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3.1 An overview of trade policies applying to trade in goods
3.2 Trade trends in specific sectors
3.3 Overall impact of liberalising trade in goods
China and New Zealand produce world-class and largely complementary goods for export to international markets. Exports underpin growth in both economies. Increased demand in each country for the goods of the other has lead to substantial growth in the bilateral goods trade between China and New Zealand in the last decade. Both tariffs and a range of non-tariff measures currently impact on the bilateral goods trade. Further liberalisation of this trade through an FTA offers significant potential benefits to both China and New Zealand.
China
Before entering the WTO, the average tariff level of China in 2001 was 15.3 percent. It was reduced to 11 percent in 2003 and 10.4 percent in 2004. The average tariff level on industrial products was 14.7 percent in 2001, 10.3 percent in 2003 and was further reduced to 9.5 percent in 2004. China's average tariff level for agricultural products is 15.6 percent.
Table 3.1 Simple Average Tariff Level of China
|
Year |
1992 |
1993 |
1996 |
2000 |
2001 |
2002 |
2003 |
2004 |
|
Tariff |
40.30 |
37.50 |
23.00 |
16.40 |
15.30 |
12.00 |
11.00 |
10.40 |
Sources: Ministry of Finance, China.
In 2003, there were 7445 eight-digit tariff items in the Customs Tariff of Import and Export to China. Among these, there are 494 items with a zero tariff. The tariffs on 981 items are 0-5 percent, accounting for approximately 13 percent of all the items. There are 4015 items with a tariff of 5 percent-15 percent, accounting for 54 percent of all the items. The tariff on 1903 items is above 15 percent, accounting for approximately 26 percent of all the items. This shows that China is moving fast towards becoming an open market.
Tariff QuotasAt present, China administers Tariff Rate Quotas (TRQs) on the following agricultural products: wheat, corn, rice, edible vegetable oil (bean oil, palm oil, rape seed oil), sugar, wool, wool tops and cotton. Among China's imports of agricultural products from New Zealand, only wool and wool tops are subject to TRQ administration.
New ZealandWhile approximately 95 percent of goods by value enter New Zealand duty free, only 37 percent of New Zealand imports from China enter duty free. Likewise, while the New Zealand trade weighted average tariff from global sources is 3.6 percent, the trade weighted average tariff from imports from China is almost twice as high at over 6 percent. Applied 'normal' tariff rates on protected sectors in New Zealand are typically in the region of 5-7.5 percent. However, certain sectors receive higher protection. For example, clothing, carpets and certain footwear items are currently protected by a 17-19 percent tariff (or more when 'alternative specific tariffs', expressed in dollars per garment, are applied to low cost clothing). New Zealand's average applied Most Favoured Nation (MFN) tariff rate is 3.6 percent. Average rates applied to agricultural and industrial products are 2.1 percent and 4.4 percent respectively. The average rate for textiles, clothing and footwear is 9.5 percent.
The outcome of the New Zealand Government's 'Post-2005 Tariff Review' was announced on 30 September 2003. Under the review (see table 3.3 below) New Zealand's applied tariff rates will reduce to either 5 or 10 percent. All tariffs currently at 12.5 percent or lower will reduce to 5 percent by 1 July 2008. New Zealand's highest tariffs (17-19 percent in Clothing, Footwear and Carpets sector) will reduce gradually between 1 July 2006 and 1 July 2009 to 10 percent. Tariffs currently between 0 and 5 percent will remain unchanged. All alternative specific tariffs will be removed and the relevant ad valorem rates will apply from 1 July 2005.
New Zealand does not maintain any quantitative non-tariff measures.
Table 3.2 New Zealand's unilateral tariff reduction programme following the 'Post-2005 Tariff Review'
|
Current tariff |
07.2006 |
07.2007 |
07.2008 |
07.2009 |
|
17-19 |
17 |
15 |
12.5 |
10 |
|
10-12.5 |
10 |
7.5 |
5 |
5 |
|
5-7.5 |
5?7.5 |
5-7.5 |
5 |
5 |
As of December 2002, there are 7,432 tariff items in the Customs Tariff of Import and Export of New Zealand. 54.86 percent of them, i.e. 4,077 items, are completely free trade goods with 0 tariff. There are 492 items with a tariff of less than 5 percent; 1886 items with the tariff 5-10 percent. There are only 555 items with the tariff above 10 percent, accounting for 7.47 percent of all the items. The above statistics show that New Zealand has an open market for trade in goods. However, relative to its average tariff, New Zealand does retain comparatively high tariff levels in textiles, clothing and some transport items.
Table 3.3 Trade Weighted Tariff Level of New Zealand
|
Year |
1988 |
1993 |
1996 |
2000 |
2001 |
2002 |
2003 |
|
Tariff |
14.30 |
8.50 |
5.70 |
3.70 |
3.70 |
3.70 |
3.60 |
New Zealand's Average Applied Tariff Rates (Trade Weighted)
Source: Ministry of Foreign Affairs and Trade, New Zealand
3.1.2 Other aspects of trade policy
China
Non-tariff policies implemented by China in foreign trade administration include rules of origin, an import licensing system, customs evaluation, pre-shipment inspection, technical regulations, sanitary and phytosanitary measures and trade remedies. Since China's accession to the WTO, the Chinese Government has been making great efforts to ensure that the policies adopted are WTO consistent.
New ZealandA range of policies beyond tariffs can have an impact on goods coming into New Zealand. In general these fall into the areas of trade remedies, customs valuation, sanitary and phytosanitary measures, technical barriers to trade, competition policy, government procurement, and intellectual property. Details of New Zealand policy in these areas are outlined in relevant sections of Chapters 6 and 7. New Zealand conforms to WTO-consistent practice in these policy areas. While New Zealand participates in the WTO Group on Transparency in Government Procurement, it is not a party to the WTO Government Procurement Agreement. New Zealand's government procurement policy is, however, based around a global non-discriminatory approach.
New Zealand also maintains robust competition and fair trading laws. Governmental support is a minor component of government policy. With respect to agriculture, New Zealand has the lowest support levels in the OECD. All such support is WTO green box consistent and New Zealand does not apply any export subsidies.
Rules of Origin (ROO) are a critical component of any free trade agreement. Only goods that satisfy the specified rules of origin will qualify for preference. Clear and consistent rules of origin can facilitate trade by providing importers and exporters with certainty regarding the tariff treatment of their goods at the border.
Robust, coherent and predictable rules of origin are essential for partly manufactured goods traded under preference. It is recommended that China and New Zealand should adopt rules of origin in an FTA that:
Preferential rules of origin should be negotiated under the framework of the China-New Zealand FTA in accordance with the specific circumstances of the two countries. Related government authorities of China and New Zealand should enhance information exchange and address ROO issues in a cooperative manner.
Bilateral agricultural trade largely comprises agricultural exports from New Zealand to China. China exports some agricultural products to New Zealand, including garlic, sugar, apple juice and peanuts. New Zealand exports an increasingly diversified range of agricultural products to China, which has become an important market for New Zealand products. These include live animals and genetic materials, meat and animal by-products, dairy products, wool, horticulture and floriculture products, seeds, seedlings and other plant materials. China and New Zealand have established a number of bilateral mechanisms to enhance cooperation on agriculture issues, particularly in the facilitation of regulatory measures. There is scope to improve these mechanisms to facilitate trade more effectively.
3.2.1.1 Tariffs applying to agricultural products
China's average tariff applicable to agricultural products is 15.6 percent in 2004. In accordance with China's WTO accession commitments, the final bound tariff rate for some of New Zealand's key agricultural products include: a 10 percent tariff on milk products, an 18-20 percent tariff on animal guts and bladders and a 15 percent tariff on sheep meat. New Zealand's tariffs on agricultural products are very low with a simple average tariff of 2.1 percent. Both China and New Zealand impose taxes on imports of agricultural products: China imposes a Value Added Tax (VAT) of between 13-17 percent and New Zealand imposes Goods and Services Tax (GST) of 12.5 percent. China values goods for duty on a cost-insurance-freight (CIF) basis with VAT paid on the total value of goods after the duty is paid. New Zealand values goods for duty according to the free-on-board (FOB) value of imported goods using the transaction value. GST is then paid on the total value of the goods, the cost of transportation, insurance of the goods and the duty paid.
It is recommended that issues relating to tariffs on agricultural products be addressed in any FTA negotiations.
3.2.1.2 Other policies affecting trade in agricultural products
In the course of conducting this feasibility study, taking into account the results of consultations with exporters, a range of non-tariff issues affecting bilateral trade in agriculture between China and New Zealand has been raised. These issues include SPS, labelling, standards and technical requirements, intellectual property protection, import licensing and issues relating to treatment of goods at the border. A number of cross-cutting themes have also been raised including inter alia the transparency, consistency of application and enforcement of relevant requirements, and whether some measures are more trade-restrictive than necessary. It is recommended that these issues be addressed in any FTA negotiations.
3.2.1.3 Impacts of trade liberalisation
Owing to the complementary nature of the Chinese and New Zealand economies and export profiles, trade liberalisation would be expected to bring net benefits to both parties. Removing tariffs and other barriers in agricultural trade will allow this complementary trade to reach its potential. Benefits from liberalisation in agricultural trade would include lower prices and access to a wider range of agricultural products for consumers, and improved opportunities for exporters through improved access to markets. This in turn will stimulate greater economic activity in both countries. These expectations are confirmed by the results of economic modelling undertaken during the course of this study which show the output of both China's and New Zealand's agriculture sectors increasing as the result of a future FTA. Nevertheless, because of the importance of the agricultural sector in both countries, the potential impact of greater liberalisation on rural development, rural employment, poverty alleviation and livelihood should be monitored.
DairyThough the Chinese dairy sector has expanded, demand for dairy products in China has also grown enormously in recent years. Domestic supply currently falls well short of meeting this demand. Imports therefore play a critical role in supplying China's consumer and industrial demand for dairy products. Imported product and domestic supply complement each other well in China.
As a result of this increase in demand, New Zealand dairy exports to China have grown and reached a new high in 2003. Dairy products now contribute almost one quarter of New Zealand's goods trade to China in 2003. They are now New Zealand's largest export earner in the Chinese market, and China has become New Zealand's fourth largest market for dairy products overall. China is a particularly important market for whole milk powder and skim milk powder. New Zealand is China's largest supplier of milk powder (providing about 70 percent of China's imports).
Table 3.4 Value of New Zealand Dairy Exports to China (US$ million, calendar year)
|
Year |
2001 |
2002 |
2003 |
|
US$ |
72.19 |
115.791 |
191.88 |
Source: World Trade Atlas
Increased liberalisation of the dairy market for New Zealand exports to China will have a number of benefits for both China and New Zealand. New Zealand producers will benefit from increased demand and potentially better returns for exports to China. Chinese consumers will benefit from lower prices and increased supply. Increased supply would also be of benefit to China's food processing industry.
Given the gap between demand and supply for dairy products in China, it would seem that the future is bright for both Chinese producers and New Zealand exporters. It is likely that Chinese and New Zealand producers will continue to complement each other, with China supplying the high value fresh milk market and New Zealand providing an important source of specialty products and supply for China's food processing industry. Owing to geographical constraints in China, currently about 40 percent of the total domestic raw milk is used to produce milk powder. Reconstituting milk from milk powder is necessary in some parts of China.
The potential impacts on Chinese raw milk suppliers and producers of further liberalisation of the dairy market will need to be taken into account. Similarly, the role played by New Zealand in China's dairy industry by the provision of expertise, capital and dairy cows should be recognised.
Meat Products (including meat and offals)
New Zealand Exports to China in this sector have been growing steadily since 2001 with meat and edible offal accounting for 10 percent of New Zealand's total exports to China in 2003. Exports of frozen beef, for example, have also been expanding as demand for high-end product grows. Similarly, China is a key market for some cuts of New Zealand lamb.
Table 3.5 Value of Meat Exports to China from New Zealand (calendar year, US$ million)
|
Calendar Year |
2001 |
2002 |
2003 |
|
US$ |
41.738 |
58.010 |
86.984 |
Source: World Trade Atlas
With the meat trade increasing, China and New Zealand are working bilaterally to direct this trade to the wider China general market. Two meat protocols - for beef and for sheep/goat meat - were signed in 2003. China and New Zealand are currently cooperating on steps to allow the existing trade to take place on a commercially viable basis into the long term.
Although the beef industry in China is diverse, the mass market accounts for almost 90 percent of all cattle slaughtered in China. Only about 10 percent of slaughtered cattle are sold through a small but now increasingly growing premium market into which New Zealand beef product is directed. Demand in China for sheepmeat, particularly for lamb, has also been increasing and is expected to increase further as incomes rise and urbanisation continues. China is a net importer of sheepmeat, the majority of which goes to hotels, restaurants and food processors rather than the retail market.
China remains an important market for meat by-products, including a wide range of offal. According to New Zealand statistics the value of edible beef offals to China in calendar year 2003 was US$4.7 million. The value of sheep offal exports (including casings) was US$37 million in calendar year 2003. The export of offal provides a genuine opportunity because there is a great deal of demand for this product in China, and New Zealand can provide a wide range of offal products. China is an important market for such otherwise low demand products as guts, bladders, aortas etc. China and New Zealand are currently cooperating on steps to allow the existing trade to take place on a commercially viable basis into the long term.
China is a major producer of meat products as well and has a comparative advantage in the export of poultry meat and pork. The world export value of poultry meat and pork from China in 2003 was US$280 million and US$270 million. Owing to New Zealand's SPS requirements there are no existing Chinese exports of pork and poultry to New Zealand.
Liberalisation of the markets for meat products will be beneficial for both China and New Zealand. Producers and exporters will benefit from increased demand, and consumers will benefit from lower prices and increased supply. Given the importance of SPS measures to the bilateral trade in meat products, these will be an integral element of any future FTA negotiation.
It is recommended that any FTA develops a mechanism through which existing barriers to the bilateral trade of meat products, whether tariff or non-tariff, can be addressed. However, any potential impacts on producers and associated processing sectors of further liberalisation of the meat markets will need to be taken into account and monitored during any FTA negotiations.
Live Animal TradeTable 3.6 Value of NZ Exports to China of Live Animals (calendar year, US$ million)
|
Year |
2001 |
2002 |
2003 |
|
US$ |
0.357 |
0.359 |
8.894 |
Source: World Trade Atlas
New Zealand-bred cattle and export of bovine embryos are playing a central role in the rapid expansion of China's dairy herd through the improvement of breeding stock. With China's milk consumption rising rapidly and due to the gap between supply and demand, China is increasingly relying on the importation of breeding cattle to strengthen the national herd. Protocols relating to live cattle and deer exports were adopted in 1997. With the advent of BSE in North America, the focus for importations shifted to Australasia. As a result, the breeding cattle trade between China and New Zealand has increased significantly in the past few years and is now an important part of the bilateral trade. According to Chinese statistics, nearly 30,000 New Zealand cattle were imported by China between January and July 2004. These imports are expected to increase further.
There is also interest in Chinese and New Zealand businesses in developing the trade in live deer, as well as cervine germplasm and bovine IVF (in vitro fertilisation) embryos. Draft protocols covering trade in cervine germplasm and bovine IVF embryos have been submitted by New Zealand. Facilitation of the live animal trade will therefore benefit China as it continues to seek to improve its national dairy, sheep and deer herds as well providing a better return to New Zealand exporters.
WoolTable 3.7 Wool Exports to China (calendar year, US$ million)
|
Year |
2001 |
2002 |
2003 |
|
US$ |
86.846 |
85.748 |
88.51 |
Source: World Trade Atlas
Wool is an important component of the bilateral trade in agricultural products between China and New Zealand. New Zealand has traditionally exported coarser wools to China, which have been widely used as an important input into the apparel, bedding, upholstery and carpet industries. Some is also used in the manufacture of hand knitting yarns. New Zealand wool exported to China is usually of a different thickness to that produced in China and often New Zealand wool is blended with Chinese wool. This complementarity can be expected to continue. Although the quantity of wool exported to China has fallen over the past eight years by two-thirds (from a peak of 75,800 tonnes in 1994/95 to 24,000 tonnes on a clean wool basis in 2002/03), China remains New Zealand's major market for wool exports.
Table 3.8 The
Schedule of Tariff Rate Quotas for Wool in 2004
|
Products |
Tariff No. |
TRQ |
Out-quota |
In-quota |
|
| ||||
|
Wool |
51011100 |
|||
|
51011900 |
||||
|
51012100 |
28.7 |
38 |
1 | |
|
51012900 |
||||
|
51013000 |
||||
|
51031010 |
||||
|
Wool tops |
51051000 |
|||
|
51052100 |
8 |
38 |
3 | |
|
51052900 |
Source: The Import and Export Tariff Schedule of the People's Republic of China (legal text), 2004
New Zealand wool products are already entering China at very low duty rates - 1 percent for wool and 3 percent for wool tops (under a tariff rate quota system). Although removal of such low tariffs would be positive for Chinese consumers, as well as the wool processing industry and those farmers whose production is complemented by New Zealand product, some concerns have been expressed about the impact of liberalising trade in wool in relation to the potential impacts on farmers in the frontier regions and pastoral areas of China.
Fruit and Vegetable products
Table 3.9 Value of New Zealand Horticulture Exports to China (US$ million, calendar year)
|
Calendar Year |
2001 |
2002 |
2003 |
|
Fruit and nuts |
2.74 |
2.73 |
3.76 |
|
Vegetables |
3.17 |
2.812 |
2.24 |
Source: World Trade Atlas
New Zealand's horticulture industry is based largely on the export of kiwifruit, pipfruit, wine and fresh and processed vegetables. However, there is a lot of niche product development and innovation in the industry, with avocados, olives, berryfruit, summerfruit and other crops being exported or having future export potential. Total horticultural exports worldwide have grown over the last 20 years from around US$100 million to US$1.04 billion in the year ended June 2002 and now make up about 6.5 percent of New Zealand's merchandise exports. The main export earners are kiwifruit and pipfruit. New Zealand however exports very little fruit and vegetables to China. Around US$6 million of apples and US$5 million of kiwifruit was re-exported to China via Hong Kong in 2003.
China has a comparative advantage in the production and export of fruit and vegetables. Chinese exports to New Zealand have increased in recent years but are relatively small. According to Chinese exporters SPS requirements may be one reason for China's limited exports to New Zealand. According to New Zealand statistics in the 2003 calendar year these exports totaled US$2.7 million for vegetables and US$2.63 million for fruit and nuts. These exports to New Zealand are mainly garlic and pears. New Zealand exporters have noted that high tariffs are proving a hindrance to increasing fruit and vegetable exports to China.
Given the counter-seasons, there is a complementarity in exporting horticulture products to each other and third markets. Trade liberalisation would allow better access for products and provide consumers with access to high quality fruit and vegetable products at a lower price. The potential impact on New Zealand of increasing Chinese exports of fruit and vegetables as a result of greater liberalisation will need to be monitored. It is recommended that the reasons for the current limited bilateral trade in this sector be explored in any FTA negotiations.
Table 3.10 Value of Two-way trade in Fish Products (US$ million, calendar year)
|
Year |
2001 |
2002 |
2003 |
|
Chinese imports |
46,831 |
60,290 |
62,387 |
|
NZ imports |
6,181 |
7,263 |
5,929 |
Source: World Trade Atlas (using Chinese and New Zealand import statistics respectively)
Fishing and fish processing industries make important contributions to the Chinese and New Zealand economies. Both countries share concerns about the impact of over-fishing on global fisheries stocks and of the role played by government subsidisation in exacerbating this problem. They are working together in the WTO to develop new disciplines on subsidies in the fisheries area. The importance of sustainable management of New Zealand's fisheries resource is well known internationally, as is the leadership role of China in the global aquaculture industry.
China plays an important role in the global production and trade in fish and fisheries products. China produced an annual average 38 million tonnes of fish in the 1997-2000 period. According to recently released Food and Agriculture Organisation (FAO) preliminary statistics for 2002, China has for the first time overtaken Thailand to become the world's largest exporter of fish and fisheries products, with US$4.5 billion of exports in 2002. China is the world's eighth largest import market (fourth if the EU is considered a single entity). China's fish imports are now growing more rapidly than its exports. China's major export markets are Japan, other markets in East and Southeast Asia, the EU, and USA. It exports very few fish products to New Zealand and imports most of its fish products from Eastern Europe, South America, Japan, and Australia/ New Zealand.
New Zealand produced an annual average of around 700,000 tonnes of fish, fish products and seafood over 1997-2000. 76 percent of New Zealand's production was for export. China is an important and growing market for New Zealand fish and seafood. In 2003 China was New Zealand's fifth largest market for fish with New Zealand exporting US$49 million in 2003. If re-exports from Hong Kong are factored in, it is probable that China is New Zealand's fourth largest market for fish and seafood. There is evidence that the majority of the high value species (e.g. lobsters) exported by New Zealand to Hong Kong are ultimately destined for the mainland.
China's import tariffs for fish products have dropped from a pre-WTO accession average of 15.3 percent to 10.95 percent in 2004. The highest tariff rate in China for a fish product is 23.6 percent. Eighteen items, accounting for 10.5 percent of all the imported fishery products, are exempt from tariff. Tariffs in the 10-16 percent range are common. Most products enter New Zealand free of duty. Tariffs of 6.5 percent remain on cooked shrimp and lobster. Frozen fish account for 50 percent of New Zealand's export of fishery products to China, and incur average import tariffs of 10.95 percent. It is recommended that issues relating to tariffs on fish products be addressed in the future FTA negotiations.
In the course of conducting this feasibility study, taking into account the results of consultations with exporters, a range of non-tariff issues have been raised affecting bilateral trade in fisheries and seafood products between China and New Zealand. These issues include intellectual property protection and issues relating to treatment of goods at the border. It is recommended that these issues be addressed in the future FTA negotiations.
Removing tariffs and other barriers will facilitate trade in fish and seafood products, resulting in economic benefits to both countries. There will be benefits for the consumers of both countries in the form of lower prices and access to a wider range of products, and the improved opportunities afforded to exporters through access to markets will in turn stimulate greater economic activity in both countries. Technology and investment exchanges that accompany the flow of goods will also lead to productivity gains. Owing to the complementary nature of the Chinese and New Zealand economies and export profiles, trade liberalisation should be expected to bring net benefits to both parties. Despite being the largest exporter of fish and fish products in the world and New Zealand having low applied tariff rates on fisheries imports, China's exports to New Zealand are limited. These issues should be explored and addressed in the future FTA negotiation.
China is one of the world's largest importers of forest products. Over the past few years, New Zealand forestry exports to China have grown substantially with China now being New Zealand's fifth largest destination for forestry exports. Main exports to China continue to be unprocessed products with 65 percent of forestry exports in 2003 comprising logs and wood pulp. An increasing volume of the logs exported are being re-exported from China after being processed into higher value added products such as furniture.
Table 3.11 New Zealand's Exports of Forestry Product to China
|
December years (US$000) |
2001 |
2002 |
2003 |
|
Logs and poles |
35,391 |
60,414 |
70,406 |
|
Sawn timber |
14,237 |
22,023 |
22,380 |
|
Wood pulp |
54,704 |
43,752 |
43,659 |
|
Paper and paperboard |
30,470 |
27,209 |
17,988 |
|
Fibreboard |
12,048 |
20,471 |
19,446 |
|
All other forest products |
784 |
1,507 |
1,832 |
|
Total |
148,174 |
175,376 |
175,712 |
Source: World Trade Atlas
New Zealand's export of forestry products to China reached US$175.7 million in 2003. The export value of free trade items, such as wood in rough, wood sawn or chipped, and wood pulp, was US$136.4 million, accounting for 77.7 percent of New Zealand's gross export value of forestry products to China in this sector. For those wood and paper products with a tariff rate in the 2-10.4 percent range, the export value was US$39.3 million, accounting for 22.3 percent of New Zealand's gross export value of forestry products to China. Yet in terms of China's total imports of forest products, New Zealand's share amounted to only 2.8 percent.
China's exports of forestry products to New Zealand are very low, with the export value US$16.85 million in 2003 - accounting for only 2.1 percent in China's total commodity export to New Zealand. China's export of forestry products to New Zealand mainly include paper and paperboard, paper and paper products for household and sanitary uses, wooden picture frame and inlaid wood, etc. - most of which are further processed forestry products.
Both China's and New Zealand's overall import tariff level on forestry products is low. China's average bound tariff on forest products is 5.34 percent, while New Zealand's average bound tariff applicable to forest products is 3.65 percent. China has 43 forestry items bound at zero tariff, accounting for 16 percent of all the products in this category. New Zealand has 273 forestry items with a zero tariff, accounting for 73 percent of all the products in this category.
China's final bound tariff rate for some of the significant forestry imports from New Zealand includes a 4-7.5 percent tariff on fibreboard and a 5-7.5 percent tariff on coated writing papers.
Imports of logs from New Zealand attract a VAT of 13 percent. There are VAT exceptions for border trade of logs, which are only charged 8 percent.
It is recommended that issues relating to tariffs and taxes on forest products be addressed in the future FTA negotiations.
China has recently recognised New Zealand's main commercial species, radiata pine, as an acceptable and versatile construction material within China's revised building code. New Zealand's forest industry and Chinese officials have been working to develop a handbook for the building code as a users guide which will contain scientific and technical information on New Zealand's pine (pinus radiata).
In the course of conducting this feasibility study, incorporating the results of consultations with exporters, a range of non-tariff issues have been raised affecting bilateral trade in forestry between China and New Zealand. These issues include SPS issues, technical requirements, import licensing and other issues relating to treatment of forest products at the border. A number of cross-cutting themes have been raised including inter alia the transparency, consistency of application and enforcement of relevant requirements, and the necessity and restrictive impact of some measures. It is recommended that these issues be addressed in any future FTA negotiations.
Both China and New Zealand recognise the importance of sustainably managed forestry. There are strong complementarities between the New Zealand and Chinese forest products industries. China's demand for forest products is increasing at the same time as New Zealand's increased supply of wood products is coming on stream.
China's forest resources are relatively small, accounting for merely 3 percent of the worlds total forest resource. There has always been a gap between supply and demand in China's domestic forestry products market. With the implementation of the Wildwood Protection Project from 2000, the gap between demand and supply of forestry products, especially logs and timber, has become even bigger.
China is one of the world's largest importers of forest products. Facing the contradiction between the shortage of forestry resources and increasing market demand for forestry products, one solution for China is to increase imports in this sector. As China's economy develops, the demand for secondary and manufactured forest products will also continue to increase.
The complementarities between the two economies and differing export profiles will mean that trade liberalisation would be expected to bring net benefits to both parties. Removing tariffs and other barriers will allow this trade to reach its potential, resulting in economic benefits for both countries. There will be benefits for the consumers of both countries in the form of lower prices and access to a wider range of products, and the improved opportunities afforded to exporters through access to markets will in turn stimulate greater economic activity. Technology and investment exchanges that accompany the flow of forest products will also lead to productivity gains for both countries.
Under the framework of a future FTA, the related enterprises of the two countries in the forestry sector would seek to increase their export to each other's market through enhancing cooperation, and therefore will be beneficial for both China and New Zealand.
The manufacturing industry of China has developed rapidly during the past two decades. As the fourth largest manufacturing country in the world, China ranks first in production of more than 100 manufactured products. These include steel and iron, cement, chemical fibre, and TV sets. In 2002, the overall output of manufacturing sectors accounted for nearly 41 percent of China's GDP and 88 percent of total industry output. Nearly one third of the national tax revenue comes from the manufacturing sectors. Total employment in the manufacturing sectors is about 80 million. These statistics indicate that manufacturing plays an important part in China's national economic development.
In 2003, manufacturing sector output accounted for around 15 percent of New Zealand's real GDP. The range of products manufactured by New Zealand companies is extensive, underlining the diversity of this sector. In 2002 more than US$163 million of automotive components was exported to 97 different countries, up from US$93 million in 1998. Primary sector processing (including food, wood and paper products) makes up a significant proportion of the sector. Exports have been a primary driver of growth in the manufacturing sector over recent years. Non-commodity manufactured exports have averaged over 9 percent growth annually since 1990. An international focus by New Zealand manufacturers, combined with attention to marketing, design, reliability, customer responsiveness and cost, have been key factors in this success.
When it entered the WTO, China committed itself to reducing the average tariff level from 14 percent in 2001 to 10 percent in 2005, with the average tariff on manufactured products decreasing from 14.7 percent to 9.3 percent. Under this commitment, 98 percent of the tariff reduction on manufactured products is to be finished no later than 2005. An exception is the tariff on vehicles and automotive accessories, which is to be decreased respectively to averages of 25 percent and 10 percent on 1 July 2006. The tariff reduction on certain kinds of chemicals is not due to be finished until the end of 2008. In 2004, the average tariff rate applied to manufactured products was reduced to 9.5 percent.
New Zealand's tariff regime applying to manufactured products is described in Section 3.1.1 of this Study.
Apart from tariffs, a number of non-tariff issues affecting bilateral trade in manufactured products between China and New Zealand should be considered by both sides, including rules of origin, import licensing and issues relating to treatment of goods at the border, customs valuation, standards and technical requirements, trade remedies, intellectual property protection and subsidies. It is recommended that these issues, together with the similar issues in other sectors of the bilateral commodity trade, be comprehensively addressed in any future FTA negotiations.
Owing to the complementary nature of the Chinese and New Zealand economies and export profiles, trade liberalisation would be expected to benefit both parties. Removing tariffs and other barriers will allow this trade to reach its full potential. There will be benefits for the consumers of both countries in the form of lower prices and access to a wider range of products, and for exporters through improved access to markets, which will in turn stimulate greater economic activity. Nevertheless, because of the importance of the manufacturing sector to both countries, the negotiations should take account of the sustainability of domestic industries and potential for future growth and innovation.
Textiles and apparel2Textiles and apparel are China's top exports to New Zealand, accounting for more than half of New Zealand's total textiles and apparel imports.
Chinese statistics show that in 2003 the two-way textiles and apparel trade between China and New Zealand reached US$210 million, an increase of 28 percent over 2002. Of this total, China's exports to New Zealand comprised US$209.35 million.
The textiles and apparel sector is currently protected by New Zealand's highest tariffs. For many apparel products, New Zealand applies either ad valorem or alternative specific tariffs on imports. The ad valorem rates range from 0 to 12.5 percent on various textile products and 0 to 19 percent on apparel products.
The alternative specific tariffs applying in this sector conceal some very high tariff peaks. Some of these specific tariffs have an ad valorem equivalent as high as 46.5 percent. Overall, however, the existence of the alternative specific tariffs raises the equivalent ad valorem tariff by an average of 1.7 percentage points.
In recent years New Zealand has experienced a transformation of its apparel sector. Production and resources have to a large extent switched from low cost apparel areas to niche, high value apparel sectors. Manufacturers have chosen to build on areas of natural advantage such as fast turn-around, quality, design and fit of product. A shift of focus toward design, logistics and marketing are also features of the industry over the past decade. There are clear complementarities between the Chinese and New Zealand textiles and apparel industries. However, given the differences in scale between the two countries' industries, the FTA negotiations should take account the potential impacts of increased liberalisation on New Zealand textile and apparel producers.
Machinery and Electronic EquipmentIn 2003, two-way trade of machinery and electronic equipment between China and New Zealand reached to US$357 million, an increase of 44.7 percent over 2002. China's imports from New Zealand totalled US$29.48 million, an increase of 9.6 percent over the previous year, and exports to New Zealand US$328 million, an increase of 49 percent.
China's exports to New Zealand in this sector can be divided into two main categories- machinery and electronic equipment. Office machines, general parts and engineering equipment rank as the top three machinery exports, which totalled US$42.30 million, US$40.65 million and US$37.62 million respectively in 2003. The exports of machine tools and agricultural machinery equipment also achieved rapid growth in recent years. Computers, transmission apparatus, electric equipment and apparatus, television apparatus dominate China's electronic equipment exports to New Zealand.
China has comparative advantages in relatively labour intensive electronic products such as TVs, computers and telephones, and has a considerable share of New Zealand's domestic market in these products.
New Zealand is also a competitive producer of mechanical and electrical machinery for its domestic market and for certain niche export markets. Examples include whiteware, mobile telecommunications equipment, ICT and specialist componentry and agricultural equipment.
FTA negotiations should offer the opportunity to encourage an expansion of trade in these products but should also take account of the impacts of increased liberalisation on New Zealand's machinery and electronic equipment producers.
Footwear and accessoriesChina's footwear exports to New Zealand have grown steadily in recent years. China now accounts for well over half of New Zealand's footwear imports. Its most important footwear exports to New Zealand are outer soles of rubber, plastics, leather or composition leather and uppers of leather.
New Zealand's tariffs on footwear remain quite high. Tariffs of between 17.5 and 19 percent are common.
New Zealand's footwear industry has down-sized in recent years and is now focused on high value, niche market production. The industry produces a wide range of products from industrial, safety, children's school shoes, women's comfort and fashion shoes, women's trainers, through to hand-made shoes. There is little manufacturing of men's footwear.
However, given the differences in scale between the two countries' industries, FTA negotiations should take account of the impacts increased liberalisation will have on New Zealand footwear and accessory manufacturers.
AutomotiveBilateral trade in automotive parts of vehicles is relatively small. Motor vehicle parts and accessories are China's major automotive exports to New Zealand.
New Zealand imposes relatively high tariffs, ranging from zero to 17.5 percent on imports of some automotive parts including radiators, exhaust pipes, alloy wheels, and other accessories. There are also some tariffs levied on imports of bicycles and trailers. Imports of cars and most light commercial vehicles have been duty free into New Zealand since 1998.
New Zealand is a competitive exporter of automotive parts and components and has significant expertise in bus and special purpose vehicle manufacture, including motor homes. Exports in this area topped US$120 million in 2003.
Chinese tariffs applying to imports of automotive parts and components from New Zealand range from 10 percent to 34 percent.
FTA negotiations should take account of the impacts increased liberalisation will have on Chinese and New Zealand automotive and automotive component manufacturers.
Light industry productsLight industry products, including toys, furniture, leather articles, handbags, ceramic and glass products etc, are the principal Chinese goods exported to New Zealand in recent years. The export value of this category reached about US$260 million in 2003, accounting for around 17 percent of China's total exports to New Zealand.
New Zealand's tariffs on light industry products fall in the 5-7 percent range.
New Zealand also produces a range of products in these areas. This sector is focused on high value niche markets both domestically and overseas. Some exports to China attract tariffs of between 12-20 percent.
FTA negotiations should take account of the impacts increased liberalisation will have on Chinese and New Zealand light industry producers.
Steel and steel productsNew Zealand has significant deposits of iron sands. New Zealand also has a small but efficient steel industry that exports to China. New Zealand also exports iron ore and scrap steel products to China.
China's imports and exports of steel increased greatly in 2002-2003. The amount of steel imported from New Zealand increased by 258.3 percent in that time. In the same period, New Zealand's total steel exports increased by only 2.23 percent. This indicates that China has become an important market for New Zealand steel exports. China's exports of steel products have remained stable in recent years.
Imported iron ores are a zero-tariff commodity in China, while the import tariff rates for steel and steel products are mostly below 10 percent with some between 15 percent and 20 percent. Among New Zealand's fifteen four-digit HS code steel and steel products items, seven items are duty-free, and an average tariff rate of 5-7 percent is imposed on the other eight items.
At present, the steel and steel products trade volume between China and New Zealand is relatively small but shows potential for further development. Bilateral trade in this sector reveals some complementarity, with China the net importer in the bilateral iron ore and steel trade but the net bilateral exporter in the trade of steel products.
FTA negotiations should take account of the impacts increased liberalisation will have on steel and steel product producers.
AluminiumTrade in aluminium products between China and New Zealand has become important for both China and New Zealand. New Zealand has traditionally exported aluminium ingots or scrap to China, while China's exports to New Zealand have been processed products. According to New Zealand statistics, New Zealand exports to China grew to US$18 million in the year to June 2004, up from US$14.95 million in 2003 and US$11.65 million in 2002. Chinese exports to New Zealand have grown from US$2.822 million in 2002 to US$8.78 million in the year to June 2004. According to China's statistics, however, in 2003 China's total aluminium imports were US$4.42 million and total exports were US$4.19 million.
China's aluminium extrusion industry has grown very strongly in recent years and has demonstrated strong export competitiveness. New Zealand's industry is much smaller, although exports are also an important component of sales for New Zealand producers. China is becoming a major competitor for New Zealand's industry in key export markets.
FTA negotiations should take account of the impacts increased liberalisation will have on Chinese and New Zealand aluminium producers.
This sector comprises goods manufactured to measure, prevent, limit, minimise, or correct environmental damage to water, air and soil as well as problems related to waste, noise and ecosystems. This includes cleaner technologies, and products that reduce environmental risks and minimise resource use. Products include air pollution and control equipment, waste water management equipment, solid waste management systems, solar power energy systems, wind power etc. Bilateral trade in these products is not large at present, but as the global market for environmental goods is rapidly expanding there is considerable scope to increase trade in this area between China and New Zealand.
Under the Trade and Economic Cooperation Framework, both countries have agreed to encourage trade in goods (and services) that are designed to protect the environment, and will explore opportunities to meet this objective. Although the levels of protection in these products are not high, given the importance of sustainable development to both governments it is recommended that a future FTA examines the scope for liberalisation of goods used principally to benefit the environment.
The study has demonstrated that China and New Zealand have a complementary goods trade. A range of tariff and non-tariff barriers currently impedes trade. The overall impacts of comprehensive liberalisation of tariffs and removal of unnecessary non-tariff measures are expected to deliver positive results for both the Chinese and New Zealand economies. All potential impacts on both countries in different sectors should also be taken into account.
These expected results of bilateral liberalisation of trade and goods have been confirmed by the economic modelling undertaken during the study. Chinese exports to New Zealand are expected to grow by an annual average of between US$40-70 million a year in the 2007-2027 period. New Zealand exports to China are expected to grow between US$180-280 million a year over the same period. Non-durable items display the highest potential gains but all goods trade sectors show positive growth resulting from bilateral liberalisation.
The positive economy wide impacts of this liberalisation on both China and New Zealand are detailed in Chapter 8.
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Raw materials such as wool are
not included in bilateral textiles trade. back
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