12 april, 2005 1 nz retailers association implications of free trade agreements
TRANSCRIPT
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12 April, 20051
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 Zealand’s 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 Zealand’s 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 Zealand’s 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 Zealand’s 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 Zealand’s 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 Zealand’s 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 importer’s 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.