NZ Retailers Association

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NZ Retailers Association

• Implications of Free Trade Agreements

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1. INTRODUCTION

• This session will briefly review some technical
  aspects of the FTAs currently being negotiated by
  New Zealand and their implications for retailers
• Tariffs and Tariff Phasing
• Rules of Origin
• Customs Valuation
• Dumping and Subsidies
• Transitional Safeguards

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2. TARIFFS AND TARIFF PHASING

• Current New Zealand Tariffs
• Post 2005 Tariff Review
• 2006 Review
• Implications of Free Trade Agreements
• Tariffs on many goods removed immediately once
  the FTA takes effect.
• Tariff removal is normally reciprocal.
• Tariffs in sensitive industries are likely to
  remain for a period of time after the FTA takes
  effect.
• Tariff Phasing under Free Trade Agreements
• Tariffs in sensitive industries will usually
  reduce to zero over a designated period of time.
• Reduction programme contained in schedules to the
  FTA.
• For example, in the New Zealand-Thailand CEPA,
  there are tariff phasing programmes for TCF, some
  automotive components, some steel products, and
  whiteware products.

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3. RULES OF ORIGIN

• What are Rules of Origin (ROO) and Why Do We Have
  Them?
• How Do Rules of Origin Operate?
• Change of Tariff Classification (CTC)
• Value Added
• New Zealands Position
• Implications for Retailers

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What Are Rules of Origin and Why Do We Have Them?

• Rules of origin (ROO) are laws, regulations and
  administrative determinations which identify the
  nationality of traded goods.
• ROO determine the extent to which producers can
  use non-originating inputs and still be eligible
  for tariff preferences.
• In a preferential trading arrangement, the ROO
  are needed to determine which goods are eligible
  for the benefits of the arrangement.

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How Do Rules of Origin Operate?

• All systems of ROO provide two principal means of
  ascribing originating status
• Wholly obtained or Produced Essentially natural
  resource-based on goods which are inherently the
  origin of a single country.
• Partly-manufactured (more than one country
  involved) Goods which have undergone their last
  substantial transformation in the country of
  export - according to one or more of the
  following criteria -
• Change-of-HS classification (CTC)
• Value added (Regional Value Content)
• Specified process
• Most problems arise with partly-manufactured
  goods.

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Change of Tariff Classification (CTC)

• CTC approach is the international norm.
• A product will qualify for preferential entry if
  there is a change of tariff classification, using
  the Harmonised Commodity Description and Coding
  System (HCDCS) from the classification used for
  the components/ingredients to the classification
  applicable to the finished good.

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Value Added

• Based on achieving a minimum level of local
  content (usually 50 per cent) in the factory cost
  of the goods.
• Inherently unpredictable outcomes.
• Can reward inefficiency.
• Compliance and administration costs can be
  greater.

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New Zealands Position

• New Zealand favours outward looking ROO which
  allow for a reasonable access to third country
  inputs.
• New Zealand has adopted CTC in its current FTA
  negotiations and is seeking to change the CER ROO
  to this method.
• Value added now seen as occasional adjunct - not
  a primary rule.
• A generic model is being developed. It is
  based on CTC (change at heading or subheading
  level, generally) without negative standards and
  with minimal use of RVC adjunct rules (based on
  FOB).
• ROO for different products in different
  Agreements will vary depending upon the exact
  nature of CTC (Change-of-Chapter / Heading /
  Subheading) and level of RVC thresholds
  (international levels range from 30-60 percent -
  usually on FOB or ex-factory selling price).

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Implications for Retailers

• Reliance on overseas suppliers for declaration of
  preference.
• Liability for error rests with the importer.
• Cannot assume that because certain goods comply
  with the ROO under one FTA, that those goods will
  comply under another FTA.

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4. CUSTOMS VALUATION

• What is Customs Valuation?
• New Zealands Position
• Transaction Value
• Implications for Retailers

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What is Customs Valuation?

• The valuation of goods is of vital importance in
  ensuring the integrity of the economic strategies
  embodied in the domestic Tariff structure.
• It ascribes to imported goods a value which forms
  the basis for calculating duties and excise
  taxes, calculating quota usage, collecting and
  analysing trade data.
• Enables importers to assess with certainty the
  amounts of duties payable on imports.
• Even when goods are duty free, Customs valuation
  is a vital component in the calculation of GST.

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New Zealands Position

• Customs and Excise Act 1996 and the companion
  Regulations.
• Follows closely the WTO Agreement on Customs
  valuation.
• Administered by the New Zealand Customs Service.
• Strong body of judicial precedent which can be
  referred to.
• A narrow and strongly held view (backed up by
  legal precedent) on the requirement for royalties
  to be included in the Customs value.

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Transaction Value

• This method is used for the majority of imports
  into New Zealand.
• Customs value is based on the price actually paid
  or payable for the goods when sold for export to
  the country of importation (eg the invoice
  price).
• Where there are sales between related parties it
  must be proved that this relationship does not
  influence the price.
• The invoice price is subject to various
  adjustments, eg
• Royalties and licence fees
• Assists
• Commissions
• Special discounts
• Cost of container
• Cost of packing
• The value of any part of the proceeds of any
  subsequent resale, disposal or use of the
  imported goods as accrues directly or indirectly
  to the seller

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Implications for Retailers

• The responsibility to declare correct Customs
  value or receive significant penalties for
  failing to do so.
• Particular attention must be paid to the
  existence of royalties and licence fees.
• Opportunity for importers to justify their price
  and to appeal any consequent rejection of the
  value by the authorities.
• Enables accurate calculation of costs (including
  duties) in establishing retail price points.

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5. DUMPING, SUBSIDIES SAFEGUARDS

• What is Dumping?
• When is Dumping Illegal?
• What are Subsidies?
• When are Subsidies Actionable?
• How are Complaints Enforced?
• Penalties / Corrective Measures
• What are Safeguards?
• Implications for Retailers

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What is Dumping?

• Goods are dumped if their export price is less
  than their normal value in the country of export.
• The export price is the price the importer in the
  overseas country pays for the goods.
• The normal value is the price the goods sell for
  in the country of export.
• There must be a fair comparison of export price
  and normal value.
• Adjustments can be made
• Differences in terms and conditions of sale
• Levels of trade
• Taxation
• Quantities
• Physical characteristics
• If there are no domestic sales in the country of
  export, normal value can be determined by a
  constructed value or sales made to a third
  country.

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When is Dumping Actionable?

• There is a dumping margin (difference between
  normal value and export price).
• Material injury, or threat thereof has been
  suffered by the domestic industry producing like
  goods.
• There is a causal link between the dumping and
  the material injury.
• Like goods are those identical to the imported
  goods or which have characteristics closely
  resembling those goods.
• Indicators of material injury include
• Volume of dumped imports
• Price effects
• Consequent economic impacts, eg loss of profits

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What are Subsidies?

• Subsidisation involves the provision of specific
  assistance, directly or indirectly by a
  Government, in respect of exported goods.
• Export subsidy - Aims specifically at assisting
  exports.
• Domestic subsidy - Provides assistance
  irrespective of whether or not the goods are
  exported.

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When Are Subsidies Actionable?

• Calculation of the benefit to the exporter.
• Establishment of material injury suffered by the
  producer of like goods.
• Establish the causal link between the subsidy and
  the material injury.

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How Are Complaints Enforced?

• New Zealands system is an administrative one
  where the investigation is carried out by
  Government officials and a final decision is made
  by the Government Minister upon the advice of his
  officials.
• Investigation period of 180 days.
• On site verification of overseas suppliers.
• New Zealand operates a very transparent Trade
  Remedies system through the Ministry of Economic
  Development.
• New Zealand adheres strictly to the WTO
  Anti-Dumping Agreement, and relies heavily on the
  precedents provided by WTO Panel and Appellate
  Body decisions.

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Penalties / Corrective Measures

• Al valorem duties.
• Threshold prices.
• Provisional measures.
• Undertakings.
• Retrospective measures.
• Remedies may not exceed the level of the dumping
  margin or the amount of the subsidy.
• The level of duty should not be greater than is
  necessary to prevent material injury.

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What Are Safeguards?

• Temporary safeguards are short term measures to
  remedy serious injury to a domestic industry
  caused by sudden increases in imports.
• Designed for emergency relief in the face of
  serious injury.
• Provisions contained in the Temporary Safeguards
  Authorities Act.
• A wider range of remedies is available including
  the restriction of the importation of the goods.

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Implications For Retailers

• New Zealands FTAs signed to date all contain
  normal dumping subsidy and safeguard provisions
  except for CER, where dumping and safeguard
  provisions have been removed for qualifying
  goods.
• Dumping subsidy and safeguards investigations are
  powerful tools for domestic manufacturers and
  provide strategic commercial benefits.
• Significant disruption to the importers business
  can be caused during the course of a dumping
  investigation.
• The volume of imports is normally impacted during
  the course of a dumping investigation.
• The imposition of measures leads to an overall
  lift in the market price.
• Significant measures can cause the imported goods
  to be withdrawn from the market.

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6. TRANSITIONAL (BILATERAL) SAFEGUARD MEASURES

• Separate and distinct from Global safeguards.
• To be considered when reduction or elimination of
  duties results in increased imports causing or
  threatening serious injury to a domestic
  industry.
• Intention is that a transitional safeguard
  measures action should be easier to process than
  an application under the TSA Act.
• Remedies consist of
• Suspension of the further reduction of duties
• Increase in the rate of duty not exceeding the
  MFN rate (either at the time the action is taken
  or at the time immediately preceding the date of
  the FTA)
• Measures are not to exceed 2 years.
• Measures cannot be applied where there are
  existing dumping, countervailing or safeguard
  measures under the WTO Agreements.
• Certain goods are excluded (eg goods subject to a
  tariff quota).

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7. CONCLUSION

• The terms of each FTA will differ with the result
  that goods from different FTA partners may not be
  treated the same upon entry into New Zealand.
• It cannot be assumed that because certain goods
  are sourced from an FTA partner that they are
  automatically duty free.
• It cannot be assumed that because certain goods
  qualify for duty free entry under one FTA, the
  same rules will apply for those goods under
  another FTA.
• Knowledge of the rules pertaining to each FTA is
  essential if imported goods are to be costed
  accurately through to the desired retail price
  point.