The Australian Government’s recent decision to revoke a 5% tariff concession order (TCO) on the importation of acetate frames from Europe has caused concern across the eyewear industry at a time when the value of tariffs to the economy is in the spotlight.
The decision means importers of European frames will now pay a 5% tariff on all acetate frames imported, backdated to 13 May 2022, with the same arrangement expected to be applied to metal frames in due course. As a result, we can expect importers to either face a squeeze on their business margins and/ or be forced to increase the price to retailers, which in turn, will impact the price of frames to consumers.
The quick nature of how this concession was able to be overturned, and the little value placed on the volume capacity of the manufacturer making an application for a revocation, is of concern
TCOs are put in place by the federal government when there are no known Australian manufacturers of goods that are substitutable for imported goods. While Australia does have a small number of manufacturers, importers say there is not enough local capacity to meet demand, and therefore the TCO should remain in place.
A research paper, titled, The nuisance cost of tariffs, published by The Australian Productivity Commission in August 2022, highlighted the high cost and diminishing return of all tariffs collected on imports in Australia.
Since the 1970s, tariffs have declined from rates in excess of 50% applied to many imports, to as little as 5%, applied to a relatively small number of imports. In fact, nearly 90% of imports entering Australia are now duty-free and, as a result, tariffs collected raise about AU$1.5 billion in revenue – or approximately 0.3% of revenues collected by the Australian Government. Bizarrely, the cost of the tariff system to the Government is estimated to be $0.59 to$1.57 per dollar of revenue raised.
For importers, the cost of tariffs to their business is also high – aside from the tariff itself, there are associated administrative and compliance costs. Yet tariffs protect very few Australian producers – the report states that for many local producers competing with importers, “fluctuations in exchange rates are more important to their operations than the existence of the 5% tariff margin”.
APPLICATION BY OPTEX
The application to have the tariff concession on European acetate frames revoked was submitted to the Government by Optex Australia, a manufacturer of eyewear based in the northern New South Wales coastal town of Port Macquarie. According to the Optical Distributors and Manufacturers Association (ODMA), Optex made the submission despite the Association’s best attempts to dissuade it.
Explaining that ODMA was instrumental in gaining the tariff concession for optical frames nearly 20 years ago, acting CEO, Amanda Trotman, said the Association is concerned about the effect the recent revocation will have, “given the current economic climate and the continued importance of the import market in Australia for the supply of optical frames.
“In June, as soon as ODMA became aware that an application had been made, research was conducted to identify the party involved, given that detail was not publicly available. This was to enable ODMA to take action as soon as possible and to fi nd a solution, hopefully before the concession was revoked,” Ms Trotman said.
“On discovery that the party involved was Optex, over the next few weeks, ODMA engaged in multiple discussions and negotiations with Optex to identify a mutually beneficial solution for both local manufacturing and those that import and distribute product.
“Optex declined the offers made and the revocation was passed.”
Noting that ODMA supports the Australian manufacture of frames, Ms Trotman said the Association had offered Optex support to promote their product and service, “in the hope that these channels would offer more benefit than any competitive advantage gained by pursuing the revocation”.
The decision to revoke the tariff applied to plastic frames came as a complete surprise to the importers and at a speed Ms Trotman said is cause for concern. “The quick nature of how this concession was able to be overturned, and the little value placed on the volume capacity of the manufacturer making an application for a revocation, is of concern as ODMA appreciates business’ attempt to plan and budget ahead for the future.
“ODMA acknowledges this would have been a shock to many industry members and that this places further pressure on importers from areas such as Europe where, unlike China, there is currently no free trade agreement.”
Indeed, Matteo Accornero, EssilorLuxottica’s General Manager of Retail ANZ, said the revocation was unforeseen and the situation is now being closely followed.
“We support the local industry, and we believe in accessible quality eyewear options for Australians. This decision penalises not only independent optometrists offering high quality eyewear from Europe, but also Australian consumers who are already facing rising inflation,” Mr Accornero said.
Ms Trotman said ODMA would continue to engage with industry members to gain feedback and is reviewing all immediate available courses of action.