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• Background
• Alternative Specific Tariffs
• Method of Calculation for Conversions
  • Ad Valorem Equivalent (AVE) (Used for Specific Tariffs)
  • Adjusted Ad Valorem Equivalent (Used for Alternative Specific Tariffs)
  • Data
  • Aggregation
  • Assumptions

Background

There are two ways by which imports may be levied duty when entering New Zealand. The Tariff prescribes which method will be applied for each Tariff item and the rate at which the duty will be calculated. The two forms of levying are:

• an ad valorem duty where duty is levied as a set proportion of the value (e.g. 12.5 per cent of the Value for Duty);
• a specific duty where duty is levied on imports at a rate fixed in monetary terms per unit of quantity, regardless of price (e.g. $3.55 per item).

Of the 7450 Tariff items in the New Zealand Tariff 201 Tariff items, or 3 per cent, levy duty by way of a specific rate of duty. Of these 201 Tariff items 195 are alternative specific rates.⁶⁶ This means that the duty paid is calculated either by way of the alternative specific rate or the immediately preceding ad valorem rate. The importer pays whichever rate returns the highest level of duty. The alternative specific rate and the corresponding ad valorem rate are together called a Tariff item pair.

The six Tariff items where a specific rate only applies are shown in Table 8 with their calculated AVE (see page 81 for method of calculation).

Table 8: Ad Valorem Equivalents (AVEs) for Specific Rates of Duty

Alternative Specific Tariffs

Table 9 shows those parts of the Tariff that contain Tariff item pairs.

Table 9: Alternative Specific Rates of Duty

Of those imports that may attract duty by way of an ad valorem or a specific rate, 22 per cent of imports paid the specific rate while 78 per cent paid the ad valorem rate in the June year 2002.

The average percentage of trade paying a specific rate across relevant lines is 15 per cent. Twenty-two pairs had no trade paying the specific rate while only one pair had all trade paying the specific rate.⁷⁵

For those Tariff item pairs where the ad valorem rate is 19 per cent the simple average adjusted AVE is 20.7 per cent (see Figure 6). When weighted by trade this figure falls to 20.2 per cent indicating that:

• there is a concentration of trade in those Tariff items with adjusted AVEs close to 19 per cent;
• there are few Tariff items with high adjusted AVEs carrying significant trade.

Figure 6: Adjusted Ad Valorem Equivalents (AVEs) for Tariff Item Pairs with 19 Per Cent Ad Valorem Rates⁷⁶

Source: Ministry of Economic Development

For the three Tariff item pairs in leather clothing with ad valorem rates of 17.5 per cent the simple average is 21.7 per cent while the weighted average is 21.5 per cent. The two pairs with ad valorem rates of 6.5 per cent applying to ballpoint pens have an adjusted AVE average of 9.3 per cent.

Overall, the existence of the alternative specific raises the equivalent ad valorem tariff rate by an average of 1.7 percentage points. This 1.7 percentage points is on top of the ad valorem rate of duty.

Method of Calculation for Conversions

Ad Valorem Equivalent (AVE) (Used for Specific Tariffs)

Specific rate / Average Unit Value⁷⁷

Adjusted Ad Valorem Equivalent (Used for Alternative Specific Tariffs)

Ad Valorem Rate x Ad Valorem Usage + AVE x Specific Usage.

Data

Statistics New Zealand import data for the period June 2001 to July 2002.

Aggregation

HS 8-digit level (i.e. Tariff item level).

Assumptions

No qualifying imports from Australia, Singapore, SPARTECA and LLDCs paid duty given New Zealand's preferential trading arrangements. Imports from these countries were therefore excluded, as were re-imports.

Canadian imports pay the MFN tariff rates. This assumption has very little effect because Canadian imports receive only a very small margin of preference on alternative specific Tariff item lines. In addition, Canadian imports make up only 0.10 per cent of relevant imports for this exercise - of which 16 per cent paid the specific rate.

Tariff Concessions were assumed to be zero (except for 3926.20.69 where concessions were taken into account). This is because:

• outside of childrenswear (2-7 years old) there are few concessions in the relevant Tariff items;
• childrenswear concessions result in items paying the ad valorem rate, rather than no duty as in most other concessions;
• 0-2 year olds' (infants) clothing, which is almost entirely duty free under concession, while of significant quantity, is of low value relative to adults clothing.

⁶⁶Within these 195 Tariff items, there are 11 Tariff items that carry alternative compound rates of duty (i.e. a specific rate combined with an ad valorem rate).

⁶⁷Applies only to that Gin and Geneva whose strength can be ascertained by OIML hydrometer and which has a Customs value of equal to or greater than $22.00 per litre of alcohol.

⁶⁸In the year ended June 2002 no imports were recorded for this Tariff item.

⁶⁹As Footnote 67.

⁷⁰Applies only to that Vodka whose strength can be ascertained by OIML hydrometer and which has a Customs value of equal to or greater than $22.00 per litre of alcohol.

⁷¹As Footnote 68.

⁷²As Footnote 70.

⁷³The point at which the ad valorem Tariff item takes effect. This average is unweighted.

⁷⁴Excludes the 11 Tariff items with alternative compound rates of duty.

⁷⁵This was for Tariff Item 6205.10.09 (men's or boy's wool or fine animal hair shirts not exceeding chest measurement of 81cm) and accounted for only 0.07 per cent of trade where duty may be levied by an ad valorem or an alternative specific rate.

⁷⁶By definition there should be no Tariff item pairs where the adjusted AVE is lower than the ad valorem rate as imports only pay the specific rate when this results in more duty than the ad valorem rate. The reason for this small discrepancy (8 pairs) is that the import data used is an aggregation of thousands of data entries where there is a small margin of error.

⁷⁷Average Unit Value = VFD (of specific Tariff item) / Quantity (of specific Tariff item).