Cablegate: 2006 National Trade Estimate Report: New Zealand

DE RUEHWL #0987/01 3550422
R 210422Z DEC 05





E.O. 12356: N/A

REF: STATE 193384

1. Following is post's input for the 2006 National Trade
Estimate Report on New Zealand. We assume that
Washington agencies will provide updated trade and
investment data.

2. We also note that the section on "Biotechnology Food
Approval" should be consistent with the NTE on Australia.

3. Begin text of NTE submission:


In general, tariff rates in New Zealand are low as a result of
several rounds of unilateral tariff cuts that began in the mid-
1980s and continued until the current Labor government, elected
in 1999, froze further reductions until July 2005. The New
Zealand government announced in September 2003 that it would
resume unilateral tariff reductions starting July 1, 2006. New
Zealand plans to begin gradual reductions of its highest tariff
rates of between 17 percent and 19 percent, taking them to 10
percent by July 1, 2009. The top rates apply mostly to clothing,
footwear, carpets, and certain automobiles and auto parts. Ad
valorem tariffs on other goods also will gradually be reduced to
5 percent by July 1, 2008. None of these low tariff rates are
bound. The New Zealand government will conduct a review in 2006
to determine rates for the period after July 1, 2009.


Biotechnology Regulations

New Zealand's Environmental Risk Management Authority (ERMA)
reviews applications for the release of new organisms, including
genetically modified organisms (GMOs), on a case-by-case basis.
ERMA, an independent body, can issue three types of approval for
the release of new organisms: contained trials, conditional
release and full, unconditional release. The agency can approve
applications with conditions that aim to prevent, minimize or
manage any identified risks. Contained trials are strictly
regulated and monitored and can include field trials. A full
release is unregulated and has no controls, making it extremely
unlikely one would be granted for a GMO. Conditional release
fills the gap between these two extremes, providing controls and
regulation determined on a case-by-case basis. This allows for
specific conditions to be placed on the planting of a crop, which
can be any size from a contained trial to a large commercial
planting. The Ministry of Agriculture and Forestry (MAF)
monitors implementation of such approvals. To date applications
have been limited to a small number of contained trials.

Until October 2003, New Zealand maintained a voluntary two-year
moratorium on the introduction of all GMOs, which precluded
applications for the commercial planting of genetically modified
crops, the commercial importation of genetically modified seeds,
the release into the environment of genetically modified animals
and, to a lesser extent, some human and veterinary medicines
containing GMOs. The moratorium, however, did not apply to the
use and sale of processed genetically modified foods and
ingredients. With the moratorium's expiration, Parliament
amended the Hazardous Substances and New Organisms Act 1996 to
regulate the introduction of GMOs. The amendment, the New
Organisms and Other Matters Bill 2003, introduced the conditional
release category for approval of new organisms.

Biotechnology Food Approval

Imported genetically modified foods for sale in New Zealand must
be assessed and approved by Food Standards Australia New Zealand
(FSANZ), which operates under the authority of the New Zealand
Food Safety Authority (NZFSA). A mandatory standard for foods
produced using modern biotechnology came into effect in mid-1999.
The standard established under the Food Act 1981 prohibits the
sale of food produced using gene technology, unless such food has
been assessed by FSANZ and listed in the food code standard. As
of November 2005, FSANZ had received 34 applications for safety
assessments of bioengineered foods. Of these, 28 applications had
been approved (including four under review pending additional
assessment), four applications were being processed, and two
requests had been withdrawn.

Biotechnology Food Labeling

Mandatory labeling requirements for foods produced using gene

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technology took effect in December 2001. With few exceptions, a
food in its final form that contains detectable DNA or protein
resulting from genetic modification must be so labeled. Meeting
New Zealand's biotechnology food labeling regulations can be
burdensome and is especially relevant for U.S. agricultural
exporters who deal primarily in processed food. New Zealand
wholesalers and retailers frequently demand biotechnology-free
declarations from their suppliers. This effectively passes
liability for any biotechnology labeling non-compliance back to
the importer. New Zealand food legislation requires businesses to
exercise due diligence in complying with food standards, which
usually is defined as maintaining a paper or audit trail similar
to a quality assurance system.

The NZFSA conducts periodic compliance audits. Violators of food-
labeling requirements can be assessed penalties under the Food
Act 1981. The New Zealand government is reviewing penalties
stipulated under the act to ensure that they represent an
adequate economic deterrent. The effect of these regulations is
to discourage New Zealand food retailers from carrying
biotechnology food products.

Sanitary and Phytosanitary Measures

New Zealand maintains a strict regimen of sanitary and
phytosanitary (SPS) controls for virtually all imported
agricultural products. The United States and New Zealand continue
to discuss specific SPS issues that negatively impact trade in
products supplied by the United States.

Imports of U.S. poultry meat (except canned product) remain
suspended due to restrictions on countries that have infectious
bursal disease. Imports of U.S. pork meat products are subject
to a pre-cooking requirement because of the presence of porcine
reproductive and respiratory syndrome in the United States.
Imports of California table grapes were restarted in 2005 as a
result of changes in import requirements, while market access
also was achieved for cherries from Idaho, Oregon and Washington.

U.S. beef and beef variety meats were restricted from entering
New Zealand following the December 2003 announcement of bovine
spongiform encephalopathy (BSE) in the United States. Import
restrictions also were imposed on live cattle, certain pet food
and U.S. processed food products containing beef. The NZFSA had
required case-by-case assessment of U.S. bovine products before
importation. However, after completing an assessment of the U.S.
BSE regime, NZFSA decided to lift that restriction once both
sides agree on certification that must accompany meat imports.
MAF is conducting a review that may result in resumption of live
cattle trade.


The New Zealand government has proposed amendments to strengthen
its copyright and patent laws and enhance the country's
protection of intellectual property rights. With proposed
amendments to the Copyright Act 1994, the government aims to
address developments in digital technologies and international
developments in copyright law and to bring New Zealand law into
closer conformity with the WIPO Copyright Treaty (WCT) and the
WIPO Performances and Phonograms Treaty (WPPT). The amendments
are expected to be reviewed and approved by Cabinet before they
are introduced in Parliament in 2006. If this legislation is
enacted, the New Zealand government then will determine whether
to accede to the WCT and WPPT treaties.

The Ministry of Economic Development in December 2004 released
draft legislation that is intended to replace the Patents Act
1953 and to bring New Zealand's patent law into closer conformity
with international standards. This draft would keep the maximum
patent term at 20 years, but would tighten the criteria for
granting a patent, from a patentable invention being new in New
Zealand, to being new anywhere in the world and involving an
inventive step. At year's end, the legislation had not yet been
introduced in Parliament.

The U.S. music industry opposes a proposed amendment to the
Copyright Act that would legalize the duplication of sound
recordings in other formats for a purchaser's private use. The
government says this would enable consumers to employ new digital
technologies and would legalize what already is common practice.
The government also notes the amendment would limit copying to
one copy per format, specify that the original sound recording
must be legitimate, and exclude making copies from borrowed or
rented recordings. The music industry warns that such an

WELLINGTON 00000987 003 OF 005

exception to copyright protection would make copyright
infringement difficult to police, send the wrong message to
consumers and cost the industry in sales revenue and profits.
The industry says that the exception would discourage the
development of music products that would permit home copying
under contractual arrangements between the consumer and the
provider. The industry and government continue to discuss this

Additionally, the industry favors a wider approach to
technological protection measures (TPMs) than that provided in
the government's proposed amendments. The government's proposal
would prohibit the supply of devices or the means or information
to circumvent TPMs that would result in infringing any of a
copyright owner's exclusive rights, and not just copying as now
specified in the legislation. The industry says the act of
circumventing a TPM also should be illegal. It also wants
protection against the circumvention of TPMs that control access
to copyright material, in addition to TPMs that control copying.

U.S. industry also has expressed concern over a proposed
exception to the Copyright Act that would allow the unauthorized
time-shifting of virtually all works communicated to the public.
The industry warns that the exception would discourage rights
holders from developing new approaches to meeting consumer demand
for electronically delivered materials and reduce access and
choice for New Zealand consumers to these materials.

In the draft patents legislation, a prohibition of patents for
methods of medical treatment concerns some pharmaceutical
companies. The industry also is concerned by the Cabinet's
decision in mid-2004 to halt a study on the economic impact of
extending patent terms for pharmaceuticals. The draft patents
bill fails to address the issue of patent terms. The
pharmaceutical industry group, Researched Medicines Industry
Association of New Zealand, contends that New Zealand's effective
patent life for pharmaceuticals has been substantially eroded.
It asserts that extending the effective patent term would be in
line with international best practices.

The pharmaceutical industry also is concerned by an amendment,
enacted in December 2002, to the Patents Act 1953. This
amendment states that it is not a patent infringement for a
person to make, use, exercise or vend an invention for purposes
related to gaining regulatory approval in New Zealand or other
countries. This provision can be used to effectively expedite,
or "springboard," the approval process for generic competition to
products going off patent. The pharmaceutical industry strongly
opposes this legislation.

Some U.S. industries, particularly producers and distributors of
music and software, have voiced concerns about New Zealand law
that allows parallel imports of certain copyrighted goods, saying
such imports make it more difficult to detect and combat piracy
and erode the value of their products in New Zealand and third-
country markets. The New Zealand Parliament in October 2003
enacted a ban on the parallel importation of films, videos and
DVDs for the initial nine months after a film's international
release, but the ban does not apply to parallel importation of
music, software and books. The ban is scheduled to sunset in
2008, unless extended.

The October 2003 legislation, which amended the Copyright Act
1994, makes it easier to challenge copyright violations in court
by shifting the burden of proof in certain copyright infringement
cases to the defendant, who must prove that an imported film,
sound recording or computer software is not a pirated copy.

The United States continues to monitor developments in IPR issues


Local Content Quotas

Radio and television broadcasters have adopted voluntary local
content targets, but only after the New Zealand government made
it clear that it would otherwise pursue mandatory quotas.
Although New Zealand government officials have said they are
sensitive to the implications of quotas under the WTO General
Agreement on Trade in Services (GATS), they reserve the right to
impose them.


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U.S. industry has expressed concern about the fees charged for
completing calls onto mobile networks in New Zealand, which are
among the highest in the world. After a year-long investigation
into mobile termination rates, the New Zealand regulating
authority said in June 2005 that mobile network operators had
been able to set unreasonably high rates because of limited
market competition. The authority called for such charges to be
regulated. The Communications Minister in August 2005 agreed
with the authority's position that the termination rates should
come down, but asked the authority to reconsider its
recommendations by examining several issues, including commercial
offers by New Zealand's two mobile-phone service providers for
rate reductions and how best to ensure that end users benefit
from reductions in wholesale rates. The authority was expected
to release a draft report soon.

Competitors of the formerly state-owned monopoly, Telecom, were
disappointed by the New Zealand government's decision in May 2004
against unbundling the local loop. Although under competitive
pressure, Telecom still dominates the market. The Communications
Minister accepted the regulator's recommendation against ordering
Telecom to open its national fixed-line network to competitors.
Saying he aimed to increase competition in broadband services,
the Minister also agreed with the regulator's recommendation to
require bitstream unbundling, or access to Telecom's equipment by
service providers in order to sell their own broadband services.
TelstraClear, Telecom's primary land-line competitor, in November
2004 asked the regulator to determine the terms and conditions
for access to Telecom's unbundled bitstream service. The
regulator made that determination December 20, although Telecom
was considering a court appeal.


Investment Screening

New Zealand screens certain types of foreign investment through
the Overseas Investment Office (OIO). Amid growing public
concern about purchases of coastal properties by foreigners, the
New Zealand government enacted legislation in August 2005 that
toughened the screening and monitoring of land purchases, but
raised the minimum threshold for scrutiny of proposed business
purchases. Under the legislation, the threshold for screening
non-land business assets has been increased from NZ $50 million
to NZ $100 million, where a foreigner proposes to take ownership
or control of 25 percent or more of a business. Government
approval is required for purchases of land larger than 5 hectares
(12.35 acres) and land in certain sensitive or protected areas.
Any application involving land in any form must meet a national
interest test. For land purchases, foreigners who do not intend
to live in New Zealand must provide a management proposal
covering any historic, heritage, conservation or public access
matters and any economic development planned. That proposal
would have to be approved and generally made a condition of
consent. In addition, investors would be required to report
regularly on their compliance with the terms of the consent.
Overseas persons also must demonstrate the necessary experience
to manage the investment. The OIO, part of Land Information New
Zealand, took over the functions of the Overseas Investment
Commission in August 2005. The United States has raised concerns
about the continued use of this screening mechanism. New
Zealand's commitments under the GATS Agreement of the WTO are
limited as a result of New Zealand's screening program.



The U.S. government continued to raise concerns about New
Zealand's pharmaceutical sector policies, which do not
appropriately value innovation and discourage investment in the
research and development of innovative pharmaceutical products.
New Zealand's Pharmaceutical Management Agency (PHARMAC), a stand-
alone Crown entity, administers a Pharmaceutical Schedule that
lists medicines subsidized by the New Zealand government and the
reimbursement paid for each pharmaceutical under the national
health care system. The schedule also specifies conditions for
prescribing a product listed for reimbursement. PHARMAC accounts
for 73 percent of New Zealand's expenditures on prescription
drugs. The government also supports hospitals' pharmaceutical
expenditures, bringing its share of total spending on
prescription drugs in the country to about 80 percent.

New Zealand does not directly restrict the sale of non-subsidized
pharmaceuticals in the country. However, private medical

WELLINGTON 00000987 005 OF 005

insurance companies will not cover the cost of non-subsidized
medicines and doctors are often reluctant to prescribe them to
patients who would have to pay the cost out of pocket. Thus,
PHARMAC's decisions have a major impact on the availability and
price of non-subsidized medicines and the ability of
pharmaceutical companies to sell their products in the New
Zealand market.

The United States has serious concerns relating to the
transparency, predictability and accountability of PHARMAC's
operations. U.S. pharmaceutical suppliers maintain that the
methodology used to determine Pharmaceutical Schedule decisions
lacks transparency. Meanwhile, PHARMAC is reviewing the way it
decides funding for high-cost medicines. And, the Labour Party,
in an agreement to form a new government in October 2005 with
support from the United Future party, assented to a review of the
nation's long-term medicines strategy, including PHARMAC's role.
The U.S. government will continue to closely monitor developments
in this sector.

The New Zealand and Australian governments signed a treaty on
December 10, 2003, to create a joint agency to regulate medical
devices, prescription and over-the-counter medicines, dietary and
nutritional supplements, and cosmetics such as sun creams. Aside
from prescription pharmaceuticals, New Zealand does not currently
regulate market entry of these products. Both governments must
enact implementing legislation, which probably will not be
introduced in their Parliaments until at least mid-2006. It is
expected that the new agency will charge full cost-recovery fees
to register products and require additional documentation and
assessments for certain products, even if they already have U.S.
Food and Drug Administration approval. Each country's government
will continue to separately determine funding of prescription
medicines. U.S. manufacturers and distributors of non-
pharmaceutical therapeutic products in New Zealand have expressed
concerns that those requirements would be overly burdensome and
costly, and could serve to discourage exports of their products
from the United States to New Zealand.


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