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Manufacturers to benefit from new CER rules

Hon Phil Goff
Minister of Trade

Hon Lianne Dalziel
Minister of Commerce

Media statement

Manufacturers to benefit from new CER rules of origin

New rules that further liberalise trans-Tasman trade, support competitiveness and reduce compliance costs for exporters have been agreed with Australia, Trade Minister Phil Goff and Commerce Minister Lianne Dalziel announced today.

"The new Rules of Origin (ROO) agreement under CER is the result of nearly a year of negotiation between Australia and New Zealand. They will enter into effect on 1 January, 2007," Phil Goff said.

“The agreement provides significantly more liberal rules for New Zealand producers and exporters to qualify for preferential entry into the Australian market under CER and will benefit many New Zealand businesses.

"Rules of Origin determine whether or not a good qualifies for preferential entry under CER. If traded goods meet the criteria, they can enter duty-free."

Lianne Dalziel said the new rules were largely based on satisfying a ‘change in tariff classification’, or CTC, rather than the current 50 percent ‘regional value content’ threshold.

"New Zealand manufacturers have sought this change for the last decade.

"The new CTC approach means that for the majority of tariff lines, an exporter need simply satisfy the condition that there has been a change in tariff classification between any imported inputs from third countries and the completed good that are being exported to Australia/New Zealand.

"By shifting the focus from the origin of inputs, manufacturers will have a greater choice of materials. This will help increase efficiency and competitiveness, and significantly reduce the need to keep financial records to support ROO claims.

"One area is not subject to the change. Our aim was to obtain liberalisation for all sectors, and we are very disappointed that this was not wholly achieved in men’s and boys’ apparel," Lianne Dalziel said.

Under the agreement, exporters have the option of using existing rules until 2012.

Note: Technical information attached. Draft schedules specifying tariff line rules and the amended CER Article 3, will be available later this month.


Key elements of the Rules of Origin reform package

Article 3

Article 3 of CER contains the basic rules of origin framework for goods traded between Australia and New Zealand. The new Article 3 provides the amendment to permit the shift to the new change of tariff classification (CTC) approach, and:

The basis for calculations of regional value content (RVC) in cases where a supplementary regional value content rule, or a specific exception, is required, for example where a minimal process could achieve a change in tariff classification;

In such cases the RVC calculation will generally be done on the basis of a more liberal Free on Board (FOB) calculation rather than the current ex-factory cost calculation. This new approach will allow for the first time domestic value to include manufacturers’ profit and domestic transport;

For the first time manufacturers in New Zealand will be able, where RVC rules still apply, to take account of self produced inputs as origin qualifying;

Transitional provisions which will allow exporters to continue to use the existing regional value content (RVC) rules in preference to the new rules for five years after implementation (until January 2012), thereby avoiding any possibility that an exporter might inadvertently be disadvantaged by the new rules of origin;

A commitment to undertake a review of the new regime within three years of entry into force, before the end of 2009;

A general consultation provision that will allow either side to raise any issue at any time with a view to seeking changes.

The Schedule

Article 3 will include an annexed schedule of the product specific rules covering all goods on a line-by-line basis. These rules set out for all goods the CTC requirement and, as negotiated for particular products, the RVC requirements or other conditions to qualify for origin.

Agricultural products: In general a rule based on simple change in tariff classification between inputs and the final product, will confer origin. Processing will be recognised as origin conferring. In some cases, an alternative RVC rule is required, when processing in Australia or New Zealand does not alter the tariff classification of a good. New Zealand processed food manufacturers will welcome these rules as liberalising.

Chemical products: The rules will provide for a choice between a simple CTC rule or a process rule such as chemical reaction. The latter is a strongly liberalising feature since it is a simple and easy alternative test where a change in tariff classification cannot be achieved. There are no supplementary RVC requirements in this sector. The rules will benefit all New Zealand industry groups and manufacturers.

Textiles: The rules for products in this sector will be a mixed CTC/RVC requirement. The RVC requirement will generally be a 45 per cent threshold calculated on a liberal FOB basis. This RVC requirement is significantly more liberal that the 50 per cent threshold calculated on an ex-factory cost basis under the current rules. In rough terms, 45 percent FOB is equivalent to 35 percent ex-factory cost. One chapter under this sector covering products such as outdoor fabrics and bed linen will have a higher 55 percent FOB threshold (equivalent to about 45 per cent ex factory cost). Textiles exporters in general will accordingly be significantly better off than they are today under these rules.

General Manufacturing: The general CTC rule will recognise almost all assembly from imported parts without a supplementary RVC requirement. Where there is an RVC it will represent no more than the FOB equivalent of 35 per cent ex-factory cost, considerably more liberal than the current 50 per cent requirement. General manufacturing firms, for example white-ware manufacturers, should strongly welcome this outcome.

Men’s and Boys’ apparel: It is a matter of regret that Australia would not agree to any equivalent liberalisation in this sector. The rule for structured apparel (including suits and trousers) will essentially remain unchanged in the medium term. It will be based on a change in tariff classification plus a 50 per cent RVC calculation on the basis of ex-factory cost until 2010. At that time the area content requirement will reduce to 45 per cent calculated on the same basis. The rule for unstructured clothing (for example shirts, pyjamas) will be either 45 per cent based on ex-factory cost or 45 per cent based on new FOB on implementation. For unisex garments, babies’ clothing, and clothing accessories (ties etc) the RVC will be 45 per cent based on FOB.

Women’s and Girls’ Clothing: This sector will enjoy particularly liberal rules based on a simple change in tariff classification with no supplementary RVC requirement. This will be universally welcomed as very liberalising by the New Zealand women’s fashion industry. Under these rules there will no longer be a limit on their ability to use high quality expensive European fabrics, as the rules are simple and process based.

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