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There are two key reasons for New Zealand to enter into a CEP Agreement with Thailand:
These reasons are expanded upon below.
A fundamental objective of New Zealand’s trade policy is to expand the opportunities available to New Zealand exporters by removing barriers to trade and establishing sound frameworks under which trade and investment linkages can flourish. Concluding bilateral agreements with key trading partners to remove barriers to trade on a reciprocal basis is one of the avenues for achieving this objective, thereby contributing to the government’s goal of sustainable growth as set out in the Growth and Innovation Framework (GIF), in particular its International Connectedness dimension.[1]
New Zealand and Thailand are complementary economies. Thailand exports predominantly manufactured goods to New Zealand while our exports to Thailand are largely agriculture-based goods and some niche manufactured items. As one of the fastest growing economies in our region and a pivotal regional business hub, Thailand is already a valuable economic partner for New Zealand, with two-way merchandise trade exceeding NZ$1 billion in 2004[2]. New Zealand’s $362 million[3] share of this trade has developed despite Thailand maintaining some of the highest trade barriers in the South East Asian region[4], suggesting that the trading relationship holds considerably greater potential.
Virtually all New Zealand exports to Thailand are subject to tariffs. While tariffs are in the one to five percent range for a number of export items, for others Thailand maintains very high tariffs (for example, 30-40 percent on most fruit and vegetables and 30 percent on many manufactured items, rising to 50 percent on beef and 60 percent on wine). Thailand also applies tariff rate quotas on a number of agricultural products (for example, for skim milk powder imports above a certain quantity, the tariff climbs to a trade-prohibitive 216 percent). In 2003 an estimated NZ$33 million in duty payments was levied on New Zealand exports at an average rate of nine percent.
The CEP agreement will remove all these barriers over time and deliver substantial opening of the Thai market as soon as it comes into effect.[5] Significant opportunities for New Zealand will open up as a result. Exporters already active in the Thai market will have the opportunity to expand trade and market share. Other businesses, possibly already successfully exporting to other markets in the region, may now have the opportunity to establish themselves in the Thai market.
Without this Agreement, New Zealand would inevitably be progressively disadvantaged in the Thai market as:
Concluding our own CEP with Thailand will thus help maintain a level playing field for New Zealand exporters in the Thai market.
Beyond market access for goods, the Agreement takes some initial steps towards improving and securing operating conditions for New Zealand business people and investors in the currently restricted Thai market. Negotiations on formal services commitments are scheduled to commence within three years of the CEP entering into force. The CEP also contains a range of measures designed to improve the regulatory environment for New Zealand/Thai trade and support the ongoing development of the trade and economic relationship with Thailand through cooperation, information-sharing and addressing non-tariff barriers.
Entering into a Closer Economic Partnership with Thailand should also raise the profile of each country in the other, promoting links and opportunities which do not derive from the letter of the Agreement itself.
Collectively, the elements of the Agreement outlined above can be expected to make a modest but positive contribution to New Zealand’s economic growth prospects over time. This flows from static gains generated by reciprocal tariff and non-tariff barrier removal and dynamic productivity gains derived principally from improvements over time in the regulatory framework governing the Thai/New Zealand trade and economic relationship. The impact on New Zealand producers of phasing out New Zealand’s low tariffs on imports from Thailand is expected to be very limited.
As well as offering direct economic benefits, the CEP advances a number of New Zealand’s strategic interests.
It will put New Zealand's relationship with Thailand, a key South East Asian country, onto a new, forward-looking footing. Mechanisms for bilateral cooperation and relationship building within the CEP itself will raise the level of engagement between New Zealand and Thailand in keeping with the government's objectives in Asia.
Moreover, the CEP will serve as a springboard for developing aspects of New Zealand/Thai relations beyond the economic domain. It has provided impetus to the conclusion of a Working Holiday Scheme with Thailand and to wider ministerial engagement and officials' exchanges. It will create a platform for greater cooperation, as agreed between the New Zealand and Thai Prime Ministers in 2004, in areas such as tourism, education, cultural links, and scientific exchange.
At the same time, the CEP will strengthen New Zealand's links with the South East Asian region which is particularly important as we enter into free trade negotiations with the Association of South East Asian Nations (ASEAN) and Australia. The New Zealand/Thailand CEP, together with New Zealand's existing CEP with Singapore and a possible FTA negotiation with Malaysia, will serve as a significant building block towards this broader agreement.
Entering into a comprehensive CEP with Thailand will also contribute to New Zealand’s wider trade policy objectives. While a number of countries have negotiated bilateral trade agreements which exclude sensitive products, this CEP covers all goods. Like other comprehensive agreements, it maintains momentum towards our wider goal of multilateral trade liberalisation. While trade liberalisation through the World Trade organisation (WTO) remains New Zealand’s primary trade policy objective, the bilateral CEP with Thailand will bring forward some of the gains without impeding New Zealand’s overall interests.
[1] Ministry of Foreign Affairs and Trade Statement of Intent 2004/05 intermediate outcome II, ‘New Zealand’s international connections facilitate sustainable economic growth through increased international trade, foreign investment and knowledge transfer’, notes that foreign trade, investment and technology transfer are critical to a durable economic growth path which will deliver to New Zealanders the standard of living and quality of life to which they aspire.
[2] Source: Statistics New Zealand. Excludes re-exports.
[3] Source: Statistics New Zealand. Excludes re-exports.
[4] Only Viet Nam and Cambodia among the ASEAN countries impose higher average tariffs on New Zealand exports.
[5] Tariff liberalisation will take place on a reciprocal basis. In comparison with the barriers New Zealand exports face in Thailand, Thai imports into New Zealand face relatively low barriers. The average applied tariff rate in 2003 was just 1.5 percent. New Zealand tariff liberalisation under the CEP is addressed in sections 5.1.3.3 and 5.1.3.5.
