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Key Messages
- The underlying principle that governed the Review was to ensure that tariff policy supports improved productivity between and within firms, industries and sectors. In the light of this, the Review recognised that tariff policy remains a key domestic economic policy instrument and should not be subject to the constraints of reciprocal responses from New Zealand's trading partners.
- Previous tariff reduction has generated significant productivity and welfare gains, particularly for consumers. Many New Zealand companies are now internationally competitive.
- Previous tariff reduction had particular negative employment impacts on the clothing, footwear and transport equipment industries.
- The initial effects of tariff reduction resulted in some sharp employment effects. Overall employment since 1992 has slowly recovered, but there are still some residual effects in a number of regions and particularly among Pacific peoples and Asians.
- The tariff freeze has provided a period of stability that has allowed firms to consolidate, including in particular, those in the TCFC industries.
- While the major efficiency gains from tariff reduction have already been taken, there are still further welfare gains to be had across the economy and within industries.
- Across the manufacturing sector, productivity gains as a result of further tariff reduction are not likely to be as great, but will still be significant. They will, however, be more difficult to achieve. The ready cost reduction measures have already been taken. Future gains will depend on further investment in innovation, R&D and in the development of global markets. It will require time for firms to make such investments and adjust, supported as appropriate by complementary economic development initiatives.
- The costs from further tariff reduction across the economy as a whole are likely to be small and essentially confined to the clothing and footwear industries. These two industries have unique employment characteristics and impacts on these industries are likely to have particular implications for Horowhenua, Wairarapa, Pacific peoples, Asians, women and unskilled employees.
- A number of industries outside the clothing and footwear industries may be adversely affected by tariff reduction. These include the automotive component, furniture, building products (including steel), engineering, flexible packaging (plastics) and food processing industries.
- Business has indicated it needs:
- clear signalling on the direction of tariff policy beyond 2005;
- certainty to support efficient investment and business decisions;
- adequate time to adjust; and
- improved access to international markets.
- The tariff policy options for the post-2005 period identified by the Review recognise:
- the productivity and welfare gains still to be made;
- the need to encourage further productivity improvements to enable New Zealand firms to compete in a zero tariff environment;
- the substantive adjustment issues identified by manufacturing firms; and
- the potential impact of tariff reduction on employment and the regions.
- The Review outlines two possible options for tariff policy beyond 2005:
- Option A provides for tariff removal of all remaining tariffs by 2010. The option gives a heavier weighting to achieving early consumer welfare gains and allocative efficiency. It would, however, involve sharper competitive effects on the TCFC industries and some inherent risks therein on the industries' ability to efficiently and effectively adjust. Employment indicators for some regions and ethnic groups are still recovering from the impacts of macro and microeconomic reforms that included tariff reduction. To ease adjustment pressures complementary government initiatives may need to be considered. This option would meet the APEC Bogor Goals.
- Option B provides for tariff removal of all remaining tariffs by 2013. All peak tariffs (those that apply to carpet, clothing, headgear, footwear and ambulances and motor homes) would be gradually removed by 2013. All other tariffs would be zero by 2010. The option gives a heavier weighting to the adjustment required in the relatively highly protected industries, namely the clothing and footwear industries. It would, however, delay consumer welfare gains and allocative efficiency. There may still be a need to consider complementary government initiatives to ease adjustment pressures. This option would fall short of meeting the APEC Bogor Goals, which require free trade by 2010 for developed economies. New Zealand would, however, be the first developed APEC economy, outside Singapore and Hong Kong, to have signalled a policy commitment to have zero tariffs by a specified end date.
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