ZESPRI CEO can’t rule out more issues in China
Sunday 28 July, 2013
ZESPRI CEO can’t
rule out more issues in China
ZESPRI’s
CEO Lain Jager told Q+A host Susan Wood he couldn’t rule
out more trade issues in China because “what was accepted
practice in China isn’t accepted practice any more. There
is a real focus on corruption,” but he says the company is
doing all it can to make sure it is fit for business.
Earlier this month, a ZESPRI subsidiary lost its
appeal in China against a smuggling conviction for under
declaring customs duties between 2008 and 2010 which saw the
company fined nearly a million dollars.
Today on
Q+A, Jager distanced ZESPRI from the actions of the importer
there.
“What we had is we had an independent
importer not paying their duties. So there was corruption
here, there was fraud here, but that wasn’t ZESPRI. This
independent importer provided to ZESPRI shipping
reconciliations. What those shipping reconciliations showed
is that the full duty had been paid. They also told us that
there was a deemed value for imports into China. So, again,
there was corruption. It wasn’t ZESPRI,” Jager
says.
The problem arose after ZESPRI issued
what’s known as dual invoices to Chinese Customs, which Mr
Jager argued was not uncommon.
“Dual invoicing is
not uncommon, Susan. A deemed value is not uncommon. So, a
little bit of background. When you have a duty price, and
you have a deductive value. So you don’t know what the
final sales price of the fruit is going to be. What you have
is you have a pro forma invoice or a deemed value. So for
administration purposes, that’s the value of which the
fruit goes over the wharf. That’s not the problem here.
The problem is that the full value wasn’t paid on the
fruit.”
Mr Jager says it’s a common practice
around the world but could not name another country;
however, he was sure ZESPRI did dual invoice other
countries.
But Q+A panellist Fran O’Sullivan, a
columnist for the NZ Herald, saw things
differently.
“Doing business in China is
complicated but I have to say ZESPRI knew damn well what was
going on. The warning signs were there, they took legal
advice, they could have brought this to a head, they allowed
a double invoicing system to go ahead,” Ms O’Sullivan
says.
She says dual invoicing is not that common
and not common for New Zealand companies to indulge in.
“Of course people try things on but sensible
companies and corporations that want to look after their
reputation make jolly clear that they don’t go down that
route,” Ms O’Sullivan says.
“This is a single
desk monopoly exporter. It carries the NZ name. It’s a
creature of statute, it’s not just any old private company
and that’s why it’s important to flush this out. You
know, you can’t be doing this. It’s against our own
legal framework for our companies to be doing these sorts of
things,” she says.
Mr Jager says ZESPRI will now
have direct relationships with Chinese Customs to insure
correct procedure is followed.
Q+A, 9-10am
Sundays on TV ONE and one hour later on TV ONE
plus 1. Repeated Sunday evening at 11:30pm.
Streamed live at www.tvnz.co.nz
Thanks to the support from NZ On
Air.
Q+A is on Facebook, http://www.facebook.com/NZQandA#!/NZQandA
and on Twitter, http://twitter.com/#!/NZQandA
Q+A
SUSAN
WOOD INTERVIEWS LAIN
JAGER
SUSAN
WOOD
Joining me now is ZESPRI CEO Lain Jager. A
very good morning to you.
LAIN JAGER - CEO,
ZESPRI
Good morning,
Susan.
SUSAN A
couple of people in prison in China. It’s cost you 10
million bucks in reparation, probably another 5 million
overall. As CEO, it’s your responsibility. How did you let
that
happen?
LAIN
Well, first of all, bear in mind that these are
historical issues. So while the court case has focused on
the seasons 2008 to 2010, in fact, those duty arrangements
had been in place for many years with partners that we’d
been doing business with for many years. So these are
historical
issues.
SUSAN
So you’re saying because it happened in the past,
it’s ok? It was still wrong, wasn’t
it?
LAIN
Certainly not ok, but let’s focus on the issue
itself. What we had is we had an independent importer not
paying their duties. So there was corruption here, there was
fraud here, but that wasn’t ZESPRI. This independent
importer provided to ZESPRI shipping reconciliations. What
those shipping reconciliations showed is that the full duty
had been paid. They also told us that there was a deemed
value for imports into China. So, again, there was
corruption. It wasn’t ZESPRI. Now, is that good enough?
The answer to
that-
SUSAN
Hang on, let me just ask you- I get that. You’re
saying there’s a person in China who’s representing
ZESPRI who is
corrupt.
LAIN
Yes.
SUSAN
But you, ZESPRI, Mt Maunganui, issuing dual
invoices. How do you justify
that?
LAIN
Dual invoicing or the existence of a deemed value
is very common in fruit markets around the world. There is
no technical problem with dual invoicing as long as the
deemed invoice value is correct. Now, the issue that we have
here is we were given an incorrect deemed invoice value. Was
there a shortcoming? Yes, there was. We should have looked
over the shoulders of our importers, had direct
relationships with Chinese Customs. There are deep learnings
for the company here, but it’s not
about-
SUSAN
So you were too
trusting?
LAIN
Yes, too trusting. Yes, too
trusting.
SUSAN
So you were guilty of being naïve. Nothing
else?
LAIN
Certainly we should have- What should we have done?
I think, first of all, we should have had direct
relationships with Chinese Customs. We should have
double-checked what our importers were telling us. So, call
it naivety, call it hindsight. There are things we could
have done better, but we’re not
corrupt.
SUSAN
You’re telling me you were not knowingly
complicit with
this?
LAIN
Absolutely. We had shipping reconciliations showing
that the full duty value had been
paid.
SUSAN
Paying bribes. Did you think bribes were being paid
in China? Did you have any knowledge of
that?
LAIN
I still have no knowledge of any bribes. I’m not
aware of any bribery, have no information or suggestions of
bribery.
SUSAN
And yet you’re issuing dual
invoices.
LAIN
So, as I’ve said before, dual invoicing is not
uncommon. A proforma invoice
is-
SUSAN
Where else do you do dual invoices? What other
countries would you do that
for?
LAIN
Oh, I can’t tell you off the top of my head, but
it’s common around the world. So common that I don’t
name the
countries.
SUSAN
I’m not talking about the rest of the world;
I’m talking about ZESPRI. Does ZESPRI dual invoice to any
other
country?
LAIN
I’m sure that we do,
yes.
SUSAN And
what would they
be?
LAIN
I just can’t
remember.
SUSAN
How come you don’t know, though? You’re chief
executive. I mean, does it happen in NZ? Do you dual invoice
in this
country?
LAIN
Dual invoicing is not uncommon, Susan. A deemed
value is not uncommon. So, a little bit of background. When
you have a duty price, and you have a deductive value. So
you don’t know what the final sales price of the fruit is
going to be. What you have is you have a proforma invoice or
a deemed value. So for administration purposes, that’s the
value of which the fruit goes over the wharf. That’s not
the problem here. The problem is that the full value
wasn’t paid on the
fruit.
SUSAN
What are you doing to make sure this never happens
again?
LAIN
Certainly a number of things. We’re working with
some independent experts with deep knowledge as we rebuild
our China operation. We’ve got a new China manager in
place. Strengthening our compliance frameworks. So, really,
a number of things. Just making sure that we’re really fit
to do business in China. It’s a demanding market, but
it’s a hugely exciting
market.
SUSAN
So you weren’t fit to do business then
essentially, is that what you’re telling
me?
LAIN
Oh, sure. Absolutely clear that there’s
shortcomings. Absolutely clear that there’s
shortcomings.
SUSAN
So what are you doing there if you don’t
understand the market and you’re not fit to do
business?
LAIN
China’s a hugely exciting and rapidly developing
market. Bear in mind now that it’s an over $100 million
business for us. We’ve been there for 10
years-
SUSAN
And we’ve seen NZ companies, and the biggest of
them being Fonterra, get into all sorts of bother there. Did
you not look at that and think, ‘We’ve got to be awfully
careful because they do business differently
there’?
LAIN
I don’t know of a single issue that’s not
better with the benefit of hindsight. Could we have done
better? Of course we
could.
SUSAN
But you had the benefit of looking at Fonterra. You
had the benefit of a company that had really got themselves
in
trouble.
LAIN
And companies, very large companies, from many
countries around the world are finding themselves in strife
in China on an ongoing basis. That’s not an excuse. It’s
about being fit to do business there. But is it demanding?
Absolutely, yes, it
is.
SUSAN Are
you fit to do business in China
today?
LAIN
We’re certainly getting fit. Would I rule out the
potential for another future issue in China? Of course I
wouldn’t. Are we absolutely taking actions to make sure we
are fit? Yes, we are. We’re very optimistic about the
future of that
market.
SUSAN
The fact you can’t rule that out, is that about a
lack of ability on your part, or is it just the difficulties
of doing business
there?
LAIN
Doing business in China, the business environment
is rapidly evolving. What was accepted practice in China
isn’t accepted practice any more. There is a real focus on
corruption. It’s still an incredibly diverse and complex
environment. So, China’s tough, but you won’t hear me
whinging or using that as an excuse. It’s our
responsibility to be fit to do business in
China.
SUSAN
And get it
right.
LAIN
And get it
right.
SUSAN
How much damage has it done to the ZESPRI brand in
China?
LAIN
It hasn’t in China. If there are issues, it’s
the fallout back here in NZ of people saying that ZESPRI’s
corrupt. ZESPRI isn’t corrupt. China’s tough. ZESPRI’s
a great business, but the noise back here is
disproportionate to the duty issue in
China.
SUSAN
What damage has it done to brand NZ, if any, in
China?
LAIN
Never good for NZ companies to have issues in
China. That’s never helpful. And certainly we’re
embarrassed about it. We’re unhappy that we’ve been seen
in that light. But NZ is seen very positively in China, and
that has certainly helped ZESPRI in its situation over there
as its situation has
evolved.
SUSAN
How much more work have you got to do to get to the
point where you feel really comfortable about
China?
LAIN
Do you know what? I don’t know that we’re ever
going to feel really comfortable there. It is really
demanding, but we’re certainly pouring in the resource,
pouring in the focus, and the growth potential is worth the
risk.
SUSAN
You’ve got some grower discontent here at home.
That may be growing. Hard to tell. How worried are you about
that?
LAIN
Well, let me first of all say that what we’ve
seen is we have seen some negative media, and we do
have-
SUSAN
The media is picking up growers, though. ONE News
just a few days ago, there’s a
grower-
LAIN
Sure, sure. So, we do have some grower discontent.
So, let’s first of all have some analysis. There’s the
industry structure and there’s ZESPRI’s performance. Two
quite different things. There’s overwhelming support for
the industry structure in ZESPRI, and even those growers who
are unhappy with ZESPRI currently would
say-
SUSAN
You’re talking single
desk?
LAIN
Yeah, would say that they support the single desk.
When we talk about ZESPRI, then grower support for ZESPRI,
grower satisfaction with ZESPRI fluctuates depending on how
the company is doing. Currently some growers are expressing
some concerns. But a key point - this is an industry that
was founded on grower activism. This is an industry, a
company that’s owned by growers. It’s owned by current
and former producers. It’s fully controlled by current
producers.
SUSAN
Sure. And some people say, to quote Dita’s [De
Boni] track, ‘bloated, lazy and inefficient.’ Is that
what you’ve
become?
LAIN
I don’t think so, and neither do the majority of
kiwifruit growers. Just a point - we had an annual general
meeting four days after that TV ONE news article. We had 50
minutes of general business. The growers who are associated
with this discontent spoke at the meeting. 50 minutes of
general business. An overwhelmingly positive meeting.
Incumbent directors voted back on to the board. We are an
industry in good heart, but it’s a primary industry. A
diversity of views, robust debate. Nothing wrong with
that.
SUSAN
Good
luck.
LAIN
Thanks.
SUSAN
Lain Jager, thanks for your time this morning. And
we did speak to the Minister of Primary Industries, Nathan
Guy, who told us despite ZESPRI’s conviction for smuggling
in China, he thought it would be counter-productive to hold
a government-led inquiry while an industry-led on is
currently underway. The minister says what happened with
ZESPRI highlights the importance of companies being aware of
overseas laws when doing business in offshore
markets.
ENDS