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The most clear cut benefits to New Zealand from
this Agreement stem from the removal over time
of all tariff and quota restrictions on New Zealand
exports to Thailand. As Thailand currently applies
some of the highest trade barriers in the South
East Asian region, some of which have the effect
of impeding any New Zealand exports to Thailand,
this represents a significant outcome for New
Zealand.
As a result of tariff preferences under the
CEP, New Zealand goods will be more competitive
in the Thai market vis-à-vis Thai domestic
production and imports from third countries.
New Zealand companies will have the opportunity
to increase their exports to Thailand and/or
secure better returns from the market.
As the proportion of exports entering Thailand
duty free is estimated to rise from just four percent
to 52 percent[6] as soon as the Agreement is implemented,
the CEP will deliver some major upfront benefits
including:
immediate elimination of the 5 percent
tariff on infant milk food. This
was New Zealand’s
single biggest export item to Thailand
in 2003, worth NZ$61 million.
opening up new opportunities for horticulture
exports, including avocadoes (currently impeded
by a 40 percent tariff), cherries (exports of which
have doubled each year in recent years despite
the 40 percent tariff imposed), persimmons (for
which Thailand is a $700,000 plus market despite
the 40 percent tariff) and kiwifruit (for which
tariffs may be levied on a per kilo basis equivalent
to 52 percent)
significantly enhancing the competitiveness
of New Zealand manufactured goods
in the Thai market. Tariffs will be eliminated
immediately on 72 percent of New Zealand’s
current $50 million manufactured goods
trade with Thailand. Of particular
interest are the immediate elimination
of the 15 percent tariff on gas pumps,
the 5-10 percent tariffs on plastic
moulding equipment, and the 15 percent
tariff on radio parts.
creating new opportunities in manufacturing sectors
where Thai tariffs are currently impeding any exports.
For example, removing the 30 percent tariff on
plastic components for motor vehicles will open
the way for New Zealand companies to tap into supplying
Thailand's substantial automotive industry.
In areas where Thailand’s tariffs will
be phased out rather than eliminated immediately,
the certainty of reaching free trade on a scheduled
date is valuable to New Zealand exporters in
terms of forward business planning, as are the
cumulative benefits of progressively reducing
tariffs. Some of the key benefits are:
the phasing out of the 18 percent tariff
on whole milk powder, New Zealand’s
second biggest export to Thailand, could
result in total duty savings between 2005
and 2015 of NZ$51 million based on current
trade.
for the 28 percent of manufactured exports which
will not become duty free immediately, New Zealand
exporters can plan on duty free access for virtually
all these products by 2010.
The CEP will help to establish a level playing
field where New Zealand exporters compete directly
with suppliers from other countries with which
Thailand has free trade agreements:
from 1 July 2005, for virtually all items where
New Zealand and Australia are both active in the
Thai market, New Zealand exporters will have at
least equivalent access.
parity with Australia will be maintained as the
second tranche of tariff reductions between New
Zealand and Thailand will occur on 1 January 2006,
putting Thai tariff cuts for New Zealand on the
same cycle as those for Australia under the Thailand/Australia
FTA.
New Zealand fruit and vegetable suppliers will
regain parity in tariff treatment with Chinese
competitors from 1 July 2005.
in particular, the removal of the 40 percent tariff
on carrots will provide the opportunity for New
Zealand exporters to regain the $2.5 million market
lost to China since Thailand removed tariffs on
all fruit and vegetable imports from China in October
2003.
More information on the market access outcomes is provided in section 5.1 and in Annex 1 which contains a summary of outcomes released publicly in New Zealand following the announcement of the conclusion of negotiations on 30 November 2004.
Thailand will take some steps under the CEP towards easing and clarifying the conditions under which New Zealand business people enter and operate in Thailand. These are similar to the commitments made to Australia in respect of work permits and visas. They cover short-term business visitors, intra-corporate transferees and investors.
New Zealand and Thailand are committed to entering into negotiations on the liberalisation of trade in services within three years. This will provide an opportunity to negotiate a services component to the CEP with wider coverage than Thailand is currently in a position to provide.
The CEP provides for additional protections against arbitrary treatment for New Zealand investments, including appropriate protection against expropriation unless internationally accepted criteria are met.
Thailand is committed to maintaining the right to 100 percent New Zealand ownership and control of investments in a number of manufacturing sectors in Thailand.
In addition to the letter of the provisions on investment, the CEP has the potential to make New Zealand and Thai business people more alert to the mutually beneficial opportunities for pooling the strengths of each country through investment, joint ventures and collaboration in third markets.
More information on outcomes in these areas is contained in Annex 1.
The rules of origin (ROO) under this agreement will ensure that the CEP tariff preferences apply to all key New Zealand export products.
Robust verification procedures will ensure the integrity of the rules and minimise opportunities for other countries to obtain unintended benefits in the New Zealand market.
The rules are based on a ‘change-of-tariff-classification’ (CTC) approach to determine whether a good has been ‘substantially transformed’ in Thailand or New Zealand and should therefore qualify for tariff preference. This is a new model for New Zealand, and is consistent with the international mainstream. New Zealand and Australia are discussing a move to CTC under a revised CER Agreement. In addition, CTC is the basis for the Pacific Three CEP negotiations among New Zealand, Chile and Singapore. (See section 4.3 for an explanation of the CTC approach.)
Until now, New Zealand’s preferential arrangements
have been based on an economic test of Regional
Value Content (RVC) measuring the percentage of
local content in the exported product. However,
CTC is the most common model internationally because,
in comparison with RVC, it is:
simpler and cheaper for business to apply
easier for government to administer
inherently more predictable and consistent in terms of origin outcomes (‘once qualify, always qualify’), and thereby permits effective forward planning
economically efficient in that it allows exporting manufacturers to buy inputs from the cheapest international sources
especially advantageous for small and medium enterprises
because there is less need to maintain costly records
systems.
While CTC forms the basis for the rules of origin for all products, supplementary RVC rules apply to textiles, clothing, carpets and footwear. The value-added test will provide additional assurance that substantial transformation has been achieved in the sensitive textiles, clothing, carpets and footwear sector. The RVC measure for these goods is 50 percent of the FOB price.[7]
‘Minimal operations or processes’ are disallowed.
New Zealand has retained, without compromise,
the ability to take WTO-consistent trade remedy
actions against unfairly traded imports which are
dumped or subsidised and injure New Zealand producers.
Bilateral transitional safeguard provisions provide an additional safety net for any New Zealand industries that might be seriously affected by tariff reductions under the CEP. These provisions are reciprocal. New Zealand ensured in the negotiations that reasonable disciplines are placed on both countries’ use of bilateral safeguard provisions in order not to undermine the overall benefits of the CEP.
The cost of complying with technical regulations
can constitute as significant a barrier to
trade in goods as tariffs. Without formal arrangements,
it is difficult to engage with other countries
at the technical levels that will produce tangible
solutions to adverse impacts of technical regulations
and standards and conformance requirements
on trade flows.
The CEP establishes mechanisms, such as regular
meetings and working groups on specific issues,
for regulators, other officials and technical experts
to work together more effectively to address barriers
to trade in the areas of standards and conformance,
sanitary and phytosanitary issues, customs procedures
and e-commerce. Along with provisions for greater
transparency, cooperation and information sharing
on non-tariff measures, these mechanisms are designed
to facilitate trade and reduce transaction costs
for people doing business between the two countries.
The intellectual property provisions support more
certainty over the provision and enforcement of
intellectual property rights. For example, relevant
agencies may establish contact points for enforcement
of intellectual property rights and exchange information
on infringements. The intellectual property provisions
recognise that intellectual property rights are
important in supporting economic activity and development,
in reducing distortions and impediments to legitimate
trade, and in supporting the transfer and dissemination
of knowledge and technology.
The competition provisions provide a framework
that promotes adherence to competition principles.
This will help inform the conduct of New Zealand
and Thailand in achieving effective implementation
of the CEP in areas such as government procurement,
services, investment and intellectual property.
The provisions also recognise the need to create
and maintain open and competitive markets for the
benefit of businesses and consumers from the two
countries. This framework will support future policy
dialogue between Thailand and New Zealand through
the promotion of cooperation in the field of competition
policy, and in particular between competition enforcement
agencies.
The CEP with Thailand is expected to act as a
springboard for the ongoing development of the
bilateral trade and economic relationship. In addition
to the specific commitments on future negotiations
on services and government procurement, the annual
meetings of the Joint CEP Commission and five yearly
reviews will provide opportunities for both sides
to build on the initial commitments and use the
CEP framework to drive other mutually beneficial
initiatives.
The above provisions, alongside the general transparency obligations included in the CEP, may collectively contribute to modest dynamic productivity gains in the New Zealand economy (see further commentary in section 5.1).
The CEP maintains and reinforces existing rights
and obligations under the WTO Agreement in relevant
areas. At the same time it provides for bilateral
mechanisms to enhance cooperation, improve understanding
of each other’s regimes and address issues
affecting trade between the two countries within
WTO frameworks (for example, in the areas of Technical
Barriers to Trade (TBT), Sanitary and Phytosanitary
Measures (SPS) and intellectual property rights
(IPR)).
The CEP recognises the government’s right
to regulate for national policy objectives.
New Zealand and Thailand have negotiated bilateral
Arrangements on Labour and Environment in parallel
with the CEP Agreement. These Arrangements reflect
the New Zealand Government’s Frameworks for
Integrating Labour and Environment Standards in
Trade Agreements.[8] They include a political commitment
not to weaken or derogate from labour or environment
laws or standards to gain an unfair trade advantage,
or use them for protectionist purposes. Mechanisms
are established for ongoing cooperation and dialogue,
and for addressing any issues that may arise in
these fields. Both Arrangements provide opportunities
for public input.
The CEP reflects New Zealand’s objectives in connection with the Treaty of Waitangi (the same exception clause as in the New Zealand/Singapore CEP is included); the creative arts (an exception for measures relating to creative arts of national value is included); and traditional knowledge (the right of a country to take appropriate measures to protect traditional knowledge is recognised).
The CEP will boost New Zealand’s relationship
with Thailand, a key player and increasingly important
regional hub in the South East Asia region.
Having a bilateral Agreement in place with Thailand
as well as Singapore will strengthen New Zealand’s
position as we enter into free trade negotiations
with ASEAN and Australia. The New Zealand/Thailand
CEP will serve as a building block towards this
broader agreement. The understandings built up
between New Zealand and Thailand should be useful
in developing strategies for the wider agreement.
The precedent of comprehensive coverage of goods
will provide a solid foundation for pursuit of
New Zealand’s objectives in these negotiations.
The Agreement helps maintain momentum towards multilateral trade liberalisation through the WTO. The strong stand New Zealand and Thailand have taken on the elimination of export subsidies on agricultural goods and the end point of full free trade, including on ‘sensitive products’, are significant features in this respect.
Any trade agreement involving reciprocal tariff removal can create adjustment effects for import-competing sectors deriving from increased exposure to foreign suppliers at the same time as export-focused sectors secure improved access to offshore markets. Is there reason to believe that, with this particular agreement, the adjustment pressures are likely to be significant?
The assessment is that any such adjustment effects arising from the CEP with Thailand are overall not likely to be significant. This reflects the following factors:
there is generally broad complementarity between our production bases.
65% of imports from Thailand entered New Zealand duty free in 2003, including Thailand’s principal exports (motor vehicles and computers).
phasing arrangements are in place for removing tariffs on the remaining dutiable imports from Thailand where there are New Zealand industry sensitivities.
the government’s tariff reduction programme scheduled for 2006-2009 means that the additional margin on most products is small.
WTO-based anti-dumping and countervailing duty measures will continue to be available to address any unfair trade from Thailand, and bilateral transitional safeguards will be available in the event of any otherwise unexpected surges of imports from Thailand which could seriously injure New Zealand producers.
The clothing, footwear and carpet sector, where the highest tariffs of 17-19 percent prevail, has traditionally been the most sensitive to tariff reductions. Concerns in relation to imports from Thailand were also raised in respect of whiteware, plasterboard, steel and certain textiles. Even for these more sensitive sectors, the effects are expected to be very muted as:
New Zealand’s higher tariffs on clothing, footwear and carpet and many textile products will be phased out over a ten year period and preference will apply only to goods in this sector that meet the rules of origin requiring 50 percent Thai/New Zealand content as well as a change of tariff classification.
in any event, Thailand accounts for a tiny proportion of textiles, clothing, footwear and carpet imports (around 1 percent).
adjustment assistance has been made available in the context of New Zealand’s unilateral tariff reductions to help the TCF sector build skills and global competitiveness.
for the lower tariff sensitive products such as whiteware, existing tariffs will effectively be maintained at current levels before being removed from 2010.
Given the restrictions which Thailand maintains on access to its services sector for foreign suppliers, it could be said that it is a “disadvantage” that the Agreement does not yet contain a services component. As with any negotiation, it takes two sides to reach agreement, and in this case it was apparent that concluding a services component was not feasible at this point. That said, there is a commitment to do so within three years and New Zealand has achieved certain gains in respect of access to Thailand for business visitors. The broader negotiation involved New Zealand meeting some specific Thai interests such as in the area of temporary employment for specialist Thai chefs and, potentially, traditional Thai massage therapists. The access for specialist Thai chefs to work temporarily in New Zealand subject to certain conditions is not however expected to displace New Zealand workers. Care will be taken to ensure the integrity of any system for temporary employment access ultimately offered for traditional Thai massage therapists.
New Zealand would have preferred to achieve more ambitious and/or timely outcomes in a number of other areas. Importantly, however, the Agreement contains built-in provisions for reviewing and expanding on the initial commitments in the future. Moreover, the outcomes achieved with Thailand will not prevent New Zealand pursuing more far-reaching mutually beneficial outcomes with other willing trading partners.
While rapid multilateral liberalisation remains New Zealand’s ideal approach, parallel multilateral, regional and bilateral trade liberalisation initiatives serve New Zealand’s interests in the current environment. The CEP with Thailand is expected to deliver faster benefits than those in prospect through the WTO without undermining either country’s commitment to pursuing the wider gains available through the WTO. The Agreement meets a benchmark achieved by very few bilateral trade agreements in covering trade in all goods. Comprehensive agreements of this kind fully comply with WTO requirements relating to goods commitments in regional trade agreements and can serve as building blocks towards liberalisation in the WTO. Both countries are committed to future negotiations on a services component to the CEP which complies with WTO requirements. Moreover, the proliferation of FTAs is a fact. Australia and China have negotiated agreements with Thailand and more are in the pipeline. To stand aside from securing at least parity with these competing agreements is effectively to put our exporters at a manifest disadvantage.
[6] Analysis of the impact of the CEP on NZ exports to Thailand in this section and section 5.1 is based on 2003 Thai import statistics sourced from the World Trade Atlas.
[7] FOB means 'free on board' (ie the stage at which the goods pass the ship’s rail), and is the price payable by the purchaser at the point of export. Unlike New Zealand’s existing trade agreements that use the added value, ex-factory cost method for determining RVC, the FOB 'build-down' method allows for the inclusion of manufacturer’s profit and transport from the point of manufacture to the ship’s rail. It is a simpler model for both business and Customs, because the FOB price is, in most instances, also the customs value for duty. To determine the RVC, the value of non-originating materials is simply deducted from the FOB price.
[8] Framework for Integrating Labour Standards and Trade Agreements
Framework for Integrating Environment Standards and Trade Agreements
