123 Submission to Cabinet Economic Committee

Wellington, 18 July 1980

E (80) 116. CONFIDENTIAL

Australia/New Zealand-Closer Economic Relations - Tariff and Access Measures

Background

  1. At the meeting between the Prime Ministers of New Zealand and Australia in March a programme of work was agreed to provide the basis for further examination of the prospects for closer economic relations between the two countries. This programme included analysis and categorisation of tariff and access measures in force. Relevant extracts from the Prime Ministerial Communique1 are in the annex.
  2. Officials have undertaken considerable work on the whole range of topics identified for further study. A report on the totality of this work will be submitted to the Committee later this month in preparation for discussion at the NAFTA Ministers' meeting in Canberra on 12-13 August 1980.
  3. This paper concerns the detailed commodity study and seeks authority for consultations with the commercial community on the basis of certain general policy principles upon which judgements now need to be made.

Tariff Aspects

  1. Mechanical aspects of the line-by-line commodity study have been completed. It involved extracting from the tariff and identifying every tariff item or part tariff item subject to a tariff and/or licensing on goods of Australian origin. Information was then accumulated for each item-brief product description, NAFTA status, tariff on Australia, 1978/79 imports (total and from Australia), item code and allocation. In order to facilitate valid judgements on New Zealand industries' actual or potential sensitivities, production information on the number of units affected and highly significant producers then had to be assembled on a tariff item by tariff item basis.
  2. The study established that altogether there are some 1,400 tariff items outside the terms of the study, because they are already duty-free and exempt licensing. It then identified 1,743 whole or part tariff items which need to be further studied as part of this exercise, of which only 352 are not subject to import licensing.
  3. Officials are now ready to move into detailed consideration of the import licensing access aspects of the study. However, there is obviously a need to continue to consider the total protective structure (tariffs and licensing) in the studies.

Import Licensing Aspects

  1. Officials have identified 1,391 tariff items where goods of Australian origin would be the subject of New Zealand's various import licensing controls. In dealing with these, a number of general principles can, in the opinion of officials, be set down:
    • All additional licences arranged as a result of any agreement reached with Australia, would be designated as being for goods of that country only (NAFTA rules of origin would apply).
    • That it would be assumed that Australia would be moving towards unrestricted access for equivalent New Zealand goods where this did not already apply.
    • The basis for study specified that where additional Australia licences are to be instituted they would also provide for 10 percent access growth per annum in real terms. There would therefore be a need to establish a basis on which 'real terms' would be assessed.
    • There should be no general intention to use the licensing system to guarantee shares of the New Zealand market to Australia. Rather the intention is to generate additional access opportunities in each others markets.
    • Administratively simple solutions are to be preferred, keeping in mind the balance of other requirements. Wherever practicable whole item codes rather than individual tariff items which make up each item code should be dealt with.
    • The requirement that the license provision be of sufficient size to give commercial viability allows for considerable latitude in judgement and negotiation.
  2. In considering the next steps officials are of the view that New Zealand must approach the discussions with Australia from the viewpoint that we have something positive to offer, and that we must maximise the negotiating advantage to be gained from this. Unless we do this New Zealand's commercial interests may not receive the range of benefits from successful negotiations that they would reasonably expect. In this light it is considered the licensing access aspects readily fall into five categories
    • Items already exempt licensing-these would remain exempt.
    • Licence on Demand (LOD)-at the initiative of MANFED, some 170 Schedule A items have already been made LOD for Australia, and more are in the pipeline. Few of these are substantively manufactured in New Zealand. LOD also exists for other Schedule A items which are made in New Zealand but this has not caused any problems.
    • Officials feel all these items could be offered for exemption in the context of the negotiations if this seemed likely to gain some reciprocal benefit for New Zealand. The starting position for discussions should, however, be maintenance of licence on demand status.
    • Special NAFTA Access items-specific licensing access levels have been negotiated under NAFTA for about 100 items, through Schedules A and B. Officials consider these levels should be taken as the base starting point, and the 10 percent increase formula applied (Article 3:7 arrangements, which are inter-company, would be left as they are, although regard would have to be had, over time, to the relationship between them and any general increase in access levels for the items concerned that might flow from the rest of the package). It is envisaged that any existing special arrangements on non-Schedule A goods (e.g. apparel and footwear) would have to be negotiated separately.
    • General licensed products area-it is proposed that, for negotiating purposes, these be split into three broad groups. Obviously Australia might seek further access either on general grounds or on the grounds of commercial viability.
      1. for items where New Zealand's import licensing arrangements are already liberal and can be presented as offering no substantive hindrance to imports, it is considered that no extra provision for Australia needs to be offered in terms of the formula approach, although Australia may well make representations pointing to special factors. (This has been the subject of discussion with Australian officials and could well be acceptable. There may, however, be questions of permanence of current access arrangements for Australia.)
      2. for all items where import controls are tightly administered, but where Australia already enjoys significant trade, a three year average of imports from Australia would be established as the base, on to which the 10 percent progression would be applied.
      3. for all items where Australia, for one reason or another, has no or few sales in this country, a New Zealand market share of, say, five percent would be established, and the 10 percent progression formula then applied.
  3. It should be noted that import licensing proposals which involve steadily increasing access could lead to a situation where it may be desirable to reconsider the position of items currently duty-free.

Intermediate Goods

  1. Australia identified this problem as likely to be one of concern to them in a free trade as opposed to customs union situation. They are to produce further papers on the subject. As they have not done so yet, we do not know the extent of their specific concerns.
  2. It is difficult to take this matter much further until the promised Australian studies are to hand. The Customs Department has, however, already completed a very useful exercise2 on an indicative basis involving six products which has pointed up the complexity of the problem but concludes also that Australia is not necessarily the disadvantaged country. The New Zealand Manufacturers' Federation has also commissioned a study of the problem. In the meantime it is proposed that general discussions be held with MANFED, with a view to a pooling of knowledge as to where specific problems may lie.

Consultations with the Commercial Community

  1. Officials now seek the authority of the Committee to enter into consultations with relevant sectors of the commercial community to invite them to consider and respond to lines of approach as set out in this report. The result of these consultations would be the subject of a further report to CEC.
  2. The consultations would cover the inter-relationship of the tariff and import licensing aspects. On the latter it is hoped that the Federation3 will concur with the broad principles set out above. Officials would then proceed to further develop the categorisation of tariff items into the three lists mentioned in the Prime Ministers' communique.
  3. It is also proposed to pass to the Federation the lists of items currently considered suitable for inclusion in list one (i.e. those goods exempt licensing, but subject to tariffs at or below 10 percent, which would move forthwith to duty-free treatment, and those goods exempt licensing, but with tariffs above 10 percent which would be subject to the phase-down process).
  4. The Federation would be consulted further as lists are developed.

Recommendations

  1. It is recommended that the Committee:
    1. endorse the general principles set down in the memorandum as forming a suitable basis for discussions with appropriate trade organisations and the Federation of Labour;
    2. agree that:
      1. officials consult at an early date with relevant sections of the commercial community on the general aspects of the work carried out so far with respect to closer economic relations with Australia, and on the principles that may be followed in further detailed work, especially in the area of import licensing access for Australia;
      2. officials enter into specific consultation with the New Zealand commercial community on tariff items which are already exempt from import licensing for Australia.

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