1. Introduction
Trade remedies are specific actions intended to deal with specific problems raised by imports. The application of trade remedies is governed by an international framework of rules, while domestically, trade remedies operate in parallel with the general regime of industry assistance provided by the tariff and the general objectives of economic policy in New Zealand.
Trade remedy legislation is administered by the Trade Remedies Group, a unit of the Business Policy and Programmes Division of the Ministry of Commerce. The purpose of the Division is "to promote and sustain the international competitiveness of New Zealand business". The objective of this Discussion Paper is to provide a basis for a discussion on how best trade remedies can help achieve that purpose. There are two broad areas of debate: first, the broader issue of the consistency of trade remedies with the general thrust of economic policy in New Zealand; and secondly, the process by which trade remedies are administered.
The Economic Framework
With a population of little more than 3.5 million, and exports of goods and services which comprise around 30 percent of GDP, international economic linkages are essential to New Zealand’s prosperity.
In recent years a number of global economic trends have emerged. These include:
- Growing integration of goods production and services delivery across borders;
- Increasing complementarity of trade and investment;
- Accelerating technological change opening the way for new types of economic transactions across borders;
- Progressive integration of capital markets;
- Increased short-term physical mobility; and
- A growing role for human capital as a source of comparative advantage.
Together these trends are part of a process which has been termed "globalisation". The process of globalisation leads to increased international specialisation and a high degree of interdependence between national economies. The result is that the economic interests of individual countries have become more closely knitted together and the distinction between domestic policy and foreign economic policy has become less meaningful.
In such circumstances, the implementation of trade rules based on the assumption that trade involves an exchange of goods and services of distinct national origin is more difficult and its justification is less clear. There is a growing need for a policy framework which considers the effect of policies on markets and their participants per se rather on the nationality of either firms or products. One such framework is based on the contestability of markets: an approach which focuses on the way in which changes to the rules governing international economic activity will affect international competition and the operation of international markets. Such a framework also provides a basis for considering policy coherence at the domestic and international level.
New Zealand’s economic reform programme has largely been directed at the creation of more open and competitive product and factor markets in New Zealand, and many elements of this have involved increasing integration of these markets with regional and international markets. New Zealand has also been actively involved in international reform exercises under the WTO, OECD and APEC with the objective of ensuring that such exercises contribute to the improved functioning of international product and factor markets in which New Zealand agents participate.
In order to maximise its interests in the context of the globalisation process, New Zealand needs to seek to be able to influence the international reform agenda so that its own interests can be taken into account. Up to now New Zealand has been able to do this through being in the vanguard of the liberalisation process, and through the quality and credibility of its arguments.
The Need for Review
Government policy is to encourage economic growth through the operation of open and competitive markets. Thus, a critical issue is the effect of "unfair" and "disruptive" trade and their remedies on market competition. It is also important to consider the extent to which both problem and solution distort the signals received by domestic firms regarding their competitiveness with foreign firms, in both domestic and export markets.
Current procedures do not require the consideration of the effectiveness of anti-dumping duties or other trade remedies in dealing with the impact of imports, or the net national benefit from such duties. Present law and practice provide for the imposition of border measures (usually duties), once it is established that there has been injury caused to domestic industries arising from the "unfair" or disruptive imports. There is no requirement to consider what effects such duties will have, either on the domestic industry or elsewhere, in terms of the national interest. In assessing net national welfare, the interests of consumers and downstream industries are important.
The application of anti-dumping duties has also resulted in claims by importers and retailers that the Government is reverting to "protectionist" policies, and has given rise to concerns that anti-dumping action could be inconsistent with other economic objectives, including trade liberalisation and encouraging effective competition in local markets.
To improve the performance of the New Zealand economy import licensing has been removed and a comprehensive tariff reduction programme implemented over the last decade. It has been argued by some though that local producers continue to be at risk from sudden surges in cheap imports, or from "unfairly" traded goods which are subsidised or dumped. International experience has been that when tariff and non-tariff barriers are lowered, industries have increased resort to trade remedies for relief from international competition perceived as unfair. Questions which arise include: are trade remedies effective in providing such protection; and are they consistent with the thrust of other government policies including trade liberalisation and competition policy?
New Zealand's trade remedy legislation was last reviewed comprehensively in 1986 in the context of major changes to industry assistance mechanisms, accession to the GATT Anti-Dumping Code and in response to the Government's concern about its ability to respond to complaints of dumping. The review resulted in significant changes to New Zealand's legislation. Since then, industry assistance reform has continued.
There is continuing debate by producers, importers and retailers about the effectiveness of trade remedies and the effects of trade remedy action. The 1991 Officials Report on the Post-1992 Tariff Review revealed considerable concern about imports of "cheap" products and whether trade remedy legislation provided an effective and swift response to dumped imports. In 1991 the Government directed officials to review the effectiveness of trade remedy legislation in the context of problems with import competition facing the apparel and footwear industries. The Post-1996 Tariff Review carried out in 1994 also identified a number of concerns about trade remedies.
The New Zealand trade remedy legislation was amended in 1994 to ensure consistency with the WTO Agreements negotiated in the Uruguay Round. The changes that took effect from 1 January 1995, and the experience gained since then in administering the legislation, provide a basis for an evaluation of the policies and processes adopted by the Trade Remedies Group including those areas where affected parties do not agree with the Group’s approach.
This paper has been developed by officials from the Ministry of Commerce, the Ministry of Foreign Affairs and Trade and the Treasury, to contribute to informed debate on the issues. It may also be of relevance to the emerging international debate on the broader relationship between trade and economic policy. The paper looks at the rationale for trade remedy actions, and discusses the extent to which trade remedy policy reflects a consistent application of the Government’s policy objectives, particularly in the context of competition policy. The paper addresses the question of the impact on consumers of actions taken to protect individual industries, and whether the benefits of the remedy in terms of the position of domestic producers, exceeds the cost to consumers. The process issues are also referred to. The order of discussion is:
- A description of how trade remedies operate in New Zealand (Chapter 2);
- A discussion of the rationale for dumping and for anti-dumping actions, including their consideration in a competition policy context (Chapter 3);
- A discussion of the policy and process issues arising in any consideration of trade remedies (Chapter 4);
- A conclusion summarising a possible approach to trade remedies policy and processes. (Chapter 5).
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