Proposed Free Trade Agreement with China
SUBMISSIONS of the NEW ZEALAND RETAILERS ASSOCIATION to the MINISTRY OF FOREIGN AFFAIRS AND TRADE in respect of THE PROPOSED FREE TRADE AGREEMENT BETWEEN NEW ZEALAND AND THE PEOPLES REPUBLIC OF CHINA
September 2004
Introduction
These submissions are presented by the New Zealand Retailers Association.
Background
The Association is the largest trade association involved in the retail industry in New Zealand. We represent an industry that has annual sales of $50b, and which employs some 325,000 people (17% of the workforce) in some 49,000 outlets throughout New Zealand. Our membership includes the major supermarket and general merchandise chains, specialised chains, traditional department stores and thousands of owner operators. We also service a number of specialised trade groups of plumbing materials suppliers, metal fastener distributors, bicycle dealers, pet shops, jewellers and equestrian suppliers.
Overview of Submission
The Association is generally supportive of a free trade agreement (FTA) with the Peoples Republic of China. We have, for many years, supported the concept of a free and competitive marketplace, and we recognise that FTA's, such as the CER agreement with Australia, have provided positive benefits not only for traders but also for consumers throughout New Zealand. We recognise that our industry is now part of the global retail environment, and also that our industry has also become an export service industry having outlets based not only in New Zealand, but also in various offshore countries located throughout the world.
We note that China is New Zealand's fourth largest trading partner with our exports to China totalling $1.3b (5% of our global exports) and our imports $2.9b(9% of our global imports). Consumer goods dominate our imports with items of Chinese origin accounting for over 50% of total consumer sales in the major chain stores. A high proportion of apparel sold in the more traditional department stores is similarly of Chinese origin with smaller retailers also selling a broad range of imported merchandise, much of which is made in China.
We believe that the forthcoming negotiations over this FTA are the most important international trading issue facing retailers since the CER Agreement was negotiated with Australia in the early 1980's. We consider that there are a wide variety of aspects that will be addressed during the negotiations that will impinge upon retailing and we have concentrated on these specific issues in this submission.
By way of an overview, we note that there are no global import controls on merchandise imported into New Zealand. Most merchandise is now imported at very low tariff levels with merchandise now generally dutiable at 7% with imports of merchandise from LDC (Less Developed Countries), including China dutiable at 5.5%. We note footwear and apparel is however dutiable at 19% which reduces to 10% by 2009.
Specific Issues
a) Tariffs
A key question to resolve in this negotiation will be whether an FTA with China will phase out tariffs at a rate faster that what has been decided under New Zealand's global tariff programme as far as apparel and footwear are concerned. Under the current programme rates for these 'sensitive' items reduces from 19% to 10% by 2009 with a further review in a couple of year's time. Most other duty rates for other forms of merchandise that are made in New Zealand are generally below 10%.
We submit that there would be little lost by an immediate removal of tariffs under 10% for items of Chinese origin as we consider that these remaining tariffs have little protective role for New Zealand industry. We consider that most manufacturers have been on notice for many years that tariffs will ultimately be removed. Many manufacturers (e.g. Fisher and Paykel, and Rembrandt) have developed brand strength both on domestic and export markets that maximises the quality of the merchandise they sell in the eyes of consumers. We also believe that minimum quantity purchases of merchandise out of China have also now reduced to a reasonable size where many medium to smaller retailers are able to import directly from offshore suppliers. We consider that the greater availability of product from offshore suppliers may also in fact lead to a situation where some of these firms opt to pursue a wholesale or import agency rather than a purely retail function.
Notwithstanding these comments there remains some concern amongst smaller retailers that early removal of tariffs for apparel and footwear could have a negative effect upon their businesses. We therefore consider it is reasonable for the current global tariff reduction regime for apparel and footwear to run its course and that the question of the early removal of tariffs for these lines of merchandise of Chinese origin should be considered as part of the next general tariff review in 2006.
b) Anti-dumping duties
We would point out that the major chain stores were directly affected by anti-dumping duties that were imposed on footwear imports in the early 1990's, and, whilst they have been removed, we recognise that manufacturers may call for the current safeguard rules to be strengthened in a FTA environment.
It is our belief that there is no need for any special provisions over and above the current global rules that are enshrined in our anti-dumping legislation. We also consider however that there is no need for an Australasian type approach where the anti-dumping rules have been removed under the CER Agreement with any complaints now being considered in terms of competition law.
c) Rules of Origin
We believe that rules of origin governing duty free entry for merchandise of Chinese origin will be another issue of likely concern to manufacturers under an FTA with China.
We note that at present different rules apply to imports from different countries under the respective FTAs that New Zealand has successfully negotiated with various offshore countries. We submit that there is a need for simplicity and consistency in these rules, and that there is little need for a further series of different rules to be developed solely for China.
d) Counterfeit Goods
We do not believe that there is a need for specific rules to be developed for items of merchandise of Chinese origin. Global rules are already part of the Customs Act in respect of counterfeit merchandise and penalties for proven breaches of imports of counterfeit goods are severe and, in our opinion, adequate. We therefore consider that the creation of special safeguard rules over and above what now exists in New Zealand's legislation is again unnecessary and inconsistent with the principles of an FTA.
e) Parallel Imports
We again see no need to establish special rules for items of merchandise of Chinese origin. Global rules similarly apply to parallel imported merchandise and most traders are well aware of the consequences for importing merchandise that might fail to meet New Zealand's product safety rules.
f) Intellectual Property
We believe that the FTA must respect the rights of both brand owners and patent holders. New Zealand has clear rules around the issues of intellectual property and it is most important that these are recognised and incorporated in any FTA with China.
g) Standards
We submit that, outside of tariffs, standards are perhaps the second most important issue that needs to be addressed in the FTA negotiation. Put simply, our view is that all imports out of China must meet New Zealand's standards requirements as far as quality and design are concerned.
We are aware that some specific types of merchandise are already subject to product safety or consumer information standards under the Fair Trading Act. Furthermore, safety standards also exist for electrical and gas appliances.
However, questions still remain as tap distributors, for instance, have questioned whether imports out of China do in fact comply with current New Zealand standards. New Zealand distributors of white-ware are also adamant that any imports of unrecognised brands of Chinese merchandise must be able to clearly demonstrate that they meet our electrical standards and energy efficiency ratings.
We therefore consider considerable effort must be made by the New Zealand negotiators to ensure that merchandise of Chinese origin complies with New Zealand's quality and labelling standards under an FTA.
h) Shipments through Hong Kong
We believe the FTA negotiation also needs to consider the ways in which an FTA could affect merchandise manufactured in China but shipped to New Zealand via Hong Kong. The out-sourcing of finishing work for apparel has implications for rules of origin assessments for preferential duty free entry to New Zealand, and this is an issue of considerable importance both to importers and retailers that needs to be addressed in the forthcoming negotiation.
i) Joint Buying Decisions
We believe that an FTA will likely affect joint buying decisions for chain stores that buy in one country for the combined Australasian market. Whilst this is not a prime issue for the negotiators there will be pricing implications, as well as logistical considerations, for traders that will need to be resolved should New Zealand successfully negotiate an FTA with China but Australia does not.
j) Opportunities in China
We believe that an FTA with China should cover free trade in services as well as goods, as we consider such an Agreement could open opportunities for New Zealand retailers to establish operations in China, either in their own right or in a joint venture with a Chinese partner.
We understand that retailing is currently a restricted or a licensed industry in China and we submit that the maintenance of such a requirement would be in abrogation of free trade principles. New Zealand retailers are, as stated, now part of the global trading environment, and we believe considerable opportunities may open in China particularly as the 2006 Asian Retailers Conference is scheduled to be held in Beijing in 2006.
Conclusion
We believe that this proposed FTA with China will create significant benefits to New Zealand exporters which will be positive to the growth of the New Zealand economy, and enhance opportunities for New Zealand retailers and consumers. We recognise that there will be concerns from some traders about various aspects of the proposed agreement associated with tariff removal and standards for imported merchandise, but on balance, we consider these issues can be satisfactorily negotiated and resolved as part of the umbrella FTA agreement.
We would like to have the opportunity of discussing these submissions with MFAT officials. We also wish to register our interest in being consulted throughout the period of negotiation of the FTA agreement with China.
New Zealand Retailers Association
August 2004
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