand exports. It would also allow the domestic assembly companies to source components within New Zealand which would develop this country's industrial infrastructure in the most effective way as component companies would be able to specialize production arid take advantage of technological change.

Other alternatives for the development of the industry would not be able to achieve this. A domestic content scheme for example, even if it had a non-reversion procedure, would not allow the security of investment needed as assembly companies would be able to make up domestic content as they pleased. The situation that has emerged in the Australian domestic content scheme is evidence of this.

A further ramification is that the New Zealand domestic market is too small to allow a content scheme as there could be no offsetting advantage through replacement parts manufacture, if the vehicle company ceased sourcing on a component company.

The scheme outlined above has very clear implications on the industry's future relationship with Australia. Such a scheme for example could make NAFTA arrangements redundant as it gives an incentive for companies to rationalise production worldwide (but not to the exclusion of Australia) in the most commercially realistic manner.

As you may be aware this Federation has had a number of discussions with the Federation of Automotive Parts Manufacturers, its sister organisation in Australia.

Currently the Australian industry, in a reference to the Industries Assistance Commission, is attempting to gain access to that country's export facilitation scheme which if successful, could equate component industry policy between Australia and New Zealand, if this Federation's scheme was adopted.

It is planned that a further meeting will be held between the Federations in March 1980 and these possibilities will be explored further. It is for this reason the Federation is opposed to a customs union or free trade relationship with Australia.

A further point is that it is vital the Federation is able to submit a proposal to the inter-departmental committee on the Motor Vehicle Industry Study, after the release of the profile report but before policy options are identified. Because of its importance I have written to the Minister of Trade and Industry seeking further clarification of attitude and an assurance that this will be the case.

I have also circulated this letter to those departments which have representatives on the inter-departmental working party for the Motor Vehicle Study.

If there are any other matters upon which you require further comment from this Federation, I would be most willing to discuss these with you.

JLWGreen

Executive Officer

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