Market accessAPECExport controlsNZ and the WTOOECDTrade AgreementsTrade RelationshipsTrade and economic analysisTrade lawTrade scholarships
Find MFAT's information paper on a country or territory. (We don't have information papers on all countries.)
Although we have tried to use plain English content on the site, you may come across specialist terms and acronyms. Find out what they mean in our glossary of terms.
If you come across a term that isn't included in the Glossary please send us an email.
As well as addressing tariffs and quantitative restrictions, CEPs can consider non-tariff measures to ensure that trade is facilitated as far as possible without incurring safety risks to human, animal or plant life and health and the environment. This study examines NTMs in more detail in Chapter Nine.
This section takes a closer look at some of the key export interests for Thailand and New Zealand as identified earlier in this chapter.
Vehicles and automotive parts is one of the most important industrial sectors in Thailand, generating exports of approximately US$3 billion each year and making it a significant source of foreign currency for Thailand.
This is also the most important sector in Thailand’s exports to New Zealand. Within the product group, jeeps, vans and pick-up trucks are the main export items. The export value of vans and pick-up trucks has increased during the past two years. Although exports of vans and trucks declined in 2001 by US$18 million, they have since recovered to US$65.1 million, taking up to 30% of market share.
The Thai government has long had a vision to build Thailand as a centre of automotive production. Beginning from an import-substitution strategy, the Thai government embarked on promoting exports of automotive products in the late 1980s.
New Zealand imposes relatively high tariffs, ranging from zero to 17.5% 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 light commercial vehicles have been duty free into New Zealand since 1998.
Relatively high tariffs on parts and accessories partly explain the higher export volume of finished products such as vans and station wagons to New Zealand in relation to vehicle components of which Thailand is also a major exporter internationally. Tariff reduction under a Thailand-New Zealand CEP should enhance trade in vehicle parts and components between the two countries and allow Thailand’s exports to obtain a greater share of the New Zealand market.
New Zealand also has an interest in the automotive industry, with exports topping US$120 million in 2003. Despite the competitiveness of Thailand in this area, New Zealand exporters still face considerable tariffs especially in the automotive parts sector in Thailand. Key exports of tyres, mufflers and other parts encounter tariff barriers ranging from 10 to 42%.
Thailand is an increasingly competitive exporter of electrical equipment and machinery and exports to New Zealand have increased considerably in the last three years. For example, exports of refrigerators increased from US$213,762 in 2000 to more than US$1 million in 2003. Exports of compressors for refrigeration equipment and air conditioning machines to New Zealand increased 150% from 2000 to 2003. Market share data showing a steady increase since 2000 generally presents a positive picture of Thailand’s competitiveness despite a high level of competition from other countries in Asia. There appears to be increasing demand for imports of this product group in New Zealand.
New Zealand’s tariffs on mechanical appliances range from zero to 10%. About 50% of Thailand’s exports already enter New Zealand tariff free. Nevertheless, as shown in the above table, export products of importance to Thailand still face tariffs. Elimination of tariffs under the CEP framework will stimulate trade in this sector and increase Thailand export competitiveness in the New Zealand market.
New Zealand is also a competitive exporter of mechanical and electrical machinery in certain niche areas. Exporters in these sectors face significant tariff barriers in the Thai market. For example, refrigerators, freezers, dishwashers, and washing machines face tariff barriers of between 20 and 30%.
Plastic products are another Thai export that has great potential to expand in the New Zealand market. The export value has continuously increased from US$13 million in 2000 to US$20 million last year. Thailand has only a small market share in New Zealand, roughly 3.7% of New Zealand’s total imports of plastic products.
New Zealand maintains moderate tariff levels on plastic products, ranging from 0 to 7%. However the tariff on plastic articles of apparel (e.g. jackets) is 19% with some specific rates also applied.
New Zealand also exports significant volumes of plastic articles to Thailand. In 2003 exports totalled US$6.3 million, predominantly made up of plastic containers, acrylic polymers and other plastic articles. Thailand’s tariff barriers on plastic items are moderate, ranging from 5 to 30%.
Clearly both economies would profit from reciprocal tariff liberalisation through a CEP, with exporters gaining increased cost leverage compared with other foreign suppliers, while the economy as a whole derives benefits through reduced product costs.
At present steel is one of Thailand’s major exports to New Zealand, generating approximately US$6 million of sales each year.
From 2000 to 2003, both export volumes and market share have generally increased. For example, exports of bars and rods of iron have increased about 20%. More significantly, exports of some iron and non-alloy steel have increased more than 100%. Thailand’s market share of angles, shapes and sections of iron or non-alloy steel and U sections in New Zealand has also increased. While New Zealand’s steel imports have increased, Thai products account for only a small portion of imports.
New Zealand maintains some tariffs on steel products ranging from zero to 6.5%. Tariff elimination under the CEP would provide preferential market access for Thailand.
While New Zealand still maintains relatively low tariff barriers on steel products, an Infometrics report found that for many New Zealand companies producing steel products tariff protection was not a priority issue for their business[1]. Firms have instead focused on developing niche markets, including incorporating difficult to replicate design and manufacturing into business processes that differentiate themselves from foreign competitors.
Canned and processed food is Thailand’s major agricultural export. Processed fish, shrimp and prawns are the main items. Exports to New Zealand from 2000-2003 show that trade values of both products are close to US$12 million, and are generally increasing despite some fluctuations in 2001 and 2002. Thailand’s processed fish, shrimp and prawns exports have captured more than 70% of the market in New Zealand. However, the trend from 2000-2003 shows that Thailand slightly lost market share in shrimps and prawns by about 10%. For processed fish, market share grew to 47.5% in 2001 but declined to 43.3% in 2003.
Thailand’s competitiveness in fish and shrimp products partly lies in its comparative advantage. Having access to the sea, natural resources, labour and technology to produce these products, Thailand manages to export good quality canned and processed food at a reasonable price. Furthermore, in the past, the Thai government also vigorously promoted the development of shrimp farms and other seafood industries.
New Zealand still maintains tariffs on processed fish and shrimp products. Relatively low tariff rates range from 0 to 6.5%.
New Zealand’s exports of quality raw products are important inputs to production for Thailand’s food processing sector. Lowering the tariffs for the import of New Zealand food and other agricultural products entering Thailand will help meet demand in this growing industry.
Thailand’s world-leading seafood processing industry is an important market for New Zealand’s primary fisheries products, including tuna and fish fillets. See the seafood section below for further discussion.
Thailand’s textile, clothing and footwear exports to New Zealand totalled around US$10 million in 2003. The highest trading value is in textile articles (e.g. bags) which accounted for more than US$2 million. The trade value of man-made staple fibres increased from US$1.6 million in 2002 to US$2.1 million in 2003. Articles of apparel and clothing accessories (not knitted or crocheted) also increased from 2002 to 2003. This demonstrates that Thailand has a comparative advantage in exporting TCF products.
Thailand’s exports have consistently held a small share, about 1%, of New Zealand’s total TCF imports. This is primarily a result of competition from China. In 2003 Thailand was New Zealand’s 12th largest source of TCF imports. Preferential tariff reduction following a CEP will improve Thailand’s competitiveness in this sector.
For apparel products, New Zealand applies either ad valorem or alternative specific tariffs on imports. The ad valorem rates range from 0 to 12.5% on textile commodities and 0 to 19% on apparel products.
The TCF sector is currently protected by New Zealand’s highest tariffs. This protection has declined significantly since the mid 1980s (when typical tariffs stood around 45%) and is scheduled to reduce further under the provisions of the post 2005 tariff review. In recent years New Zealand has experienced a transformation of its TCF sector. Production and resources have to a large extent switched from unsustainable low-cost clothing and footwear areas to niche high-value clothing sectors. Manufacturers have chosen to build on areas of natural advantage such as fast turnaround (something which distant competitors struggle to match), quality, design and fit of product to retain competitiveness. A shift of focus towards design, logistics and marketing (with some firms choosing to outsource production) are also features of the industry over the past decade.
Given the factors outlined above and wider trade liberalisation through New Zealand unilateral tariff reductions, the WTO process and other bilateral FTAs, a CEP with Thailand is likely to only have minimal effect on existing trends within New Zealand’s TCF sector. Benefits from a Thailand/New Zealand CEP may also flow to some of New Zealand’s high-end clothing manufacturers who, under reciprocal tariff liberalisation, will benefit from cheaper production inputs and enhanced market access.
The dairy sector is a key contributor to the New Zealand economy, accounting for 17% of total merchandise exports (New Zealand’s single largest export sector) and generating approximately 24,000 jobs in rural New Zealand[2]. New Zealand is an open economy and welcomes competition in the dairy sector, with 15% of all dairy products consumed domestically being foreign sourced.
New Zealand ranks as the world’s second largest exporter of milk and cream products. While clearly an important global player, New Zealand’s share of world milk production is relatively small at just 2.5%. In addition the range of destinations is diverse, with over twenty-five countries receiving more than 1% of New Zealand’s total dairy exports.
Consumers and processors in Thailand as well as New Zealand exporters benefit from the trade in dairy products. Imports of skim and whole milk powder are essential to offset the shortfall in Thailand’s domestic milk supply both for consumption and as an input to the processed food sector. Despite recent increases in domestic raw milk production, output continues to meet only half of total fluid milk demand.
The New Zealand dairy sector has delivered certainty of supply to the Thai market over the past five years, with exports remaining stable since 1998, despite New Zealand overtaking Australia as the largest foreign supplier. Thailand is New Zealand’s eleventh largest market for dairy products, taking 5% of total milk powder exports.
New Zealand dairy producers encounter a number of barriers in the Thai market. A 55,000 tonne quota, tariffs and local content regulations concerning supply to the Thai Government’s milk for schools initiative control the import of skim milk powder. In-quota imports attract a 20% tariff, increased from 5% in early 2003 and the maximum allowable under Thailand’s WTO commitments. Out of quota imports attract prohibitive duties in excess of 200%. While whole milk powder products are not subject to a quota, the current applied tariff rate is 18%. Tariffs on butter and cheese are set at 30%. Infant milk food (not for retail sale) attracts a 5% tariff. New Zealand is currently the dominant foreign supplier of milk formula to Thailand, although Australia exports a similar product for retail sale.
A large portion of New Zealand milk powder exports to Thailand goes into the ingredient market for use in the food-processing sector. Demand for high-quality ingredients has surged following a Thai Government strategy aimed at facilitating growth in the food-processing sector. Reducing import barriers for dairy products will enable this sector to meet rapidly expanding demand and benefit from lower production costs. Enhanced competitiveness of the Thai food-processing sector will also provide further rationale for increased investment in Thailand’s dairy processing capacity.
New Zealand’s export focus on supplying powdered milk to Thailand’s food-processing sector differs from Thailand’s domestic dairy production which predominantly supplies liquid milk to local consumers and the school milk programme. This different focus, coupled with growing demand in the ingredients market and forecasts of a 10% increase in domestic dairy consumption, suggests there should be ample room in the market for both local dairy producers and New Zealand producers to grow their sales.
A final factor to consider when examining the Thai dairy sector is the Thailand-Australia Free Trade Agreement (TAFTA). With enhanced dairy access already negotiated with Australia, further opening of the market to New Zealand products is unlikely to impact significantly on Thai dairy producers.
In the pursuit of a market economy and freer trade, Thailand is cautious of trade liberalisation that would adversely affect farmers and workers in the agricultural sector. Even though the Thai economy has significantly industrialised, the majority of people in rural areas are still involved in the agricultural sector. Thailand has maintained relatively high tariffs and stringent quantitative restrictions on dairy products to support the local farmers’ production. Nevertheless with the global trend towards liberalisation and free trade, Thailand’s overall approach is to look at reducing trade barriers while undertaking close monitoring and consultation with affected parties.
Like dairy, the meat sector is a significant part of the New Zealand economy, representing 15% of merchandise exports. In 2003 meat exports totalled US$2.4 billion, comprising predominantly sheep meat and beef. The number of New Zealanders employed in beef and sheep farming was estimated at just over 29,000 in 1998. However since the early 1980s sheep numbers, and more recently beef farming, have reduced as land utilisation has shifted to dairy and deer farming, and forestry. Increases in livestock productivity have offset this somewhat.
As in the dairy sector, most production is sold in international markets. Approximately 85% of beef and veal production, and 80% of sheep meat are exported. New Zealand is a net importer of frozen pork meat and bacon products.
Despite the strong representation of meat exports in New Zealand’s overall export profile, exports of beef, sheepmeat and veal to Thailand are modest. In 2003 meat accounted for less than 1% (US$834,000) of New Zealand’s total exports to Thailand. Thailand’s total imports of red meat are low at just US$5.6 million, which is likely driven by a combination of factors including trade barriers and consumption patterns.
Thailand’s tariffs on New Zealand’s key red meat exports of beef and sheep meat cuts are currently at 50% and 30% respectively. Removing these tariffs in a CEP would allow both Thai consumers and the Thai tourism industry to enjoy the benefits of a range of competitive supply sources. As Thailand’s hotel and tourism sector grows, so too does the demand for quality red meat to feed overseas visitors. New Zealand meat has a reputation for meeting such demands elsewhere in the region.
Due to the climate and resources, Thailand does not have comparative advantage in meat production. Nevertheless, as with dairy products, the potential impact on Thai farmers of liberalisation of meat imports has to be considered carefully. Most of Thailand’s meat production serves the lower-end domestic market. Therefore, increased imports of high-quality New Zealand meat products for the high-end market should not significantly affect Thailand domestic producers.
Since 1990 the New Zealand horticultural industry has expanded markedly. Exports to over 110 countries have almost doubled over the past thirteen years, driven primarily by growth in kiwifruit, apple, onion and wine exports. Employment in this sector totals over 30,000 people.
Thailand maintains significant and restrictive tariffs of between 10% and 60% on imports of temperate fruits and vegetables. Many products also attract specific charges per kilogram (for example, estimated specific duties on US$1.9 million worth of frozen processed potatoes exports totalled US$1.6 million in 2003, an effective tariff rate of 84%). In addition, restrictive quotas are used to control imports of a number of vegetable products, including onions and potatoes.
Due to well-established business relationships and the high-quality reputation of New Zealand product there is still significant demand for New Zealand fruit and vegetables in Thailand, despite the tariff barriers. New Zealand’s fruit and vegetables exports totalled US$6.8 million in 2003, with the main items being apples (which face tariffs of 40%); carrots (40%); and frozen potato products (84%). Following a bilateral CEP, the benefits of increased trade would accrue not only to New Zealand producers but also to Thai consumers and the tourist caterers who would gain from enhanced competition, quality and choice. New Zealand growers and exporters have a strong focus on food safety which is a pre-requisite for many of the high-end hotel and supermarket chains.
The complementary nature of Thai and New Zealand production, coupled with the fact that many New Zealand horticultural products are destined for the Thai tourist sector, suggests a CEP would offer further opportunities for New Zealand exporters but not displace Thailand’s domestic industry. Further, a CEP would allow New Zealand producers to compete with Thailand’s other FTA partners.
The fishing and seafood is a significant component of the New Zealand economy and like many other primary sectors is a key contributor to New Zealand’s regional economies. Seafood exports totalled US$678 million in 2003, accounting for 4% of total exports. The New Zealand fisheries industry is based on the principle of sustainable harvesting which aims to guarantee the long-term sustainability of New Zealand’s seafood industry. Since 1990 the sector has seen substantial investment by New Zealand companies, particularly in the area of marine farming.
New Zealand’s seafood exports for re-export currently go into Thailand’s world-leading[3] seafood processing sector tariff free. The global dominance of Thai seafood processors is a prime example of the value of removing trade barriers for production inputs.
Thailand does however maintain tariff barriers of up to 30% on seafood imports for domestic consumption. New Zealand is predominantly a producer of temperate to sub-Antarctic fish and shellfish species, compared to Thailand’s tropical species.
A Thai/NZ CEP could deliver benefits to Thai consumers and supply the demands of the high-value, high-quality hotel and tourism industry. New Zealand’s major exports of tuna, lobster and other fish products would benefit from reduced barriers and enable exporters to compete on a level playing field with Thailand’s other trading partners.
The forestry sector is a significant contributor to the New Zealand economy, accounting for 1.2% of GDP. Apart from small volumes used in onshore manufacturing, the majority of New Zealand’s timber production is exported. Domestic factors have however significantly affected the forestry sector recently. For example, the recent housing and property investment boom in New Zealand has resulted in record lumber sales. Strong building activity has also fed through to domestic consumption of wood panels (such as veneer and fibreboard).
While unprocessed wood entering Thailand faces low barriers (0-1%), intermediate timber products including key New Zealand export interests of veneer, fibreboard, plywood and other shaped board incur a 12.5% tariff. Higher value finished products, such as joinery products, furniture, paper and packaging, incur higher rates of 20% (and in some cases specific rates). This is known as ‘tariff escalation’ (See “Tariff Escalation in the Forestry Sector” ). This higher level of protection for processed wood products restricts New Zealand’s exports to Thailand to US$168,000, compared with total exports of US$352 million. Meanwhile unprocessed timber and wood pulp exports to Thailand totalled US$19.4 million in 2003.
Tariff liberalisation through a CEP could deliver benefits to Thailand’s growing paperboard and furniture export industries through enhanced access to key primary and intermediate wood production inputs. Rather than displace domestic production, New Zealand imports are likely to be employed alongside Thai raw products to supply an expanding international market. In turn, New Zealand exporters could benefit from enhanced market opportunities in Thailand’s heavily protected joinery and furniture component sectors.
Thailand and New Zealand consider Rules of Origin (ROO) to be a vital ingredient to preferential trade arrangements since they determine whether goods are subject to the tariff preference or whether MFN tariffs should apply.
The ROO should maximise economic welfare while recognising realities such as the geographical location of the parties and the makeup of their productive sectors. The ROO must also be practicable in terms of administration and enforcement. ROO should facilitate trade between the CEP parties while ensuring that the principal benefits from a CEP only accrue to the parties involved. Thailand and New Zealand are open to considering alternative models in developing ROO in a CEP provided that the ROO:
In a low tariff environment, rules which require unduly high scrutiny generate excessive governance costs which are disproportionate to their rationale and act as a hindrance to the partner economies.
Thailand has a preferential trade agreement with countries in South East Asia, the ASEAN Free Trade Agreement (AFTA). Under this Agreement, ROO are used to ensure that exported products receiving preferential treatment from a member country are either wholly produced in a member country or have undergone substantial transformation in the territory of the exporting member country. The AFTA ROO require a minimum local content of 40% of the FOB price as the measure of substantial transformation.
In the Thailand Australia Free Trade Agreement (TAFTA) negotiation, for products to qualify for preferential treatment they must be either wholly obtained or produced in Thailand or Australia; or meet specific rules which consist of Change of Tariff Classification (CTC) and Regional Value Content (RVC) components. The CTC rule is applied to all products but for some product groups, such as textiles and garments, machinery and electronics, the CTC and RVC requirements are applied together. The RVC is set at 40% with the exception of textiles and clothing products where a minimum of 30% Thai content is required provided that the value of materials imported from developing countries amounts up to 25% to meet an RVC of 55%. The calculation method used in TAFTA negotioation is similar to the formula of AFTA, using the FOB price of export and the build-down method. The formula appears below:
FOB - Value of Imported Materials
FOB x 100
New Zealand has, to date, followed an undifferentiated value-added approach in its CEPs. Based on ex-factory or ex-works cost, this differs from the AFTA FOB model in that it omits virtually all costs incurred after the traded good has been manufactured. Two key principles underlie the ROO currently used by New Zealand. These are that a local or area content threshold is achieved (50% of the ex-factory or ex-works cost under the CER agreement with Australia and 40% in the CEP with Singapore) and that the last process of manufacture takes place in the preferential trade area.
Thailand and New Zealand should aim to removie tariffs and quotas on all goods on a reciprocal basis under the CEP. The pace at which trade is liberalised will be subject to negotiation.
Quantifying the impact of removing barriers to trade in goods is a difficult exercise. The reality is that there are many variables affecting international business transactions and trade barriers are only one element. It is however possible to draw some general conclusions on the likely impact. Reflecting consultation with trade academics from both countries, this section examines the likely impact of a bilateral CEP on the economies of Thailand and New Zealand.
As Thailand and New Zealand are pursuing a number of trade liberalisation initiatives from the WTO process down to bilateral agreements, the impact on trade in goods from this CEP will complement and build on the economic benefits from the general trade policies of both nations. Given the relative size and complementary nature of the Thai and New Zealand economies, the impact of the CEP on each country’s total GDP is expected to be modest. As outlined earlier in this chapter, however, there can be real benefits for both countries through increased trade and lower prices in a number of key sectors.
According to economic theory, trade liberalisation between two complementary economies will lead to welfare enhancement for both countries due to reduced prices, trade creation and a reduction in deadweight loss through improved economic efficiency.
Following tariff elimination, consumer welfare will increase from a reduction in import prices and a greater variety of available goods and services. This also applies to producers who rely on imported inputs to production. Also on the production side, tariff reductions will encourage resources to flow from less competitive industries to export sectors where there is comparative advantage. These gains will lead to stronger rates of economic growth.
In the short run tariff reductions will reduce this source of government revenue.
In addition to the static gains from trade, a bilateral free trade agreement can bring dynamic benefits to the two economies. In a longer timeframe, a free trade agreement will not only change relative prices in the economies, but also the economic environment and economic relations between the two countries. For example:
These dynamic effects will, in the long run, become even more important than the static gains as economic structures adjust to the new and improved conditions.
In the case of the bilateral CEP between Thailand and New Zealand the principal dynamic benefit accruing to Thailand is expected to be from increased production efficiency while New Zealand should gain from improved terms of trade.
Due to the complementary nature of the two economies and export profiles, a trade liberalising CEP would be expected to bring net benefits to both parties. A CEP between Thailand and New Zealand would result in some minor economic adjustment but would not significantly affect current production trends. Despite the different cost structures in Thailand and New Zealand, increased imports of Thailand’s manufactured products to New Zealand would not have a substantial adverse effect on New Zealand’s manufacturing sector as on the whole there is little production of like products. Thailand’s imports of some New Zealand agricultural products would be expected to increase as a result of a CEP. This would improve consumer welfare in Thailand but would not be expected to displace Thai domestic production in most cases.
Thailand and New Zealand are a classic example of complementary economies and this is reflected in the current pattern of bilateral trade in goods. Thailand exports manufactured goods to New Zealand in return for primary goods and some industrial items. Removing tariffs and other barriers will allow this natural trade to reach its full potential, resulting in economic benefits to both countries. There are real welfare benefits for the people of Thailand and New Zealand in the form of lower prices for consumers and improved opportunities for exporters. These benefits will in turn stimulate greater economic activity in both countries providing for more jobs and increased production. Technology and investment exchanges that accompany the flow of goods will also lead to productivity gains.
Thailand’s key export sectors of interest are automotive products, electrical appliances, plastics, steel, canned and processed food and textiles. New Zealand’s main export items to Thailand are dairy, meat, seafood, forestry products and horticulture. All these sectors stand to benefit from a bilateral CEP. It is also expected that, following the reduction of trade barriers and publicity surrounding the CEP, other exporters in both countries will have access to new and profitable opportunities. Given the size of trade between Thailand and New Zealand relative to each country’s total international trade only a minimal impact from the bilateral CEP is expected on production trends in sectors currently protected by trade barriers.
[1] Infometrics Business and Economic Research Ltd, Review of Import Tariffs Beyond 2005, December 2002.
[2] This figure is a measure of farm workers only and excludes downstream employment in areas such as processing.
[3] While Thailand is a significant importer of fish, with total imports exceeding US$1.1 billion (1.6% of total imports), it is also the world’s leading exporter of fish commodities (US$4.4 billion in 2000).
