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Cablegate: New Zealand - 2007 National Trade Estimate Report

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RR RUEHNZ
DE RUEHWL #0878/01 3110156
ZNR UUUUU ZZH
R 070156Z NOV 06
FM AMEMBASSY WELLINGTON
TO RUEHC/SECSTATE WASHDC 3464
INFO RUEHBY/AMEMBASSY CANBERRA 4599
RUEHNZ/AMCONSUL AUCKLAND 1000
RUCPDOC/USDOC WASHDC 0089
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 07 WELLINGTON 000878

SIPDIS

SIPDIS

STATE FOR EAP/ANP - DAN RICCI
STATE PASS USTR FOR BWEISEL AND GBLUE
COMMERCE FOR ITA/MAC/AP/OSAO
TRASURY FOR OASIA

E.O. 12958: N/A
TAGS: ETRD ECON EFIN NZ
SUBJECT: NEW ZEALAND - 2007 NATIONAL TRADE ESTIMATE REPORT

REF: State 136302

1. Following is post's input for 2007 National Trade Estimate Report
on New Zealand per request reftel. We assume that Washington
agencies will provide updated trade and investment data.

2. Begin text of NTE submission:

---------------
IMPORT POLICIES
---------------

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 Labour 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. Under this
unilateral tariff reduction programme New Zealand has begun
implementing gradual reductions of its highest tariff rates
(currently 17 percent), which will take these tariffs to 10 percent
by July 1, 2009. These top rates apply mostly to clothing,
footwear, and carpet. Ad valorem tariffs on all other dutiable
goods will reduce to 5 percent by July 1, 2008.

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--------------------------------------------- -
STANDARDS, TESTING, LABELING AND CERTIFICATION
--------------------------------------------- -

Biotechnology Regulations
-------------------------

New Zealand's Environmental Risk Management Authority (ERMA), an
independent body, reviews applications for the release of new
organisms, including biotechnology products that contain living
organisms. Using a risk management approach, ERMA assesses
applications on a case-by-case basis and can issue three types of
approvals: contained field test, conditional release with
conditions, and full, unconditional release. The Ministry of
Agriculture and Forestry (MAF) enforces compliance of field tests
and conditional release approvals. To date, ERMA has only approved
a small number of contained field tests. There have been no
applications for either a conditional or a full release of
genetically modified organisms in New Zealand.

Containment approvals include those conducted in enclosed
laboratories, glasshouses and outdoors in field test situations.
When assessing an application for a containment approval, ERMA
focuses on the adequacy of containment and, if an escape should
occur, the effect of the organism on the environment. ERMA recently
received an application from Crop and Food Research to conduct a
contained field test for broccoli, cabbage and cauliflower
genetically engineered for pest resistance. Three years ago, ERMA
approved an application from the same organization to field test
genetically engineered onions.

Release approvals include both conditional release, where controls
can be placed on the organism to manage risks, and full release
where no controls are imposed, which makes it extremely unlikely
that a full release would be granted for a biotechnology product.
The process for GM field test or release applications is much more
onerous than for a full, non-field test containment application.
Among other things, applicants for a conditional or full release
must provide ERMA with detailed information and analysis that
enables them to conduct a full scale risk assessment that takes into
account a broad range of scientific and economic factors in the
decision making process. This includes the possible impact of a
release on New Zealand's clean green image and the organic sector.


Until October 2003, New Zealand maintained a voluntary two-year
moratorium on the introduction of all biotechnology products, which
precluded applications for the commercial planting of biotechnology
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
biotechnology products. The moratorium, however, did not apply to
the use and sale of processed genetically modified foods and
ingredients. With the moratorium's expiration and the report of the
Royal Commission on Genetic Modification, Parliament amended the
Hazardous Substances and New Organisms Act 1996 to make the
regulation of biotechnological research more workable and to
facilitate controlled release of biotechnology products. The
amendment, the New Organisms and Other Matters Bill of 2003,
introduced the conditional release category for approval of new

WELLINGTON 00000878 002 OF 007


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 is the bi-national food regulatory authority for New
Zealand and Australia. FSANZ is responsible for the development of
regulations in the Australia - New Zealand Food Standards Code (the
Code). The New Zealand Food Safety Authority (NZFSA) is responsible
for implementation and enforcement of the Code within New Zealand.

A mandatory standard for foods produced using modern biotechnology
came into effect in mid-1999. The standard which was established
under the Food Act of 1981 prohibits the sale of food produced using
biotechnology unless such food has been assessed by FSANZ and listed
in the food code standard. As of November 2006, FSANZ has received
a total of 38 applications for assessment of bioengineered foods. Of
these, 31 applications had been approved and five are under
assessment. Two requests had been withdrawn.

Biotechnology Food Labeling
---------------------------

Mandatory labeling requirements for foods produced using gene
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 places liability for any biotechnology
labeling non-compliance on 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.

In 2006, New Zealand implemented new processes for undertaking risk
analyses and developing import health standards. This initiative is
intended to streamline existing processes and provide consistency in
the way New Zealand undertakes these tasks.

As of July 1, 2006, New Zealand also implemented a new system for
funding and managing the development of import health standards.
The new system is intended to be more transparent, direct government
resources to the highest priorities, and increase the resources
available for developing import health standards.

During the 2006 Trade and Investment Framework Agreement
discussions, the USG requested that New Zealand develop an import
standard for Pacific Northwest (PNW) stone fruit (plums, peaches,
nectarines and apricots). In response to the U.S. request, New
Zealand has added PNW stone fruit to their 2006-2007 import health
standard development work program. Details on the timing for
issuing the import health standard will be confirmed once the work
has commenced. The 2006-07 work program also includes a review of
import requirements for citrus from the United States.

New Zealand recently completed a risk assessment of U.S. chilled
pork. To date, this product has been subject to a pre-cooking
requirement because of the presence of Porcine Reproductive and
Respiratory Syndrome (PRRS) in the United States. While the
analysis confirmed that there is a risk of PRRS disease entering NZ,
the Ministry of Agriculture and Forestry (MAF) is recommending that
high value chilled cuts of pork be allowed entry without any

WELLINGTON 00000878 003 OF 007


sanitary treatment. To date, MAF has received 44 submissions,
including two from the United States. All submissions must be
reviewed and considered before MAF can move to the next phase, which
is drafting an import health standard.

New Zealand's import health standard for wood packaging material
came into effect in May 2006 and enforcement of the standard was
phased in over the following two months. However, New Zealand
retained a pre-existing requirement that all wood packaging
materials be bark-free. The United States has requested that New
Zealand suspend the implementation of the bark-free requirement
until the findings of on-going international research on the risk of
pest transmission through bark is released. However, New Zealand
maintains that freedom from bark needs to be met to gain biosecurity
clearance, which could take the form of debarking at destination.
The USG continues to address this issue with New Zealand.

The New Zealand Food Safety Authority (NZFSA) requires case-by-case
assessment of U.S. bovine products before importation due to
concerns over Bovine Spongiform Encephalopathy (BSE). NZFSA has
completed an assessment of the U.S. BSE regime and has indicated
that it will lift that restriction once both sides agree on
certification language that must accompany meat imports.
Discussions are currently underway on the revised certification
language.

Imports of U.S. poultry meat (except canned product) remain
suspended due to restrictions on countries that have infectious
bursal disease.

---------------------------------------------
INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION
---------------------------------------------

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 the Cabinet before they are introduced in Parliament by
end of 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.
The Government hopes to introduce the legislation by the end of
2006.

The U.S. music industry opposes a proposed amendment to the New
Zealand 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 exception to
copyright protection would make copyright infringement difficult to
enforce, send the wrong message to consumers and cost the industry
in sales revenue and profits. The industry adds that the exception
would discourage the development of music products that would permit
home copying under contractual arrangements between the consumer and
the provider.

In the absence of a broad fair use provision in the New Zealand
legislation, the government maintains that a specific exception is
required to allow New Zealand consumers to engage in format shifting
afforded U.S. consumers. The New Zealand government believes the
proposed exception is arguably narrower than that covered under the
fair use doctrine, as it specifically limits copying to one copy per
format, specifies that the original sound recording must be
legitimate and explicitly excludes making copies from borrowed or
hired recordings. The music industry has, nevertheless, opposed the
exception, and the Associate Minister of Commerce, Judith Tizard,
who has portfolio responsibility for intellectual property, has been
engaged in an on-going dialogue with the industry. The government

WELLINGTON 00000878 004 OF 007


was flexible on the drafting of the proposed exception and added a
sunset clause and a condition that the exception would be overridden
by any license provision in an attempt to address industry
concerns.

Additionally, the industry favors a wider approach to technological
protection measures (TPMs) than that provided in the governments
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 the 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 delays for
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. The Act currently provides an
exception (section 84) for time shifting of broadcasts or cable
programs for private and domestic use and solely for the purpose of
watching or listening at a more convenient time. The government has
decided that, in line with the policy of technological neutrality,
this section should be amended to cover all communication works,
except those available on demand. The exception explicitly relates
only to watching or listening at a more convenient time. It does
not allow home users to build up a collection or "library" of films
or music for ongoing and repeated use. Where the exception does not
apply, copying without the copyright owner's permission will
continue to constitute infringement.

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 Digital Video Discs
(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.

In New Zealand's 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 for pharmaceuticals. The
pharmaceutical industry group, Researched Medicines Industry
Association of New Zealand, contends that New Zealand's effective
patent life for pharmaceuticals has 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 whose patents
are expiring. The pharmaceutical industry strongly opposes this
legislation.

-----------------
SERVICES BARRIERS
-----------------

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

WELLINGTON 00000878 005 OF 007


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.

Telecommunications
------------------

U.S. industry has expressed concern about the fees charged for
completing calls using 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
determined in June 2005 that mobile network operators were able to
set unreasonably high rates because of limited market competition,
and called for such charges to be regulated. The Communications
Minister in August 2005 agreed with the authority's position that
the termination rates should be significantly reduced, 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. On 21
April 2006, the Minister received the Commission's reconsideration
final report on the Schedule 3 Investigation into Regulation of
Mobile Termination. The Commission recommends regulation of the
termination of voice calls made from fixed home or business phone
lines to all mobile networks, including those using 3G technologies.
Under the Telecommunications Act 2001 the Minister may accept the
Commission's reconsidered recommendation, reject the Commission's
reconsidered recommendation, or request the Commission to reconsider
again its recommendation. In August 2006 the Ministry of Economic
Development sought cross-submissions on the submissions and a
proposed "industry solution" regarding a Commerce Commission report
that recommends regulation of mobile termination rates. The
Ministry is advising the Minister of Communications who, under the
Telecommunications Act, may accept, reject, or require the
Commission to reconsider its recommendation.

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.

On May 3, 2006, the New Zealand Minister of Communications announced
a comprehensive package of reforms to improve the telecommunications
regulatory environment. This package of measures was developed as
part of an overall review of the telecommunications sector
commissioned by the Minister of Communications in December 2005, and
led by the Ministry of Economic Development. A draft
Telecommunications Amendment Bill is currently before parliamentary
Select Committee for consideration.

The key changes to be introduced through the Bill include:
- new processes, and enhancements to existing ones, to address
specific problems encountered in the implementation of the original
Act;
- enhanced enforcement disciplines to facilitate more effective
implementation of regulatory and statutory requirements;
- further regulated services in order to promote competition in the
supply of key telecommunications services for the long term benefit
of end users; and
- information disclosure and accounting separation framework to
address information asymmetries between access providers, access
seekers and the regulator.

The key amendments that the Bill introduces are, in summary:
- introduction of a standard terms determination process and a
formal undertakings regime to ensure that access terms and
conditions for regulated services are set in an effective and timely
manner;
- empowering the Commerce Commission to continuously monitor the
performance of the telecommunications sector and thereby enhance the
Commission's ability to promote effective competition in the
sector;
- addition of regulated local loop unbundling and support services
and amendment of the existing regulated bitstream service to remove
performance restrictions and clarify that it can be purchased as
"naked DSL";

WELLINGTON 00000878 006 OF 007


- introduction of enhanced enforcement mechanisms and an information
disclosure regime to ensure compliance with statutory and regulatory
obligations;
- introduction of accounting separation requirements for Telecom to
increase the transparency of its wholesale and retail operations;
- enhancing the opportunity for access seekers to apply for the
supply of designated and specified regulated services;
- changing the provisions mandating automatic expiry of regulated
services to instead require that the Commission periodically review
the need for regulation of services; and
- empowering the Minister to be able to make regulations to
establish an independent telecommunications consumer complaints
process and to set requirements relating to the provision of
emergency call services.

-------------------
INVESTMENT BARRIERS
-------------------

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 increased
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 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 of 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.

--------------
OTHER BARRIERS
--------------

Pharmaceuticals
---------------

The U.S. Government continued to raise concerns about New Zealand's
pharmaceutical sector policies, which do not 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.
To counter the assertion that the Government does not value
investment in pharmaceutical research and development, District
Health Boards (DHBs - responsible for determining the allocation of
public funds for pharmaceuticals and other aspects of health care)
and PHARMAC have established a fund for the health sector that is
administered by the Health Research Council. More broadly, companies
invest $20-40 million in New Zealand-based pharmaceutical research,
in addition to the $73 million Health Research Council funding.
This is part of the more than half a billion dollars the Government
invests in research and science each year.

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

WELLINGTON 00000878 007 OF 007


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 Government counters that
the coverage of pharmaceuticals by private health insurance is a
matter for those insurers to determine. The Government does not
take decisions about insurance coverage. The Government assumes
that insurers consider both affordability and cost-effectiveness of
individual pharmaceuticals when determining the coverage of their
policies.

The U.S. government has serious concerns regarding 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. Efforts have been made by PHARMAC and the
Government in recent years to increase transparency and clarify the
integrity of the appointment process to the Pharmacology and
Therapeutic Advisory Committee. PHARMAC has also recently consulted
on its methodology for cost-utility analysis and its Operating
Policies and Procedures.

Also, the Labour Party, in an agreement to form a new government in
October 2005 with support from the United Future party, agreed to
review the nation's long-term medicines strategy, including
PHARMAC's role. The next stage of this work is the post-Cabinet
release of a consultation document. The Ministry notes that this
work is looking within existing systems and policy settings to
identify where improvements can be made to ensure the best health
and disability support gains from medicines over the coming years.

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. Implementing legislation
is expected to be introduced by end of 2006. The bill is expected
to grandfather products that are already lawfully on the market at
the time of the implementation of the legislation. The bill would
grant an interim license valid for a transition period of three
years. Discussion is ongoing as to possibly extending the term of
transition to five years. 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 will be
overly burdensome and costly, and could serve to discourage exports
of their products from the United States to New Zealand. END TEXT.

McCormick

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