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The Thailand/New Zealand CEP is likely to have a small but positive impact on the New Zealand economy. The economic impacts of this Agreement are assessed in sections 5.1.3 and 5.1.4 under a framework explained in section 5.1.2 below.
Trade is an important factor in driving our national economic performance. Changes in trade can impact on the economy, for example by affecting levels of prices, income or employment. Trade also affects macroeconomic performance in terms of the dynamics of the economy’s growth, stability and distribution. Extensive economic research has demonstrated that trade and growth are positively related and an economy’s openness to trade has been linked to the explanation of differences in the economic growth rate of countries.
The direct impact of trade liberalisation on economic growth may be described as the ‘static' effects. These include the static gains derived from:
Where improved market access under trade agreements enables exporters to achieve net increases in the value of their exports, this may translate directly into higher Gross Domestic Product (GDP), job growth and income. Moreover, the opportunity for local companies to increase market size through greater exports can increase productivity and efficiency through economies of scale. This may be achieved, for example, by the introduction of new processing technologies to service the larger market.
Output and productivity levels rise when resources shift to the more efficient sectors of the economy as tariffs reduce. In a previously tariff-protected sector, imports will be cheaper and can be expected to expand their share of the market. Domestically-focused firms with higher cost structures shielded by tariff protection will respond by either increasing their efficiency, reducing output sufficiently to reduce their costs or shifting resources into more competitive production. Over time, these processes will lead to greater specialisation and increase comparative advantage. These effects are primarily driven through simple tariff removal, suggesting that countries which liberalise the most are likely over time to benefit the most.
The extent to which domestic prices change as a consequence of Free Trade Agreements (FTAs) depends on the size of the distortions being removed. It is also dependent on the degree of competition already prevailing in the domestic market. In general, lower tariffs will result in lower domestic prices. Consumers gain access to cheaper and more varied finished goods. Producers gain access to cheaper intermediate goods, thus making their finished products more competitive in the domestic and export markets.
When an economy liberalises under preferential trade agreements, the gains may be reduced or even reversed due to the phenomenon of trade diversion. This describes situations where imports are sourced from FTA partners due to the margin of preference they enjoy over more efficient producers. Where the FTA partners are already internationally competitive suppliers, however, the risk of trade diversion and thus welfare reduction is lower.
The quantitative impact on New Zealand exporters to Thailand of changes to the Thai tariff regime and the impact on New Zealand domestic sectors of changes to the New Zealand tariff regime are considered in section 5.1.3.
An increase in openness to trade helps spur productivity increases and growth within a country through more efficient allocation of resources, the stimulation of innovation, and the transfer of knowledge and technology between countries. Productivity increases derived from the more efficient allocation of resources following tariff removal (’allocative efficiency gains’) are considered to be static gains and were described in section 5.1.2.1.
The other source of productivity growth flowing from trade agreements is ‘dynamic productivity gains’. These effects are harder to quantify. They accumulate over time and may be attributable to the downstream effects of trade agreements, rather than the immediate impacts driven by tariff removal and improvements in market access alone. They are known as ‘second-order’ effects. How they are generated is outlined in the paragraph below.
Trade and investment may be stimulated both through the market access liberalisation provisions of FTAs and improvements in the regulatory framework brought about by FTAs which increase transparency, fairness and predictability for businesses. As a result of the facilitation of increased trade and investment flows, companies are more exposed to competition and international benchmarking and develop stronger links with international business partners. Such exposure helps maintain New Zealand companies at the leading edge in terms of best practice across a range of issues (innovation, technology, knowledge, research and product/service development etc). Spillovers from this process into the domestic economy can include the generation of ongoing productivity improvements (dynamic productivity gains) across the wider economy.
The second-order effects relating to the regulatory frameworks for bilateral trading relationships under FTAs are of particular relevance. These gains in the case of the New Zealand/Thailand CEP are assessed in section 5.1.4.
FTAs impact on the macroeconomic indicators that measure the growth and trade flows of our economy.
Economic theory suggests that the most relevant measure of the quantifiable impact of FTAs on the New Zealand economy as a whole is through the change in ‘welfare’ (that is, the value to New Zealand consumers of an FTA in terms of enhanced income). The preferred welfare indicator is ‘real consumption’ - the aggregated quantity of goods and services that the household can consume given current and future income flows. Changes in real GDP reflect only changes in the overall level of economic activity and not changes in net national income or welfare. The impact on both consumption and GDP can be estimated through economic modelling.
In broad terms, the magnitude of the macroeconomic effect of FTAs will be determined by the following factors:
When applied to the New Zealand/Thailand CEP, the framework for assessing the economic effects of FTAs outlined in section 5.1.2 suggests that the CEP will make a modest but positive contribution to New Zealand’s economic growth prospects over time.
The section below applies the first three factors outlined in section 5.1.2.3 to New Zealand and Thailand and explains why the overall impact of the CEP on the New Zealand economy is expected to be limited in terms of magnitude.
Contribution of trade to the New Zealand economy
Exports and imports clearly make an important contribution to the New Zealand economy. Exports of goods and services account for 32 percent of GDP and imports of goods and services for 33 percent of GDP.
Size of barriers addressed in New Zealand/Thailand CEP
As illustrated in Figure 1 below, Thailand maintains high trade barriers, the impact of which falls particularly heavily on New Zealand’s primary product exports:
Figure 1: Thailand's simple average applied Most Favoured Nation tariff rates
Note: Excluding in-quota rates. Including Ad Valorem Equivalents provided by the authorities for specific rates, as available. The ad valorem part of alternate rates are taken into account for the calculations. The 1999 tariff is based on HS96 and the 2003 tariff on HS02 nomenclature.
Source: Trade Policy Review of Thailand 2003, WTO Secretariat calculations, based on data provided by the Thai authorities.
Ninety six percent of New Zealand’s current exports to Thailand attract tariffs averaging 9 percent but rising to peaks of 60 percent on some products.
On the other hand, New Zealand already provides duty free access for 65 percent of imports from Thailand and New Zealand’s tariffs are low in global terms as shown in Figure 2:
Figure 2: New Zealand’s average applied tariff rates (trade weighted)
Source: New Zealand Customs [11]
While there will be important upfront elimination of tariffs on both sides, the higher tariffs will be phased out gradually. New Zealand’s tariffs on textiles, clothing, footwear and carpets (TCFC) will phase out over a ten-year period and Thailand’s tariffs and other restrictions on sensitive products such as milk powders and beef will phase out over fifteen to twenty year periods.
Relative significance of New Zealand/Thailand bilateral trade
Thailand is a rapidly growing and increasingly affluent economy but it currently ranks:
The pattern of trade between New Zealand and Thailand since 1990 is set out in Figure 3:
Figure 3: Thailand – New Zealand Historical Trade
Source: Statistics New Zealand
More detailed data on the composition of bilateral trade is set out in the two tables below:
Table 1: Thailand’s Top Ten Exports To New Zealand (2003, US$ Millions)
| Product | Export Value | % of Total | Import Market Share |
| Total Exports | 334.8 | 1.8% | |
| Vehicles and Automotive Parts | 84.3 | 25% | 3% |
| Machinery (incl. computers) | 42.7 | 13% | 2% |
| Electrical Machinery | 26.3 | 8% | 2% |
| Plastics | 25.8 | 8% | 4% |
| Canned and Processed Seafood | 12.2 | 4% | 29% |
| Glass and Glassware | 11.9 | 4% | 9% |
| Fish and Seafood | 9.8 | 3% | 36% |
| Furniture and Bedding | 9.4 | 3% | 4% |
| Rubber | 8.4 | 3% | 4% |
| Iron and Steel | 7.9 | 2% | 3% |
Source: World Trade Atlas, NZ Import Data
Table 2: New Zealand’s Top Ten Exports To Thailand (2003, US$ Millions)
| Product | Export Value | % of Total | Import Market Share |
| Total Exports | 211.2 | 0.28% | |
| Dairy | 87.6 | 41% | 32% |
| Instant Milk Food Formula | 34.9 | 17% | 21% |
| Wood | 16.3 | 8% | 3% |
| Seafood | 9.6 | 5% | 1% |
| Woodpulp | 5.9 | 3% | 2% |
| Wool | 5.7 | 3% | 4% |
| Electrical Machinery | 5.6 | 3% | 0% |
| Furskins | 4.1 | 2% | 73% |
| Plastics | 3.7 | 2% | 0% |
| Leather, Skins | 3.5 | 2% | 1% |
Source: World Trade Atlas, Thai Import Data
It can be seen from the above factors, in particular the relatively small place of Thailand in New Zealand’s trading profile, that modelling the impact of the CEP with Thailand on the New Zealand economy is unlikely to produce significant overall results relative to the size of the New Zealand economy. In light of this, the Joint Study conducted with Thailand prior to the commencement of negotiations did not include modelling of the kind conducted eg for the China FTA feasibility study.
Even in the absence of modelling, however, it is possible on the basis of the framework outlined in section 5.1.2 above to conclude that modest static gains will flow from reciprocal market access liberalisation under the CEP. As New Zealand and Thailand are both internationally competitive suppliers across most bilaterally traded goods, these gains should not be undermined by trade diversion effects.
The benefits from improved access to the Thai market for New Zealand exporters could take the form of expanded trade volumes (of both current and new export items), increased returns from existing exports, or a combination of the two. And for those products where Thailand’s other FTAs provide preferential access to New Zealand’s competitors in the Thai market, the CEP will at least help maintain a level playing field. Any expansion of export opportunities would nevertheless be from a small base. Thus it is expected that the impact in the short term on overall employment, production or prices in the New Zealand economy will be relatively small.
Below the macroeconomic level, the CEP can be expected to appreciably improve prospects for those sectors and companies for whom the Thai market is significant. More information on the potential impact on different sectors is provided in section 5.1.3.3 below. The sectors with the greatest potential are likely to be dairy, horticulture/processed food and beverage products, and manufactured goods.
Government agencies are developing a whole-of-government strategy in conjunction with private sector stakeholders to ensure that New Zealand derives as much benefit as possible from the CEP. The focus will be not only on exploiting immediate market access openings but more strategically targeting areas showing the greatest potential for growing New Zealand’s exports of both good and services in the next five to ten years. The overall outcome is intended to be strengthened economic ties with Thailand which contribute to New Zealand’s skills, innovation, and technology goals. An initial awareness-raising programme dedicated to the Thailand CEP will be conducted nation-wide including through regional seminars for business. Offshore activities in Thailand will complement those being planned in New Zealand. Additional resources have been allocated under the Government’s Growth and Innovation Framework to facilitate the design and implementation of the Thailand strategy and to leverage the opportunities to the maximum from the CEP.
It is important to note however that exactly how opportunities opened up by the CEP in the Thai market translate into gains will be affected by a number of factors unrelated to the CEP. These include the level of demand in the Thai market (in turn affected by the state of the Thai economy and evolution in consumer tastes); exchange rates; future developments in Thailand’s unilateral and bilateral tariff reductions; and New Zealand’s capacity to supply (in turn affected by demand and prices in other markets, climatic influences on agricultural production etc).
In terms of the impacts of domestic tariff liberalisation under the CEP, a muted impact on domestic prices, resource allocation and efficiency can be anticipated, for the same reasons. By the same token, the phased nature of New Zealand’s higher tariff reductions means the adjustment process for relevant sectors will be very gradual. Further commentary on the sectors most affected by New Zealand tariff reductions is included in section 5.1.3.5.
As background to the material in section 5.1.3.4 on the sectors where the main impact of tariff liberalisation under the CEP is likely to be seen, the following section provides an overview of the market access outcomes.
The New Zealand/Thailand CEP will result in the complete removal of tariff and other barriers on bilateral trade over time. The first round of tariff cuts is to take place on implementation of the CEP, scheduled for 1 July 2005, and the second round on 1 January 2006, with subsequent reductions being applied on 1 January each year. This will mean that Thai tariff cuts for New Zealand are on the same cycle as those undertaken by Thailand for Australia from 2006. Provision is included in the CEP for negotiations to be held on acceleration of tariff reductions.
Phase-out arrangements for Thai tariffs and quotas
On entry into force of the CEP on 1 July 2005, Thailand will eliminate tariffs and quotas on 52 percent[13] of imports from New Zealand. This is a significant increase from the 4 percent of imports from New Zealand currently receiving duty free access. By 2010, a further 13 percent of trade will be duty free. Remaining tariffs and tariff quotas will be removed by 2025.
Thailand will apply special safeguards for the most sensitive agricultural products (whole milk powder and a number of other dairy products, beef, beef offal and processed frozen potatoes). Imports of these products will benefit from reducing tariffs up to a certain volume based on historical imports, plus a growth factor. Once the volume of imports from New Zealand reaches this level, these safeguards automatically trigger a snapback to the normal tariff. The same provisions were included in Thailand’s Free Trade Agreement with Australia.
New Zealand exports to Thailand in 2003 attracted duty payments estimated at NZ$33m. Figure 4 below illustrates the estimated reduction in duty payments on exports to Thailand over the implementation period of the CEP. These estimates understate the likely benefits, however, as they are based on current trade. Increased exports in response to tariff reductions will generate additional duty savings on a cumulative basis.
Figure 4: Reducing duties on NZ exports to Thailand
(Projections based on 2003 exports)
Source: World Trade Atlas and MFAT Analysis
Phase-out arrangements for New Zealand tariffs
New Zealand currently provides duty free access for 65 percent[14] of imports from Thailand. On implementation of the CEP, New Zealand will eliminate tariffs on a further 20 percent of imports from Thailand. Further items will become duty free by 2010, at which point 97 percent of Thailand’s current exports to New Zealand will enter duty free. The remaining tariffs will be phased to zero by 2015. The issue of duty revenue forgone as a result of this tariff reduction is discussed in section 6.1.
The following more detailed information is designed to illustrate the impact of the CEP on a variety of export sectors across the New Zealand economy, selected principally in relation to the importance of the sector in terms of New Zealand’s trade with Thailand and the severity of the barriers currently faced in the Thai market. A more detailed summary of the market access outcomes is included in Annex 1: Key Outcomes.
Figure 5 below illustrates products which will benefit particularly from the immediate elimination of Thai tariffs on implementation of the agreement. Further commentary on these and other items is provided in the sectoral analysis that follows.
Figure 5: Savings from immediate elimination of Thai tariffs on selected products (Projections based on 2003 exports)
Source: World Trade Atlas and MFAT Analysis
Dairy: This sector accounts for 58 percent of New Zealand’s exports to Thailand, valued in total at NZ$215.4 million. Dairy is Thailand’s most sensitive sector and is subject to the longest phase-outs under the CEP (through to 2025 for skim milk powder and liquid milk and cream). The CEP nevertheless offers important long-term security for New Zealand dairy exports to Thailand by establishing a schedule leading to full liberalisation of dairy trade on the same footing as Australia. The Dairy Companies Association of New Zealand considers that this is a substantial agreement for the New Zealand dairy industry. It sees it as particularly important because it will re-establish a level playing field with Australia in the market not long after Australia’s free trade agreement with Thailand enters into force. Key gains to the dairy sector are expected to accrue through:
From implementation of the CEP, annual duty payments of over NZ$3 million on infant milk food, based on current trade, will no longer be levied. For whole milk powder, the CEP enables New Zealand exporters to maintain their competitiveness vis-a-vis Australian suppliers. A significant portion of New Zealand's whole milk powder exports to Thailand would have been at risk if New Zealand had not achieved a CEP with Thailand. Total duty savings over the period 2005-2015 on whole milk powder, again based on current trade, could amount to NZ$51 million (see Figure 6 below).
Figure 6: Reducing duties on NZ whole milk powder exports
(Projections based on 2003 exports)
Source: World Trade Atlas and MFAT analysis
Horticulture: Most New Zealand fruit and vegetable exports to Thailand face tariffs of 30 percent or 40 percent, with apples at 10 percent. A key outcome of the CEP negotiations for New Zealand is the immediate elimination of tariffs on most New Zealand horticulture exports to Thailand including sweet potatoes, carrots, frozen peas, frozen mixed vegetables, dried peas, avocadoes, apples, cherries, kiwifruit and persimmons.
The Horticulture Export Authority considers that “The dramatic reduction in tariffs should see exports to Thailand grow as prices to the consumer fall. Thailand has a population of 64 million and a dynamic economy, with a growing number of affluent people wanting good quality, safe food.” Elimination of these tariffs will produce duty savings of NZ$1.87 million on current trade of NZ$8.6 million (see Figure 5 above) and will in particular open up opportunities for exports of:
Importantly, the elimination of tariffs on fruit and vegetable exports will enable New Zealand exporters to retain competitiveness in the Thai market vis-à-vis Chinese suppliers who have had duty free access to Thailand since October 2003. For example:
New Zealand exports of sphagnum moss to Thailand’s orchid industry will benefit from an immediate tariff reduction from 30 percent to 12 percent, which will then phase to zero by 2010.
Processed food and beverages: The CEP opens up opportunities in a number of different areas in this sector including the following:
Figure 7: Reducing duties on exports of wine and other beverages
(Projections based on 2003 exports)
Source: World Trade Atlas and MFAT Analysis.
Manufactured goods: New Zealand exports of manufactured goods to Thailand face tariffs which generally range from 1 to 40 percent, and average 13 percent. While manufactured exports represent only 14 percent of current exports to Thailand (NZ$52.4 million in 2003), liberalisation under the CEP will overall open up opportunities for manufactured exports more rapidly than for primary products (see Figure 8 below).
Tariffs on 72 percent of current manufactured exports will be eliminated on implementation of the CEP. All tariffs currently at 30 percent which are not eliminated immediately will reduce to 20 percent on implementation. Virtually all Thailand’s tariffs on current and potential New Zealand manufactured exports will be removed by 2010 and all tariffs on manufactured goods will be gone by 2015.
Figure 8: Reducing duties on NZ exports of manufactured goods
(Projections based on 2003 exports)
Source: World Trade Atlas and MFAT Analysis.
Examples of Thai tariff cuts which will be of particular benefit to current New Zealand exporters include:
In addition, opportunities will be opened up in the following areas where New Zealand manufacturers advised that Thai tariffs are currently impeding any exports:
The graphs in Figures 9 and 10 below illustrate the duty savings on plastics and machinery/electrical equipment exports.
Figure 9: Reducing duties on plastics exports
(Projections based on 2003 exports)
Source: World Trade Atlas and MFAT analysis.
Figure 10: Reducing duties on machinery and electrical goods
(Projections based on 2003 exports)
Source: World Trade Atlas and MFAT analysis.
Certain sectors of the New Zealand economy will face moderately increased exposure to imports from Thailand following implementation of the CEP. Despite the difference in cost structures between New Zealand and Thailand, the extent of this increased competition will however be limited both by the broad complementarity between our production bases and the fact that 65 percent of imports from Thailand entered New Zealand duty free in 2003. This included Thailand’s principal exports, motor vehicles and computers (representing 33 percent of total imports from Thailand).
The major imports from Thailand which currently attract duty are as shown below.
Table 3: Major Dutiable Thai Imports
| Product | Imports from Thailand NZ$ 2003 | Thai share of NZ import market | Current duty rate (GSP[15] where applicable) | Tariff elimination endpoint |
| Air conditioners | 18,896,099 | 35% | 5.50% | 2005 |
| Furniture | 10,096,179 | 8% | 5.5% - 8% | 2010 |
| Refrigerators and freezers | 6,919,700 | 8% | 5.50% | 2010 |
| Jewellery | 6,495,830 | 11% | 5.50% | 2005/08 |
| Noodles and Pasta | 5,670,589 | 14% | 5% - 5.5% | 2005 |
| Haircare products | 5,240,530 | 7% | 5.50% | 2005/08 |
| Skincare Products | 4,520,058 | 4% | 5.50% | 2005 |
| Paper and paperboard | 3,783,954 | 58% | 6.5% - 7% | 2010 |
| Footwear (with leather upper) | 1,464,869 | 1% | 17.5% - 19% | 2015 |
Source: World Trade Atlas and MFAT analysis
The clothing, footwear and carpet sector, where the highest tariffs of 17‑19 percent prevail, has traditionally been the most sensitive to tariff reductions. Independent modelling work undertaken in 2002 to inform the Tariff Review process confirmed that the most significant effects of unilateral tariff liberalisation in terms of employment and output are likely to be felt in New Zealand’s clothing and footwear industries. At the same time, lowered protection in the textile, clothing and footwear (TCF) sector is expected to improve economy-wide efficiency, expand exports somewhat and provide benefits to consumers through lower prices.
Particular concerns in relation to imports from Thailand have also been raised in respect of whiteware, plasterboard, steel and certain textiles.
Similar, but smaller scale, effects might be expected from bilateral liberalisation under FTAs to those identified in the Tariff Review. However, in the case of the New Zealand/Thailand CEP, the actual effects are expected to be particularly muted. This reflects three key factors. First, Thailand accounts for a tiny proportion of New Zealand’s TCF imports (see Figure 11 below) and is dwarfed by imports from China and Australia. Second, New Zealand’s tariffs on TCF products will be phased out gradually (see Figure 12 below) and preference will apply only to goods that meet the rules of origin requiring 50 percent Thai content as well as a change of tariff classification. For the lower tariff sensitive products such as whiteware, existing tariffs will effectively be maintained at current levels before being removed from 2010. Third, New Zealand’s tariffs on imports from all countries will in any case be reducing over the period 2006-2009 as a result of the Tariff Review.
Figure 11: NZ Textile, Clothing And Footwear Imports By Source In 2003
Source: World Trade Atlas and MFAT Analysis
Figure 12: Reduction In NZ Tariffs On Textile, Clothing And Footwear Imports From Thailand
Source: NZ Tariff schedule for Thai CEP
Any expansion of imports from Thailand is, if anything, more likely to displace imports from other sources. Thus, while the CEP may result in a modest increase in New Zealand TCF imports from Thailand, the increase in global TCF imports is likely to be negligible and the impact on New Zealand production and employment is not expected to be significant.
In addition government financial support for the TCF sector will lessen the impact of increased import competition as a result of unilateral tariff reduction and of current and potential free trade agreements. In the 2004 Budget the government provided funding of $2.3 million for initiatives to build skills and assist in the transformation of the textile, clothing, footwear and carpet industries to a globally competitive and high value production sector. In February 2005 the government provided a further $1.125 million to help the sector maintain its research and development capability and reinforce its efforts to achieve transformation.
In the context of the CEP with Thailand, the second-order effects of specific interest are those relating to the regulatory frameworks governing the New Zealand-Thailand trading relationship. As outlined in section 5.1.2.2, increased trade and investment flows facilitated by regulatory improvements under trade agreements can help generate wider dynamic productivity gains throughout the national economy.
This section identifies those aspects of the CEP which might help produce second-order benefits from the Agreement. These relate to the provisions outlined in sections three and four, in particular: customs procedures; technical barriers to trade; sanitary and phytosanitary measures; electronic commerce; government procurement; intellectual property rights (IPR); competition policy; investment; and consultation and dispute settlement procedures. The drivers in these provisions for improving the regulatory framework governing trade between New Zealand and Thailand include:
Collectively, these provisions should over time significantly enhance the predictability and transparency of the New Zealand/Thailand trading relationship. Taken together with the market access improvements related to reductions of tariffs and non-tariff barriers noted in the static effects section, these are expected to help generate the second-order effects related to dynamic productivity.
Although it is not possible to quantify the precise economic effects of these provisions, it can be assumed that New Zealand companies are more likely to benefit than lose from the application of improvements to the regulatory framework governing the trade and economic relationship with Thailand. In this context, modest dynamic productivity gains are expected to accrue to the New Zealand economy. That said, it is important to emphasise that, given the relatively limited significance of the Thai market for New Zealand compared with other international markets, the overall impact of the CEP is likely to be small and distributed over a period of time.
The CEP is not expected to have any discernible negative social effects in New Zealand. This section examines potential effects on domestic employment, domestic social regulation, and immigration.
A CEP of the kind negotiated with Thailand could in principle have an impact on the domestic labour market. At the same time as some sectors benefit from improved export market access, phasing out of New Zealand tariffs can lead to imports displacing domestic production in some sectors Similarly, employment can be affected by changes in inward or outward investment decisions. And measures which provide better access for temporary employment can likewise have an impact on employment in New Zealand.
In the case of the New Zealand/Thailand CEP, it is not expected that tariff reduction/removal on imports from Thailand will have a direct impact on employment for the reasons outlined in section 5.1 on economic effects. Given that New Zealand exporters will have access to relatively much more significant market opening in Thailand than vice versa, it could be expected that any net employment effects from the CEP would be positive rather than negative. In terms of investment, the CEP is unlikely to have any significant direct impact on employment but any effects can be expected to be positive rather than negative. Tariff liberalisation under the CEP reduces any direct incentive for New Zealand firms to re-locate to Thailand to avoid tariff barriers. On the other hand the CEP should create an environment propitious to two-way investment which will serve both countries’ interests in regional and global markets. Adding Thailand to New Zealand’s regional FTA relationships may also somewhat enhance New Zealand’s attractiveness as a destination for foreign direct investment (FDI).
The access granted for specialist Thai chefs to work in New Zealand without labour market testing under the Exchange of Letters on temporary employment is not expected to displace New Zealand workers. Demand for the specialised skills of Thai chefs has already resulted in significant numbers of work permits being granted under existing policy. In order to gain access under the CEP provisions, Thai chefs will need to comply with the qualification and work experience requirements, and to have a firm job offer which does not undercut New Zealand workers’ conditions. New Zealand’s willingness to consider similar temporary employment provisions for traditional Thai massage therapists will depend on the feasibility of developing a system for recognising their qualifications and ensuring the integrity of any system for temporary employment access ultimately offered.
New Zealand’s social legislative and regulatory frameworks will not be affected by the CEP. The government’s right to regulate for national policy objectives (ie including labour protection) is explicitly recognised. Moreover the Arrangement on Labour, negotiated with Thailand in parallel with the CEP, reaffirms New Zealand’s commitment to maintaining sound labour policies and practices. This Arrangement contains strong political commitments to:
In line with the government’s Framework for Integrating Labour Standards and Trade Agreements, the Arrangement also establishes mechanisms through which specific labour issues can be addressed via cooperative and consultative processes with Thailand. A programme of cooperation activities will be implemented under the Arrangement in areas including collective bargaining, resolution of labour disputes, labour protection for vulnerable workers, promotion of labour rights and obligations, labour/management cooperation, employment promotion, training and skill development.
The promotion of business and investment opportunities under the CEP may stimulate Thai interest in immigration to New Zealand under existing immigration policy which targets skilled migrants who can be expected to make a contribution to the New Zealand economy.
The CEP includes safeguards which will ensure that there are no adverse effects on New Zealand cultural values including Maori interests.
There is a general exception allowing New Zealand and Thailand to adopt measures in relation to goods, services and investment which are necessary to protect national treasures or specific sites of historical or archaeological value, or to support creative arts of national value. The specific reference to creative arts is not included in the standard exceptions listed in the WTO Agreement and was included at New Zealand's request.
The Agreement gives successive New Zealand governments the right to adopt measures they deem appropriate in relation to Maori including in fulfilment of Treaty of Waitangi obligations (provided such measures are not used as a means of arbitrary or unjustified discrimination against persons of the other Party or as a disguised restriction on trade or investment). The relevant provisions simply ensure that this Agreement has no capacity to interfere with any such decisions.
Finally, the provision in the Intellectual Property chapter recognising the right of both countries to establish measures to protect traditional knowledge will ensure that New Zealand’s interests in this area are protected.
More broadly, the closer people-to-people linkages which the CEP should foster can be expected to have a positive impact on New Zealanders’ understanding of Thailand and Thai culture, and on the place of the 10,000-strong[16] Thai community in New Zealand.
New Zealand approached the CEP negotiations with Thailand in the context of the government's policy of ensuring that sustainable development and environmental objectives are appropriately supported by trade agreements as set out in the 2001 Framework for Integrating Environment Standards and Trade Agreements. New Zealand’s approach was also in line with the Growth and Innovation Framework (GIF) which seeks a higher level of economic growth in the context of a ‘sustainable path and one that adequately protects natural capital.’
The key conclusion of the analysis below is that New Zealand has sufficiently robust environmental laws, policies, regulations and practices in place to manage any potential negative impacts from the New Zealand/Thailand CEP. New Zealand's ability to pursue and apply these laws, policies, regulations and practices will not be affected by the CEP. The CEP may also produce some positive environmental outcomes for New Zealand. Moreover, the CEP itself and the Environment Arrangement both support the aim of harmonising objectives for trade and the environment.
The CEP with Thailand addresses environmental issues in two ways.
First, the CEP Agreement recognises the right of governments to regulate for national policy objectives and permits the Parties to adopt measures for the purposes of conserving natural resources and protecting animal or plant life or health and the environment.
Second, the Arrangement on Environment negotiated in parallel with the CEP contains strong political commitments to sustainable development and maintaining high levels of environmental protection. New Zealand and Thailand affirm their sovereign rights to set environmental policies and standards and enforce environmental laws and regulations and undertake:
The Arrangement sets up mechanisms for cooperation and exchanges on environmental issues and consultative processes for addressing any issues that arise under the Arrangement.
It is envisaged that the Environment Arrangement and the CEP will provide opportunities for both countries to enhance their environmental expertise and to promote trade in goods and services that benefit the environment.
The potential environmental effects of bilateral free trade agreements are discussed in general and applied to the specific circumstances of the New Zealand/Thai CEP below in terms of their regulatory, product, structural and scale implications.
FTAs may, in principle, have positive and negative regulatory effects. These potential effects relate to the impact of changes in trade policies on the parties' existing environmental policies and standards.
In general terms, the international experience on the effect of trade agreements is that positive regulatory effects can be assured if care is taken not to undermine the ability of the government to pursue appropriate and effective environmental policies.
New Zealand has in place policies and legislation to prevent or mitigate potential adverse environmental effects of all economic activities including those arising from trade agreements. Relevant legislation includes the Resource Management Act 1991, the Hazardous Substances and New Organisms Act 1996, the Biosecurity Act 1993, and the Climate Change Response Act 2002. In addition, the government has instigated a range of voluntary initiatives which will assist in addressing potential adverse environmental effects. These include the New Zealand Packaging Accord and the Clean Streams Accord. The government also promotes adherence to the OECD Guidelines on Multinational Enterprises which encourage multinational enterprises to establish and maintain environmental management systems and take into account the environmental impact of their actions.
The New Zealand-Thailand CEP does not in any way affect the government's ability to regulate as it sees fit for environmental protection. Indeed, the Environment Arrangement explicitly promotes high levels of environmental protection and precludes either country from weakening or derogating from its environmental laws and regulations in order to gain trade or investment advantage. No adverse impacts on New Zealand's biosecurity are anticipated as existing policy and practice will be maintained.
Product effects concern changes in the composition of New Zealand’s trade arising from the removal of trade restrictions. Positive product effects arising from the liberalisation of trade in goods and services that benefit the environment can in principle help offset any negative scale and structural effects of freer trade. It is particularly important to note that increased trade can also benefit the environment by enhancing access to less ecologically damaging inputs (eg cleaner technologies) to New Zealand production. At the same time, however, an increase in the movement of goods brings with it the possibility of an increase in biosecurity risk, and may require increased attention and monitoring of movements of environmentally hazardous or environmentally sensitive goods and endangered species.
The CEP with Thailand will open up opportunities for New Zealand production and export of goods that benefit the environment. The current value of New Zealand's exports of environmental goods (using the APEC and OECD definitions) to Thailand is NZ$6 million. Thailand's current tariffs on environmental goods range from 1 percent to 30 percent. Under the CEP, Thailand will eliminate all tariffs on environmental goods by 2010. Particular benefits will accrue to New Zealand exports of CNG refueling equipment on which the 20 percent tariff will be eliminated immediately.
Some parties in New Zealand have expressed concern that domestic dairy production will increase in response to liberalisation of Thailand's dairy sector and result in increased pollution of New Zealand waterways. While the benefits of dairy liberalisation in Thailand are very worthwhile for New Zealand, they are not expected to be of sufficient magnitude to prompt, on their own, a significant supply response from milk producers. The market opportunities that are created are thus likely to be met at least in the short term from existing production and, in any case all dairy production in New Zealand will be subject to existing regulation and other specific measures designed to reduce dairy emissions into waterways (including the Clean Streams Accord signed between the government and Fonterra in May 2003 and aimed at reducing dairy emissions into New Zealand waterways).
The biosecurity systems that New Zealand has in place will not be affected by the CEP and any imports of new Thai products will undergo the normal risk assessment processes.
Officials do not judge that there is a serious risk related to movements of environmentally hazardous or environmentally sensitive goods and endangered species in the case of the CEP with Thailand. Moreover, New Zealand's current environmental laws, regulations, policies and practices are sufficiently robust to address any particular problems related to product effects that might arise.
In general, the main environment-related benefits of a trade agreement will be found in the positive structural effects of the removal of policies that exacerbate (at the margins) environmental problems. The distorting effects of these policies are usually evident in the distribution and intensity of production and consumption. Over-production in the agriculture sector due to subsidies is an obvious example. The liberalisation driven by bilateral free trade agreements can benefit the environment through correcting over-specialisation, misallocation of resources and poor decisions on land use triggered by protectionist policies. This is less relevant in the case of New Zealand as reform in these areas has already occurred.
The possibility of negative structural effects from trade liberalisation stems from the expansion of trade in the presence of market and policy failures that may, in some cases, worsen the distribution and intensity of economic activities from the environmental standpoint. Increased output of particular goods and services triggered by trade liberalisation could, in the absence of environmental policy interventions, lead to greater environmental degradation. Environmental values (and costs) may not be fully reflected in the prices of traded goods.
In the case of the New Zealand-Thailand CEP, negative structural effects are not likely to be problematic. As outlined in the section on regulatory effects, New Zealand already possesses robust environmental and sustainable development policies that are well integrated both vertically and horizontally across the New Zealand economy. The process of structural reform in sectors such as forestry and fisheries has already established sustainable production and management practices that will be sustained under the CEP with Thailand and other free trade agreements.
Where a trade agreement augments growth in the New Zealand economy, this can have the positive effect of helping leverage additional financial resources, which can be used to address wider environmental concerns (eg enabling companies to invest in cleaner technologies and governments to raise revenues for financing environment-related infrastructure).
Potential negative scale effects stem from pollution and other environmental risks associated with the expansion of economic activity as well as the increase in the movement of goods. These may not be completely offset by the advantages derived from increased growth. Environment-related policy instruments therefore need to be kept under review to help ensure the overall sustainability of economic growth, including that driven by trade agreements.
Given the modest economic impact of the CEP with Thailand on the New Zealand economy (see section 5.1), it is not expected that there will be any substantive negative scale effects that cannot be addressed by the current framework of environment and sustainable development-related legislation, policies and practices.
[11] This graph is based on New Zealand Customs raw data. This data differs from official trade statistics produced by Statistics New Zealand, which is subject to updating and is compiled according to international standards to facilitate cross-country comparisons.
[12] Based on 2004 Statistics New Zealand data.
[13] Percentages are based on 2003 Thai import statistics sourced from World Trade Atlas.
[14] Percentages are based on 2003 New Zealand Import Statistics.
[15] Generalised System of Preferences for developing countries under which New Zealand already offers Thailand duty preferences on some products.
[16] Royal Thai Embassy estimate
