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Hon Jim Sutton - Tariff Bill second reading

15 June 2004

Tariff (New Zealand-Thailand Closer Economic Partnership) Bill second reading, Parliament

I move, that the Tariff (New Zealand - Thailand Closer Economic Partnership) Bill be now read a second time. I thank the Foreign Affairs, Defence and Trade Committee for its work on this Bill. I note that the Committee recommends by majority that it be passed with no amendments. The Committee also noted in its report that it had previously examined the full National Interest Analysis of the agreement, and that on that occasion the majority also supported the Agreement.

The Bill amends New Zealand's domestic legislation to enable New Zealand to become party to the New Zealand?Thailand Closer Economic Partnership Agreement, thereby allowing the Agreement to come into force once Thailand has also completed its domestic implementation processes.

The Agreement provides for all tariffs applying to goods of New Zealand or Thai origin traded between the two countries to be either eliminated immediately or phased out over a scheduled period. Most New Zealand imports from Thailand already enter duty-free under New Zealand's existing tariff policy. The Agreement provides for the remaining tariffs to reduce to zero variously on implementation of the agreement on 1 July 2005, or by 1 January 2008, 1 January 2010, or 1 January 2015. Part 1 of the Bill allows for the implementation of this aspect of the Agreement by providing for the preferential tariffs conferred by the Agreement to be included in the preferential tariff column of the New Zealand Tariff. The actual rates of duty as spelt out in the Agreement will be added to the Tariff by a subsequent Order in Council.

The Agreement also provides for the use of bilateral transitional safeguards by both Thailand and New Zealand. These allow either party to address situations of serious injury, or the threat of serious injury, to domestic industries caused by increased imports due to tariff reductions or removal under the agreement. If serious injury, or the threat of serious injury, is found to exist, the party concerned may revert to higher tariffs for a certain, limited period.

A similar mechanism already exists in domestic law which provides for the application of global safeguard measures to address possible serious injury stemming from the impact of reductions in multilateral tariffs negotiated in the GATT/WTO context. Bilateral transitional safeguards, on the other hand, will focus only on possible serious injury stemming from preferential tariffs agreed with Thailand. This requires a new mechanism under domestic law.

Part 2 of the Bill provides such a mechanism by creating a new regime under the Tariff Act. This regime establishes the right for a New Zealand industry or company that considers that it is suffering serious injury as a result of a surge in competing imports from Thailand, to ask the chief executive of the Ministry of Economic Development to initiate a safeguards investigation.

A range of issues relating to the Bill and the Agreement were raised in the House during the first reading. The Committee addressed several of these that were specific to the content of the Bill. In particular, the Committee considered the consistency of the bilateral safeguard mechanism with World Trade Organisation rules.

The Select Committee was advised in this regard by officials that the bilateral safeguard mechanism is fully consistent with WTO rules, including the standards for free trade areas set out in Article XXIV:8 of the General Agreement on Tariffs and Trade (GATT). It was also clarified that similar strict standards that are currently applied under New Zealand's global safeguards regime, and which are based on WTO rules, also underpin the bilateral safeguard mechanism.

During the first reading of the Bill, some members raised the issue of new food testing regulations being proposed in Thailand and the potential effect of those regulations on New Zealand exporters. While this issue is not directly related to the content of the Bill before us ? and is not part of the CEP Agreement - I would like to take the time to confirm to the House that progress is being made toward resolving this important issue. Since the regulation was first notified late last year New Zealand, along with Australia and the United States, has successfully argued for a delay in implementation of the regulation to allow time for our trade concerns to be taken into account. When I met with the Thai Ministers of Agriculture and Commerce at the time of the signing of the Agreement, they gave a commitment to work with New Zealand on recognition of New Zealand food safety systems in the application of the proposed Thai regulation. New Zealand's formal application for recognition of our system has been lodged with the Thai authorities.

The New Zealand-Thailand CEP has provided a new avenue to help progress this issue. A special meeting of the bilateral SPS Committee will be held in Thailand on 23 June so that relevant experts can put New Zealand's case directly to the Thai authorities. That opportunity would not have been available before the Agreement was negotiated.

I should note, in response to a point raised during the first reading, that under the Agreement's Rules of Origin only goods of genuine Thai origin will benefit from the New Zealand tariff reductions. Those rules mean that Thailand will not be a back door for preferential entry of goods from other countries.

Returning to the Bill itself, Minority views presented in the Select Committee report raised concerns about the impact of the Agreement on New Zealand businesses and work opportunities. Despite the opportunity to do so, no serious evidence was presented to counter the Government assessment that the Agreement will not have an adverse overall impact on New Zealand producers. The adjustment effects arising from removal of New Zealand tariffs on imports from Thailand under the Agreement are expected to be negligible, a conclusion overlooked in the selective quotation from the National Interest Analysis in the last debate.

There are several reasons for this assessment. First, some 65 percent of imports from Thailand already enter duty-free. Second, the phase-out arrangements for New Zealand's more sensitive sectors are very gradual. The higher tariffs on clothing, footwear, carpet, and many textile products, will be phased out over a 10-year period. And in any case, Thailand accounts for only a small proportion of textiles, clothing, footwear, and carpet imports.

For sensitive products with a lower tariff, such as whiteware, existing tariffs will effectively be maintained at current levels before being removed in 2010. Finally, adjustment assistance has been made available in the context of New Zealand's unilateral tariff reductions to help the textile, clothing, footwear and carpet sector build skills and global competitiveness.

While the adjustment effects in New Zealand will be limited, the opportunities being created for New Zealand businesses by opening the Thai market are significant.

Thailand is a heavily protected market. Tariffs are levied on virtually all imports from New Zealand; many are in the 20 to 40 percent range. Under the Agreement, Thailand will eliminate tariffs immediately on over half of New Zealand's current exports, including most current manufactured exports, and progressively phase out the remainder. Virtually all manufactured exports from New Zealand will enter Thailand duty-free from 2010.

In broader terms, this Agreement offers the most far-reaching bilateral market opening for New Zealand since CER. As noted in the Select Committee report, the Bill will deliver real benefits to many New Zealand industries and will open up opportunities for New Zealand to develop the trading relationship with Thailand to its full potential.

I commend the Bill to the House.


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