New Zealand WT/TPR/S/115
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IV. TRADE POLICIES BY SECTOR
(1) INTRODUCTION
1. Agriculture remains an important sector in New Zealand, accounting for over 60% of
merchandise exports.  Public support to the sector has been greatly reduced as a result of reforms
pursued in the 1980s and 1990s, making the sector more competitive;  New Zealand's producer
support estimate (PSE), at around 1%, is among the lowest in the OECD.  Protection through tariffs isalso low, and New Zealand does not apply import quotas.  Imports of agricultural products are,
however, subject to SPS and health requirements.
2. While import protection and domestic support was reduced, the export of key agricultural
products such as dairy and horticultural products (including kiwifruit and apples and pears) was, until
recently, carried out through state-trading enterprises (STEs).  Since the previous Review ofNew Zealand in 1996, reform of these enterprises and the markets they operate in has been carried
out, and several STEs have lost their statutory export monopoly.  In some cases, notably apple and
pear exports, competitors have already entered the market.  In the case of the dairy industry,  other
companies are now permitted to export;  moreover, constraints have been placed on the main exporter
because of its dominant position in New Zealand.
3. The importance of agricultural products in the New Zealand economy is also evident in
manufacturing activities, where food products account for 31.1% of output.  Food products are also
subject to relatively low tariffs.  In contrast, tariffs for textiles, clothing, and leather continue to be
much higher, and a significant share is subject to spec ific rates.  Tariff escalation in these industries is
also higher than for industrial products in general.  New Zealand has suspended its unilateral
reduction of tariffs until 2005, in part, to give affected industries such as these, time to restructure and
prepare for possible tariff reductions pending an ongoing review.  New Zealand is also currentlytargeting the development of higher-value-added activities, such as biotechnology, information and
communication technologies, and creative industries, in which it believes it has a comparative
advantage, through a more "proactive" policy.
4. Services account for some 67% of GDP.  The main activities are finance, insurance, and
business services, personal and community services, and wholesale trade.  The largest export earnersinclude education, professional services, travel, and transport (the latter two services accounted for
almost 80% of services exports in 2001), showing the importance of tourism and related services to
the New Zealand economy.  With some exceptions (notably transportation), New Zealand has kept
state involvement in services to a minimum and prov ides little, if any, government support.  Although
efforts have been made to increase competiti on in the main services sectors, some, including
international maritime and air transport services, remain partially exempt from New Zealand's
competition law.  In the case of other subsectors, such as telecommunications and electricity, sector-
specific competition frameworks have been put into place to supplement the overall competition
policy framework.  In telecommunications, the office of the Telecommunications Regulator has been
created in the Commerce Commission.  The authorities argue that specific regulations have been putin place for telecommunications, electricity, and the dairy industry because the structure and nature of
these industries, and the specific market power issues  that arise, present the need for such regulations.WT/TPR/S/115 Trade Policy Review
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(2) AGRICULTURE
(i) Overview
5. Agriculture accounts for over 60% of New Zealand's merchandise exports but some 5.4% of
GDP (8.2% including forestry, fishing, and mining) (Table IV.1).  Dairy and meat products accounted
for 54% of all agricultural exports in 2001, up from 47.6% in 1996 (Chart IV.1).  The share accounted
for by dairy products increased from 26.4% to 34.3% during this period.  Other significant exports arecork and wood (9.9%) and fruit and vegetables (6.8%).  New Zealand's main agricultural exports
markets in 2001 were the United States (13.4%), Japan (11.5%) and Australia (9.2%);  the European
Union accounted for 17.6% of total agricultural exports.  Imports of agricultural products are
relatively smaller, almost 10% of merchandise imports in 2001, compared to 8.6% in 1995
(Chapter I).
Table IV.1
Economic structure and employment, 1995-02(Per cent)
1995/96 1996/97 1997/98 1998/99 1999/00 2000/01 2001/02
Share of main sectors in real GDP (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0
(based on 1995/96 prices)
Agriculture 5.3 5.7 5.6 5.3 5.5 5.4 5.4
Forestry, fishing, and mining 2.8 3.0 3.0 2.9 2.9 2.9 2.8
Manufacturing 17.2 16.9 16.5 15.9 15.8 15.7 15.4
Electricity, gas and water 2.6 2.3 2.3 2.3 2.1 2.2 2.0
Construction 4.0 4.3 4.4 4.1 4.5 4.0 3.9
Services 63.9 63.8 64.3 65.5 65.3 66.0 66.7
Wholesale trade 7.9 7.6 7.6 7.7 8.1 8.1 8.1
Retail, accommodation, restaurants 7.4 7.3 7.2 7.3 7.3 7.3 7.3
Transportation and communication 8.1 8.2 8.4 8.8 9.2 9.8 10.1
Finance, insurance, and business services, etc. 24.7 25.0 25.2 25.4 24.7 24.7 24.7
Personal and community services 11.1 11.3 11.5 12.1 11.9 12.1 12.4
Government administration and defence 4.6 4.5 4.3 4.3 4.1 4.0 4.1
Other 4.2 4.1 3.9 3.9 4.0 3.9 3.8
Share of sectors in total employment (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Agriculture, hunting, forestry and fishing 9.7 9.2 8.7 8.7 9.3 8.8 9.1
Mining and quarrying 0.3 0.3 0.3 0.2 0.2 0.2 0.2
Manufacturing 17.8 16.8 16.4 16.6 15.8 15.9 15.7
Electricity, gas and water 0.8 0.8 0.6 0.6 0.5 0.5 0.6
Construction 6.2 6.5 6.6 6.3 6.5 6.5 6.1
Services 65.0 66.0 67.2 67.3 67.5 67.6 68.2
Wholesale and retail trade 21.3 21.2 21.7 21.5 21.3 21.7 21.6
Transport, storage and communication 5.9 5.9 6.0 6.0 6.3 6.2 6.1
Finance, insurance, and real estate 10.7 11.5 12.4 12.5 12.6 12.2 12.3
Community, social and personal services 27.1 27.4 27.1 27.3 27.3 27.4 28.1
Other 0.1 0.4 0.3 0.2 0.3 0.5 0.2
Source: Data provided by the authorities of New Zealand;  and the Treasury online information.  Available at:
http//:www.treasury.govt.nz..
6. As a result of economic reforms, which removed most public support for agriculture, the
sector is now considered to be highly efficient.  Recent research by the Ministry of Agriculture and
Forestry shows that productivity gains for agriculture and forestry during the period since economy-New Zealand WT/TPR/S/115
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wide reforms were initiated in the mid 1980s have been higher than for other sectors.1  The m a jor
remaining area subject to marketing controls, the export monopolies of producer boards, has also been
deregulated considerably.  New Zealand believes that tariff and non-tariff barriers, such as quotas and
subsidies, are a major barrier to its agricultural  exports and that growth in the sector would be
considerably higher were these barriers to be reduced and eventually eliminated.
(ii) Import policy
7. New Zealand's tariffs on agricultural products are relatively low and have fallen since its
previous Review in 1996.  The average applied MFN tariff under the WTO definition of agriculture
was 2.1% in 2002, compared to 4.5% in 1996.2  This is considerably lower than New Zealand's final
bound tariff for agricultural products in the WTO (7.3% in 2005).  New Zealand scheduled tariff-ratequotas for apples, pears, and hop cones, but does not apply these quotas because the MFN tariff on
these products is zero.  New Zealand's exports of several key agricultural products, however, are
subject to tariff-rate quotas imposed by some trading partners (section (iii) below)).
8. Although tariffs are generally low, New Zealand has been criticized by some WTO Members
for its sanitary and phytosanitary measures (Chapter III(2)(ix)).
9. There has been no change to the Commodity Levies Act 1990, which permits products,
including those imported, to be subject to compulsory levies for industrial research purposes
(section (iv) below).
                                                     
1 Johnson and Forbes (2000).
2 Two agricultural tariff lines (alcohol products), which have specific rates of duty of 65 cents per litre
but for which no AVEs were available because there were no imports, have been excluded.Per centChart IV.1
Exports in agriculture, 1996 and 2001
Total: US$8,808.9 million Total: US$9,263.0 million1996 2001
Source : UNSD, Comtrade database (SITC Rev.3).a      Other than wool tops and other combed wool.   b      Not manufactured into yarn or fabric.     c      Not marine mammals.Dairy products
34.3 Fruit & vegetables
6.8Textile fibresa &
 their wastesb 
  4.7Meat & meat 
preparation
19.7
Cork & wood
9.9
Fishc, crustaceans, &
 prep. thereof  8.4Other 
16.2
Fishc, crustaceans, & 
prep. thereof   9.0Fruit & vegetables
9.8Cork & wood
8.9Dairy products
26.4Meat & meat 
preparation
21.2
Textile fibresa &
 their wastesb
8.1Other
16.6WT/TPR/S/115 Trade Policy Review
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(iii) Export policy
10. The main change in export policy that has taken place since 1996 concerns the restructuring
of several state-trading enterprises (STEs).  At the time of the previous Review of New Zealand in
1996, there were five STEs exercising a monopoly on exports:  the Apple and Pear Marketing Board,
the Dairy Board, the Hop Marketing Board, the Kiwifruit Marketing Board (other than to Australia),
and the Raspberry Marketing Council.3  Since then, STEs have continued to be reformed.  Zespri
Group Limited, formerly the Kiwifruit Marketing Bo ard, now maintains an automatic, but not sole,
right to export;  according to the authorities, ther e are no plans at present to change this regulatory
structure further.  The New Zealand Horticulture Export Authority (HEA), a new STE, does not have
an export monopoly, but endorses (and ensures compliance with) export marketing strategies
developed by growers and exporters of horticultural products.  Legislation to remove the HopMarketing Board's export monopoly is currently being examined by a Select Committee of
Parliament.
  Meat New Zealand (the trading name of the New Zealand Meat Producers Board) and
Deer Industry New Zealand (formerl y the New Zealand Game Industry Board) were formerly notified
to the WTO as STEs but due to legislative changes are no longer considered by the authorities to be
STEs.  They are non-trading boards that provide services such as research and development andmarketing to farmers.  The Raspberry Marketing Council was discontinued in 1999 and legislation to
discontinue the New Zealand Wool Board is currently before Parliament and expected to be passed in
2003.  The Fishing Industry Board, which was discontinued on 1 October 2002, was a non-trading
board with statutory powers to licence exporters of  fish and fish products.  The New Zealand Seafood
Industry Council Limited (SeaFIC), which succeeded the Board, provides services similar to those
provided by agricultural non-trading boards.
11. Reform of the STEs began in 1998 when the Go vernment indicated in its Budget that the
structure of the producer boards had to change to m eet changing market conditions.  In particular, the
boards were asked to prepare plans outlining how they  would operate without statutory backing.  As a
result of consultations with their Members there have been a number of structural changes to the
Boards since the last Review.  The Apple and Pear Industry Restructuring Act was enacted in
September 1999 resulting in the formation of a company, ENZA, to replace the New Zealand Appleand Pear Board.
4  ENZA, as its predecessor, retains an automatic but no longer sole right to export
apples and pears.  A new non-trading regulatory body, the Apple and Pear Export Permits Committee,
was created by the Act to monitor ENZA's compliance with certain "mitigation measures" and to issue
permits for export of apples and pears by others5.  In September 2001, as a result of further legislative
changes, ENZA lost its privileged export right, reflecting a loss of support from growers because ofits poor returns in international markets.  As a result of the removal of its statutory export monopoly,
the authorities estimate that ENZA now account for around 60% of New Zealand's exports of apples
and pears.
12. Similar structural changes have taken place for kiwifruit.  On 1 April 2000 the New Zealand
Kiwifruit Marketing Board was converted into a company, Zespri Group Limited, under the KiwifruitIndustry Restructuring Act, 1999.  Zespri retains an automatic although not sole right to export
kiwifruit.  Its activities are monitored by the New Zealand Kiwifruit Board, which also allocates
permits to other exporters of kiwifruit for markets other than Australia;  such authorized exports must
be carried out in collaboration with Zespri.  Amendments to the Horticulture Export Authority Act are
currently being considered by Parliament.  If passed, they would allow the New Zealand Horticulture
                                                     
3 WTO (1996).
4 The Apple and Pear Marketing Board was created to give market power to New Zealand pipfruit
exporters in international markets.
5 The mitigation measures are no longer in operation as ENZA's statutory export monopoly was
removed in 2001.New Zealand WT/TPR/S/115
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Export Authority to licence exports of kiwifruit to Australia;  the amendments are designed to deal
with illegal re-exports of kiwifruit through Australia to other markets.  While Zespri no longer
maintains its sole right to export kiwifruit from New Zealand, in effect, it nevertheless retains a near
monopoly on exports due to the requirement that all other exporters must export in collaboration with
Zespri.
13. With the merger of New Zealand's two largest dairy processing companies, the New Zealand
Dairy Group and Kiwi Co-operative Dairies, and the formation of the Fonterra Co-operative Group,
New Zealand Dairy Board's single desk monopol y on exports of dairy products was ended
(section (iv) below).  Under the Dairy Industry Restructuring Act, 2001, Fonterra retains its role of
New Zealand's main exporter of dairy products bu t no longer has a statutory export monopoly;  the
company also continues to hold exclusive licences, for periods up to 2007 or 2010, to export todesignated restricted markets, as listed in the Act.
6  No decision has yet been taken on the
arrangements that will apply once the transitional period is over;  according to the authorities,
officials, in consultation with industry, are currently preparing advice for the Government on this
issue.  No export licences are necessary for non-restricted markets.
14. New Zealand's exports of several products, including beef, veal, lamb, fish, and dairy
products are subject to tariff-rate quotas in some of its main markets, including the European Union,
Canada, Japan, and the United States.  For dairy products, as mentioned above, Fonterra is expected to
continue to hold exclusive licences for these markets until 2007 to 2010.  For meat products, tariff
quotas for export to the European Union, Canada, and the United States are currently allocated by
Meat New Zealand, which, under the Meat Board Act 1997, operates allocation systems for
sheepmeat, goatmeat and high quality beef to the European Union, and beef and veal to Canada and
the United States.7   Documents of origin for exports to these markets are issued by Meat
New Zealand.
15. Under the Commodity Levies Act 1990, New Zealand may impose compulsory levies for
research and other purposes on exports (section (iv) below).  These levies may be imposed only if
producers vote in support of them;  the authorities also state that extensive accountability provisions
apply to the use of such levies.
(iv) Domestic policy
16. Agriculture in New Zealand is relatively free of domestic controls and support. Budgetary
support is provided mainly for basic research and for pest and disease control;  the Government has
also set up a fund to encourage sustainable farming.8  From time to time, New Zealand provides
                                                     
6 Exclusive export licences will be held by Fonterra for an initial period of up to 31 July 2007 for
exports to designated markets in Canada;  up to 31 December 2007 for exports to designated markets in theEuropean Communities (reductions in these licences after the initial period for export to the EuropeanCommunities are indicated in Section 25 of the Dairy Industry Restructuring Act 2001);  up to
31 December 2008 for exports of cheddar cheese and low fat cheese to designated markets in the United States;
up to 31 December 2009 for exports of NSPF (not specifically provided for) cheese and other American-typecheeses to designated markets in the United States;  up to 31 March 2010 for exports to designated markets inJapan;  and up to 30 June 2007 for exports to designated markets in the Dominican Republic (Section 24 of theDairy Industry Restructuring Act 2001).
7 Tariff quotas currently include:  226,700 tonnes carcass weight equivalent of sheepmeat and
300 tonnes product weight of high quality beef for the EU;  213,402 tonnes product weight on most beef
products at an import tariff of 4.4 US cents. (Meat New Zealand:  Processing and Exporting [Online].  Availableat:  http://www.meatnz.co.nz/wdbctx/corporate/exporting/home [13 November 2002].
8 See details in MAF online information.  Available at:  http://www.maf.govt.nz/mafnet/rural-
nz/assistance/index.htm, [19 December 2002].WT/TPR/S/115 Trade Policy Review
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disaster relief for adverse climatic events.  According to the OECD, New Zealand's overall producer
support estimate (PSE) is low, at 1%, and has been at this level since 1998.  PSE levels for poultry
and eggs are considerably higher than for other products, some 8% and 34%, respectively, in 2001
(21% and 33% in 2000)9;  while the PSE for poultry has fallen from 47% in 1997, the PSE for eggs
has increased from 17%.10  According to the authorities, PSE calculations reflect differences between
world and domestic prices.  The latter may be higher for a number of reasons, including tariffs, whichare relatively higher for these products than for agriculture in general
11, and the cost of inputs such as
grain for poultry, which is mainly imported.  New Zealand's total Aggregate Measure of Support
(AMS) for the period since 1995 has been zero.12
17. The main policy changes since the previous Review of New Zealand include the
transformation of New Zealand's major statutory producer boards into companies and the resultingchanges in their marketing structures.
18. In June 2001 new Zealand's two large dairy pro cessing co-operatives, the New Zealand Dairy
Group and Kiwi Co-operative Dairies merged to form the Global Dairy Company (GDC), later
renamed the Fonterra Co-operative Group.  Before June 2001, as a result of consolidation in the Dairy
sector, the number of co-operative processing companies in New Zealand had fallen to four.
13  These
companies competed in the domestic market but all exports were managed by the New Zealand Dairy
Board, which under the statutory single-desk arrang ement of the Dairy Board Act, 1961, was the sole
exporter of dairy products.  With the passage of the Dairy Industry Restructuring Act 2001, all the
shares of the New Zealand Dairy Board were transferred to Fonterra, thereby merging the domestic
production and export functions of New Zealand's dairy industry.
19. The merger, according to some estimates, places some 90% of New Zealand's raw milk and
processed dairy product market in the hands of a single company.14  In order to mitigate the risks of
this market power, however, the Dairy Industry Restructuring Act requires, inter alia :  divestment by
Fonterra of New Zealand Dairy Foods;  regulated access for independent producers to raw milk
supplied by Fonterra;  transitional export marketing arrangements for existing independent co-
operative dairy companies;  open entry and exit by farmers in and from Fonterra;  Fonterra to allow
shareholders to supply 20% of their weekly production to an independent dairy processor; and at least33% of the milk solids produced within a 160 kilometre radius to be supplied either under contract
with an independent processor or under contracts with Fonterra that expire at the end of the season.
15
Although the Government exempted the merger propos al from the provisions of the Commerce Act, it
was agreed that the merged company Fonterra would be subject to the Commerce Act, thereby
removing the waiver granted to the New Zealand Dairy Board.16  A further measure to mitigate the
                                                     
9 OECD (2002b).
10 OECD (1999).
11 The tariff for chilled and frozen poultry (HS0207) averages 6.1% compared with the 1.9% overall
average for agriculture under the WTO definition;  average tariffs for live poultry (HS0105) and eggs (HS0407and 0408) are zero.
12 WTO document G/AG/N/NZL/33, 14 November 2002.
13 New Zealand Dairy Group, Kiwi Cooperative Dairies, Tatua Cooperative Dairy Company Limited,
and Westland Cooperative Dairy Company Limited.
14 New Zealand Institute for the Study of Competition and Regulation (2001).
15 Commerce Commission (2001b).
16 According to the au thorities, the merger proposal was exempted from Commerce Commission
consideration to provide the dairy industry with a timely and certain transition to a more normal regulatory
environment.  The legislation applying to the industry prior to the merger was highly prescriptive and imposedsignificant costs on the industry.  Coordinating the Government's legislative processes with the CommerceCommission's merger authorization process and farmer/s hareholder referendums would have required careful
staging and the outcome would have been uncertain.  Legislating to facilitate the merger, subject to fullNew Zealand WT/TPR/S/115
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risks of abuse of this market power was the Raw Milk Regulations 2001, which governs the price of
raw milk, thereby providing protection to Fonterra suppliers, its competitors, and the processors who
buy milk from Fonterra.  Under the Dairy Industry Restructuring Act 2001, the Commerce
Commission would consider:  applications concerning entry or exit by shareholders from Fonterra or
disputes relating to pricing or supply of raw milk to independent processors;  investigations into any
behaviour by Fonterra that seems to breach the entry and exit conditions laid down in the Act or anyother regulations in the Act;  and investigations and enforcement of all other provisions under the
Commerce and Fair Trading Acts.  The Commission may initiate investigations in response to
complaints or on the basis of its own monitoring of the dairy industry.
17  In 2001/02 the Commission
initiated four investigations and, as at 30 December 2002, had received one application by an
independent processor for a determination.  The Commission has also been requested to determineFonterra's cost of capital for the purposes of calculating the regulated milk price under the Raw Milk
Regulations.
20. The Commodity Levies Act 1990 permits the imposition of compulsory levies on
commodities by the relevant industry associations other than the producer boards which, under their
statutes, did not need to seek permission to impose levies.  Under the Act the levy may be used tofund, inter alia , production and market research, market development and promotion, plant and
animal protection, and quality assurance;  although the levy may not be used to fund commercial or
trading activities, Parliament granted special provisions for the Act to be used to raise levies to enable
the purchase of disaster relief insurance for growers.
21. Permission for imposition of a levy must be obtained by the industry association from the
Minister of Agriculture.  Approval is granted if the association has met the requirements of section 5
of the Act, including consultations with those who would be required to pay the levy, ensuring thatthey are aware of the costs and benefits of the levy.  A majority of those who would be required to
pay the levy must agree to it in a referendum.  In addition, if the levy is to be imposed on imports, the
Act requires that importers benefit from the spending of the levy and that the views of importers on
the spending of the levy be considered by the association.
18  The Act also permits the imposition of
the compulsory levy on imports of the product, as long as the rate is the same as or lower than thatcharged for the domestically produced good.  However, the Minister cannot recommend an order that
imposes a levy on imports unless satisfied that:  the levy order would not be contrary to
New Zealand's international obligations, and persons acquiring or dealing with the imported product
will not derive unearned benefits from the levy paid by producers of the commodity concerned.
Currently, 23 commodities are subject to compulsory levies under the Act.
19  According to the
authorities, none of these 23 levy orders apply to imported products.  Moreover, no levy orders have
been applied to imported products since the Act has been in force.  There has also been a change in
policy since the Commodity Levies Act came into force in 1990, with the Government strongly
opposing the idea of having provisions in legislation to impose levies on imported products.  More
                                                                                                                                                                    
deregulation of the Dairy Board and conditions to mitigate the merged entity's resulting market power, was seen
as the most appropriate option in these unusual circumstances.  The authorities also note that an exemption for a
merger or acquisition, which may only be given effect by Parliament, is highly unusual;  the only other case itappears to have occurred for is the merger of Air New Zealand limited and the New Zealand National AirwaysCorporation in 1978 in accordance with the New Zealand National Airways Corporation Dissolution Act 1978.
17 Commerce Commission (2001b).
18 Commodity Levies Act, 1990, Section 5:  Restrictions on Making of Orders.  Available online at:
http://rangi.knowledge-basket.co .nz/gpacts/ [5 November 2002].
19 These are (as at 28 January 2003):  arable crops, asparagus, avocados, bee products, blackcurrants,
blueberries, eggs, farmed deer products, feijoas, all fish and shellfish, green lipped mussels, nashi Asian pears,Nelson Marlborough Dredge Oysters, non-proprietary and uncertified herbage seeds, orchard fruit, passion fruit,pip fruit, southern scallops, summer fruit, tamarillos, vegetables, wheat grain, and winemaking grapes.WT/TPR/S/115 Trade Policy Review
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recent Acts, such as the Meat Board Act 1997, the Pork Industry Board Act 1997, and the Wool Board
Act 1997, provide for imposition of levies on products produced in New Zealand only, and not on
imported products.
(v) Fisheries
22. New Zealand's fishing industry, which accoun ts for an estimated 1.8% of GDP, and 8.4% of
agriculture and fisheries exports, is subject to fishing permits and quotas in order to manage fishstocks sustainably.  The Fisheries Act, 1996 (whic h, along with its amendments, entered into force on
1 October 2001), sets out the legal framework for commercial and recreational fishing.  The purpose
of the Act is to provide for utilization of fisheries resources while ensuring their sustainability.
New Zealand's seafood resources are managed by the Ministry of Finance and the New Zealand
Seafood Industry Council (SeaFIC).  In 1997, all normal business activities carried out by theNew Zealand Fishing Industry Board were  contract ed under an agency agreement to SeaFIC;  the
Fishing Industry Board was dissolved on 1 October 2002.
20  SeaFIC is funded under a Commodity
Levy Order collected on all fish (including shellfish and crustaceans) except imported fish.21
23. Commercial fishing in New Zealand is regulated under the Quota Management System
(QMS), which has been in place since 1986 and incl udes most commercially caught species (presently
55).  The Ministry of Fisheries, which administers the Fisheries Act 1996, has set a target of
introducing an additional 50 species into the QMS by 1 October 2004.22  The QMS is based on an
annual scientific assessment of population size of all major commercial fish species in their main
fishing grounds or areas (quota management areas, QMAs).  The assessment data is used by the
Minister of Fisheries to set an annual total allo wable catch (TAC) limit for each QMA.  The TAC is
set in order to ensure that  the greatest yield can be achieved over time while maintaining the stock's
productive capacity;  in addition, where non-commercial users are involved (such as Maori orrecreational fishers), a quantity of stock is set aside for them before the commercial catch (TACC) is
established.  The annual TACC is then divided into individual transferable quotas (ITQs) for each
species and stock of fish.  Each share has an annual quantitative equivalent (annual catch entitlement
or ACE) in proportion to the total TACC available for each stock;  ACEs can be traded during the
fishing year.  Quota rights are allocated on the basis of catch history during qualifying years.  When anew species is introduced to the QMS, 20% of the catch of all ITQs is allocated to Maori.  The
remaining quota is distributed amongst people holding commercial fishing permits for each species,
based on how much they caught during the "qualifying years".  Any remaining ITQ may be tendered
off by the Crown.
24. A commercial fisher is required to have a fishing permit issued by the Ministry of Fisheries.
The Fisheries Act 1996 establishes a system by which a fisher's catch is counted against their Annual
Catching Rights–the catch balancing regime.  The regime is designed to provide appropriate
incentives to encourage all fishers to cover a ll their catch of QMS stocks with annual catch
entitlements.  Over-fishing is controlled, in the first instance, by administrative incentives based on
the payment of deemed values.
23
                                                     
20 Ministry of Fisheries (2002).
21 All fish includes fish, shellfish, and crustaceans under the QMS, as well as non-QMS stocks and
aquacultured fish and shellfish landed or produced in New Zealand.
22 Ministry of Fisheries (2002).
23 Deemed values (or amounts to be paid to the Crown if the catch exceeds the annual catch
entitlements) are set in order to provide an incentive for all commercial fishers to acquire or maintain a quota inrespect of each fishing year that is consistent with th e catch of that stock taken by the fisher (OECD, 2002e).
The deemed value is supposed to be set at a level that:  is high enough to discourage targeting of a stock forNew Zealand WT/TPR/S/115
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25. Once acquired, the quota rights may be transferred to another person or company through sale
or lease.  ACE is also tradeable through sale.  The annual period of ACE for most species is 1 October
to 30 September.  In order to ensure that no single company or person monopolizes fishing in any
particular species, the Fisheries Act limits the total amount of the quota that may be held by
individuals;  the limit is set by the Minister of Fisheries in consultation with organizations or persons
the Minister considers are representative of the classes of persons having an interest.  Nevertheless,fewer companies are holding a larger share of annual quotas.
24
26. Fishing quotas may only be held by nationals of New Zealand or by majority-owned domestic
companies;  permission may be granted, under certain circumstances, by the Minister of Fisheries and
the Minister of Finance, for an overseas person to hold a fishing quota in New Zealand
(Chapter II(5)).  Foreign-owned fishing vessels may operate in New Zealand waters (within the200 mile limit) if they are licensed under the Fisheries Act 1966 or if they are chartered fishing
vessels registered with a New Zealand permit holder.
25
27. The fishing industry receives no direct subsidies.  Since October 1994, the New Zealand
Government has recovered costs associated with the fisheries management services and consultation
services supporting commercial fishing through levies.  These include:  annual levies collected on amonthly basis on quota holders;  levies on landings for non-quota fisheries;  levies on individual catch
limits or quotas;  aquaculture levies;  permit holder levies;  licensed fish receivers levies;  vessel
monitoring levies;  and conservation services levies.  As a result of these levies, net government
financial expenditures for fisheries was $NZ36 million in 2000/01 or 5% of the total unprocessed,
landed value of the sector ($NZ33 million or 5% in 1999/00);  most of the expenditure relates to
fisheries information and monitoring, enforcement of fisheries policy, and fisheries access and
administration.
26  Net government financial expenditures for fisheries was $NZ41 million in 2001/02.
Protection through import tariffs is also low, some 0.4% on average in 2002 (HS 03).
(3) MANUFACTURING
(i) Structure
28. The manufacturing sector accounted for 15.4% of GDP in 2001/02, down from 17.2% in
1995/96 (Table IV.1);  employment in the sector also fell from 17.8% to 15.7% during this period.The main activities are food products, including primary food, beverages and tobacco (some 31.1% of
manufacturing), and certain niche industries such as textiles, clothing, footwear, and leather (some
5.7% of manufacturing)
27;  the Government has also launched a programme to further develop high
technology industries such as information and communication technologies, biotechnology, and
creative industries.
                                                                                                                                                                    
which the fisher has no quota;  and provides sufficient incentive for the fisher to land the fish rather than to
dump it illegally.  For most stocks, according to the authorities, deemed values are set at around 50-80% of port
price (i.e. leaving the fisher 20-50% of the port price).  For high value and single species fisheries, such as rock
lobster, deemed values are set higher to try to remove all economic incentives for targeting without quota.
24 Currently the leading New Zealand fishing compan ies and quota holders are Sealord Products Ltd.,
Sanford Limited, Talley/AMALTAL, Vela Ltd., Moana Pacific Ltd., and the member companies of the SeafoodIndustry Consortium (New Zealand Seafood Industry Council (undated)).
25 OECD (2002e).
26 Out of $NZ65 million spent by the Government in 2000/01, $NZ29 million was recovered through
cost recovery levies (OECD, 2002e).
27 The figures provided by the authorities are based on the System of National Accounts and are for the
year ended September 2002.WT/TPR/S/115 Trade Policy Review
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29. New Zealand's manufacturing sector continues to rely heavily on food products.  Food
products also accounted for 47% of total exports in 2001, up from 44% in 1995. The share of textiles
and clothing in exports declined from 2.1% in 1995 to 1.8% in 2001, while imports also fell slightly,
from 5.6% to 5.3% of total imports, mainly as a result of a decline in imports of textiles.  Other
exports include machinery and transport equipment, chemicals, and other semi-manufactures.
(ii) Policy measures
30. As a result of unilateral tariff reductions, manufacturing (ISIC 3) is currently protected by an
average MFN tariff of 4.3%, declining from 6.5% reported at the time of the last Review in 1996.28
The unilateral tariff reductions were, however, suspended in 2000.  As a result, tariffs are not subjectto further reductions until at least 2005;  reductions after 2005 are currently the subject of a review.
31. While the overall MFN average tariff for manufacturing is relatively low, it conceals tariff
peaks in textiles, clothing and leather industries (ISIC 32).  The average tariff for these industries is
9.6%;  tariff rates for clothing (ISIC 3220) are still higher, averaging 18.6%, while footwear (ISIC
3240) imports face average tariffs of 11.7%.  Moreover, the sector is also subject to significant
escalation, with rates rising from 2.2% and 2.8% during the first two stages of processing, to 14.8%
for fully processed goods.  According to the authorities, New Zealand's textiles and clothing industryhas significantly downsized and the clothing and footwear sectors, in particular, are largely involved
in "niche market" activities;  it is hoped that the tariff pause will give the industry the opportunity to
adjust to being internationally competitive.
29  Since 2000, the Government has been providing sector
facilitation services to the TCF and wood processing industries through Industry New Zealand.  These
services have been limited to helping the sectors improve domestic networks and facilitating industry-
led problem solving.
32. In an effort to increase value added, and facilitate higher growth in "high technology" based
sectors, the Government, through Industry New Zeal and, is targeting biotechnology, information and
communication technologies (ICT), and creative industries, in which it believes that New Zealand has
a comparative advantage.30  Four taskforces comprising representatives drawn from the sectors have
been set up to develop strategies in biotechnology, ICT design and screen productions. The ICT task
force  issued a draft report to the Government in  November 2002;  the rest are due to report to the
responsible ministers in the first quarter of 2003.    An initial discussion paper published by Industry
New Zealand, on the biotechnology industry in New Zeal and, identified a number of constraints to the
development of the industry.  These include:  a poorly developed venture capital industry;  lack of
financial and legal skills to effectively access international markets;  lack of interdisciplinary skills;  a
mismatch between government funding objectives and those of the main science providers;  as well asa highly fragmented industry. New Zealand's relative size and isolation from its main markets was
also identified as a possible constraint.
31  Annual earnings by the biotechnology industry are expected
to be between $NZ2 billion and $NZ7 billion by 2010.  As a first step to provide more comprehensive
information on the biotechnology industry in New Zealand, Industry New Zealand launched an
internet website in November 2002;  the website contains information on biotechnology industryorganizations, research organizations and businesses.
32
                                                     
28 Around 14.4% of textiles and clothing lines are subject to non- ad valorem  rates of duty.
29 It may be noted that when the Government decided to remove tariffs on automobile imports in 1998
the motor vehicle assembly industry, which at the time consisted of Mitsubishi, Nissan, Honda, and Toyota,
ceased local production (see for exampl e, Statistics New Zealand (undated)).
30 See the Government's general policy statement in Government of New Zealand (2002b).
31 Industry New Zealand (2001).
32 Industry New Zealand (2002).New Zealand WT/TPR/S/115
Page 77
33. The ICT task force reported that for the ICT sector to double its contribution to GDP to 10%
by 2012, from a current estimate of 4.3%, a number of steps needed to be taken to address constraints
on the industry's economic growth.33  Challenges identified include:  a shortage of commercialization
skills and experience to go global;  the supply of appropriately educated graduates;  and the need to
develop popular awareness of ICT successes and to develop a "culture that breeds innovation and
entrepreneurial spirit".  Among the regulatory and policy issues identified was a need to address twomain barriers to growth of the industry:  access to capital, and retention of people, for which the
government needed to improve, inter alia,  the R&D environment (for example through the tax
system), and its purchasing and export promotion policies.
34. Specific funding targeted at initiatives to promote high growth sectors including ICT,
biotechnology, and creative industries, according to the authorities, would be less than $NZ22 millionduring the period 2000-03.  The funding has primarily provided sector facilitation and support through
Industry New Zealand.  Further initiatives are likely to be announced as part of the 2003/04 budget.
(4) SERVICES
(i) Overview
35. The contribution of the services sector to real GDP has increased since 1995/96, to around
67% of GDP in 2000/01;  the most important subsectors were finance, insurance, and business
services, which accounted for 24.7% of GDP (Table IV.1).  The services sector absorbed some 68%
of the labour force.  New Zealand is a net exporter of travel services, which account for 55.5% of total
services exports.  This highlights the importance of the tourism industry in the economy, inter alia ,
as a source of foreign exchange, employment, investment, and regional development.  As at
September 2002 tourism was estimated to be one of New Zealand's largest export industries, with
total expenditure by international visitors reaching $NZ5.9 billion.  It is estimated that the direct andindirect contribution of tourism to GDP is almost 10%.
34  The authorities noted that given the
difficulty in defining travel service exports th eir exact figures are unknown.  The fastest growing
services exports since 1996/97 include computer and information services and travel, including
education and business travel.35
36. New Zealand grants subsidies to education, broadcasting, film production, land transport, air
transport, business, and tourism services.36  Most domestically produced services, with the exception
of some financial services, are subject to the GST.  Financial services, with the exception of most
insurance services (GST does not apply to life insurance and reinsurance), are exempt from GST
because of the difficulty of levying the GST on this type of service.  This exemption is under review
and the proposal is that the business-to-business supply of financial services will be zero-rated insteadof exempt.
37
37. New Zealand participated in the WTO negotiations on basic telecommunications and on
financial services:  it accepted the Fourth and Fifth Protocols to the GATS effective 5 February 1998
and 11 January 1999, respectively.
                                                     
33 The aim is to "grow" 100 companies each with annual sales of $NZ100 million in order to achieve
this growth target (ICT Taskforce, 2002).
34 Statistics New Zealand (2002).
35 Based on data published by Statistics New Zealand.
36 For a full description of these programmes see WTO document S/WPGR/16/Add.2,23 July 1997.
37 GST and Financial Services [Online].  Available at:  http://www.taxpolicy.ird.govt.nez/publications/
files/html/gstfinserv/cl.html [20.11.2002].WT/TPR/S/115 Trade Policy Review
Page 78
38. New Zealand is actively participating in the ongoing services negotiations and expects these
negotiations to be comprehensive.  In its view, it made extensive commitments under the GATS and
expects other members to match this level.  New Zealand pays particular attention to promoting the
interests of small and medium-size services suppliers, conducting the negotiations in an open and
transparent manner;  appropriate recognition of its own autonomous liberalization since the Uruguay
Round;  and advancing negotiations on domestic regulation and on the elimination of MFNexemptions.
38  New Zealand has submitted negotiating proposals to the Council for Trade in Services
in several areas:  construction and engineering services (S/CSS/W/91), air transport services
(S/CSS/W/92), education services (S/CSS/W/93), s porting services (S/CSS/W/94), postal/courier
services (S/CSS/W/115), and consulting services (S/CSS/W/116).
39. New Zealand has listed GATS Article II (MFN) exemption for audiovisual services,
interpretation services, and maritime services.  Moreover, New Zealand has taken an MFN exemption
across all sectors on the right of entry of natural persons.  More favourable entry conditions are
possible for up to 20 nationals from Kiribati and up to 80 from Tuvalu per year.39  New Zealand will
review these exemptions during the current round of negotiations in the WTO.
40. New Zealand participates in a preferential agreement with Australia.  The Australia and
New Zealand Closer Economic Relations Agreemen t (ANZCERTA), covers all trade in goods, and
services;  the latter were added to the Agreement in 1988.  The ANZCERTA calls for free bilateral
services trade for all sectors not inscribed on a negative list.  Since New Zealand's previous Review,
progress has been made towards removing these inscriptions.  The main change in the ANZCERTA
regarding services was the negotiation of an open sk ies air services agreement, which incorporates the
1996 Single Aviation Market (SAM) arrangements.  At present, New Zealand's inscriptions on the
negative list include airways services and coastal shipping.  In March 1999, Australia removed airportservices from the negative list.
40
41. New Zealand and Singapore concluded a Clos er Economic Partnership agreement (CEP) on
14 November 2000, which also covers trade in services.41  In this connection, New Zealand made
commitments in several services areas.42  According to the authorities these commitments are "GATS
plus".
(ii) Financial services
42. In the WTO negotiations on financial services, New Zealand made specific commitments that
are in accordance with the provisions of the Understanding on Commitments in Financial Services.
These commitments remain subject to the ge neral limitations contained in the horizontal
commitments section of New Zealand’s GATS Schedule.43  New Zealand's original commitments in
financial services were very much in line with the Understanding.  For instance, New Zealand had
made horizontal market access and national treatment commitments regarding cross-border supply
                                                     
38 WTO document S/CSS/W/90, 26 June 2001.
39 WTO document GATS/EL/62, 15 April 1994.
40 WTO document WT/REG40/4,  24 September 1999.
41 WTO document WT/REG127/N/1, S/C/N/66, 19 September 2001.
42 Business services, communication services,  construction and related engineering services,
distribution services, education services, environmental services, financial services, financial services, healthrelated and social services, recreational, cultural and s porting services, tourism and travel-related services, and
transport services.
43 WTO document GATS/SC/62/Suppl.2, 26 February 1998.New Zealand WT/TPR/S/115
Page 79
and consumption abroad for insurance of risks relating to maritime shipping, commercial aviation,
space launching and freight, and goods in international transit.44
43. The new commitments under the Fifth Protocol also specify that the admission of new
financial services or products to New Zealand may be subject to the existence of, and consistency
with, the domestic regulatory framework in place for prudential reasons.  In addition, financial
institutions with commercial presence in New Zealand remain subject to the provisions of theFinancial Reporting Act 1993 and the Companies Act 1993.
45
(a) Banking46
44. Banks in New Zealand are regulated by the Reserve Bank of New Zealand Act 1989.  This
Act stipulates the provisions for the registration and supervision of banks, as well as the various
powers that the Reserve Bank of New Zealand (RBNZ)  may use if bank distress or failure threatens
the soundness of the financial system.  This legislation was updated a number of times, including in
1996, to facilitate the introduction of a public-disclosure-based banking supervision regime.
Registration is also regulated by the Reserve Bank of New Zealand (Registration of Banks)
Regulations (No. 2) 2001.
45. New Zealand’s healthy economic environment and sound risk management by banks seem to
have sheltered the banking sector from most of the ill effects of the Asian financial crisis and the
recent global economic downturn.  The New Zeala nd banking sector performed well in 2001.  After-
tax profits increased and the sector remained in a strong financial position, not only in terms of credit
ratings, but also in terms of asset quality, capital adequacy, and the management of exposure to key
banking risks.  During 1997-01, banks' profits were subject to considerable pressure from
competition, but through asset expansion, the implementation of diversification strategies, and sound
credit risk management techniques, banks have been able to adapt to those pressures and maintaintheir profitability.  Bank profitability has been maintained notwithstanding the significant decline of
net interest margins (i.e. net interest income as a percentage of interest earning assets) over the same
period, from 2.75% to 2.29%.  This fall was driven by a similar decline in interest rate spreads, of
40 basis points (Chart IV.2), due, inter alia , to strong competition and changes in the composition of
lending and other interest-rate-bearing assets.
46. Financial institutions in New Zealand do not need to be registered to provide banking
services, but they do need to be registered to call themselves a bank.  During the period under review
banks in New Zealand have been subject to mergers, restructuring, and consolidation, hence the
changing composition of New Zealand's banking sector and of the scope of the banks' operations.
These changes have been a result of the strategic initiatives of the parent companies.
47  The number of
                                                     
44 WTO document GATS/SC/62/Suppl.2, 26 February 1998.
45 These require overseas companies to prepare, on an annual basis, financial statements comprising a
balance sheet, a profit and loss statement and (if required by an applicable financial reporting standard approved
by the Accounting Standards Review Board) a statement of cash flows.  The laws also require such financial
statements in relation to an overseas company’s New Zealand business.  They require the following companiesto deliver annual audited financial statements to the Registrar of Companies for registration:  (a) issuers (whohave raised investment from the public);  (b) overseas companies;  (c) subsidiaries of companies or bodiescorporate incorporated outside New Z ealand;  (d) companies in which 25% or more of the shares are held or
controlled by (i) a subsidiary of a company or body corporate incorporated outside New Zealand or a subsidiary
of that subsidiary (ii) a company or body corporate inco rporated outside New Zealand;  or (iii) a person not
ordinarily resident in New Zealand (WTO document GATS/SC/62/Suppl.2, 26 February 1998).
46 This section is based on:  Bruce (2002);  Reserve Bank of New Zealand (2001);  Reserve Bank of
New Zealand (undated a);  and Reserve Bank of New Zealand (undated b).
47 Dench (1999).WT/TPR/S/115 Trade Policy Review
Page 80
registered banks in New Zealand declined from 18 in 2000 to 17 in 2001.  Of these 17 banks, 15 were
foreign banks.  Of the foreign-owned banks, five are locally incorporated while the others operate as
branches.
47. The Kiwibank Limited, owned by the state-ow ned New Zealand Post Limited, was registered
in 2001, to allow it to test its systems and procedures prior to opening for full business inFebruary 2002.  Initially, the bank’s conditions of registration constrained its business to the taking of
deposits from, and lending to, a maximum of 200 customers as well as liquidity management
operations and participation in the inter-bank payment system.  These restrictions were removed on
1 February 2002 following the successful completion by Kiwibank of the testing of its systems.
However, in practice, Kiwibank has continued to  confine itself largely to offering transaction
accounts, taking term deposits, and lending to the household sector, particularly for housing purposes
with the loans secured by mortgages on residential property.  Kiwibank was created to take advantage
of the existing New Zealand Post network and in re sponse to New Zealand Post’s wish to diversify
into other business areas given the prospect of reduced volumes in its core mail delivery business.
The perception that Kiwibank deposits might benefit from an implicit government guarantee couldconfer it with an advantage over private banks, which do not enjoy such a guarantee.
48. At the end of 2001, the five largest banks in New Zealand accounted for 87% of total bank
assets.  Four of these were owned and controlled by major Australian banks and accounted for a
around two thirds of total banking-system assets in the two countries.
48  This may have adverse
implications for competition.  However, the Reserve Bank considers the banking system to becompetitive since entry to the banking system is open.  New Zealand has a large number of foreign
owned banks but the most important are Australian-ow ned.  While the authorities consider that greater
diversification of ownership would be desirable the current ownership pattern is not believed to be a
major drawback.
                                                     
48 Stinson (2000).1.52.02.53.0
1997 1998 1999 2000 2001Chart IV.2
Interest rate margins and spreads, 1997-2001
Per cent
Source :  Data provided by the authorities of New Zealand.SpreadMar ginNew Zealand WT/TPR/S/115
Page 81
49. The RBNZ supervises the banking system and aims to ensure that it remains sound.49
However, the Reserve Bank does not guarantee private banks against failure or difficulties.  Banks are
required by law to disclose their financial condition each quarter.  Bank registration policy is aimed at
ensuring that only financial institutions of appropriate standing50 and repute are able to became
registered banks.  Other restrictions on the entry of new registered banks are kept to a minimum in
order to encourage competition in the banking system.51  All financial institutions, national and
foreign, need to register to operate as a bank.  Locally incorporated entities and branches of
companies incorporated overseas may apply for registration.
50. In the event that a registered bank fails, the Reserve Bank will seek to minimize damage to
the financial system in a way that does not in volve taxpayer funding.  This approach applies
regardless of size of the bank concerned.  The RBNZ may use its crisis management powers, which
include placing a registered bank under statutory management and directing a registered bank that is
in difficulty.52  Section 73 of the Reserve Bank of New Zealand Act 1989 places particular emphasis
on ensuring that only financial institutions of appropriate standing, which are able to demonstrate their
ability to carry on business in a prudent manner are able to qualify for registration.
51. In 2000, the RBNZ began consultations with the banking sector on proposals for updating the
statutory framework under which the Reserve Bank supervises registered banks.53  Proposals for
amendments to the statutory framework are currently before a Select Committee of Parliament.
52. The RBNZ does not limit the type of activities that registered banks may undertake.  As a
condition for registration, locally incorporated banks are, however, required to provide financial
services primarily, and to conduct a substantial proportion of their business in and from New Zealand.
Locally incorporated banks are also subject to  minimum capital and capital adequacy ratio
requirements.  A minimum capital of $NZ15 million for the banking group is necessary.  In addition,banks incorporated in New Zealand are required to maintain a minimum tier one capital ratio of 4% of
risk-weighted credit exposures and an overall 8% total capital ratio.
54  Aggregate exposure of the
banking group to connected persons (excluding risk "lay-offs"  to a parent bank55) may not exceed
75% of tier-one capital and, within this limit, exposures to non-bank connected parties may not
exceed 15% of tier-one capital.  This condition of regi stration is intended to ensure that the owner of a
bank does not effectively decapitalize it.
53. Banks incorporated overseas are also subject to conditions of registration relating to the same
matters.  The business of the bank in New Zeal and must comprise primarily the borrowing and
lending of money, or the provision of other financial services, or both; and it may not constitute a
predominant proportion of the business of the global bank.  The bank, on a global basis, needs tocomply with the minimum capital adequacy requirements applied by the parent supervisor and with
                                                     
49 The banking supervision arrangements in New Zealand contain a number of police designed to
encourage sound corporate governance in the sector.  For a complete list of these policies refer to:  Mortlock,
Geof. (2002).
50 Standing has not been defined but the Statement of Principles explains how standing is to be
assessed.  Reserve Bank of New Zealand (2001).
51 Reserve Bank of New Zealand (2001).
52 Reserve Bank of New Zealand (2001).
53 DeSourdy (2001).
54 The framework for measuring capital for the purposes of this condition of registration is in line with
the internationally accepted Basle capital adequacy framework.
55 New Zealand banks sometimes "lay off" risk to a parent bank by getting the parent bank to guarantee
their exposure to a third party.  This gives rise to a contingent exposure to the parent bank.  (If the third partyfails to repay the loan, the parent bank will have to make good the loss).WT/TPR/S/115 Trade Policy Review
Page 82
other requirements imposed by the home supervisor.56  In addition, if a bank is incorporated overseas
or is owned by a bank incorporated overseas, the Reserve Bank takes into account any aspects of the
law and regulatory requirements in the country of origin that could have an adverse impact on the
operation of the business in New Zealand.  These are weighed against the benefits to be derived from
the applicant's presence in the local market.  In some cases, the applicant may be required to
incorporate locally in order to provide some degree of insulation from the effects of foreign laws andregulations, or where capital adequacy standards in the home jurisdiction are inadequate, or where
depositors and creditors are unable to obtain reliable financial information about the bank with which
they are dealing.
54. Up to 2000, a bank could choose to operate in New Zealand as a branch of an overseas bank
or as a locally incorporated subsidiary.  This position was reassessed by the RBNZ in 1999 as part ofa review of its bank failure management policies.  Following this review and consultation with the
industry, it was decided to require a bank to incorporate locally if it is considered important in the
system
57, or if it has significant retail deposits (i.e. $NZ200 million) from countries that do not
provide equal treatment to creditors in a wind-up situation, or where disclosure is not comparable with
New Zealand's  requirements.58
55. To register as a branch of an overseas incorporated entity, that entity needs to have bank
status in its home jurisdiction.59  Branches of overseas banks will not be subject to a minimum capital
requirement, since branches operate on the basis of the global bank’s balance sheet.  However, in such
cases, the Reserve Bank requires the global bank to have a level of capital exceeding $NZ15 million.60
The Reserve Bank also requires that the applicant demonstrates that the global bank complies with theinternationally agreed Basle capital standards and/or the standards imposed by the home supervisor.
(b) Insurance
56. The most notable feature of New Zealand's insurance industry remains the absence of day to
day control by a regulator.  Regulation of the industry has proceeded through a combination of rather
loose government supervision coupled with a measure of self-regulation.
 61
57. There are two separate insurance supervision regimes in operation in New Zealand, one in
respect of life insurance, the other in respect of other insurance (e.g. fire and general insurance).There have been no significant changes in either regime since 1996, although both are at present
under review.  Life and general insurance industries  are required to comply with specific sectoral
legislation, and consumer protection legislation, such as the Fair Trading Act 1986, the Consumer
Guarantees Act 1993, and the Companies Act 1993.  Any insurance company carrying on business in
New Zealand must be registered under the Companies Act 1993 (either as a company incorporatedunder Part II of the Companies Act 1993 in New Zealand or as an overseas company registered under
Part XVIII).
                                                     
56 The bank would be required to comply with at least the Basle minima (i.e. a minimum tier-one
capital ratio of 4% of risk weighted exposures and a minimum capital ratio of 8%).
57 "Systemically important" banks are defined as those with liabilities net of amounts due to related
parties exceeding $NZ10 billion (an amount equivalent to approximately 7.5% of the banking system
aggregate).
58 Stinson (2000);  and DeSourdy (2001).
59 Reserve Bank of New Zealand (2001).
60 Reserve Bank of New Zealand (2001).
61 Office of Statistics (undated).New Zealand WT/TPR/S/115
Page 83
58. Authorization requirements for foreign companies seeking to conduct business in
New Zealand are minimal.  They involve obtai ning approval from the Overseas Investment
Commission, if necessary (i.e. the company intends to acquire or take control of 25% or more of a
business or property in New Zealand worth more than $50 million);  they are also subject to the
provisions of the Financial Reporting Act 1993 and Companies Act, unless exempted.62
59. Life insurance is regulated by the Life Insurance Act 1908 and the Securities Act 1978.  The
Life Insurance Act requires life insurers to, inter alia , deposit approved securities of not less than
$NZ500,000 with the Public Trustee; receipts obtained  from policy holders must be held separately in
a Life Insurance Fund and may not be used for any other business of the life insurer.63  If a life insurer
transacts other insurance besides life insurance, it must deposit an audited financial statement with the
Ministry of Economic Development at the expiration of each financial year.  In addition, the companymust file certain statements (e.g. consolidated revenue account, summary and valuation of policies,
and statement of financial position), made by an actuary, with the Chief Executive of the Ministry of
Economic Development.
60. Life insurance policies are classified as securities under the Securities Act 1978, and unless
they are considered "term life insurance policies" must  comply with the provisions of this Act.  These
are policies for a specified term (which is less than the life expectancy of the insured person) that are
payable only in case of death or disability.
61. The supervisory regime for non-life insurers is located primarily in the Insurance Companies'
Deposits Act 1953 and the Insurance Companies (Ratings and Inspections) Act 1994.  The Insurance
Companies' Deposits Act 1953 stipulates that all persons commencing insurance business after
26 August 1974 (with the exception of insurance against earthquakes and accident insurance business)
must deposit $NZ500,000, or lodge approved securities of that market value, with the Public Trustee.Mutual assurance associates carrying out employer’s liability insurance must deposit securities of not
less than $NZ2,000, plus further approved securiti es of not less than $NZ2,000 per every $NZ5,000 of
premium income, up to a maximum of $NZ45,000.  Companies carrying on fidelity guarantee
insurance, mortgage guarantee insurance or personal indemnity insurance, and no other class of
insurance business, may be exempted from the deposit requirements. The deposits are held by thePublic Trustee as security for policyholders or claimants.
64
62. Under the Insurance Companies (Ratings and In spections) Act 1994, insurers offering disaster
insurance or general insurance must be rated.65  Providers of life insurance or captive insurance
business with members of its own group of companies do not require a rating.66  The rating must be
obtained every year from an agency approved by the Registrar of Companies and must be registeredwith the Registrar, so that it is available for public inspection.  Public notice of a rating downgrade
must be given through newspapers.  Notice of a credit watch warning must be given to the Registrar,
be disclosed to any consumer before they enter into or renew an insurance contract and be disclosed in
any advertisement referring to the rating.
                                                     
62 WTO document GATS/SC/62/Suppl.2, 26 February 1998. A company is exempted if it does not
issue securities, is not a subsidiary, has no subsidiaries , has a turnover of $NZ1 million or less, has assets of
$NZ450,000 or less, and is incorporated in New Zealand.
63 The Reserve Bank of New Zealand (undated a).
64 Office of Statistics (undated).
65 This rating requirement  excludes insurers offering only health insurance, credit contract insurance,
mortgage guarantee insurance, and professional liability insurance.
66 A "captive insurer" in this context is one that carries on insurance business only with members of a
group of companies of which the insurer is also a member.WT/TPR/S/115 Trade Policy Review
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63. The Registrar of Companies may inspect a company to assess its financial standing.  The
Insurance Council of New Zealand Inc. monitors the solvency of its own members (i.e. general
insurers).  Achievement of a satisfactory solvency ratio is a prerequisite for continued membership of
the Insurance Council.  The Insurance Council Board will act if any member falls below the 20%
minimum solvency margin.  Members of the insurance council must comply with the Fair Insurance
Code, a code of conduct that stipulates the responsibilities of the insurance companies towardsconsumer.  The Insurance Council administers the Code and monitors compliance by member
companies.
67  In addition to the Fair Insurance Code and minimum solvency levels, an Insurance and
Savings Ombudsman is available to consumers.68  Companies that are not members of the Insurance
Council are regulated under the general law.
64. Accident insurance and residential property disaster insurance remain closed to competition.
The Accident Compensation Corporation (ACC) is the sole provider of accident insurance in
New Zealand.  In 1998 private insurers were allowed to provide insurance for work-related injuries;
however, by 2000 the ACC was restored as the sole provider of workplace accident insurance.69  The
Government considered the 1998 change would lead to greater market efficiency.  However, the new
Government opposed the change in policy, arguing that having ACC as the sole provider would beless costly and would allow the system to focus more on injury prevention, as was originally intended.
Hence in 1999, legislation was passed to restore ACC as the sole provider.  The Earthquake
Commission is the only insurer of residential property disaster insurance for replacement cover up to
$NZ100,000 per dwelling and $NZ20,000 on personal property.  The Earthquake Commission
provides "natural disaster damage" cover, but excludes flood damage, which is usually covered by
general insurers.  Under the Apple and Pear Marketing Act 1971 the Apple and Pear Marketing Board
had the power to organize compulsory hail insurance on behalf of growers.  The Act was repealed inApril 2000, and hail insurance is now provided by private insurers.
(iii) Telecommunications
65. The telecommunications market has undergone significant change since the previous Trade
Policy Review of New Zealand in 1996.  The major change has been the departure from a light-
handed approach to regulation, provided for under the Commerce Act 1986, to a sector-specificregulatory regime through the Telecommunications Act 2001.
70  The change was apparently
motivated by concerns over the slow  development of effective competition and the amount of time
taken to resolve disputes over access to network infrastructure using the legal challenges under the
Commerce Act 1986.71
66. Up to 2001 New Zealand's telecommunications markets were regulated by generic
competition law, information disclosure requirements placed on the main network operator
(Telecom), and sectoral self-regulation.  The sector was reliant on the Commerce Act 1986 and the
oversight of the Commerce Commission with regard to:  mergers or take-overs between members;
pricing and competitive practices;  and the terms by which industry members provided access to their
respective networks.
                                                     
67 Insurance Council of New Zealand, Inc.(undated).
68 Office of Statistics (undated).
69 ACC (undated).
70 Patterson (2002).
71 OECD (2002a).New Zealand WT/TPR/S/115
Page 85
67. In February 2000, a Ministerial Inquiry was established.  The Inquiry's key recommendation
was that the regulatory regime at the time was not best suited to achieve the Government's objective.72
To meet this objective, it was felt that consolidated light-handed industry-specific regulation in onesingle Act was required.  The Inquiry also made a number of other recommendations including:  the
creation of an industry Commissioner; and the intr oduction of a degree of industry self-management.
The Government welcomed the report, which led to the establishment of a new regulatory regime for
telecommunications services.
68. The Telecommunications Act 2001 mandates the regulation of certain services in two
categories:  designation73, and specification.74  Designation requires that a service be made available
and sets the pricing principles that will apply.  Specification is a lower level of regulation requiring a
service be made available without setting pricing principles.75
69. The Act created the office of the telecommunications commissioner, within the Commerce
Commission.  The Commissioner's responsibilities include making determinations for resolving
disputes on the terms and conditions for the supply of regulated services (i.e. designated access
services and specified services).  The Commissioner or the Minister of Communications may alter the
number and scope of regulated services.
70. The Act provides for the creation of telecommunications service obligations (TSOs) to
facilitate the supply of services to groups of end-users where those services may not otherwise be
provided on a commercial basis or at a price deemed affordable by the Minister of Communications.
76
The Kiwi Share is an agreement between the Crown and Telecom supporting the provision of localresidential telephone service.  It was established when Telecom, the main service provider, was
privatized in 1990 to place a number of obligations on Telecom.
77  The Kiwi Share was updated in
December 2001.  The updated Kiwi Share:  clarifies that free local calls include standard calls to theInternet and fax calls;  brings basic Internet access to virtually all New Zealanders by upgrading
Telecom's network to improve Internet access speed; maintains Telecom’s network coverage at no
less than existing levels (so that it cannot increase profits by abandoning its loss-making rural
customers); and requires Telecom to meet detailed service quality measures and report to the Crown
and the Telecommunications Commissioner.
78
                                                     
72 The Government's objective for the telecommunications market is to ensure that the regulatory
environment delivers cost efficient, timely, and innovative telecommunications services on an ongoing, fair andequitable basis to all existing and potential users.
73 Currently designated access services are:  interconnection with Telecom's fixed public switched
telephone network (PSTN);  interconnection with fixed PSTN other than Telecom's;  retail service offered bymeans of Telecom's fixed telecommunications network;  residential local access and calling service offered bymeans of Telecom's fixed telecommunications network; and retail services offered by means of Telecom's fixedtelecommunications network as part of bundle of retail services.
74 Specified services are:  national roaming;  co-location on cellular mobile transmission sites;  and co-
location of equipment for fixed telecommunications serv ice at sites used by Broadcast Communications Ltd.
75 New Zealand Telecommunications Environment online information.  Available at:
http://www.med.govt.nz/rsm/standards/defs/nz_telcom_environment.pdf [11 November 2002].
76 Price 'affordable' to the Minister has not been defined in the legislation and is a discretionary
standard.  It has been considered however that an ‘afforda ble price’ equates to the standard rental applying at the
time the local lines were privatized and indexed by the CPI.
77 The 1990 Kiwi Share required Telecom to:  ma intain a local free calling option for ordinary
residential telephone service;  charge no more than the standard residential rental for ordinary residentialtelephone service;  and continue to make ordinary residential telephone service as widely available as at1 November 1989.
78 Ministry of Economic Development (2001e).WT/TPR/S/115 Trade Policy Review
Page 86
71. Analysts have pointed out that the main problem with the Kiwi Share is that it makes it
significantly more difficult for competitors to enter the local market.  In addition, it creates a
significant cross-subsidy between urban and rural users and between light and heavy users.79
72. After ten years of deregulation, Telecom continues to dominate New Zealand's
telecommunication market and operates the national telephone network.  Telecom accounts for 75%
of the total market revenue for telecommunications services, and over 90% for local voiceinterconnection and directories services.
80  Telecom owns the local loop, which requires all
competitors to enter into interconnection agreements with the company.
73. The deregulation of the telecommunications market in New Zealand has resulted in a
reduction for consumers in national and international call prices.81  However, charges have only
declined where Telecom is subject to competition (e.g. national and international call services).82
Prices of other telecommunications services have remained static or risen.  Moreover, interconnection
charges offered by Telecom to its competitors are amongst the highest in the world.83  However,
according to the authorities residential telephone charges are capped, and according to the Commerce
Commission interconnection prices accord with international benchmarks.84  There also seems to have
been an increase in Telecom's connection fee for rural areas.85  This is because Telecom recently
restructured its charges for new telephone connections so that they reflect the costs of providing
service.  New connection charges depend on whether the customer resides in a low, medium or high
density area.
(iv) Electricity86
74. Reform of the electricity market began in the mid-1980s, when 61 electricity supply
authorities, which were statutory monopolies, were responsible for the local distribution and supply of
electricity.  This resulted in inefficiency, lack of customer choice and cross-subsidization. 87  Despite
ongoing reforms, the Government retains ownership of the three large electricity generator/retailer
companies for "strategic" reasons.
75. The New Zealand electricity industry is regulated by industry-specific legislation, the
Electricity Act 1992 and subsequent amending Acts, the Electricity Industry Reform Act 1998 and the
Electricity Industry Reform Amendment Act 2001, and by general laws such as the ResourceManagement Act 1991, the Commerce Act 1986, and the Fair Trading Act 1986.
76. The Electricity Industry Reform Act 1998 imposed a separation of lines ownership from
generation and retail ownership. The Electricity Industry Reform Amendment Act 2001 subsequently
                                                     
79 OECD (2002a).
80 Outcome Limited (2000).
81 "Communications" [Online].  Available at:  http://www.callnz.com/UniquePoints/telecommunica
tioncont.shtm [7 November 2002].
82 The authorities consider that there is strong competition in national and international calls,  in the
provision of business telephone service and point-to-point data services in metropolitan areas, and in theprovision of residential telephone service in two of the main metropolitan areas (Wellington and Christchurch).
83 Outcome Limited (2000).
84 Commerce Commission (undated).
85 The New Zealand Herald,  9 November 2002.
86 This section is based on:  Ministry of Economic Development (2002c);  and OECD document
DAFFE/COMP/WP2/WD(2002)32, "Roundtable on Competition Issues in the Electricity Sector",11 October 2002.
87 For a full chronology of the reforms undertaken in this sector see Ministry of Economic
Development (2002d).New Zealand WT/TPR/S/115
Page 87
relaxed this requirement, allowing lines companies to invest in new  renewable generation (excluding
hydro and geothermal).  The intention of the Act was to promote competition in the generation and
retail market segments by separating them from the lines, which were considered to be natural
monopolies.
77. There are no rules designed to explicitly encourage or discourage new entry into generation.
There are 13 companies generating electricity;  nevertheless, generation continues to be dominated byfour major companies, the state-owned Genesis Power, Meridian Energy, and Mighty River Power,
and privately owned Contact Energy.
88  The Commerce Commission, which is in charge of enforcing
competition law in the sector, is responsible for regulating lines companies with regard to prices,
service quality, and rates of return.  The Commission may impose price controls using any appropriate
method.89  The authorities noted that price controls will only be put in place if the Commission's
investigation finds that the company has been abusing its monopoly power.  No price control have yet
been imposed .
78. Transpower, a state-owned enterprise, has th e monopoly on the transmission of electricity in
New Zealand.  The Government has therefore set out guidelines to regulate how transmission services
should be provided and priced, and how Transpower should operate.  Transpower is responsible for
developing the transmission pricing methodology.
79. Wholesale electricity prices are set through a market mechanism, and are not subject to price
regulation.  The New Zealand Electricity Market (NZEM) is a voluntary, self-regulating, multilateral
trading agreement under which most (70-80%) of New Zealand's wholesale electricity sales are
transacted.  The remaining 20% of sales are through bilateral contracts between an electricity
generator and a user or retailer.  The NZEM was established in 1996 as a market mechanism to
ascertain or "discover" the price of electricity.  Through the NZEM, a market price is established half-
hourly (two hours in advance) on the basis of fo recast supply and demand for each of the 48 half-hour
trading periods at 244 grid connection points arou nd New Zealand.  The Electricity Market Company
Ltd. (M-Co) was set up in 1993 to support the wholesale electricity market.  In 1996 when the
wholesale electricity market was liberalized and the NZEM started operating, M-co was contracted to
act as market administrator, clearing manager, and pricing manager.  The role of M-Co has notchanged during the period under review.
80. Following a Ministerial Inquiry into the electricity industry (June 2000)
90, the Government
released a Policy Statement (GPS) setting out its expectations for industry action and its views on
governance matters.  As a result the industry will establish an independent Electricity Governance
Board (EGB), which will be responsible for industry rules including aspects of the wholesale market,transmission, distribution, retail, and governance.   The new Board will replace the New Zealand
Electricity Market (NZEM)
91; the Metering and Reconciliation Information Agreement (MARIA)92;
                                                     
88 In April 1999, Electricity Corporation of New Zealand (ECNZ), New Zealand's largest electricity
generator, a state-owned enterprise, was split into three competing state-owned generators:  Genesis Power Ltd.,Meridian Energy Ltd, and Mighty River Power Ltd.
89 The Commission is currently in the process of establishing its regime for this appropriate method.
90 For full details on the electricity inquiry please refer to:  Ministry of Economic Development
(2000b).
91 The multilateral agreement under which most wholesale electricity is bought by retailers and sold by
generators on a half-hourly basis.
92 A set of rules around metering and reconciliation standards that allow electricity flows to be matched
against contracts. It also contains profiling and switching rules that allow consumers to change retailers.WT/TPR/S/115 Trade Policy Review
Page 88
and the new Multilateral Agreement on Common Quality Standards (MACQS).93  In addition, the
Electricity Governance Board (EGB) will be entitled to accept or reject Transpower's pricing
proposal.94  The EGB is expected to be operational by mid-2003.
81. Even though the Government favours market-driven solutions to electricity pricing and
allocation, it has indicated a willingness to introduce regulations to overcome perceived market
failures.  Thus, the Electricity Amendment Act 2001 provides the Government with the power to
introduce regulations in areas where the governance board fails to deliver.95  The Bill also gives the
Government the power to replace the self-governa nce system by establishing its own electricity
governance board, if industry rules delivered fail to meet the Government's expectations.96
(v) Transport
82. New Zealand’s transport policy has not changed substantially since 1996;  it is aimed at
ensuring that transport services are supplied at  a minimum cost.  According to the authorities,
transport and storage have accounted for some 5% of GDP since the late 1980s.  After tourism,
transportation is the next largest export services sector, with export earnings of $NZ2.7 billion in
2001.  Exports of transportation services have increased by 39% since 1997.  New Zealand’s isolated
position places a heavy reliance on sea transport for overseas trade, with over 99% of imports andexports, by volume, being moved by sea.  Airfreight is crucial to trade in perishable goods:  in the
year ending June 2001, over 90,000 tonnes of international airfreight were loaded and 88,000 tonnes
were unloaded.
97
83. In recent decades the transport sector has been systematically deregulated and barriers to
competition have been progressively removed.  The process began in the late 1970s;  in 1983,
domestic air services were deregulated;  many state-owned enterprises in aviation, rail, and maritime
sectors were corporatized and many have been sold or partly privatized.  Nevertheless, stateinvolvement in the sector remains important.  The Ministry of Transport coordinates six Crown
entities, which were set up between 1989 and 1996, to administer various aspects in the transport
sector.
98  Traditionally the Crown has been involved in the establishment and management of airports
around the country.  However, given the risks and costs associated with managing airports, since
1988, the Government has been seeking to commercialize their management and/or reduce itsinvolvement.
99  The Government still holds substantial ow nership of Air New Zealand.  There are also
                                                     
93 The MACQS transfers responsibility for common qu ality and real-time security to users of grid
services.
94 As a safeguard, if the Electricity Governance Board (EGB) and Transpower are unable to agree on a
satisfactory transmission pricing methodology, the Commerce Commission determines the transmission pricingmethodology (Ministry of Economic Development, 2002c).
95 Section 5 of the Act provides for an "automatic trigger" for commencing Electricity Governance
Board provisions.  Under these provisions the Minister must immediately commence a notice and submission
process if for two successive years a negative appraisal of the Governance Board is made by the Auditor
General and the Parliamentary Commissioner for the Environment;  the Minister may also begin such a processwithout a negative report.
96 Ministry of Economic Development (2001f).
97 Ministry of Transport (2002a).
98 These entities are Land Transport Safety Authority (LTSA), Transit New Zealand (TNZ), Transfund
New Zealand (TFD), Civil Aviation Authority (includes the Aviation Security Service and Search and Rescue)
(CAA), Maritime Safety Authority (MSA), and Transport Accident Investigation Commission (TAIC).  SeeMinistry of Transport (1999).
99 The Crown remains in joint venture agreements at seven of the original 24 joint-venture airports.
(Ministry of Transport, 1999).New Zealand WT/TPR/S/115
Page 89
three fully state-owned enterprises involved in transport services.100  One of them, the Airways
Corporation of New Zealand, has a statutory monopoly to provide air traffic control services (except
for aerodrome control services).  The two other st ate-owned enterprises face competition from the
private sector.   Local authorities have a number of regulatory roles in transport, including inland
transport and harbour management.
(a) Air transport services
84. Airfreight is of crucial importance to low-volume/high-value, perishable goods and 'just-in-
time' dispatch.101  There are 27 domestic airports receiving scheduled flights.  There are seven
international airports, of which Auckland, Wellington, and Christchurch are the largest.  The Central
Government has sold its shares in most airports bu t has a joint interest in some airports with local
governments.  Local governments retain signific ant shareholdings in international and domestic
airports.  IATA slot allocation principles are followed at Auckland, Wellington, and Christchurch
airports, where Air New Zealand performs a slot c oordination role.  Air New Zealand reports to a slot
coordination committee at Auckland.  Parties have recourse through the Commerce Act in case of a
dispute.  There are no restrictions on foreigners providing airport services.
85. In 1997, Parliament approved the Airport Authorities Amendment Act 1997 to protect airport
users against potential abuse of monopoly power.  This Act strengthened the existing consultation
requirements by requiring airports to consult every five years on charges and, in the case of major
airports, also on significant capital expenditure.  It also established an information disclosure regime
on charges, rates of return, asset valuations, etc.102  Airports must disclose the required information to
the public.  Allegations have been made about monopoly pricing by airports and the Government
asked the Commerce Commission to investigate.  The Commerce Commission recommended that
airfield activities provided by Auckland International Airport should be subject to control.103  T h e
Minister of Commerce is currently considering the Commission’s recommendation and a decision is
expected shortly.  The Ministry of Transport is generally responsible for regulating the industry;
however, the Commerce Commission continues to have primary responsibility for competition and
pricing issues.  Some airline services are exempt from the Commerce Act provisions.   The exemption
applies to international air service agreements that are authorized by the Minister of Transport.International air carriers frequently enter into agreem ents that include provisions relating to price and
capacity constraints (e.g. code-sharing).  The Minister of Transport oversees these agreements to
ensure compliance with government-to-government ar rangements that exchange route, capacity, and
traffic rights, and in some cases provide for the regulation of tariffs.  If the Minister declines to
authorize the agreement, it will be subject to the Commerce Act.
86. New Zealand has two international scheduled airlines, Air New Zealand and Freedom Air
International, an Air New Zealand subsidiary;  and 27 foreign airlines operate aircraft to
New Zealand, with six airlines serving New Zealand on a code-share basis only.
104  Air New Zealand,
which was privatized in 1989, returned to majority  government ownership in 2001.  According to the
authorities the Government acted to ensure the survival of Air New Zealand’s domestically  basedoperations following the financial collapse of its 100%-owned subsidiary Ansett Australia.  As a
matter of policy, the authorities believe that it is in the country’s national interest to have a well-
                                                     
100 They are Airways Corporation of New Zealand Lt d., Meteorological Service of New Zealand, and
Railways Corporation of New Zealand.  Following the pr ivatization of the rail system the Railways Corporation
does not provide rail services but manages residual assets (primarily land) and liabilities.
101 Ministry of Transport (2002a).
102 APEC (2000).
103 Ministry of Economic Development (2002e).
104 Ministry of Transport (undated).WT/TPR/S/115 Trade Policy Review
Page 90
performing international airline headquartered in New Zealand.   When Air New Zealand was
privatized in 1989 a maximum of 35% foreign ownership was permitted.  In 1995, the foreign
ownership restriction was increased to 49% with a 25% cap on a single foreign airline investment and
a 35% cap on to all foreign airline investment.105  At present the major shareholders are the Crown
77.9%, BIL 5.19%, Qantas 4.99%, and Singapore International Airlines 4.28%.
87. The continuing change in the aviation sector  has resulted in the Government approving in
principle a Qantas proposal to buy 22.5% of Air New Zealand.106  The Government's holding would
decline from 82% to 64% but the Kiwi share woul d be maintained so that the Government would
retain effective control.107  The Kiwi share is a special rights convertible preference share held by the
Crown.  It enables the Government to place a cap on the amount of foreign shareholding and on
investment in the airline by other airlines, to ensure that it is regarded as a New Zealand substantiallyowned and effectively controlled international airline.  The objective is to protect the airline’s access
to traffic rights negotiated by the Government of New Zealand.
108
88. International air services in New Zealand are governed by bilateral air services agreements
(ASAs).  The Ministry of Transport has the primar y responsibility for conducting bilateral air services
negotiations.  As of January 2003, New Zealand had air services "relationships" with 44 partners.109
Open-skies agreements have so far been reached with 11 countries.  In 2000, New Zealand signed an
open skies Air Services Agreement with Australia;  the Agreement embraced the 1996 Single
Aviation Market Arrangements (SAM).110  The SAM removed limits on services operated between
and within Australia and New Zealand by the airlines of the two countries, and other restrictions on
air services.111  A key feature of the SAM was that it included an exchange of cabotage rights.  It also
allowed for greater flexibility in terms of foreign ownership of airlines operating solely within the
SAM.  In 2001, New Zealand negotiated a new open skies agreement with Australia112, and became a
signatory to the world's first multilateral open skies agreement with APEC partners Brunei, Chile,
Peru, Samoa , Singapore, and the United States.113
89. New Zealand has succeeded in negotiating some of the most liberal existing ASAs.  It has
sought to remove all tariff filing requirements from air services agreements.  It has included, in place
of the substantial ownership provision, a provision that an airline be incorporated and have itsprincipal place of business in the territory of the Party designating the airline, while retaining the
provision that effective control be vested in the Party designating the airlines, nationals of the Party or
both.  New Zealand has also sought to remove fr om existing ASAs and exclude from new ones all
                                                     
105 Treasury (2001b).
106 The first stage of the transaction has already taken place with Qantas taking a 4.99% stake.  The
proposed alliance would reduce competition in New Zealand and across the Tasman;  hence the airlines wouldstill need to obtain authorization from the New Zealand Commerce Commission and the Australian Competitionand Consumer Commission.
107 Effective control is also maintained by virtue of the Crown's majority holding.
108 Government of New Zealand (2001).
109 Six of New Zealand’s air services relationships are now covered by one ASA, the Multilateral
Agreement on the Liberalisation of International Air Transportation (MALIAT).
110 For full details on the Australia-New Zealand Single Aviation Market Arrangements see Australian
Department of Foreign Affairs and Trade online information.  Available at:  http://www.dfat.gov.au/geo/new_zealand/sam.pdf [14 January 2002].
111 "Aviation Services".  Available online at: http://www.mft.govt.nz/foreign/regions/australia/
tradeeconomic/aviationservices.html [14 January 2002]
112 This agreement replaced the SAM, but carried over virtually all of the SAM’s features.  It also
removed restrictions on fifth freed om capacity and included an exchange of seventh freedom cargo rights.
113 Ministry of Transport (2001).New Zealand WT/TPR/S/115
Page 91
route, capacity, and traffic rights restrictions on international air services, including in respect of 7th114
and 8th115 (cabotage) freedom rights.116
90. In accordance with the Civil Aviation Act 1990, to operate a scheduled international air
service to or from New Zealand (including by way of code-sharing on the aircraft of another airline),
an airline is required to hold an international ai r service licence or an open aviation market licence.
These licences prescribe the routes and capacity that may be operated by the airline concerned.  TheMinister of Transport is the licensing authority for airlines designated in countries that have not
negotiated open aviation market arrangements.
91. Under an open aviation market licence, an airline is required to file, for information purposes
only, a statement of the nature of its scheduled services to and from New Zealand.  The Secretary for
Transport is the licensing authority for open aviation market licences.
117  To qualify for an open
aviation market licence, the applicant airline must have been designated by its government in
accordance with the relevant provisions of the air services arrangements between New Zealand and
that other country.  An open aviation market licence for a foreign airline takes effect from the date
stated in the licence and is normally granted for an indefinite period.  Licences may be renewed.118
An open aviation market licence is required for operations to/from Australia, Brunei, Chile, the Cook
Islands, Luxembourg, Malaysia, Peru, Samoa, Singa pore, Tonga, the United Arab Emirates, and the
United States.119  Licensing provides the mechanism for ensuring that airlines abide by the air traffic
rights exchanged in bilateral negotiations.
(b) Maritime transport
92. New Zealand’s isolated position in the South Pacific makes it heavily reliant on maritime
transport for overseas trade, with over 99% of imports and exports by volume being moved by sea.
International shipping lines handle virtually all of New Zealand’s overseas shipping through13 commercial ports.  New Zealand has a small coastal shipping industry of around 20 merchant
vessels and bulk carriers (as at December 2002).
120  Coastal freight services include:  container and
general cargo;  roll-on roll-off and rail ferries;  and bulk and livestock carriers linking all the main
ports in New Zealand, including the Chatham Islands.  Coastal cargo is reserved for three categories
of ships:  New Zealand ships;  foreign ships coming to New Zealand to load cargo for unloadingoverseas or to unload cargo that was loaded overseas;  and foreign ships authorized by the Minister of
                                                     
114 Seventh freedom covers the right to operate a passenger services between two countries (A and B)
outside the home country.
115 Eighth freedom is also referred to as "cabotage" privileges.  It involves the right to move passengers
on a route from a home country to a destination country (A) that uses more than one stop along which
passengers may be loaded and unloaded.
116 APEC (undated).
117 An application for an open aviation market licence must include the following information
concerning each service proposed:  the route to be followed, including all points to be served;  the aircraft typeto be operated and, for passenger services, its seating configuration;  the frequency of the service per week;
details of any code-share arrangements;  and the date on which it is intended to commence the service.
118 Ministry of Transport (2002b).
119 Ministry of Transport (2002b).
120 Ministry of Transport (2002a).WT/TPR/S/115 Trade Policy Review
Page 92
Transport when no ships are available in either of the earlier two categories.121  New Zealand provides
no support to the industry.122
93. The companies operating New Zealand’s ports are predominantly local-government-owned,
although six are partly privatized.123  Private enterprises are free to undertake auxiliary service
activities in port areas.124  Access to ports, related services, and inland transport is a matter of
commercial negotiation between carriers and service providers.  Under the Commerce Act 1986, anydiscrimination that may have the effect of reducing competition would be subject to independent
investigation by the Commerce Commission.
125
94. Port charges are a significant component in supply-chain costs in New Zealand.  In some
operating areas, port companies are virtual monopolies.  In 1998, the shipping industry raised
concerns about abuse of market power by port s, and the effects on the New Zealand shipping
industry.126  Moreover, the industry argued that the lack of any detailed information disclosure by port
companies prevents users from accurately assessing the fairness and equity of their charges (users can
still compare prices between ports).  A review in December 2000 of the future of the New Zealand
shipping industry indicated that the ports’ monopoly pricing affects the financial viability of
New Zealand’s domestic shipping;  the Review recommended an investigation by the Commerce
Commission.127
95. In November 2001, the Ministers of Commerce and Transport commissioned an independent
review of ports market power to determine if  it warranted intervention.  In May 2002, the review
reported that the markets in which port companies operate are generally competitive with limited
exceptions. For instance some customers, due to geographical and asset-specific factors, could be
considered to be captured to a particular port.  These 'captured customers' complained of lack of
transparency in pricing, excess charging, and ports earning excess returns.  The review found that theextent of this problem was limited and the costs of government intervention would likely outweigh the
benefits.  The review concluded that the problem was not sufficient to warrant a Commerce
Commission inquiry or policy action on an industry-wide basis.
96. At present, international and/or outward shippi ng is exempt from the parts of the Commerce
Act 1986, that deal with restrictive trade practices.
128  As a result, the Commerce Commission has no
jurisdiction to investigate should international shipping operators form cartels or otherwise act in
collusion over freight rates or service schedules for international trade.  Outward shipping from
New Zealand is instead subject to the Shipping Act 1987, which seeks to promote fair competition in
outward shipping to the benefit of both shippers and carriers.  The Shipping Act 1987 provides that
the Minister of Transport may issue directions to any carrier that is found to engage in practicesunfairly harming any New Zealand shipper.  The ex emption will be reviewed in 2004.  According to
the authorities the exemption of the Commerce Act for outward shipping is largely historical and
                                                     
121 Maritime Transport Act 1994.
122 "Assorted Response to Transparency Exercise Qu estionnaire (TEQ) Support Measures".  Available
online at:  http://www.iot.gov.tw/apec_tptwg/TPT/tpt-main/Publications/TEQ/support-measures.htm
[8 November 2002].
123 "Shipping".  Available online at:  http://www.stats.got.nz/domino/external/Web/nzstories.nsf/
092edeb76ed5aa6bcc256afe [8 November 2002].
124 WTO document S/NGMTS/W/2/Add.2, 18 January 1995.
125 Access and Use of Ports.  Available online  at:  http://www.iot.gov .tw/apec_tptwg/TPT/tpt-
main/Publications/TEQ/access-use-of-ports.htm [8 November 2002].
126 Ministry of Transport (1999).
127 Shipping Industry Review (2000).
128 "Competition Law".  Available online at:  http://www.iot.gov.tw/apec_tpttwg/TPT/tpt-
main/Publications/TEQ/competition-law.htm [8 November 2002].New Zealand WT/TPR/S/115
Page 93
based on a common international practice to exempt liner shipping from generic national competition
or anti-trust laws.  This reflects the common practice of liner shippers operating under conference
agreements, which include provisions relating to price and capacity constraints.  It has also been
argued that in some circumstances (e.g. long-dist ance, low-volume routes such as Europe-Oceania),
cooperative arrangements between shipping operators may be the only way to ensure regular services,
reasonable frequency, and price stability.
97. The Shipping Act 1987 sets out the overall regulatory approach applied to outward shipping
legs of multimodal transport.  The Commerce Act 1986 applies to all other legs of multimodal
transport, and deals with restrictive trade practices, business acquisitions, price controls, and
enforcement, remedies, and appeals.129
98. New Zealand and foreign operators are treated alike, and there is no differentiation between
foreign operators in terms of flag nationality.130  Listing on the New Zealand register is available to
any ship that is majority-owned or controlled by New Zealand-based interests.  The only limitations
on the registration of ships in New Zealand are those necessary to prove a genuine link between the
ownership or control of a ship and its New Zeal and registry.  All New Zealand-owned commercial
ships of over 24 meters in length must be registered in New Zealand.  A ship is New Zealand ownedor controlled if it is solely or majority owned or controlled by a New Zealand national or
New Zealand nationals.
131  In addition, a foreign ship on "demise" charter to a New Zealand-based
operator may be registered in New Zealand.132
99. New Zealand is a party to several international agreements relevant to trade in maritime
transport services.  Under the GATS, New Zealand made commitments during the suspended
negotiations on maritime transport following the Uruguay Round.  These commitments cover
international passenger and freight transport, but specifically exclude coastal shipping (i.e. cabotage).New Zealand is one of the 50-odd WTO Members that recently signed a Joint Statement on the
ongoing negotiations, calling for meaningful liberalization of the maritime transport sector and broad
coverage under the GATS.
133
100. Maritime transport is covered under the Australia–New Zealand Closer Economic Relations
and Trade Agreement (ANZCERTA) Services Protocol, although coastal cargo (i.e. cabotage) is
exempted.  For many years, Trans-Tasman trade was closed to shipping other than that from Australia
or New Zealand by virtue of the Trans-Tasman Union Accord, which had been agreed between the
maritime trade unions of both countries but not by their governments.  By early 1999 the Accord was
eroded by the gradual entry of other carriers.  These changes were the product of intense competition,
that led to rationalization of services through slot-sharing arrangements and joint scheduling, whichultimately saw some of the existing national shipping operations taken over by their larger foreign
partners.  Cost pressures on dedicated operators were compounded by the need to compete with
international cross-carriers, which had entered the trade when the trans-Tasman Accord faltered, and
for which Tasman cargo was not the sole revenue source.
                                                     
129 WTO document S/NGMTS/W/2/Add.2, 18 January 1995.
130 "Market Access".  Available online at:  http://www.iot.gov.tw/apec_tptwg/TPT/tpt-main/
Publications/TEQ/ market-access.htm [8 November 2002].
131 A New Zealand national is defined as a New Zealand citizen or a corporate body established in New
Zealand (Ship Registration Act 1992) – such companies may be foreign owned.
132 "Vessels Registration".  Available online at:  http://www.iot.gov.tw/apec_tptwg/TPT/tpt-main/
Publications/TEQ/vessels-registration.htm [8 November 2002].
133 WTO document TN/S/W/11, 3 March 2003.WT/TPR/S/115 Trade Policy Review
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(vi) Tourism134
101. The tourism industry, which makes a major contribution to New Zealand's economy, is
growing rapidly.  In 2001, it accounted for 9.7% of GDP and supported over 10% of all jobs in
New Zealand.  Tourism is also one of New Zealand's largest export industries.  In addition, it is a
major source of tax revenue for the Government, with GST from international and domestic tourism
activity contributing $NZ972 million in the year ended March 2000 (2.7% of tax revenue);  it is theonly major export industry that contributes to GST revenue.  Tourism expenditure has been growing
strongly and is forecast to grow by over 7% per year during the next five years.
102. Domestic tourism is a key economic activity in New Zealand.
135  In 2001, New Zealand
residents spent a total of $6.88 billion on domestic travel, up $NZ579 million or 9.1% on 2000.136
Domestic tourism is growing at a much slower rate  than international tourism, with domestic visitor
nights forecast to increase by an annual rate of 0.9% to 2007 (compared with 6.3% for international
visitor arrivals).  Thus, international tourism will account for an increasing proportion of total
expenditure.  International tourism has been one of New Zealand's best performing export sectors over
the last ten years, with international visitor expenditure in 2001 of $NZ5.2 billion.  Between 1991 and
2001, visitor arrivals doubled and expenditure per visitor increased even faster.  International tourismarrivals are expected to continue to grow, although at a slightly slower rate than expenditure by
tourists.  In 2001, visitors arrived mainly from four markets:  Australia, Japan, North America, and the
United Kingdom.
137
103. There is no tourism-specific legislation.  The Ministry of Tourism's main role is to provide
policy advice to the Minister of Tourism, includin g in matters related to investment in tourism,
administration of grants, and assistance to major events.  A key role of the Ministry is to continue to
raise awareness of the importance of tourism's contribution to New Zealand's economy.  This is to beattained through an increase of R&D in the sector.  The sector is currently a low R&D user;  tourism
currently receives around 0.4% of the government's research, science, and technology investment.
The communication and dissemination functions of the Ministry and the Tourism Research Council
New Zealand (TRCNZ) are vital to the process of stimulating information use in tourism-related
decision-making processes.  The Tourism Resear ch Council New Zealand (TRCNZ) developed the
Tourism Research and Development Strategy 2002 to establish a framework for the sector's research
requirements so that a programme of applied research can be developed to meet user needs.
104. The New Zealand Tourism Board (NZTB), know n as Tourism New Zealand, was established
as a Crown Entity by the New Zealand Tourism Board Act 1991.  It is the international marketing
agency responsible for the promotion of New Zealand.  The Government has also played a role in thepromotion and leveraging
138 of major events such as in yachting (the Louis Vuitton Challenger Series,
the America's Cup series) and the release of the second film of The Lord of the Rings;  it also has a
role in managing some tourism-related properties.  However, by the end of the 1980s, most
government-owned tourist facilities had been sold, closed or transferred to local councils.  Most
tourist facilities are now privately owned.
                                                     
134 This section is based on:  The Ministry of Tourism (2002).
135 Domestic visitors form a solid base for the industry, with domestic day trips and overnight visitors
generating $6.27 billion in total expenditure in 2000 (Tourism Research Council, 2001a).
136 Tourism Research Council (2001b).
137 Ministry of Economic Development (2002f).
138 Leveraging refers to maximizing the benefits to New Zealand’s tourism industry from major events
such as those listed.  This can include financial investment and other forms of support.New Zealand WT/TPR/S/115
Page 95
105. In addition, the Ministry is responsible for implementing, alone or in partnership with the
private sector, a number of the recommendations  set out in New Zealand Tourism Strategy 2010
(NZTS 2010).  A Strategy Implementation Fund was set up to support its implementation.  The
New Zealand Tourism Strategy 2010 sets out a comprehensive range of principles, objectives, and
enablers to promote the sustainable development of the industry to 2010.139
106. Local governments also play a key role in the success of New Zealand's tourism industry,
through:  funding promotional activities, primarily through Regional Tourism Organisations (RTOs);
the provision of infrastructure; and implementation of statutes and regulations, such as the Resource
Management Act.
107. The lead industry body is the Tourism Industry Association New Zealand, a membership
based organization representing the interests of over 3,500 businesses from the tourism industry.  Itspurpose is to provide leadership, guidance, and appropriate services for the benefit of its members in
order to contribute to a viable and sustainable tourism industry.  Sector-specific organizations include
the Inbound Tour Operators Council (ITOC), Holiday Accommodation Parks Association of
New Zealand (HAPNZ), and the Adventure Tourism Council.
                                                     
139 For more details regarding New Zealand Tourism Strategy 2010 see:  http://www.tourism.govt.nz/
policy/pol-reports/pol-str2010sum.pdf.New Zealand WT/TPR/S/115
Page 97
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