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Given Hong Kong's strategic significance as a regional hub, it is inevitable that a proportion of our exports to Hong Kong are re-exported and that a proportion of our imports from Hong Kong have originated from a third party. Aggregate data on re-exports from Hong Kong on a global basis was provided in Chapter 2 at Table 2. This section examines that data from a New Zealand perspective. It is important to note that this information is sourced from Hong Kong, and includes data on re-exports, which is why the
Approximately 37 percent of Hong Kong's total imports from New Zealand are recorded as being re-exported (up from 26.2 percent in 1997). Most (93 percent) go to China. In 1997 on-selling to Macau was large enough to make Macau rank about 30th in New Zealand's export destinations list, but more recent data show that only $11.0 million went to Macau, down from $45.3 million in 1997 over the same eight month period.
There may also be a significant but unknown quantity of imports from New Zealand which are re-exported to China but not recorded in the statistics. This suggests that there may be some over-reporting of New Zealand exports to Hong Kong, and under-reporting of New Zealand exports to China, which is not captured in these statistics.
Table 9: Hong Kong's Trade with New Zealand (NZ$ Millions)
| 1997 | 1998 | 1999 | |
|---|---|---|---|
| Total Exports to NZ | 729.2 | 630.4 | 694.5 |
| Domestic | 67.1 | 54.5 | 50.3 |
| Re-exports | 662.1 | 575.9 | 644.2 |
| Imports from NZ | 1022.4 | 881.7 | 770.8 |
| (of which re-exp) | 268.1 | 326.7 | 286.4 |
| Total Trade | 1751.7 | 1512.1 | 1465.3 |
| Trade Balance | -293.2 | -251.3 | -76.2 |
Source: Hong Kong Trade Statistics
Table 10: Re-exports through HK to NZ Jan-Aug 2000 NZ$ Millions)
| Total Exports | ||
|---|---|---|
| Description | HK to NZ | Re-exports |
| Clothing | 132.4 | 128.9 |
| telecom equip | 65.0 | 64.8 |
| Toys | 35.7 | 35.7 |
| footwear | 25.8 | 25.8 |
| computer parts | 18.1 | 11.7 |
| Luggage | 15.2 | 15.2 |
Source: Hong Kong data
This section considers the flow of (mostly) Chinese exports which are routed through Hong Kong. These imports are significant in the sectors where New Zealand retains import protection. As a result of the car tariff removal in 1998,
The aggregate data is shown in Table 9. Based on Hong Kong data, this records re-exports as being some 92 percent of the total exports from Hong Kong to New Zealand. Table 10 details Hong Kong's principal re-exports to New Zealand. Almost all of the clothing is recorded by Hong Kong as coming from China originally.
On the import side, therefore, goods trans-shipped from China through Hong Kong are principally clothing, telecommunications equipment and toys.
New Zealand's tariffs are frozen at existing levels until July 2005. The overall policy is that tariffs would be only removed before then on a reciprocal basis. For example, from 1 January 2001, New Zealand and Singapore eliminated all tariffs on goods traded bilaterally between them, pursuant to the provisions
One of the outcomes of a CEP would be to remove tariffs on goods traded between New Zealand and Hong Kong, and to provide a reciprocal legal undertaking that all goods traded bilaterally will enjoy duty free status on a permanent basis. The Understanding at Annex 2 notes that:
This section looks at the practical ramifications of removing duties on goods traded between New Zealand and Hong Kong. Before doing so, however, it is useful to set out a summary of the current tariff profiles of Hong Kong and New Zealand.
Under Article 114 of the Basic Law, Hong Kong enjoys the status of a free port. Tariffs will not be imposed on imports `unless otherwise prescribed by law'. Hong Kong already grants duty free access to New Zealand exports of merchandise goods. Through its WTO commitments on tariffs, Hong Kong has "bound" tariffs on all agricultural items (830 tariff lines) at zero but has "bound" only 32 percent of industrial tariff items. While it currently grants de facto open access to its market for New Zealand exports, there is no legal obligation on it to maintain completely open access for "unbound" items on a permanent basis. In the tariffs area, therefore, such a commitment would be one tangible outcome of a CEP agreement. Preserving and enhancing access to the Hong Kong market for our exports also directly impacts on employment growth in the New Zealand economy.
In New Zealand's case, 95 percent of global imports enter duty free, either because the goods are not made in New Zealand or because of preferential tariff arrangements. "Normal" tariff rates on protected sectors in New Zealand are typically in the region of 5-7 percent. However, certain sectors receive higher protection. For example, clothing and certain footwear items are protected by a 19 percent tariff (or more when "alternative specific" tariffs, expressed in dollars per garment, are applied to low cost clothing).
New Zealand applies "normal" tariff rates to countries which are not party to preferential tariff arrangements. A system of rules of origin ensures that only goods which "originate" in the preference-receiving country benefit from these provisions. Given Hong Kong's geographical setting, robust rules of origin will need to be set in place to ensure that the real benefits of any CEP tariff preferences are confined to Hong Kong. Rules of origin are discussed below.
Duties Paid by Hong Kong
According to data provided by the New Zealand Customs Service, during the period 1 July 1999 to 31 June 2000, New Zealand imported goods of Hong Kong origin to the value of $161.2 million. Duties were assessed on goods to the value of $35.7 million, with $4.3 million paid in duty at an average rate of 2.68 percent. Some 78 percent of imports from Hong Kong entered duty-free. The amount of duty paid on goods of Hong Kong origin has steadily decreased over the past three years.
Table 11 provides further details of duties paid by Hong Kong on its top five dutiable exports to New Zealand by HS chapter heading (ie this table does not cover Hong Kong's exports to New Zealand which enter duty free). For example, in the calendar year to June 2000 New Zealand imported $8.078 million of Hong Kong-origin clothing classified under HS chapter 62. 90 percent of these imports attracted duty, and were levied total duties of $1.463 million. The average duty paid on all Hong Kong-origin HS 62 items was 18.11 percent, or an average duty of 20.23 percent on those items actually attracting duty.
Table 11: Duties Paid on Imports from Hong Kong,
(June 2000 year, NZ$000 Value For Duty and %)
| Total | Dutiable | Duty | Total | Average | ||
|---|---|---|---|---|---|---|
| Chapt | Description | Imports $ | Imports % | Paid | Duty % | Duty % |
| 62 | Clothing | 8,077.9 | 90 | 1,462.6 | 18.11 | 20.23 |
| 61 | Clothing | 6,764.8 | 89 | 1,219.5 | 18.03 | 20.19 |
| 22 | Beverages | 3,273.6 | 99 | 174.3 | 5.33 | 5.38 |
| 42 | Leather goods | 3,052.00 | 74 | 159.0 | 5.21 | 7.08 |
| 39 | Plastics | 4,467.40 | 47 | 158.8 | 3.56 | 7.55 |
Source: New Zealand Customs Service
44 percent of imports by value from Hong Kong during the June 2000 year were concentrated in the three sectors of electrical equipment, general machinery and printed matter. These imports have close to duty free access now. They attracted an average duty of 0.24 percent at the New Zealand border (down from 0.59 percent in 1995 and 0.57 percent in 1997), or some 4.1 percent of the total duties assessed on all imports from Hong Kong in the year to June 2000.
Rules of Origin
Rules of origin are the key to administration of any system of tariff preferences. As exporters from third countries have an clear incentive to channel goods through a preference-receiving country, such controls are essential.
New Zealand and Hong Kong have contrasting systems of rules of origin. In part this reflects the different perspectives of, on the one hand, a country which does not apply tariffs to imports and, on the other hand, a country which maintains protective tariffs on products which compete directly with local production.
Hong Kong does not have a reciprocal preferential arrangement with any other country (although it does receive "developing country" tariff preferences from some countries). Hong Kong operates a set of general purpose origin rules based on the requirement that specific production processes are undertaken in Hong Kong. Such rules of origin do not relate to any trading arrangement, but are administered primarily to facilitate Hong Kong's exports to foreign markets. Exports of goods claiming Hong Kong origin status must conform to Hong Kong's origin rules for the relevant products. This is particularly important for Hong Kong's textiles and clothing exports which are subject to quota arrangements for the restrained markets of the USA, European Union and Canada.
It will be of crucial importance for New Zealand and Hong Kong to agree on a form of robust rules of origin. Only imports which satisfy the New Zealand Customs Service that they meet the agreed rules of origin tests to define product as genuinely of Hong Kong (and/or New Zealand) origin will be permitted to benefit from New Zealand's tariff preference.
Rules of Origin Systems
There are a number of alternative means of assessing origin:
It is common for a given national system to include elements of each of the above options, or indeed to apply different systems for different purposes (eg the USA).
Certification Procedures
Rules of origin negotiated under a closer economic partnership with Hong Kong will need to be robust, transparent and easy to administer by the New Zealand Customs Service. The rules will need to be complemented by an appropriate enforcement regime to ensure they are complied with, and are capable of being enforced effectively by New Zealand Customs.
Certification arrangements already established for Hong Kong's exports may provide New Zealand with some assurance against preference abuse.
Hong Kong's textiles and clothing exports are regulated under its textiles export control system. It is a statute based system, comprising an origin certification system, a licensing system, a quota system for export to restrained markets and a stringent enforcement system to uphold its integrity.
The Hong Kong Trade and Industry Department oversees the implementation of the textile export control system, while policing of the control system is the responsibility of the Hong Kong Customs and Excise Department.
All textiles and garments exports from Hong Kong and imports into Hong Kong are required by law to be covered by valid licences or where appropriate textiles notifications. Misrepresentations, including those relating to country of origin, are liable to prosecution and administrative actions.
Under Hong Kong's origin certification, a factory is required to be registered before it is eligible for the issuing of a certificate of origin. Before registration, a factory has to satisfy the Hong Kong Customs and Excise Department that it has the capability to produce the relevant product for which the certificate of origin will be issued (eg suitable factory premises, workers with relevant skills and machinery for production). Periodic factory re-inspections are carried out to ensure that the factory is actively engaged in the manufacture of the product concerned.
A registered factory is required by law to keep detailed books and records for at least two years which enables the Hong Kong Customs and Excise Department to conduct regular and surprise checks on the production process. Selective consignment and factory inspections are also carried out from time to time by the Hong Kong Customs and Excise Department on a random or targeted basis against export licence or other applications, including certificate of origin to verify the authenticity of declared particulars and also to ascertain whether the goods concerned are indeed manufactured in Hong Kong.
There is already a close relationship between the New Zealand Customs Service and the Hong Kong Customs and Excise Department. The existing co-operative arrangement between the Customs agencies provides for assisting each other in the prevention, investigation and prosecution of offences in their respective jurisdictions and to assist in the assessment of Customs duties and other taxes. This relationship arrangement could be extended to capture specific elements relating to compliance with rules of origin established under a closer economic partnership agreement with Hong Kong.
Given the extent of re-exports of traded items via Hong Kong, a central issue to be addressed in a CEP negotiation would be the rules of origin to be applied and enforced against non-parties, to ensure that non-parties to the CEP Agreement did not derive an unintended benefit from tariff elimination. To effectively administer these rules of origin, the New Zealand and Hong Kong Customs authorities would need to develop improved networks, building on the already close relationship that exists through their current co-operative arrangement, in accordance with the laws applicable to both administations.
We are interested in receiving comments from importers, exporters and local manufacturers on rules of origin issues in relation to bilateral trade. We are also interested in receiving information on any difficulties relating to the above that you may have experienced in importing from or exporting to Hong Kong.
Removing Technical Barriers to Trade
As the CEP with Singapore has demonstrated, a CEP does not simply remove tariffs and restrictions on services. Gains can be made in a number of less obvious areas, particularly by providing ways to reduce compliance costs for New Zealand businesses exporting to Hong Kong associated with the need to meet different technical, sanitary and phytosanitary regulatory requirements. New Zealand exporters of manufactured products and food frequently report technical and bureaucratic measures which impede their entry into Asian markets. Accordingly any provisions in the CEP Agreement that seek to address or eliminate such measures, would be beneficial for New Zealand businesses. It would not, however, affect our ability to maintain in place a robust biosecurity regime.
Safeguards and Anti-dumping
In the last 10 years, New Zealand has not initiated any safeguard measures, or imposed anti-dumping duties against goods of Hong Kong origin. Two anti-dumping complaints were investigated by the then Ministry of Commerce, but both were terminated before duties were imposed.
In relation to the first product complained about, men's footwear, the investigation was terminated because the goods complained about were actually of Chinese origin. Anti-dumping duties were imposed against Chinese product (and product from a number of other Asian countries) as a result of the complaint.
The investigation on the second product, men's business shirts, was terminated by the New Zealand applicant company.
Intellectual Property
Both New Zealand and Hong Kong are party to the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), a WTO agreement which applies to copyright and related rights as well as trademarks, industrial designs, patents, layout design of integrated circuits and protection of trade secrets. The TRIPS Agreement also requires parties to adopt border enforcement measures against counterfeit trademark goods and pirated copyright merchandise.
As a signatory to the TRIPS Agreement, Hong Kong has, over recent years, implemented robust control measures to stem the production and sale of counterfeit and pirated goods within the territory, and to this end has been noticeably successful to the extent of attracting favourable comment from both the USA and the EU on its control measures and domestic success in cracking down on illegal activities.
Nevertheless, the New Zealand Customs Service continues to intercept merchandise, sometimes in significant quantities, which breaches the provision of the TRIPS Agreement. A high percentage of this merchandise, manufactured in China, is invoiced out of, or transshipped through, Hong Kong.
There is currently little difference between the tariffs applied to goods ex-Hong Kong and to goods ex-China. Even if goods are falsely labelled, tariff revenue is unaffected. However, in the event that a CEP was concluded and tariffs eliminated on goods of Hong Kong origin, an issue to be addressed is whether measures of enforcement additional to those currently in place would be required.
We are interested in receiving information from importers and exporters on specific technical or sanitary/phytosanitary measures affecting or impeding trade with Hong Kong, particularly in relation to standards and conformance issues and information on any intellectual property issue of concern to New Zealand businesses.
