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New Zealand: October 1996

“ Microeconomic reforms combined with macro stability had underpinned New Zealand's strong economic performance of recent years and provided a basis for sustained higher economic growth in the future.”

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  > Summary of Government report

23 October 1996

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The Trade Policy Review Body of the World Trade Organization (WTO) conducted its second review of New Zealand's trade policies on 21 and 22 October 1996. The text of the Chairman's concluding remarks is attached as a summary of the salient points which emerged during the two-day discussion.

The review enables the TPRB to conduct a collective examination of the full range of trade policies and practices of each WTO member country at regular periodic intervals to monitor significant trends and developments which may have an impact on the global trading system.

The review is based on two reports which are prepared respectively by the WTO Secretariat and the government under review and which cover all aspects of the country's trade policies, including: its domestic laws and regulations; the institutional framework; bilateral, regional and other preferential agreements; the wider economic needs and the external environment.

A record of the discussions and the Chairperson's summing-up, together with these two reports, will be published in due course as the complete trade policy review of New Zealand and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.

Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995), Canada (1990, 1992 & 1994), the Czech Republic (1996), Chile (1991), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), the Dominican Republic (1996), Egypt (1992), the European Communities (1991, 1993 & 1995), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 & 1995), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992 & 1994), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).

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The Trade Policy Review Body has now completed the second review of New Zealand's trade policies and practices. These remarks, made on my own responsibility, summarize the main points of the discussion. They are not intended to substitute for the collective evaluation and appreciation of New Zealand's trade policies and practices. Details of the discussion will be reflected in the minutes of the meeting.

The discussion developed under four main themes: (i) the macroeconomic and structural environment; (ii) multilateral and regional issues; (iii) specific trade-related issues; and (iv) sectoral questions.

(i)The macroeconomic and structural environment

Participants praised New Zealand for its bold economic transformation, which had largely been undertaken unilaterally and had made the economy among the most open in the world. Microeconomic reforms combined with macro stability had underpinned New Zealand's strong economic performance of recent years and provided a basis for sustained higher economic growth in the future. Trade policy reforms were recognized as central to the overall liberalization effort, but privatization and corporatization, along with financial policy, tax policy, foreign investment policy, and other areas were also seen as important.

The role of labour market reform in raising productivity was of interest to Members. Productivity growth was allowing New Zealand exporters to maintain export volumes in the face of an appreciating currency. Investment, including foreign direct investment, had risen rapidly and, despite substantial government surpluses, was outstripping savings, with this imbalance reflected in a current account deficit. Recognition of this relationship gave rise to questions regarding the timing of tax cuts and efforts to promote savings. Participants, noting that the success of the reforms had reinforced pressure for trade liberalization, asked in which sectors this pressure was strongest. New Zealand was asked to comment on the expected evolution of policy in the few areas where sectoral restrictions on foreign direct investment remained.

Members asked whether the benefits of reform had been studied ex ante and whether such studies had a role in prompting the economic reform, and asked for observations on the impact or expected impact of Uruguay Round reforms on the prices paid to New Zealand's factors of production, such as agricultural land. Finally, participants were interested in the expected future evolution of New Zealand's economic policies.

In response, the representative of New Zealand noted that the link between New Zealand's poor economic performance before 1984 and the closed economy policies followed at the time had been clearly recognized ; many studies had also shown the high costs of protection. The results of liberalization had been clearly seen in the economy in the last few years. Total factor productivity had grown more rapidly than before; following a period of cost-cutting, investments were now being made in increasing labour productivity through greater training and multi-skilling. Productivity increases could not be attributed solely to labour reforms, but these reforms had played a major role and had increased the speed of economic adjustment. He noted that the current account deficit was not now seen as a problem, given the context of high levels of private investment, export growth and diversification, and a fiscal surplus. Moreover, the simplification of New Zealand's fiscal structure, combined with price stability, was encouraging higher domestic savings.

Decisions on privatization and corporatization were made on a case by case basis. With respect to foreign direct investment, in determining applicants' financial commitments the authorities sought to ascertain whether the applicant was genuinely behind the proposed investment and whether the applicant committed its own finances. Investment restrictions on fishing referred only to the ownership of fishing quota, while those concerning optometry, which applied equally to domestic and foreign owned businesses, restricted the ability of any company to own more than 45 per cent of any optometry business: the latter restrictions were currently under review.

(ii)Multilateral and regional issues

It was noted that New Zealand's trade policy operated under four tracks: multilateral, unilateral, bilateral and regional. Participants were interested in the relationship among these and whether New Zealand gave priority to the multilateral track. The New Zealand delegation was asked to comment on the role of the multilateral system in sustaining its own trade and domestic reforms.

    Members noted that implementation of the WTO Agreements was expected to have a substantial, positive effect on the New Zealand economy; it was expected to be among the greatest beneficiaries of multilateral trade reform. The mechanism for implementing multilateral commitments, such as the results of a WTO dispute settlement panel, in domestic law was queried.

    New Zealand's Closer Economic Relations (CER) Agreement with Australia was one of the world's most comprehensive trading arrangements. Participants were interested in New Zealand's experience with eliminating anti-dumping actions on trans-Tasman trade and the extension of domestic competition law to cover this trade; New Zealand was asked to comment on the implications of GATT Article XXIV for such an arrangement. The possibility of expanded membership in the CER was queried. Unrelated to the CER, it was asked whether any measures were envisaged with respect to an agreement between maritime labour unions of the two countries, which appeared to effectively preclude third-country competition in Trans-Tasman shipping.

    A number of participants, noting New Zealand's active membership of APEC and the growing share of its trade within the region, asked about its plans in this connection.

    The representative of New Zealand replied that a study commissioned by the government had estimated that the Uruguay Round would lead to gains for New Zealand equivalent to 2.3 per cent of its GDP by the year 2005, and create some 20,000 to 30,000 new jobs. Increases in agricultural product prices resulting from the Uruguay Round would tend to cause increases in rural land prices. These had increased by one third over the two years 1994-95; however, he emphasised that the Uruguay Round was only one of several factors in this respect.

    While certain sectors were initially expected to be sensitive to liberalization under the CER, it had already proven possible in 1988 to move forward the date for the complete bilateral free trade in goods from 1995 to 1990. The CER had recently been expanded to cover aviation services and New Zealand hoped that remaining services sector exclusions could be eliminated in the next few years; the two parties had recently agreed to begin examination of a CER protocol for investment. The CER left open the possibility of expanded membership; all requests would be given careful consideration and applications from WTO members were welcomed. The two parties had agreed that it would be logical to align CER rules of origin to a change of tariff heading criterion, and to study the impact of such a change, in particular with regard to processed food, forest products, steel and footwear: any changes would, however, be implemented only after the WCO/WTO process had been completed. The bilateral agreement with Canada formalized tariff preferences originating from the Commonwealth preference scheme. In 1995, Canada and New Zealand had agreed to maintain preference margins, so long as these did not interfere with unilateral tariff liberalization. New Zealand continued to view complete multilateral free trade as the first best outcome, and the outcome to which all four tracks were targeted. New Zealand believed that the WTO should set an ambitious agenda in this regard.    

(iii)    Specific trade-related issues

    Participants appreciated that New Zealand's remaining trade protection was in the form of import tariffs, virtually all non-tariff measures having been abolished. Tariffs had been greatly reduced over the previous decade and further reductions were to be implemented during the period 1997-2000. Participants hoped that future reductions would substantially reduce the protection that remained for certain sectors, such as textiles and clothing, and reduce tariff escalation and regional preference margins. Reductions could also reduce the impact of New Zealand's tariff concession scheme on the unevenness of tariffs. As a result of the Uruguay Round, New Zealand had greatly increased the proportion of its tariff lines bound in the WTO; however, some delegations noted that applied rates were generally well below bound levels and that substantial scope existed for bound rates to be reduced.

    The interface between trade remedy and competition policies was of interest to participants. A specific question was raised about the procedure followed in anti-dumping cases and it was asked whether standards used in this field might be equated with those applied under New Zealand's competition policy. New Zealand was asked for additional information on standards, particularly with reference to access for telecommunications, SPS measures particularly in regard to cheese imports, and on the status of mutual recognition agreements with certain other Members.

    Some participants viewed certain requirements regarding local supply possibilities for government procurement as providing an advantage to domestic producers and asked New Zealand to give further consideration to joining the Plurilateral Agreement on Government Procurement. Clarification was sought on the operation of certain intellectual property provisions, including the duration of patents and the application of the Geographical Indications Act to foreign suppliers.

    New Zealand believed that the level of bindings had to be seen in context. The weighted average tariff cut made in the Uruguay Round was approximately 50 per cent, far above the one-third target level; New Zealand's current bindings provided substantial security. Tariff concessions ensured that tariffs did not impose costs on businesses using inputs not produced in New Zealand. The concession scheme was transparent and well documented; concessions, once granted, were rarely withdrawn. Substantial liberalization had been undertaken with respect to textiles and clothing and New Zealand's imports had increased by nearly 30 per cent over the past five years.

    The representative indicated that competition law was not seen as a general substitute for anti-dumping investigations. Specific circumstances had made it possible to eliminate anti-dumping actions in trans-Tasman trade. The authorities were considering initiating public discussion of giving greater weight to national interest in anti-dumping measures. New Zealand had made itself available for informal consultations with the European Union concerning the recent imposition of countervailing duties on canned spaghetti from Italy.

     On Government Procurement, the representative stated that New Zealand's procurement regime fully accorded with the WTO principles of non discrimination, national treatment and transparency. It had moved well beyond the disciplines set out in the WTO Government Procurement Agreement, an agreement viewed as flawed because of its accommodation of bilateral and sectoral exemptions. Membership in the agreement would provide few benefits for New Zealand exporters and New Zealand would face increased regulatory costs for little or no benefit.

    New Zealand viewed trade policy as closely linked with general economic policies designed to promote efficiency, including competition policy. The lowering of trade barriers complemented sector-specific deregulation and encouraged competition throughout the economy. In turn, enhanced competition in the domestic economy influenced trade policy by enabling New Zealand to support further global and regional trade liberalization.

    The elimination of New Zealand's system of patent extensions from January 1995, was not seen as a step backwards. The Geographical Indications Act safeguarded foreign geographical indications in relation to any bilateral or multilateral agreement to which New Zealand may become a party. To date, no such agreements had been reached. New Zealand's Commerce Act did not prohibit particular conduct in relation to exclusive dealing, but allowed the competition authority and courts to determine whether certain behaviour was harmful to competition.

(iv)    Sectoral issues

    New Zealand was praised for having eliminated agricultural export subsidies. However, the continuing role of marketing boards in controlling agricultural exports stood out in an otherwise open trade environment and was of concern. Participants asked about the particular effects of the Uruguay Round on New Zealand's access to agricultural markets.

    Members noted that competition policy had worked together successfully with liberal trade and economic policy in many services industries and sought New Zealand's comments on this experience. New Zealand was asked whether it could consolidate its liberal policies through further GATS commitments. In addition, participants were interested in whether New Zealand would consider allowing easier or greater entry of foreign service suppliers and making GATS commitments regarding the movement of natural persons in the future.

    Discussion of other sectors included textiles and clothing, where New Zealand was praised for not using import quotas and for foregoing the possible use of special safeguards; aluminium and steel; and pharmaceuticals, where some participants felt that the scheme used for the reimbursement of out-patient costs for medicines effectively restricted market access.

    The representative of New Zealand maintained that the activities of the export marketing boards were fully consistent with WTO provisions, which essentially provided that they operate in accordance with commercial criteria. New Zealand's dairy output represented less than 2 per cent of international production; its share of dairy product consumption in major markets was small, and reflected the substantial market access limitations persisting in many markets. No marketing boards in New Zealand held import monopolies; the government provided no support to the Boards, but there was green box support to the covered products. New Zealand's current AMS under the Agriculture Agreement was zero.

    New Zealand's provisions regarding international telecommunications services were applied on an m.f.n. basis, but recognized that New Zealand's competitive suppliers may be vulnerable to the actions of overseas operators who, under some conditions, could play one supplier off against another, to the detriment of New Zealand's telecommunications users. The competitive environment in New Zealand allowed for the free negotiation of local interconnection agreements, backed by competition law. New Zealand maintained five m.f.n. exemptions in services ; it had recently considered the removal of one exemption in the maritime transport negotiations and expected to again consider the issue of m.f.n. exemptions at the scheduled review of m.f.n. exemptions to be held by 2000. New Zealand's Uruguay Round service commitments were among the most comprehensive made in the Round and reflected New Zealand's assessment of the balance of negotiated outcomes in both services and other areas.

    The representative outlined the structure and pricing policies of Pharmac, emphasizing that it did not control what prescription drugs might be sold nor, to any large extent, their price. The exemption from competition law aimed to allow regional health authorities to continue national negotiation of pharmaceutical subsidies. Further answers were given regarding steel and aluminium.

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    Overall, Members commented in very favourable terms on the extent of liberalisation and openness in the New Zealand economy. The mix of multilateral, regional and unilateral approaches was particularly noted. A few questions remained in specific areas: including, for example the continuing rôle of Marketing Boards in the agricultural sector and New Zealand's position vis-à-vis the Government Procurement Agreement. Overall, however, the depth and radicalism of the reform process was positively assessed and was seen as offering useful lessons for the economies of other WTO members.