Tariffs mean a fine balancing act

 SUGAR, poultry products and soft drinks are among food and beverage products that are manufactured domestically by some of Papua New Guinea’s better known and well-respected companies.

Ramu Sugar, Zenag, Niugini Table Birds, Coca-Cola Amatil (PNG) and Pacific Industries, to name a few, are companies that employ thousands of Papua New Guineans between them and have ploughed in millions of kina annually in the local economy through taxation and employee benefits.

Naturally, any government would be inclined or obliged to protect such enterprises and worthy corporate citizens and ensure they not only operate profitably but stay on a path of growth and expansion. Economists and laymen alike would differ on the subject of protective import tariffs however, these taxes are generally im­posed to protect local industries against competition by often bigger and better placed manufacturers. The im­position of tariffs makes imports less attractive to buy than the domestic substitute.

Tariffs allow in­fantile local industries to develop their own technology and ex­pertise to a level of competitiveness and consumer ac­ceptance against out­siders. Protection for local manufacturing industry through import tariffs and quarantine restrictions has been in public discussions, including during the last parliament session.

Usino Bundi MP Anton Yagama, in whose electorate the Gusap plains and Ramu Sugar are located, raised concerns about the direct impact of a drastic reduction of the sugar tariff from 70% in 2010 to only 35% in 2012.

The reduced tariff gave rise to importers in the country bringing in sugar from Australia and Asia to compete with the locally made Ramu Sugar.

Yagama did not say but the tariff reduction would have affected Ramu Sugar negatively in that mostly seasonal workers from his electorate and those from the adjoining Eastern Highlands and Morobe provinces would find themselves without work. A reduction in sales of the local product would lead to less of it produced and therefore fewer workers required for it.

That is the obvious downside of the reduction of tariffs on sugar imports. If the impacts are such that the lo­cal product is critically affected and there are resulting job losses, the government would have to reconsider and review the tariffs.  

In response to Yagama’s question, Treasurer Don Pol­ye gave an assurance that such a review was underway.

Polye told Parliament the reduction in tariffs was part of PNG accession to the free trade policy with its bilateral and multilateral trade partners to free up trade and open markets for goods to be sold on the local and international markets with reduced tariffs.

“We are seeing the consequences of free trade policy as against protectionism,” Polye said. And in apparent contradiction he warned, “We must protect our employment against unemployment and local products on the local as well as world markets.”

Similar concerns were raised earlier by the Association of Poultry Producers against imports of what it described as low quality chicken meat products from Australian and New Zealand farms. 

If the trend continues, there is a possibility that major poultry producers such as Zenag and Niugini Table Birds would shed jobs. As well, village chicken growers would lose business.

Soft drink manufacturer Coca-Cola Amatil is up against a tide of cheap imported substitutes of its brand into the country.

Typical analyses of tariffs and other forms of restrictions find them beneficial to domestic producers and government at the expense of consumers. 

Domestic producers enjoy a gain while consumers face a higher price and government gains from the taxes. 

While producers and the government engage in the tariff debate at the macro-economic level, all the consumer cares about is the price he pays for a product. 

With the current trend in the falling kina and rising prices the Buy PNG Made slogan would ring hollow in the mind of the buyer if the alternative import is cheaper.

Perhaps the buyer’s only indecision would be over whether cheap could mean inferior or harmful.