RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/115
14 April 2003
(03-1967)
Trade Policy Review Body
TRADE POLICY REVIEW
NEW ZEALAND
Report by the Secretariat
This report, prepared for the third Trade Policy Review of New Zealand, has
been drawn up by the WTO Secretariat on its own responsibility.  The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from the Government of
New Zealand on its trade policies and practices.
Any technical questions arising from this report may be addressed to
Rohini Acharya (tel. 022 739 5874) and Michael Daly (tel. 022 739 5077).
Document WT/TPR/G/115 contains the policy statement submitted by the
Government of New Zealand.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on New Zealand.New Zealand WT/TPR/S/115
Page iii
CONTENTS
Page
SUMMARY OBSERVATIONS vii
(1) E CONOMIC ENVIRONMENT vii
(2) T RADE AND INVESTMENT POLICY FRAMEWORK vii
(3) T RADE AND TRADE -RELATED REFORMS ix
(4) S ECTORAL POLICIES xi
(5) P ROSPECTS xi
I. ECONOMIC ENVIRONMENT 1
(1) I NTRODUCTION 1
(2) R ECENT ECONOMIC DEVELOPMENTS 3
(3) M ACROECONOMIC POLICY DEVELOPMENTS 5
(i) Monetary and exchange rate policy 5(ii) Fiscal policy 6
(4) S
TRUCTURAL MEASURES 7
(5) T RENDS AND DEVELOPMENTS IN TRADE AND FOREIGN DIRECT INVESTMENT 8
(i) Composition of merchandise trade 8
(ii) Direction of merchandise trade 8
(iii) Composition of trade in services 8(iv) Foreign direct investment (FDI) 11
(6) P
ROSPECTS 13
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES 15
(1) G ENERAL CONSTITUTIONAL AND LEGAL FRAMEWORK :  OVERVIEW 15
(2) D EVELOPMENT AND ADMINISTRATION OF TRADE POLICY 15
(i) Main trade laws 15(ii) Development and implementation of trade policy 16
(3) T
RADE POLICY OBJECTIVES 16
(4) T RADE AGREEMENTS AND ARRANGEMENTS 17
(i) WTO 17
(ii) Regional agreements 20(iii) Bilateral agreements 21(iv) Unilateral trade preferences 22
(5) F
OREIGN INVESTMENT REGIME 23
(i) Introduction 23
(ii) Legislative framework and procedures 23
III. TRADE POLICIES AND PRACTICES BY MEASURE 26
(1) I NTRODUCTION 26
(2) M EASURES DIRECTLY AFFECTING IMPORTS 27
(i) Procedures 27(ii) Customs valuation and clearance 28
(iii) Tariffs 28
(iv) Rules of origin 35(v) Other taxes 35WT/TPR/S/115 Trade Policy Review
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Page
(vi) Import prohibitions, restrictions, and licensing 35
(vii) Contingency measures 35(viii) Standards and conformity assessment 38(ix) Sanitary and phytosanitary measures 40(x) Government procurement 42
(xi) Local content 45
(xii) State trading 45
(3) M
EASURES DIRECTLY AFFECTING EXPORTS 45
(i) Procedures 45(ii) Export taxes and charges 45
(iii) Export prohibitions and restrictions 45
(iv) Duty and tax concessions 45(v) Export monopolies 46(vi) Export finance, insurance, and guarantees 48(vii) Export promotion and marketing assistance 48(viii) Measures maintained by trading partners 49
(4) O
THER MEASURES AFFECTING PRODUCTION AND TRADE 49
(i) Company law 49(ii) Taxation 50(iii) Industrial development policies 52(iv) Role of state-owned enterprises, and privatization 53(v) Competition policy 55
(vi) Corporate governance 58
(vii) Intellectual property rights 60
IV. TRADE POLICIES BY SECTOR 67
(1) I
NTRODUCTION 67
(2) A GRICULTURE 68
(i) Overview 68
(ii) Import policy 69(iii) Export policy 70(iv) Domestic policy 71(v) Fisheries 74
(3) M
ANUFACTURING 75
(i) Structure 75
(ii) Policy measures 76
(4) S ERVICES 77
(i) Overview 77(ii) Financial services 78(iii) Telecommunications 84
(iv) Electricity 86
(v) Transport 88(vi) Tourism 94
REFERENCES 97
APPENDIX TABLES 105New Zealand WT/TPR/S/115
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Page
CHARTS
I. ECONOMIC ENVIRONMENT
I.1 Product composition of merchandise trade, 1995 and 2001 9
I.2 Direction of merchandise trade, 1995 and 2001 10I.3 Trade in services, 2001/02 11
I.4 Net inflows of FDI as a percentage of GDP, 1995-02 12
I.5 Share in stock of FDI, by country, 1995/96 and 2001/02 13
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Frequency distribution of MFN tariff rates, 2002 31
III.2 Tariff escalation by 2-digit ISIC industry, 1996 and 2002 33
III.3 Anti-dumping cases, 1 January 1996-20 December 2002 37
IV. TRADE POLICIES BY SECTOR
IV.1 Exports in agriculture, 1996 and 2001 69
IV.2 Interest rate margins and spreads, 1997-2001 80
TABLES
I. ECONOMIC ENVIRONMENT
I.1 Key economic indicators, 1996-03 3
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Status of selected notifications to the WTO, 1995 to February 2003 18
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Structure of MFN tariffs in New Zealand 31
III.2 New Zealand standards, 1996-02 39
III.3 State-trading enterprises, 1995 and 2002 47
III.4 The number of patents granted and in force, 1996-01 62
IV. TRADE POLICIES BY SECTOR
IV.1 Economic structure and employment, 1995-02 68
APPENDIX TABLES
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
AII.1 Main trade-related laws in New Zealand 107
III. TRADE POLICIES AND PRACTICES BY MEASURE
AIII.1 Enforcement action by the Commerce Commission, 1995-02 108New Zealand WT/TPR/S/115
Page vii
SUMMARY OBSERVATIONS
(1) ECONOMIC ENVIRONMENT
1. Radical macroeconomic and
structural reform, including unilateral trade
liberalization, commencing in the mid 1980s,
have transformed New Zealand from a ratherclosed economy into one of the most open in
the world.  The outcome has been a substantial
improvement in its economic performance.
New Zealand's success in withstanding recent
external shocks, namely the Asian crisis andthe global slowdown in 2001, as well as
adverse climatic conditions, is also
undoubtedly due in large part to these
reforms.
2. Following these reforms, economic
growth slowed initially from an average of 2%
annually during 1970-83, to 1.7% annually
between 1983 and 1991, but it then
accelerated to around 2.7% during 1991-02.
Real GDP is expected to grow by 4% in
2002/03. Much of this growth was due to a
rapid expansion of labour inputs, as labourmarkets were reformed;  labour productivity
improvements have been moderate.  Total
factor productivity growth since 1996/97 has
averaged some 0.6% annually. Other
macroeconomic indicators, includingunemployment and inflation, have also
improved markedly.  Despite this substantial
acceleration in growth, New Zealand's real
GDP per capita continues to be below the
OECD average.
3. There are several possible reasons
why growth has not met expectations.  One is
New Zealand's reliance on agricultural
exports, for which demand has grown
relatively slowly, and which face highlyprotected, and thereby distorted, world
markets.  Also, distortions in New Zealand's
own agriculture sector, including export
monopolies granted to state-trading
enterprises that are gradually being removed,
could have hampered efforts to improve
productivity.  Further, New Zealand'straditional concentration on agriculture,
owing to its obvious comparative advantage inproducing such goods, may have prevented
diversification into more innovative
manufacturing and service sectors.  Other
possible reasons for growth not meeting
expectations include:  New Zealand's small
size and geographic isolation from majormarkets, limiting the ability of its firms to
exploit economies of scale and thus to export;
insufficient private involvement in innovative
activity, including investment in R&D;  and
the high cost of capital, possibly due toinadequate national saving.
4. The Government, in the hope of
raising GDP per capita to the top half of the
OECD ranking and thereby making up ground
lost during the past few decades, has been re-examining some of its previous reforms. For
example, the continued unilateral tariff
liberalization that had been envisaged up to
2006, was frozen in 2000;  further
privatization of state assets was also halted.
Moreover, in contrast to the period 1984-99,
when its economic policy was largely"passive", the Government has adopted a more
"proactive" approach.  In particular, the
recently launched "Growth and Innovation
Framework" seeks to encourage the economy
into higher-value-added activities, in whichthe Government believes New Zealand has
comparative advantage.
(2) T
RADE AND INVESTMENT POLICY
FRAMEWORK
5. By and large, New Zealand has
maintained an open and highly transparent
trade and investment regime, based on regular
and widespread public consultations.  In
addition, any papers considered by Cabinet
must demonstrate that effective consultationhas occurred and a regulatory impact/business
compliance cost statement must accompany
any legislative proposals by Cabinet.
Although there are no independent agencies to
review government policy, reviews are
conducted periodically by the authorities.
6. Trade policy is formulated and
implemented by the Ministry of Foreign
Affairs and Trade, in close cooperation withWT/TPR/S/115 Trade Policy Review
Page viii
other ministries.  Major changes to this
framework since the previous Review include
the creation of Industry New Zealand, and the
Ministry of Economic Development, which
"facilitates, leads and implements the
Government's vision on sustainabledevelopment" and is involved in trade-related
issues such as the ongoing tariff review and
tariff concessions.
7. All trade-related legislation must be
enacted by Parliament to carry the force oflaw in New Zealand.  Similarly, New Zealand's
international obligations, such as the WTO
Agreements, must be enacted by Parliament to
be enforceable in a national court of law.
8. As an original Member of the WTO
and a small open economy, New Zealand
believes that a rules-based system is important
for promoting and safeguarding its trade
interests.  It participates actively in the WTO,
grants at least MFN treatment to all WTO
Members, and has submitted several proposals
in the Doha Development Agendanegotiations, concerning further liberalization
of  agriculture as well as non-agricultural
goods, strengthening of trade rules, and better
integration of WTO rules with other priorities,
such as sustainable development.  As amember of the Asia Pacific Economic
Cooperation (APEC) forum, New Zealand
aims to meet the 2010 deadline for removal of
trade and investment barriers, on a reciprocal
basis.
9. Australia remains New Zealand's main
trading partner.  In addition to its well
established agreement with Australia, the
Australia New Zealand Closer Economic
Relations Trade Agreement (ANZCERTA),New Zealand has stepped up bilateral trade
negotiations with other neighbouring
countries.  Thus, it signed a Closer Economic
Partnership (CEP) agreement with Singapore,
which entered into force in January 2001, and
is negotiating a bilateral agreement with
Hong Kong, China and a trilateral "Pacificthree" agreement with Chile and Singapore.
The CEP aims to reduce barriers to trade in
goods, services, and investment, includingtechnical and health related barriers.   The
ANZCERTA has also undergone further
changes since 1996, including harmonization
of food standards, revision of the government
procurement agreement, and further
integration of air services through an openskies air services agreement, which
incorporates the single aviation market
arrangements between the two countries.
New Zealand also maintains trade preferences
on some goods with Canada under the Tradeand Economic Cooperation Agreement.
10. In general, foreign direct investment
(FDI) is relatively unrestricted, although
"national interest" considerations apply to
foreign investment in land.  Permission mustbe sought for investment in certain kinds of
land and for the acquisition of 25% or more in
business or property above $NZ50 million in
value.  For investment in farmland, additional
criteria include that the investment result in,
or is likely to result in, "substantial and
identifiable benefits" to New Zealand, and thatthe land be offered for sale on the open market
to non-overseas persons unless the
requirement is waived.  Restrictions also apply
in certain sectors.  Overseas persons are
prohibited from owning fishing quotas unlessthe Minister waives this restriction;  foreign
equity restrictions apply in certain services,
notably on airlines qualifying as a
New Zealand airline, and in the largest
telecommunications service company,Telecom.
11. With national saving falling
considerably short of domestic investment,
New Zealand is heavily dependent on net
inflows of foreign direct investment to bridgethe gap;  such inflows reached 8.4% of GDP
in 2000/01, but have been sluggish since then
– indeed, there was a small net outflow of FDI
in the year to March 2002.  In an effort to
attract more FDI, New Zealand has
introduced changes in its investment regime
and is considering changes to tax policy.  As aresult of a recent review of foreign investment
policy, the Investment Promotion Agency
(IPA) was created within Industry New
Zealand.  The IPA will initially attempt toNew Zealand WT/TPR/S/115
Page ix
attract more investment in certain sectors;  it
will also seek to target transactions that
"provide a meaningful contribution to the
growth and development of the New Zealand
economy."  Currently, New Zealand does not
provide any specific tax incentives to attractFDI, although such measures are apparently
being considered.
(3) T
RADE AND TRADE -RELATED
REFORMS
12. As an integral part of its package of
comprehensive market-oriented reforms
initiated in the mid 1980s, New Zealand
greatly reduced barriers to trade, largely
unilaterally;  in particular, tariffs were cut
considerably and non-tariff barriers in theform of quantitative restrictions (including
those on textiles and clothing) were
eliminated.
13. With the elimination of quantitative
restrictions, the tariff has become New
Zealand's main trade policy instrument.
Tariffs have been reduced sharply, with theaverage applied MFN rate down to 4.1% in
2002.  Although average applied MFN rates
are low, tariff "peaks" apply to textiles,
clothing and leather products;  consequently,
the average applied MFN rate for textiles andclothing, for example, is 9.5%.  Clothing
products are subject to alternative specific
tariff rates, which may conceal tariff peaks,
and tariff escalation;  as importers pay
whichever of the two rates is the highest(depending on the import price), the use of
alternative-specific tariff rates in place of
ad valorem rates for the same product imparts
a degree of complexity (and therefore opacity)
as well as unpredictability to the tariff.  Undera phase-out programme, applied MFN tariffs
were due to be reduced further, to an average
of 3% by 2000 and removed between 2001 and
2006.  However, in 2000, further unilateral
tariff reductions were suspended until 2005,
pending an ongoing review;  official
statements have suggested that any futuretariff reductions are more likely to be on a
multilateral, regional or bilateral basis than
unilateral.  The tariff review will also haveregard to the APEC goal of removing trade
and investment barriers by 2010, on a
reciprocal basis.
14. Tariff concessions (on an MFN basis)
may also be offered in certain cases for
imports related to humanitarian work, forcustoms facilitation, trade policy, and industry
assistance purposes.  Moreover, for imports
subject to alternative specific tariffs, importers
may apply for a concession if they feel that the
specific rate of duty they are required to pay isunreasonably high;  tariff concessions granted
in such cases reduce the tariff payable to the
ad valorem component of the alternative
specific duty.  While such concessions tend to
reduce the tariff peaks considerably, they raisequestions regarding the usefulness of specific
duties in the context of the New Zealand tariff
and also tend to compound its complexity and
unpredictability.
15. Unilateral tariff preferences are
offered to developing and least developed
countries under the Generalized System ofPreferences (GSP) and to the Forum Island
countries under the regional agreement,
SPARTECA.  Developing countries are
accorded tariff preferences of up to 80% for
all goods, except those on a negative listconsisting of apparel, footwear, and some
motor-vehicle parts and accessories.  As of
1 July 2001, New Zealand removed tariffs on
all imports from least developed countries.
Forum Island countries have tariff-free accessto the New Zealand market.
16. New Zealand maintains some
restrictions on imports and exports mainly for
health, safety and sanitary and phytosanitary
reasons.  Tariff quotas were scheduled forsome agricultural products but have not been
applied because the tariff is zero for these
products.  Export monopolies granted to state
trading enterprises for some agricultural
products have gradually been removed during
the period under Review.
17. Efforts to assist exporters have also
been stepped up as part of the Government's
proactive policy.  The New Zealand ExportWT/TPR/S/115 Trade Policy Review
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Credit Office (ECO) was established in
March 2001 to provide assistance for
insurance or guarantees to small and medium-
sized exporters.  The Government expects to
create a new organization integrating the
export and business development servicescurrently provided by the main export
promotion and industry assistance agencies,
Trade New Zealand and Industry New
Zealand;  the agency is expected to begin
operating in July 2003.
18. Concerns about New Zealand's OECD
ranking of GDP per capita have led to a re-
examination of policies.  In contrast to the
1980s and 1990s, when there was a concerted
policy to reduce state ownership, the policysince 1999 has been to halt further
privatizations especially of assets considered
to be strategic.  Further, in recent years, the
Government has re-nationalized the Accident
Compensation Corporation (ACC), and
purchased a majority (80%) stake in the
previously privatized Air New Zealand;  it hasalso helped establish Kiwibank, which is
owned by the state-owned New Zealand Post.
The Government also indicated that it will be
more proactive in encouraging the
development of high technology sectors, inwhich it believes New Zealand has a
comparative advantage.  Thus, in addition to
creating a supportive environment for
business, the Government has established a
new institution, the Investment PromotionAgency, to encourage FDI.
19. Elements of the tax system are also
being examined to, inter alia, attract skilled
labour to New Zealand.  New Zealand's tax to
GDP ratio is below the OECD average buthigher than some of its neighbours.  Indirect
taxes include a goods and services tax (GST)
levied with few exemptions.  The Government
is currently re-examining principal
exemptions, such as those for imported and
financial services.  The corporate tax rate, at
33%, is lower than it was in the late 1980s, butstill higher than the rate in New Zealand's
neighbours, including Australia.  Few tax
incentives are provided.  While a tax review
carried out recently determined that the taxsystem was basically sound, it suggested
changes aimed at re-aligning the top rate of
personal income tax with the corporate tax
rate and reducing taxation of offshore income
of temporary residents, including skilled
workers.  The Government has indicated thatthe recommendations arising from the review
regarding international taxation warrant
further consideration, including perhaps
reduced taxation of FDI.
20. New Zealand's competition law, the
Commerce Act 1986 has been changed to
respond to the evolving industrial structure
and competition in the economy.  Measures
taken since the previous Review of
New Zealand include the strengthening of keyprovisions relating to the use of dominant
position, and the prohibition of anti-
competitive mergers and acquisitions.  While
the Act applies to the economy as a whole,
partial exemptions from parts of the law are
allowed for some entities and sectors, notably
PHARMAC, the Pharmaceutical ManagementAgency, some state-trading enterprises, and
services such as international maritime and
air transport services.  Sector-specific
legislation has become necessary in
telecommunications services, electricity, andthe dairy industry, where incumbents have
significant market power that could be abused,
perhaps suggesting weaknesses in
New Zealand's generic competition law in
dealing with such issues.  In addition to theCommerce Act, the Fair Trading Act lays
down consumer information and product
safety standards for traders.  Under the
ANZCERTA, dumping between Australia and
New Zealand falls within the purview ofcompetition law rather than anti-dumping
legislation.
21. Since 1996, changes have been made
to intellectual property rights legislation
including for patents,  trade marks, industrial
designs, and copyright.  The Geographical
Indications Act was enacted but is not yet inforce.  Legislation on further changes to the
Trade Marks Act and Plant Variety Rights Act
is currently before Parliament, while the
Patents Act is being reviewed.  New Zealand'sNew Zealand WT/TPR/S/115
Page xi
intellectual property rights legislation has
been examined in the TRIPS Council.
(4) SECTORAL POLICIES
22. Agriculture remains an important
export sector, although its share of GDP is
relatively small (5.4%).  The authoritiesmaintain that the economy's growth is
hampered by tariff and non-tariff barriers in
New Zealand's key agricultural export
markets.  The main exports are dairy and meat
products and, to a lesser extent, cork andwood, and fruit and vegetables.  The sector
receives very little support in the form of
subsidies or border protection.  New Zealand's
overall producer support estimate (PSE), at
close to zero, has remained one of the lowestamong OECD countries for several years, and
agricultural imports face relatively low tariffs.
Research and development by the industry
tends to be funded through commodity levies
under the Commodity Levies Act.  For some
products (most non-pasteurized cheese, fresh
eggs, and poultry), there are currently noimports, perhaps indicating that the associated
SPS measures might be unduly restrictive.
23. The main changes in agricultural
policy relate to the restructuring of state-
trading enterprises (STEs), includingremoving their statutory export monopoly
rights, and in the case of the dairy industry,
introducing new legislation to prevent the
abuse by the main company of its dominant
position.  As a result, the only remaining STEthat maintains a monopoly on exports is the
Hop Marketing Board;  legislation to remove
this monopoly is currently before Parliament.
24. Food products account for around
31% of manufacturing.  Other industriesinclude textiles, clothing, footwear, and
leather.  In contrast to food products, which
receive relatively little protection from tariffs,
textiles, and especially clothing, imports face
relatively high tariffs.  They are also subject to
relatively high tariff escalation.  As part of its
"Growth and Innovation Framework",New Zealand is targeting certain high
technology sectors such as biotechnology,information and communications technology
and creative industries, sectors in which the
Government believes New Zealand has a
comparative advantage.
25. At around 67% of GDP in 2001/02,
services is the largest sector in New Zealand.Its main exports include education,
professional services, travel, and transport.
Tourism and related services is one of the
fastest growing service exports.  State
intervention in most services is minimal,although the Government retains control of
some companies, including the three main
electricity generators, and maintains
significant state ownership in the transport
sector.  Competition issues in some servicesare now covered by sector-specific policies:
in addition to the Commerce Act, sector-
specific legislation was introduced to address
issues relating to industry structure and
market power in electricity and
telecommunications.
(5) P
ROSPECTS
26. While New Zealand's economic
performance during the past decade has been
fairly strong, efforts are being made to
accelerate growth.  There appears to be a
broad consensus that this can only be achievedthrough an improvement in the growth of
productivity, particularly total factor
productivity.
The Government has responded by introducing
a new proactive approach to economic policyin order to encourage innovation, including in
high technology industries, such as
biotechnology, information and
communication technologies, and creative
industries;  efforts are also being made toattract skilled labour and foreign investment
to New Zealand.  In addition, policies to
encourage New Zealand companies to become
more export oriented are being implemented.
However, while government policies do have a
role in creating an environment that is
conducive to innovation and improvedproductivity, it is not clear how a freeze in
certain reforms, such as unilateral tariffWT/TPR/S/115 Trade Policy Review
Page xii
reductions and privatization, can improve
productivity and growth and thereby help
achieve the Government's objective of raising
New Zealand's per capita income to the tophalf of the OECD rankings.  Moreover, as
government intervention is seldom costless,
care needs to be taken to ensure that the
benefits of such intervention exceed its costs.