New Zealand WT/TPR/20
Page 1
I. THE ECONOMIC ENVIRONMENT
1. Over thepastdecade, NewZealand hastransformed itseconomy from onethatwashighly
protected andregulated toonethatisamong themost market-oriented andopenintheworld. The
instruments ofreform haveincluded trade andfinancial liberalization, privatization, labour market
deregulation, andotherdomestic deregulation. Structural measures havebeensupported bydisciplined
macroeconomic policies.
2. Theresultsareremarkable.Inthemid-1980s,realgrowthinNewZealandwaslowandsluggish,
thefiscal deficit approached 9percentofGDP, inflation wascloseto15percentayear,unemployment
wasrising toward itspeakof11percent,thebalance ofpayments wasindifficulty, andNewZealand 's
credit-worthiness wasbeing questioned. Since 1993, realgrowth hasaveraged near4percent,
underlying inflation hasbyandlarge beenbelow 2percent, thebudget isinsurplus andtaxes are
nowbeing cut,unemployment hasfallen to6percentandaskills shortage isemerging, external debt
isbeing reduced andNewZealand 'scredit rating hasbeenupgraded. Most notably, realeconomic
growth potential appears tohave increased byabout 1percentage point ayear, withimportant
consequences fortheeconomic well-being ofNewZealanders inthemedium andlongterm.1Ifgrowth
potential waspreviously 3percentayear, NewZealanders cannowexpect a50percentincrease
inrealpercapita income each14years rather thaneach21years.2
3. There areseveral striking aspects ofNewZealand 'sreform process. First, market liberalization
hasbeenlargely unilateral, withNewZealand fullyoftheviewthatalowering ofbarriers isprimarily
toitsownbenefit. Reform hasaimed atimproving competition andthusmoving resources intoareas
oftheirmostefficient use.Inthisspirit, NewZealand announced andimplemented twotariffreduction
andsimplificationprogrammes,andfurtherunilateraltariffreductionsaretofollowintheperiodthrough
2000. Import licensing hasbeeneliminated, ashavesubsidies andmostforms ofgovernment assistance
toindustry andagriculture. Inaddition, mostState-owned enterprises havebeencommercialized or
privatized;responsibilitiesofGovernmentdepartmentshavebeenmoreclearlyspecifiedandcommercial
functions havegenerally beenseparated fromregulatory andadvisory ones; product andservice markets
havebeenderegulated andmost cabotage restrictions oncoastal shipping eliminated; theexchange
ratehasbeenfloated andallforeign exchange restrictions removed; andthelabour market hasbeen
reformed, facilitating theresource mobility thathasproven vitaltooverall success.
4. Secondly, when theeconomy began torespond in1991 totheimproved policy environment,
theinitial impetus came through asurge inexport volume. Thevalue ofmerchandise exports rose
18percentbetween 1990and1992andexports ofgoods andnon-factor services increased from27.0to
31.7percentofGDP. Apartoftheexport growth wenttoAustralia, withwhich NewZealand has
afree-trade area, butAsian, North American andEuropean markets werealsoreceptive. Thus, the
multilateral trading system hasbeenanessential element ofsupport forNewZealand; thisrôleisbeing
reinforced bymarket opening resulting from theUruguay Round.
5. Onceexportsled,growthquicklybecamebroadlybased.Producersmovedtoaugmentcapacity,
withinvestment upsharply in1992-94 (Table I.1).Subsequently, asemployment andconfidence grew,
consumers increased demand. Growth nowappears sustainable, which marks adistinct change from
theearlier NewZealand experience when growth wastypically ledbyfiscal expansion orapositive
terms oftrade shock.
1Based onestimates oftheTreasury.
2Calculations assume 1percentannual population growth.WT/TPR/S/20 Trade Policy Review
Page 2
Table I.1
NewZealand 'seconomic performance, 1990-96a
1990/91 1991/92 1992/93 1993/94 1994/95 1995/96b
Share ofGDP,
1993/94
(percent)Annual percentage change
RealGDP (production)
RealGDP (expenditure)
Private consumption
Government consumption
Gross fixed investment
Private
Change instocksc
Netexports, goods and
non-factor servicesc
Exports
Imports59.9
15.5
18.4
15.8
-2.7
3.0
31.0
28.0-0.6
-0.9
-0.1
2.3
-3.8
-8.1
-1.9
1.7
7.6
1.9-1.3
-2.5
-1.4
0.3
-15.4
-12.2
-1.4
3.7
6.4
-3.42.9
1.4
0.2
0.5
8.2
11.9
2.4
-3.1
1.1
8.65.5
5.4
3.0
-2.6
18.9
25.3
1.1
-1.8
8.9
12.06.0
3.7
6.0
-0.6
22.7
23.1
-0.5
-5.6
7.1
18.12.8
2.5
2.8
0.9
18.0
10.7
-0.1
...
1.7
8.9
Consumer price index
Underlying rated
Unitlabour costs
Realeffective exchange rate
Money supply (M2)5.5
4.5
...
-4.8
-0.41.7
1.9
...
-5.3
7.01.1
1.6
-0.4
-7.6
1.31.4
1.4
-1.5
5.7
4.92.4
1.4
2.9
5.1
4.12.2
...
...
5.3
...
Percent
Discount rate(endofperiod)
Unemployment
Capacity utilization12.75
9.9
86.08.00
11.1
84.47.90
10.2
87.48.30
9.5
89.510.00
6.9
90.810.05
6.1
...
PercentofGDP
Government balancee
External current account
Trade account
International reserves (inmonths
of(merchandise) imports)...
-2.7
2.1
5.4-5.1
-2.7
4.9
5.1-0.8
-1.8
4.5
4.90.8
-1.6
3.9
4.92.7
-2.9
2.4
4.03.9
-4.5
-1.0
...
... Notavailable.
a Years ending March, unless otherwise indicated.
b Preliminary.
c Percent contribution toGDP growth.
d Compiled bytheReserve Bank ofNewZealand anddefined toexclude theeffects ofmortgage interest ratechanges, changes
ingovernment charges andtimber price changes.
e Years ending June.
Source: Dataprovided bytheNewZealand authorities; andInternational Monetary Fund, International Financial Statistics, various issues.
6. Afurther point ofnoteisthereaction inNewZealand toarecent widening oftheexternal
current account deficit. With investment demand highrelative tosavings, thecurrent account deficit
hasmoved from under 2toaround 4percentofGDP between 1994 and1996. Thetrade account
alsoturned todeficit, withrapid growth inimported capital goods. Concurrently, therealeffective
exchange rateoftheNewZealand dollar hasappreciated, cutting intothecompetitiveness ofexports
andimport-competing industries.
7. Thisemerging situation mayactually becreating additional support forreform, rather than
calling itintoquestion. Recognizing thattheorigins oftheexternal imbalance lieinashortfall of
domestic savings relative toinvestment demand, export industries support maintaining substantialNew Zealand WT/TPR/20
Page 3
governmentbudgetsurplusesasasourceofdomesticsavings.Keygroups,representingexportindustries
andunprotected import-competing industries disadvantaged bytheremaining import protection given
other industries, advocate theneedtoeliminate thisprotection, andpointoutthatthisneedismagnified
atatimewhen exporters areunder stress. Theauthorities aredetermined topursue import policy
reforms totheirlogical conclusion: tariffpolicy willbereviewed in1998todetermine howtoprogress
toward theelimination oftariffs onanm.f.n. basis.
(1) Recent Economic Performance
8. In1983, NewZealand 'sgross domestic product (GDP) wasbelow its1975levelinrealterms.
Thisstagnation wasaccompanied byrising unemployment, persistent balance-of-payments deficits and
growing debt. While some reforms weremade, notably regional trade liberalization withAustralia,
theeconomy washighly regulated andprotected. Adayaftertheelection ofanewGovernment in
July1984, aforeign exchange crisis forced theReserve Bank ofNewZealand (RBNZ), thecentral
bank, tosuspend trading inforeign exchange. Inthisenvironment, thenewGovernment rapidly
implemented aprogramme ofbothstructural andmacroeconomic reforms; these reforms havesince
beenactively pursued.
9. Inthefirsttwoyears following NewZealand 'sprevious Trade Policy Review in1990 the
economy continued tocontract (Table I.1).Positive signswerebeginning toappear, however. Inflation
wasbrought below 2percentayearin1991andhascontinued tobemild. Merchandise exports rose
by9percentayearfrom 1990 to1992, andin1991 netexports ofgoods andservices were alead
factor inre-establishing growth.
10. Measured onanexpenditure basis, realGDProse1.4percentin1992/93 (yearending March).3
Asharp turnaround ininvestment demand caused arapid increase incapital goods imports,
notwithstanding therealdepreciation ofthecurrency; imports ofgoods andnon-factor services rose
from theequivalent of26.3to29.0percentofGDP. Capacity utilization inNewZealand industry
increased 3percentage points, although unemployment remained slightly over10percent. Onthe
production side,growth wasledbyanexpansion ofthemanufacturing andtransport andcommunications
sectors (Table I.2).
11. Growth accelerated in1993and1994, averaging some 4.5percentayear. Private consumption
began toexpand, butasubstantial portion ofthegrowth continued tobeaccounted forbyinvestment
demand. Importantly, much oftheincreased savings needed forthisinvestment came fromthereversal
ofthegovernment fiscal position, from deficit (1percentofGDP in1992) tosurplus (3percentin
1994). Nevertheless, investment growth exceeded savings growth, andthisrelative savings shortfall
wasreflected inthewidening ofthecurrent account deficit toalmost 3percentofGDP in1994/95.
Therealappreciation oftheNewZealand dollar, following realdepreciation from 1988-1992, and
increased capital goods imports were factors intheerosion ofthemerchandise trade surplus, from
4.5to2.4percentofGDP. Capacity utilization inindustry rose3percentage points, to91percent,
andunemployment dropped to6.9percent,fromitspeakofover11percentin1991/92. Thegrowth
ofmanufacturingactivityacceleratedbuteconomicgrowthin1993-1994was,overall,quitebroad-based,
withallmajor production categories experiencing expansion.
3New Zealand 'sproduction-based national accounts datadiffer substantially fromtheexpenditure-based data,
asshown inTable I.1.WT/TPR/S/20 Trade Policy Review
Page 4
Table I.2
Major features oftheNewZealand economy, 1990-96
1990/91 1991/92 1992/93 1993/94 1994/95 1995/96
Populationa(million)
Labour force participation (percent)
GDP, nominal ($million)
GDP percapita ($)3.38
63.9
72,145
21,3533.42
63.7
72,146
21,0933.46
63.2
74,616
21,5853.50
63.6
80,054
22,8933.55
64.2
84,717
23,8943.60
65.1
87,475
24,313
Annual percentage change
Realvalue addedb
Agriculture
Other primary
Manufacturing
Electric, gasandwater
Construction
Trade, restaurants andhotels
Transport, communications, business and
personal services17.9
2.5
-4.3
4.5
-15.6
-2.2
-0.50.6
7.1
-2.2
-0.3
-15.3
-4.6
1.7-16.7
2.6
5.0
-5.9
-3.3
4.3
2.220.3
4.8
7.1
4.7
12.3
5.5
5.5-4.7
-2.1
7.0
3.8
12.3
7.6
7.2-2.7
0.9
2.0
4.5
7.2
3.2
5.7
Percent
Share inemployment
Agriculture, hunting, forestry andfishing
Mining andquarrying
Manufacturing
Electricity, gasandwater
Construction
Wholesale andretail trade
Transport, storage andcommunications
Finance, insurance andrealestate
Community, social andpersonal services
Other10.5
0.3
17.2
1.0
6.0
21.0
6.4
9.9
27.2
0.410.8
0.2
16.5
0.9
5.1
20.3
6.3
10.4
27.8
0.310.6
0.2
16.4
0.7
5.4
21.1
6.1
10.5
28.2
0.110.7
0.3
17.7
0.7
5.6
21.4
6.1
10.2
29.2
0.110.9
0.3
19.4
0.7
6.4
22.5
6.4
11.0
28.9
0.110.8
0.4
19.8
0.9
7.0
23.8
6.6
12.0
30.1
...
Merchandise exports, f.o.b.c($billion)
Merchandise imports, f.o.b.c($billion)15.8
15.817.1
15.018.6
17.019.7
18.120.9
20.620.5
21.4
Exports ofgoods andnon-factor
services/GDP (percent) 27.0 29.6 31.7 31.6 31.4 30.1
Imports ofgoods andnon-factor
services/GDP (percent) 26.9 26.3 29.0 28.4 29.2 28.9
... Notavailable.
a Average overtheyear.
b At1991-92 prices; owner-occupied dwellings andgeneral Government services areomitted fromthelistofsectors thatfollows.
c Customs basis.
Source: Dataprovided bytheNewZealand authorities; andInternational Monetary Fund, International Financial Statistics, various issues.
12. IntheyeartoMarch 1996, GDPgrowth moderated to2.5percent,astheexpansion inprivate
consumption slowed andthegovernment budget surplus roseslightly, toabout 4percentofGDP.
Thefurther realappreciation oftheNewZealand dollar mayhavekeptexport-oriented sectors under
pressure. Continued investment growth ledtoanexpansion intheshortfall ofinvestment relative to
savings, despite thegovernment fiscal situation, andconsequently thecurrent account deficit widened
further, to4.5percentofGDP. Themerchandise trade account turned from surplus toadeficit,
equivalent tosome 1percentofGDP.New Zealand WT/TPR/20
Page 5
(2) NewZealand 'sEconomic Reforms
13. NewZealand 'sreforms haveaddressed virtually every areaofeconomic policy (Annex I.1).
Theliberalization ofinternational tradeoftenledtheprocess, buttheimpact oftradereforms toagreat
extent depended onboththedevelopment ofastable andbalanced macroeconomic environment and
structural measures toenhance economic efficiency. These latter measures included stepstoincrease
competition, clarify economic incentives (eg.,taxchanges), clearly specify therôleofGovernment,
andfacilitate theeconomy 'sadjustment tointernal andexternal shocks.
14. Reformsinvariousareasoftenworkedhandinhand.TheprivatizationofState-ownedenterprises
provided revenues toreduce debtandridtheGovernment ofloss-making enterprises, helping toreduce
government deficits. Theelimination ofagricultural andindustrial subsidies alsohadthiseffect. Tax
reform succeeded notonlyinreducing taxratesbutalsoinbroadening thetaxbase, levelling incentives
fordifferent types ofeconomic activity. Bynotrunning budget deficits, theGovernment haslessened
pressure ontheexternal current account deficit, reducing thestrain onexport-oriented sectors.
15. Theremainder ofthissection summarizes important reforms, including monetary, fiscal and
labour policy, thatarenotaddressed elsewhere inthereport. Trade policy reforms andtheprivatization
orcorporatization ofState-owned enterprises arediscussed inChapter III,andpublic sector reform
isdiscussed inChapter II.
(i) Monetary policy
16. During the1970s andearly 1980s NewZealand 'sinflation regularly exceeded 10percenta
year. Thiswaslargely theresult ofthethenReserve Bank ofNewZealand legislation, which provided
forvirtuallynocentralbankindependence,establishedmultipleeconomicobjectivesformonetarypolicy,
andledtothe"cyclical manipulation ofmonetary policy forpolitical purposes...."4Inresponse, the
Reserve BankofNewZealand Actwaspassed in1989toprovide forthetransparency andindependent
implementation ofmonetary policy. TheActsetspricestability astheReserve Bank'sprimary function
anddirects theMinister ofFinance andtheGovernor oftheRBNZ toconclude apublic Policy Targets
Agreement (PTA), inwhich price stability ismore precisely defined. Thepresent PTAsetsarange
of0to2percentforanexplicitly-defined measure ofinflation. TheGovernment setstheobjectives
ofmonetary policy andtheRBNZ implements thispolicy under clear accountability provisions but
without Government interference.
(ii) Fiscal policy
17. Thefiscal policy framework hasbeenchanged bytheFiscal Responsibility Act1994 (FRA).
TheActsetsprinciplesforfiscalpolicyandplacescertaintransparencyrequirementsontheGovernment's
fiscal operations, including thatitregularly publicize thepresent andprojected budgetary position.5
TheFRAalsorequires thatgovernment accounting principles conform tothose oftheprivate sector,
4Brash (1996).
5Under theFRA theGovernment isrequired to:(i)runfiscal surpluses until thepublic debthasfallen to
prudent levels andthenmaintain aprudent level ofdebt, (ii)achieve andmaintain levels ofCrown networth
thatprovide abuffer against adverse factors, (iii)prudently manage theCrown 'sfiscal risks, and(iv)provide
forthestability andpredictability offuture taxrates. TheActdoes notdefine aprudent debtlevel, butthe
Government hasspecified itsobjectives under theAct,which include thelong-term objective ofreducing net
public debtto20percentofGDP.WT/TPR/S/20 Trade Policy Review
Page 6
apractice begun in1988 toimprove theinformation content ofpublic sector financial accounts and
enhance theircredibility. NewZealand thusbecame thefirstcountry toproduce itsaccounts wholly
onanaccruals basis, where revenues, costs, andloans arerecorded when incurred; thisparticularly
affectsthetreatmentofcapitaldepreciation,unrealizedforeignexchangegainsorlosses,andthevaluation
ofCrown-owned forests.
18. NewZealand narrowed itsfiscal deficit from nearly 7percentofGDP in1983 tojustover
1percentby1989, largely byincreased taxrevenues.6From 1991to1995, thefiscal balance moved
fromaslight deficit tosubstantial surplus, largely onthebasis ofamarked reduction ingovernment
expenditure, which fellasashare ofGDPfrom45percentto35percent. Since themid-1980s, fiscal
measures haveincluded alessening ofdistortions bytheadoption in1987ofabroad-based goods and
services tax7;areduction inincome taxes; andarationalization oftheratestructure, withmany
concessions abolished. Income taxes were further cutinmid-1996.
(iii) Labour markets
19. NewZealand wastraditionally averylowunemployment country; registered unemployment
didnotexceed 1percentuntil1977.8From thatpoint on,however, unemployment grew steadily,
peaking in1991 atover11percent. While reforms wereimplemented invirtually allother areas of
theeconomy from1984to1990, labour market reform lagged, andcompulsory unionism andcentral
wage bargaining were upheld.9
20. Thischanged afterthe1990 general election; thepassage oftheEmployment Contracts Act
1991 (ECA) initiated substantial labour-market reform. TheECA placed employment contracts on
asimilar basiswithothercommercial contracts, made union membership voluntary, required employers
torecognize thebargaining agents selected byemployees, andgaveemployees theright toselect,
individually orcollectively, theirrepresentation.10Certain minimum rights areprovided for,including
minimum wages, holiday entitlements, andparental leave.
21. Theauthorities feelthattheECA hascontributed greatly toreduced unemployment andtothe
ability oftheeconomy toguide resources totheir most appropriate usesinresponse tochanging
conditions,eitherdomesticallyorinternationally.Indeed,Massey(1995)attributesthegrowthofexports
intheearly 1990s toproductivity growth resulting from theECA. Thesuccess oftheECA isalso
indicated bytherapid reduction inunemployment, which by1996hadfallen nearly 5percentage points,
to6percent.
6Government revenue, excluding asset sales, rosefrom 32percentofGDP in1985 to40percentin1990;
thisoverstates theeffect byabout 2percentage points because thelatter figure includes payments ofthegoods
andservices taxbygovernment departments, which hadnoimpact onthegovernment balance (Massey, 1995).
7Theonlysubstantial exception isfinancial services.
8TheFinanceMinisteroncereportedtoParliamentthathehadmetalloftheunemployedworkersinAuckland,
New Zealand 'slargest city(Massey, 1995).
9Inthisperiod, however, liberal reforms were made tooccupational licensing.
10Trade unions mayserve asbargaining agents but,other thanbeing exempt from competition law,have
nospecial legal standing.New Zealand WT/TPR/20
Page 7
(3) Trade Performance
(i) Commodity pattern oftrade
22. Shifts inthecomposition ofNewZealand 'smerchandise exports tookplace intheearly1990s.
Intherecent rapid expansion ofexports, particularly ofmanufactures, theshare ofmeat andmeat
products fellfrom 17to13percentwhile thatofnon-metal, non-agricultural exports rosenearly
3percentage points toover20percent; forestry products rosefrom10to12percentofmerchandise
exports (Table I.3).
Table I.3
Composition ofexports, 1990/91 -1994/95a
($million andpercent)
Commodity 1990/91 1991/92 1992/93 1993/94 1994/95
Total merchandise exports (f.o.b.) 14,995 16,370 17,970 18,999 20,179
Percentoftotal exports
Meat 16.9 16.9 17.1 15.7 13.3
Ofwhich: Beefandveal
Lamb andmutton8.1
7.78.4
7.48.0
7.77.3
7.16.2
5.9
Dairy products 14.4 13.7 14.9 14.5 13.9
Wool 6.5 6.5 5.3 5.1 6.4
Fruits andvegetables 6.3 6.6 5.7 5.5 5.4
Other agricultural products 1.1 1.1 1.1 1.0 1.0
Liveanimals 1.2 1.0 1.0 1.0 0.8
Forestry products 10.1 10.5 11.3 13.3 12.5
Fishandseafood 4.8 5.9 6.0 5.6 5.4
Minerals andfuels 4.1 3.2 2.3 2.9 2.0
Manufactured goods classified bymaterials
(excluding metals) 17.6 17.8 19.1 21.2 20.3
Metals andarticles ofmetal 8.8 7.7 7.0 6.7 7.2
Ofwhich: Aluminium
Ironandsteel5.2
2.64.2
2.73.8
2.33.5
2.34.1
2.1
Non-electrical machinery 2.6 2.4 2.7 3.2 3.3
Electrical machinery 1.6 1.5 1.8 2.0 2.1
Other 4.3 5.1 4.6 2.4 6.3
a Years ending June.
Source: Statistics NewZealand.
23. Nearly halfofNewZealand 'smerchandise imports consist ofnon-agricultural manufactures,
includingmetals,electricalmachinery,non-electricalmachinery,andtransportationequipment(TableI.4).
Thelatter twocategories accounted formuch oftherapid increase intotalmerchandise imports from
1991 to1994. From 1990 to1994, thevalue ofpetroleum andpetroleum product imports fellsome
14percentandtheirshare fellnearly 3percentage points, to5.2percent.WT/TPR/S/20 Trade Policy Review
Page 8
Table I.4
Composition ofimports, 1990/91 -1994/95a
($million andpercent)
Commodity 1990/91 1991/92 1992/93 1993/94 1994/95
Total merchandise imports (f.o.b.) 14,437 13,790 15,629 16,647 19,137
Percentoftotal imports
Foods, beverages andtobaccob6.9 7.5 7.5 7.7 7.5
Petroleum andpetroleum products 8.0 7.2 6.6 6.1 5.2
Non-fuel crude materials 9.9 10.8 10.9 10.9 9.9
Plastics andarticles ofplastic 4.0 4.1 4.5 4.5 4.4
Textiles andtextile products 4.7 5.3 5.4 5.0 5.0
Ironandsteel 1.6 1.7 1.8 1.9 1.8
Metals andarticles ofmetal 4.3 4.9 4.2 4.1 4.3
Non-electrical machinery 14.9 14.3 14.6 16.1 16.2
Electrical machinery 12.1 10.3 10.0 10.0 10.4
Transportation equipment 15.6 14.9 14.6 14.4 17.1
Other 18.0 19.0 19.9 19.2 18.2
a Year ending June.
b HSChapters 1-24.
Source: Statistics NewZealand.
(ii) Regional pattern oftrade
24. NewZealand 'smerchandise exports toeastAsiaincreased bynearly 80percentfrom 1990
to1995, marking acontinued substantial shiftaway from developed European andNorth American
markets. Theshare oftheUnited Kingdom inNewZealand 'sexports, over30percentasrecently
as1978, fellto7percentby1990 and6percentin1995 (Table I.5). Exports totheUnited States
increased only7percentfrom 1990 to1995 andtheU.S.share fellsteadily from 13to10percent
inthisperiod. Increased exports toeastAsiaaccounted foroverhalfofthetotalincrease inmerchandise
exports from 1990 to1995 andwere important inNewZealand 'sexport-based economic recovery
oftheearly 1990s. Theshare ofeastAsiainNewZealand 'smerchandise exports rose8percentage
points to39.1percentby1995. Exports toAustralia continue tocomprise some 19percentoftotal
merchandise exports; thisshare rosefrom11to18percentduring theperiod 1978to1990asaresult
oftheimplementation oftheregional trade agreement withAustralia. APEC economies account for
70percentofNewZealand 'sexports.New Zealand WT/TPR/20
Page 9
Table I.5
Exports byregion, 1985-95a
(US$ million andpercent)
Partner 1985 1990 1991 1992 1993 1994 1995
Total exportsb5,569.7 9,045.5 9,268.6 9,338.2 10,058.2 11,625.4 13,069.8
Percent
America
United States
Canada19.3
14.7
1.818.2
13.3
1.717.7
12.8
1.417.8
12.6
1.517.6
11.9
1.816.2
11.2
1.814.7
9.9
1.5
Middle East 6.3 2.6 3.0 3.5 2.9 2.1 2.1
Europe
European Union (15)
United Kingdom23.4
20.7
9.719.0
16.3
7.217.3
15.2
6.416.3
15.3
6.616.3
14.3
6.316.8
14.8
6.216.7
14.6
6.2
Asia
EastAsia
Japan
Korea
South Asia27.2
26.3
14.9
1.6
0.932.7
31.2
16.7
4.4
1.534.7
33.2
16.7
4.6
1.535.8
34.3
15.7
4.3
1.536.3
34.5
15.2
5.0
1.837.7
36.3
16.0
5.0
1.440.6
39.1
17.0
5.4
1.5
Oceania
Australia19.1
15.521.2
18.121.3
17.821.8
18.322.3
18.622.9
19.521.5
18.7
Africa 1.8 1.5 1.8 1.6 1.8 1.5 1.3
Memorandum:
APEC 59.8 66.2 66.9 68.6 69.0 70.4 70.2
a Calendar years.
b Includes exports tounspecified destinations.
Source: UNSTAT Comtrade database.
25. Thegeographic composition ofNewZealand 'smerchandise imports hasdisplayed considerably
lesschange. Australia, theEuropean Union andtheUnited States eachaccounts forabout 20percent
ofimports andhavehadsteady shares since1990(Table I.6).EastAsian economies account forsome
29percentofimports, aconsiderably smaller share thanofexports. About 71percentofimports
arefrom APEC economies.WT/TPR/S/20 Trade Policy Review
Page 10
Table I.6
Imports byregion, 1985-95a
(US$ million andpercent)
Partner 1985 1990 1991 1992 1993 1994 1995
Total importsb5,981.7 9,466.0 8,493.7 9,199.8 9,648.7 11,896.1 13,952.1
Percent
America
United States
Canada20.0
16.0
2.721.1
17.9
2.019.8
16.8
1.722.4
19.6
1.620.8
18.0
1.621.6
19.2
1.421.5
18.7
1.7
Europe
European Union (15)
United Kingdom25.2
23.9
9.324.8
22.7
7.323.3
20.8
6.421.6
19.9
6.321.5
19.9
5.821.7
20.1
6.223.0
21.6
5.9
Middle East 3.2 5.4 5.4 4.6 4.4 3.4 2.4
Asia
EastAsia
Japan
Korea
South Asia32.5
31.9
20.6
0.7
0.626.6
26.0
15.6
1.6
0.627.7
27.0
15.6
1.7
0.728.7
27.9
14.7
1.5
0.830.4
29.5
16.2
1.6
0.929.6
28.8
15.4
1.6
0.929.7
28.8
13.9
1.7
0.8
Oceania
Australia18.2
17.021.2
20.322.9
22.121.9
21.122.1
21.322.6
21.522.3
21.5
Africa 0.5 0.3 0.4 0.4 0.5 0.6 0.6
Memorandum:
APEC 67.9 66.5 67.6 70.4 70.7 71.7 71.4
a Calendar years.
b Includes imports from unspecified origins.
Source: UNSTAT Comtrade database.
(iii) Intra-industry trade
26. Intra-industry traderefers totheimporting andexporting ofgoods inthesameproduct category.
Itaccounts forsome 24percentoftotalNewZealand merchandise trade, upfrom16percentin1985
and21percentin1990(Table I.7).Intra-industry tradeoftenaccounts foralargeshare oftradeamong
countries ofasimilar level ofdevelopment, countries thataregeographically close, andthose with
asimilar pattern ofresource endowments. Consistent withthisgeneral observation, NewZealand 's
intra-industry trade withAustralia comprised 45percentofthetrade between these countries in1995
(Appendix Table I.1). Bilateral intra-industry trade withASEAN countries, Japan andKorea is
considerably smaller (Appendix Tables I.2,I.3andI.4).New Zealand WT/TPR/S/20
Page 11
Table I.7
NewZealand 'sintra-industry trade withtheworld, 1985-95 bytheGATT Tariff Study Categories
T.S
Code DescriptionNumber
ofSITC
linesIntra-industry trade (percent)
1985 1990 1995
Allcategories 804 15.6 20.5 23.7
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34Rawhides andskins, leather andfurskins
Rubber
Wood andcork
Pulp, paper andpaperboard
Textiles andclothing
Mineral products andfertilizers
Precious stones andprecious metals
Oresandmetals
Coal, petroleum, natural gas
Chemicals
Non-electrical machinery
Electrical machines andapparatus
Transport equipment
Professional, scientific andcontrolling instruments,
photographic apparatus, clocks andwatches
Footwear andtravel goods
Photographic andcinematographic supplies
Furniture
Musical instruments, sound recording orreproduction apparatus
Toys
Works ofartandcollectors pieces
Firearms, ammunition, tanks andother armoured fighting vehicles
Office andstationery supplies
Manufactured articles notelsewhere specified
Foodstuffs
Grains
Animals andproducts thereof
Oilseeds, fatsandoilsandtheirproducts
Cutflowers, plants, vegetable materials
Beverages andspirits
Dairy products
Fish, shellfish andproducts
Tobacco
Other agricultural products ofanimal origin
Other agricultural products ofvegetable origin24
13
28
27
79
64
17
115
22
72
45
21
31
17
5
5
2
6
3
4
4
3
15
63
13
24
36
6
8
8
6
6
4
89.0
16.5
18.1
28.5
9.7
16.9
36.7
27.6
16.5
22.1
19.9
32.5
7.9
16.0
65.0
3.4
54.9
8.7
52.5
17.9
1.3
29.6
8.7
13.6
0.7
6.0
4.6
24.4
61.0
0.6
11.8
6.0
20.7
15.211.8
39.1
15.9
24.2
15.9
21.3
32.6
39.2
51.5
23.7
24.4
30.3
6.0
21.4
41.9
2.0
67.6
3.9
22.0
60.3
4.2
20.7
4.7
18.1
3.9
3.7
12.0
19.5
63.4
0.9
11.5
12.5
16.7
54.89.2
43.3
8.4
26.6
22.1
17.2
25.3
43.2
31.2
31.9
27.9
45.5
9.9
30.0
33.5
1.8
73.4
5.7
20.8
79.9
4.8
42.6
9.4
29.2
6.8
4.4
16.6
18.1
69.1
1.6
12.3
27.7
19.3
69.7
Source. Calculations byWTO Secretariat using 4-Digit SITC Rev.1 datafrom theUNSTAT Comtrade database.
(4) Foreign Direct Investment
27. NewZealand encourages foreign investment andmaintains aliberal foreign investment régime,
withnational treatment thegeneral rule. Foreign investment approval requirements apply onlyunder
certain circumstances, andsectoral foreign investment restrictions areuncommon. Inward foreign
investment increased rapidly inthelate1980s, from lowlevels, andhashadanimportant rôleinthe
privatization offormer State-owned enterprises (SOEs).
(i) Investment approvals
28. TheOverseasInvestmentAmendmentAct1995broughtprovisionsonsignificantinwardforeign
investments under onerégime. TheOverseas Investment Regulations 1995specify thatoverseas personsWT/TPR/S/20 Trade Policy Review
Page 12
require consent totakecontrol ofsignificant assets inNewZealand.11Significant assets aredefined
asbusinesses, landorother property worth more than$10million; landoverfivehectares; andcertain
sensitive land(including islands, lakeshores andhistoric areas) over0.4hectares. Control isdefined
asa25percentorgreater ownership orcontrol interest.12
29. Allapplications, other thanthose involving sensitive land, landpurchases overtenhectares,
orlandvalued atover$1million, areassessed bytheOverseas Investment Commission (OIC).
Applications forother landpurchases arereferred bytheOICtobejointly decided bytheMinister
ofFinance andtheMinister ofLands. Thecriteria forinvestment arewhether thepotential investor
hasbusinessexperiencerelativetotheproposedinvestmentandhasdemonstratedafinancialcommitment
totheinvestment; character andimmigration status arealsotaken intoaccount. Forinvestments
involving land, theinvestment must beinthenational interest. Thepotential investment willbe
considered tobeinthenational interest ifitleads to:jobcreation orretention; theintroduction of
newtechnology orbusiness skills; thedevelopment ofexport markets; theenhancement ofefficiency,
productivity, ormarket competition; theintroduction ofnewinvestment fordevelopment purposes;
ortheincreased domestic processing ofNewZealand 'sprimary products. Application feesarecharged
bytheOICtorecover itsoperating costs.13TheOICgives nospecial treatment toapplications from
Australia orother countries withwhich NewZealand hastrade agreements. Itsdecisions maybe
appealed totheHigh Court.
30. TheOICwasestablished bytheOverseas Investment Act1973andiscomposed oftwoprivate
sector members appointed bytheGovernor General ontheadvice oftheMinister ofFinance. The
Reserve Bank provides theSecretariat fortheOIC. TheOICmonitors compliance withconditions
attached toforeign investment approvals andisrequired toreport every sixmonths totheMinister
ofFinance. Astandard listofconditions isattached toallapprovals. These conditions include atwelve
month timelimit foracting ontheapproval, anongoing requirement fortheinvestor tomeet the
requirements foraNewZealand immigration permit, andareporting obligation. Onrareoccasions,
other conditions areattached. According totheauthorities, twoapplications havebeenrefused inthe
pastsixyears, while 1,866 consents were granted intheperiod 1991-1995.
(ii) Sectoral restrictions
31. Theforeign direct investment régime allows 100percentoverseas ownership innearly all
industry sectors.14However, industry-specific legislation andrestrictions placed inthearticles of
association ofcertain companies cansetlimitations. Thus, theFisheries Act1983requires theconsent
oftheDirector-General ofFisheries inorder forfishing quota tobeallocated tooverseas individuals
orcompanies; andforeign ownership ofoptician-establishments isrestricted to45percentunder the
Optometrist andDispensing Opticians Act1976.
11OIC(1996).
12ExemptionsexistthatrelatetoportfolioinvestmentandtocertaincompaniesthatareessentiallyNewZealand-
controlled despite having more than25percentoverseas ownership.
13Asat15January 1996, examples offeescharged were: $1,100 perconsent resulting from anon-land
application,uptoamaximumof$2,500perapplication;and$2,700perconsentresultingfromalandapplication,
upto$6,000.
14TheOverseas Investment Regulations allow for100percentoverseas ownership ingeneral.New Zealand WT/TPR/S/20
Page 13
32. Foreign ownership restrictions areinplace onNewZealand international airlines. These arise
fromprovisionsininternationalairservicesagreementsthatallowonecountrytorefusetograntoperating
authorization toanairline thatisnot"substantially owned andeffectively controlled" bynationals of
thecountry designating thatairline (Chapter IV(4)(v)). InthecaseofAirNewZealand, when itwas
privatizedbytheGovernmentin1989,provisionswereincludedinthecompany'sArticlesofAssociation
limiting foreign ownership to35percentunless otherwise approved bytheKiwi Shareholder, a
Government Minister. Thiswasfelttobethemaximum thatwould beinternationally acceptable at
thetime. InSeptember 1996, theNewZealand Government, aspartofthemove toaSingle Aviation
Market withAustralia, raised thislimitto49percent,provided thatnomore than35percentofthe
shares areowned byforeign airlines orairline interests inaggregate, or25percentbyasingle foreign
airline orairline interest (thelevels weredecided uponwhen ownership oftheAustralian international
airline Quantas wasfloated in1995). These limits apply toallinternational airlines designated bythe
NewZealand Government.
33. Foreign ownership restrictions arealsoinplace onTelecom, aformer State-owner enterprise
inthetelecommunications sector, andareincluded intheArticles ofAssociation. ForTelecom,
restrictions ontheownership ofshares comprise oneofthetwomain features oftheso-called Kiwi
Shareobligations,theotherrelatingtopriceandservice(ChapterIV(4)(iii)).Theserestrictions:(i)limit
theownership share ofanysingle foreign investor to49.9percentwithout theapproval oftheKiwi
Shareholder, (ii)require theconsent oftheKiwiShareholder (theMinister ofFinance) foranyinvestor,
whether ornotaNewZealand national, toholdmore than10percentofthecompany, and(iii)require
thatatleasthalfofTelecom 'sBoard beNewZealand citizens. These restrictions were announced
prior totheprivatization ofTelecom andtheprivate investors whopurchased Telecom in1990
subsequently sold50.1percentofthecompany 'sshares (Annex I.1).
(iii) Foreign direct investment promotion
34. TheForeign Direct Investment Advisory Group serves asthecoordination point forallkey
groups, public andprivate, involved ininvestment promotion. These include theMinistry ofForeign
Affairs andTrade, TradeNZ, other government departments, sectoral groups, regional andlocalbody
economicdevelopmentagencies,investmentprofessionalsandacademicbodies.TheMinistryofForeign
Affairs isresponsible forgeneric investment promotion ofNewZealand asaninvestment destination
through itsoverseas posts, supported byofficers inWellington. TradeNZ facilitates routine investment
enquiries abroad andinNewZealand, andliaises withregional economic development agencies and
theprivate sector topromote specific investment opportunities. Private sector investment professionals
andcapital importers operate independently butareencouraged toestablish close contacts withthe
Foreign Direct Investment Advisory Group, theMinistry ofForeign Affairs andTrade andTradeNZ.
(iv) Taxtreatment anddividend repatriation
35. NewZealand andnon-resident firms engaged inmineral mining activities areallowed todeduct
exploration anddevelopment expenditures atthetimetheyareincurred (andinsome circumstances
before theyareincurred), rather thantreating these costsasexpenditures tobedepreciated overtime.
Non-resident firms maydeduct theseexpenditures against mineral mining income only. NewZealand
firms areallowed todeduct allsuchexpenditures against mineral mining income, ortwothirds ofthese
expenditures against other income.
36. Differential taxtreatment ofNewZealand andnon-resident companies isnotapplied inany
other industries. NewZealand doesnotrestrict therepatriation ofdividends, royalties orother funds.WT/TPR/S/20 Trade Policy Review
Page 14
(v) Thepattern ofinward foreign direct investment
37. NewZealand'sinwardforeigndirectinvestmentgrewrapidlybeginninginthelate1980;inward
direct investment of$6.5billion in1989-1991 exceeded thetotalof$5.4billion in1951-88 (OECD,
1993). Although thelarge growth ininvestment washelped bytheprivatization ofTelecom andAir
NewZealand intheearly1990s, investment in1993, 1994and1995wasagain highandequal to$4.4,
$4.7and$4.3billion, respectively, equivalent tosome 6percentofGDP during thisperiod.15The
stock offoreign direct investment inNewZealand increased from $9.7billion asatMarch 1989 to
$40.3 billion asatMarch 1995.16
38. Australia, theUnited States, andtheUnited Kingdom arethemajor source countries fordirect
investment, respectively accounting for33,26and13percentoftotalinflows of$16.5 billion from
April 1989 toMarch 1994; thistotalwasequivalent tosome 5percentofGDP overtheperiod.
(5) Outlook
39. Theincreased potential economic growth resulting from structural reform, combined with
continued macroeconomic stability, isexpected togenerate moderate andsteady growth overthenext
several years.17Growth intheyearending March 1997isforecast at2.6percentandtobeledprimarily
byconsumption, stimulated frommid-1996 bythefirststageoftaxcutsunder the1996Budget package.
While investment growth hasslowed, investment isexpected toremain highandtobewellinexcess
ofsavings, generating continued current account deficits equivalent tosome 5percentofGDP.
Relatively weaker growth intheeconomies ofkeytrading partners andacertain deterioration inprice
competitiveness,astherealexchangeratehasappreciated,areexpectedtokeepexportersunderpressure.
Theauthorities expect, however, thatexporters willmake further efficiency gains andthusbeable
tomaintain current export volumes.
40. Theauthorities project thatasecond stage oftaxcutsunder the1996 Budget package will
stimulate further consumption growth during 1997/98. Exports ofnon-commodity manufactures are
projected toincrease, sparking renewed private investment growth, butthecurrent account deficit is
expected toremain atsome 5percentofGDP. Jointly, these developments areprojected toleadto
areduction inunemployment, perhaps tounder 6percent,andrealGDP growth ofsome 4percent.
Following this,theauthorities expect GDPgrowth of3to4percentin1998/99, withamildnarrowing
inthecurrent account deficit andareduction inunemployment to5to6percent.
15Foreign direct investment inflows in1991 and1992 were $2.9 billion and$2.0 billion, respectively.
16Statistics New Zealand (1995), Table 17.23.
17New Zealand Treasury (1996b).New Zealand WT/TPR/S/20
Page 15
Annex I.1
Chronology ofSelected Events Related toNewZealand 'sEconomic Reforms, 1984-1996
1984
14July-General election; theleader oftheLabour Party became Prime Minister.
15July-TheReserve Bank closed theforeign exchange market fortheNew Zealand dollar inresponse toa
foreign exchange crisis.
18July-TheNew Zealand dollar wasdevalued by20percent; many interest ratecontrols were revoked.
19July-Foreign exchange market reopened.
15August -TheReserve Bank announced several reforms liberalizing trading ingovernment securities; the
MinisterofFinanceannouncedthatmostexportincentiveswouldbephasedoutfrom1985to1987andquantitative
import restrictions would beloosened.
30August -Further controls oninterest rates removed.
14September -TheReserve Bank withdrew itsexport credit assistance facilities.
18October -Liberal reforms were introduced totheimport licence tendering process, including theelimination
ofrestrictions onwhomight bidforalicence.
31October -TheReserve Bank eliminated restrictions ontheduration andrates ofinterest onoverseas loans.
8November -TheMinister ofFinance presented theBudget fortheyearending March 1985. Itincluded the
eliminationorphasingoutofcertainagricultural-relatedsubsidies,increasesinpricesforState-suppliedelectricity
andcoal, increases inroad-use charges, theintroduction ofagoods andservices tax(GST) forApril 1986 and
other taxreforms, andtheendoftheprice freeze onallbut33items.
21November -TheOverseas Investment Commission announced thatforeign-owned companies operating in
New Zealand would generally have unrestricted access toNew Zealand capital markets.
21December -TheReserve Bank announced thatNew Zealand residents could purchase foreign exchange for
investment purposes, effectively abolishing exchange controls.
1985
14February-Ratiorequirements,whichhadobligedinstitutionstoinvestinpublic-sectorsecurities,wereabolished;
themove hadbeen announced on7February.
4March -TheNew Zealand dollar wasfloated; thismove hadbeen announced on2March.
6March -Foreign ownership limits forfinancial institutions were abolished.
13June-Presentation ofthe1985 Budget, including areduced fiscal deficit for1985/86 andconfirmation of
theGovernment 'sintention tophase outassistance toland-based andmanufacturing industries.
18July-Foreign investment controls inallareas except airtransport andrural landwere relaxed.
20August -Taxandwelfare reforms, including details oftheGoods andServices Taxandnewincome taxscales,
were announced.WT/TPR/S/20 Trade Policy Review
Page 16
9September -Theschedule forphasing outimport licensing andreducing tariff protection wasreleased.
1986
20May-Announcement thatthetrading activities oftheElectricity Division, State Coal Mines, thePostOffice,
andCivil Aviation, were tobemoved outofdepartmental organizations intocorporate structures, leading to
theabolition ofcertain special privileges.
31May -Import licence restrictions were lifted onserved goods, inaccordance withtheCER agreement.
31July-Presentation ofthe1986 Budget, including thattheGovernment would assume responsibility for
$7.2 billion ofdebtofagricultural producer boards andmajor projects.
1October -Introduction ofthegoods andservices taxattherateof10percent, abolition ofmost other indirect
taxes, andreductions inincome taxrates.
1987
11February -Abolition ofminimum price controls forpetroleum products.
1April -Entry intoforce oftheState-Owned Enterprises ActandtheReserve Bank ofNew Zealand Act. The
former allowed theformation ofninenewSOEs onacommercial basis, including Telecom. Thelatter, which
hadpassed Parliament on24December 1986, allowed theReserve Bank ofNew Zealand (RBNZ) toregister
asbanksinterestedentitieswithsoundfinancialconditionsandexpertiseinbanking(newentrypreviouslyrequired
anActofParliament)andextendedtheRBNZ'spowersofprudentialsupervision,insomecircumstancesallowing
ittomanage theexitoffailing institutions.
17December -TheGovernment announced further economic reform plans, including afour-year programme
oftariff reduction andaprogramme ofasset sales torepay onethird ofthenational debtby1992.
1988
18August -New Zealand andAustralia signed protocols eliminating most remaining bilateral trade barriers.
1989
1July-Trade barriers onmanufactured products between Australia andNew Zealand were eliminated, oneyear
ahead oftheoriginal schedule. TheGST wasincreased to12.5 percent.
27July-The1989 Budget passed Parliament, setting atarget dateofDecember 1992 forprice stability.
1990
1February -TheReserve Bank ofNew Zealand Acttookeffect, placing theBank onamore independent footing,
while stressing theGovernment 'sultimate right todetermine economic policy, andmaking price stability the
overriding objective ofmonetary policy. APolicy Targets Agreement (PTA) bytheMinister ofFinance and
Governor oftheReserve Bank subsequently, on2March, defined price stability asannual increases intheCPI
of0to2percentbyDecember 1992.
20March-TheGovernmentreleasedapolicystatementdetailingfurthereconomicreforms,includingaprogramme
oftariff reduction over 1992-96, theproposed saleofTelecom, theproposed restructuring ofNew Zealand
Railways, andtheremoval ofownership restrictions forports.
14June -Telecom wassoldtoaconsortium ofAmerican-New Zealand companies for$4,250 million.New Zealand WT/TPR/S/20
Page 17
19December -AnewPTA wassigned, extending thetarget dateforprice stability toDecember 1993.
1991
15May-TheEmployment Contracts Acttookeffect, substantially liberalizing thelabour market andplacing
labour market relations onacommercial contract basis.
12July-TheMinster ofFinance announced thatState asset saleproceeds in1991/92 would beusedtorepay
overseas debt.
December -Anewregulatory régime tostreamline foreign direct investment approvals wasannounced.
1992
July-Thelastremaining quantitative import controls were abolished.
16December -AnewPTAwassigned. Under thenewagreement theRBNZ agreed tomaintain annual increases
intheCPIbetween 0and2percent.
1993
6November -Areferendum determined thatthefirst-past-the-post electoral system would bereplaced witha
system ofmixed proportional representation.
1994
TheFiscalResponsibilityActenteredintoeffect,settingprinciplesforfiscalpolicyandplacingcertaintransparency
requirements onthegovernment 'sfiscal operations.
20December -TheMinister ofFinance announced thattheGovernment would aimtoachieve zeronetforeign
currency debt.
1995
Aprogramme oftariff reduction fortheperiod 1997-2000 wasannounced, which willreduce theaverage tariff
from 6.2percentto3.0percent.
February -Much ofNew Zealand 'scoastal shipping wasopened toforeign vessels.
1996
1July-Thefinal phase oftariff reductions under the1992-96 tariff reduction programme wasimplemented,
reducing theaverage tariff from 7.1percentto6.2percent. Income taxcutscame intoeffect.
20August -TheMinister ofFinance announced thesaleofForestry Corporation toFletcher Challenge. Proceeds
were used topayoffremaining foreign currency debt.
27August -TheMinister ofState-owned Enterprises announced thesaleoftheWorks Corporation.
Source: Massey (1995); andWTO Secretariat, based oninformation provided bytheNew Zealand authorities.