NEW ZEALAND – HONG KONG, CHINACLOSER ECONOMIC PARTNERSHIP

NATIONAL INTEREST ANALYSIS

(and associated instruments)

CONTENTS

EXECUTIVE SUMMARY 2

1 NATURE AND TIMING OF PROPOSED TREATY ACTIONS 8

2 REASONS FOR NEW ZEALAND BECOMING A PARTY TO THE TREATIES 9

2.1 Background 9

2.2 BenefitsfromEnhancedTradeandEconomicLinks 9

2.3 BenefitsofCloserCooperationwithHongKongonLabourandEnvironment 10

3 ADVANTAGES AND DISADVANTAGES TO NEW ZEALAND OF THE TREATY ACTIONS 11

3.1 AdvantagestoNewZealandinEnteringintotheCEP 11

3.2 AdvantagestoNewZealandinenteringintotheLabourMOUandEnvironmentAgreementwithHongKong 20

3.3 AdvantagestoNewZealandinenteringintotheExchangeofLettersonInvestment(InvestmentEoL) 21

3.4 DisadvantagestoNewZealandenteringintotheCEP 21

3.5 DisadvantagestoNewZealandenteringintotheLabourandEnvironmentAgreementswithHongKong 22

4 LEGAL OBLIGATIONS WHICH WOULD BE IMPOSED ON NEW ZEALAND BY THE TREATY ACTIONS AND AN OUTLINE OF THE DISPUTE SETTLEMENT MECHANISM 23

4.1 InitialProvisions 23

4.2 TradeinGoods 23

4.3 RulesofOrigin(ROO) 24

4.4 CustomsProceduresandCooperation 25

4.5 TradeRemedies 25

4.6 SanitaryandPhytosanitary(SPS)Measures 26

4.7 TechnicalBarrierstoTrade(TBT) 26

4.8 Competition 27

4.9 ElectronicCommerce 27

4.10 Intellectualproperty(IP) 27

4.11 GovernmentProcurement 27

4.12 TradeinServices 28

4.13 MovementofBusinessPersons 31

4.14 Transparency 32

4.15 DisputeSettlement 32

4.16 AdministrativeandInstitutionalProvisions 33

4.17 GeneralProvisions 34

4.18 Exceptions 34

4.19 FinalProvisions 35

4.20 NotificationtotheWTO 35

4.21 LabourMemorandumofUnderstandingandEnvironmentCooperationAgreement 35

4.22 ExchangeofLettersonInvestment 36

5 MEASURES WHICH THE GOVERNMENT COULD OR SHOULD ADOPT TO IMPLEMENT THE TREATY ACTIONS 37

6 ECONOMIC, SOCIAL, CULTURAL AND ENVIRONMENTAL COSTS AND EFFECTS OF THE TREATY ACTIONS 38

6.1 EconomicEffects 38

6.2 SocialEffects 45

6.3 CulturalEffects 46

6.4 EnvironmentalEffects 46

7 COSTS TO NEW ZEALAND OF COMPLIANCE WITH THE TREATIES 49

7.1 TariffRevenue 49

7.2 CoststoGovernmentAgenciesofImplementingandComplyingwiththeTreaties 49

7.3 CoststoBusinessesofComplyingwiththeTreaties 50

8 COMPLETED OR PROPOSED CONSULTATION WITH THE COMMUNITY AND PARTIES INTERESTED IN THE TREATY ACTIONS 51

8.1 Inter-departmentalConsultationProcess 51

8.2 PublicConsultationProcess 51

9 SUBSEQUENT PROTOCOLS AND/OR AMENDMENTS TO THE TREATIES AND THEIR LIKELY EFFECTS 55

10 WITHDRAWAL OR DENUNCIATION 56

11 AGENCY DISCLOSURE STATEMENT 57

TAbLES

TABLE 1 CHANGE IN HONG KONG, CHINA’S IMPORTS FROM NEW ZEALAND FOLLOWING A 10 PERCENT TARIFF INCREASE 39

TABLE 2 TOP TEN NEW ZEALAND EXPORTS TO HONG KONG (AVERAGE 2008/09 JUNE YEARS) 42

TABLE 3 TOP TEN NEW ZEALAND IMPORTS FROM HONG KONG (AVERAGE 2008/09 JUNE YEARS) 42

TABLE 4 SUMMARY OF NEW ZEALAND’S TARIFF REDUCTION COMMITMENTS 43

TABLE 5 TARIFF OUTCOMES IN KEY AREAS OF NEW ZEALAND’S DOMESTIC SENSITIVITY 44

FIGuRES

FIGURE 1 VALUE OF TRADE WITH HONG KONG 41

2

EXECuTIVE SuMMARY

Background

Negotiations towards a Closer Economic Partnership Agreement (CEP) with Hong Kong, China

(hereafter‘HongKong’)firstcommencedin2001.Thesenegotiationsranintoanumberofdifficulties

in2002andweresuspended.FollowingaseriesofinformaldiscussionsbetweenNewZealandand

HongKongatboththeministerialandofficials’level,itwasagreedinFebruary2009toresumethe

CEPnegotiations.FormalnegotiationsresumedinMay2009.PrimeMinisterJohnKeyandhis

HongKongcounterpart,ChiefExecutiveDonaldTsang,announcedthesuccessfulconclusionof

theCEPnegotiationsattheAPECLeadersmeetinginSingaporeinNovember2009.

InconjunctionwiththeCEPnegotiations,NewZealandhasalsoconcludedthefollowingbinding

treaty-levelagreements:anExchangeofLettersontheConclusionofanInvestmentProtocol(“the

InvestmentEoL’’),aMemorandum of Understanding on Labour Cooperation between New Zealand

and Hong Kong, China(“theLabourMOU”)andtheNew Zealand – Hong Kong, China Environment

Cooperation Agreement(“theEnvironmentAgreement”).Theseinstrumentswillfurthercontribute

towards strengthening and expanding the bilateral economic and political relationship with

HongKong.TheCEPwassignedinHongKongon29March2010.TheLabourMOU,Environment

Agreement,andtheInvestmentEoLhavenowalsobeensigned.

This National Interest Analysis (NIA) assesses the CEP, the Labour MOU, the Environment

Agreement, and the Investment EoL from the perspective of their impact on New Zealand and

NewZealanders. TheNIAdoesnotseektoaddressthe impactofanyof these instrumentson

HongKongorothereconomies.TheCEPandassociatedinstrumentsareconsideredtogetherin

thesameNIAastheywerenegotiatedintandemandformpartoftheCEPpackage.

Reasons for New Zealand becoming a Party

ThekeyreasonsforNewZealandenteringintotheCEPandtheassociatedinstrumentsarethat

theywill:

• place thebilateral trading relationshiponamoreopenandsecure footing,withgreater legal

certaintyforbusinesseswishingtooperateinHongKong;

• secure more certain access to Hong Kong’s services market and ensure that New Zealand

servicesproviderswillbenefitfromfutureliberalisationbyHongKonginparticularsectors;

• committhePartiestofuturenegotiationstowardsanInvestmentProtocoltotheCEP;

• enable traders tobenefit from trade-facilitating rulesof origin (ROO) accompaniedby robust

verificationsystems;

• provideaframeworkforregulatorycooperationandconsultation;

• allowformoreeffectivediscussionandcooperationonlabourandenvironmentmatters,inline

withNewZealand’ssustainabledevelopmentandeconomicgrowthobjectives;

• raisetheprofileofthebilateraltradeandeconomicrelationship;

• complementtheNewZealand–ChinaFTA:HongKong’sproximityandspecialrelationshipwith

MainlandChina,anditsabilitytoserveasaplatformfortradingintoChina,makeHongKonga

strategicallyimportanttradingpartnerforNewZealand;and

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• enhanceNewZealand’seconomicintegrationwiththeregionfollowingonfromNewZealand’s

FTAswithThailand(NewZealand–ThailandCEP),Singapore(NewZealand–SingaporeCEP),

China(theNewZealand–ChinaFTA),withASEANandAustralia(theAgreementEstablishingthe

ASEAN–Australia-NewZealandFreeTradeArea(AANZFTA));withMalaysia(theNewZealand-

Malaysia FTA), and with Brunei Darussalam, Chile and Singapore (through the Trans-Pacific

StrategicEconomicPartnershipAgreement(P4)).

Advantages and Disadvantages to New Zealand of the Treaty Actions

Advantages

WhileHongKongalreadyoffersduty-freeimportsforallcountries,theCEPwillensureNewZealand’s

existingduty-freeaccess is “locked in” forNewZealandexports,givingNewZealandexporters

addedcertaintythatcompetitors(otherthanMainlandChina)donotenjoy.Thephase-outofcertain

remaining domestic duties may also reduce some costs for New Zealand producers who use

importedHongKongcomponentsorcapitalequipment, for instancecomponentsorequipment

acrosstheelectricaltransformers,whiteware,andsteelareas.

TheCEPprovidesNewZealandwiththe‘’earlyharvest’’ofmostofHongKong’sDohaservices

commitments(i.e.HongKongisofferingtoNewZealandnowthroughtheCEPmostofwhatitis

offeringtheWTOmembershipintheyettobeconcludedDohanegotiations).Thecommitments

thatHongKongmakestoNewZealandintheCEPaddressservicessectorsofkeyexportinterest

toNewZealand,includingeducation,business,environmentalandlogisticsservices.

NewZealand service exporters havealso secured strong future-proofingof their position in the

HongKongmarketthroughMostFavouredNation(MFN)treatmentanda“ratchet’’clause.MFN

treatment means that New Zealand exporters will automatically benefit from any preferential

treatment that Hong Kong provides to future FTA partners subject to certain reservations and

exceptions and the ratchet clause means that any future unilateral liberalisation undertaken by

HongKongincertainsectorswillbeboundinandcommittedtoNewZealand.

NewZealandwillbeusingthesametariffreductionscheduleastheNewZealand–ChinaFTAfor

imported products from Hong Kong. In order to help mitigate the potential for any negative

adjustmenteffectsassociatedwiththephase-outofthesetariffs,thelongesttariffphase-outperiods

applytoindustrysectorsinNewZealandthatareparticularlysensitivetoimportsfromHongKong,

suchastextiles,clothing,andfootwear.Delayedtariffphase-outswillapplytootherproductssuch

assteel,furniture,plasticandrubberproducts.

TheCEPincludesrobustROObasedonNewZealand’spreferredapproach.HongKongisprimarily

atradinghubwithasmallmanufacturingsector.ItwasconsideredimportantforNewZealandto

securetradefacilitatingROOwitharobustverificationsystemtohelpNewZealandCustomsensure

that products imported from Hong Kong meet the requirements to be treated as produced in

HongKong.ParallelphasingwiththeNewZealand–ChinaFTAcoupledwithROObasedclosely

onthoseintheNewZealand–ChinaFTAminimisetheriskofHongKongbeingusedasachannel

forsecuringanadvantageforproductsmanufacturedinChina.

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NewZealandwillalsobenefitfrom:

• a framework for regulatory cooperation and consultation, including around non-tariff barriers

suchassanitaryandphytosanitary(SPS)measures,technicalbarrierstotrade(TBT),intellectual

property,competitionpolicy,ande-commerce;

• asimilar levelofgovernmentprocurement (GP)marketaccessasHongKonghasoffered to

other Parties to the plurilateral WTO Government Procurement Agreement (GPA) (which

NewZealandisnotapartyto);

• a commitment to conclude an Investment Protocol within two years of entry into force

oftheCEP;

• provisionstofacilitatethemovementofNewZealandbusinesspeopleintoHongKong;and

• legally-bindingsideagreementsonlabourandenvironment,inlinewithNewZealand’spolicyof

integratinglabourandenvironmentintoFTAs.

Thereare inaddition importantstrategicbenefits fromtheCEP. Itwillstrengthenthis important

tradingrelationship,complementNewZealand’sFreeTradeAgreementwithChinaandreinforce

thepotentialofHongKongasaplatformfortradingintoChina,includingtorealisetheopportunities

openedupbythatAgreement,andenhanceNewZealand’seconomicintegrationintotheregionfor

whichHongKongisanimportanttradinghub.

Disadvantages

As with any FTA, there may be negative adjustment costs associated with the elimination of

NewZealandtariffsovertime.Thelongerphase-outperiodsforsensitiveproductsshouldhelpto

mitigatethepotentialfornegativeadjustmentcosts.

NewZealandwouldhavepreferredtohavesecuredaninvestmentchapterintheCEPitself,rather

thananInvestmentEoL,whichprovidesalegally-bindingcommitmenttonegotiateanInvestment

ProtocolwithintwoyearsofentryintoforceoftheCEP.Aninvestmentchapterwouldhavebeen

abletoincludeimprovedprotectionsanddisciplinesaroundinvestmentwithinthebodyoftheCEP.

However,untiltheProtocolentersintoforce,theprovisionsoftheexistingNew Zealand – Hong Kong

Agreement for the Protection and Promotion of Investmentswillcontinuetoprovideinvestorswith

theprotectionsandbenefitsofthatagreement.

Legal Obligations under the CEP and the Associated Instruments

ThekeynewobligationsforNewZealandinclude:

• identical tariff reductionphasingasprovidedtoChina(i.e.tariffeliminationonentryintoforceon

54percentofHongKong’sexportsandtotaltariffeliminationofalltariffsby2016);

• marketaccessandnationaltreatment1commitmentstoHongKongserviceproviderssimilarto

thoseprovidedintheP4(Brunei,ChileandSingapore),alongwithsomeelementsprovidedin

other recentFTAsanda fewcommitmentsdrawn fromNewZealand’sDohaoffer (allwithin

domesticpolicysettings);

1 Thesecommitmentsmeanthat,whereapplicable,servicesuppliersofonePartywishingtooperateintheotherareentitledtoaccessthemarketofthatotherPartywithoutquotarestrictions(marketaccess)andonthesamebasisasdomesticsuppliers(nationaltreatment).

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• a(reciprocal)commitmenttoextendMostFavouredNation(MFN)treatmenttoHongKongin

relationtoservices,subjecttospecifiedreservationsagainstthiscommitment;

• doublingtheoverseasscreeningregimethresholdfromexistingWTOlevelsof$10millionto$20

million(inanassociatednon-bindingletter,NewZealandhasundertakentolaterreviewthislevel

withaviewtoincreasingit);

• commitmentnot to take traderemedyactions inanarbitraryorprotectionistmanner,andto

carryouttraderemedyactionsinatransparentmanner;

• specificROOtoaccommodatepart-processingofcertainclothingproductsinMainlandChina,

withrobustverificationprocedurestomitigateanyrisksfromthisapproach;

• commitments on the temporary entry of Hong Kong business visitors that go beyond

New Zealand’s existing WTO commitments, but no further than New Zealand’s recent

commitmentsintheNewZealand–MalaysiaFTA;

• withrespecttoGP,acommitmentthatcertaingovernmententitieswillfollowagreedprocedures

providingfortransparentandcompetitivetenderingwhereprocurementsarevaluedatorabove

theagreedthresholds,andaprohibitionontheuseofoffsets(i.e.localcontentrequirements);

and

• a framework for cooperation in relation to customs procedures, sanitary and phytosanitary

measures,andtechnicalbarrierstotrade.

ObligationsinanumberofotherareasoftheCEPareconsistentwithexistingNewZealandlawand

practice.TheCEPdoesnotpreventNewZealandfromtakingmeasureswhichitdeemsnecessaryto

fulfilitsobligationstoMäoriundertheTreatyofWaitangiortosupportcreativeartsofnationalvalue.

TheLabourMOUandtheEnvironmentAgreementrequireNewZealandtocommittocooperating

onlabourandenvironmentissues,includingbyestablishingacooperationprogrammeandholding

regular dialogue on these matters. The Investment EoL requires New Zealand to enter into

negotiationswithHongKongonanInvestmentProtocoltotheCEP,tobeconcludedwithintwo

yearsoftheCEP’sentryintoforce.

Economic, Social, Cultural and Environmental Effects

Economic Effects

TheCEPisexpectedtohaveanoverallpositiveeffectontheNewZealandeconomyandtodeliver

economicbenefits throughtheremovalofnon-tariffbarriers to tradebetweenNewZealandand

HongKongover time. Thecostsof non-tariff barriers aredifficult toquantify and, accordingly,

robustestimatesofthegainsofremovalaredifficulttoobtain.Economicmodellinghasnotbeen

undertaken in this instance. Economic modelling is also unable to accurately predict the

‘’demonstrationeffect’’thattheconclusionoftheCEPislikelytohaveinstimulatingprivatesector

interestintherespectivemarkets.

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Social Effects

TheCEPisnotexpectedtohaveanydiscernablenegativesocialeffectsinNewZealand.Interms

ofemployment,someminornegativeeffectscouldbeexpectedinindustriespreviouslyprotected

bytariffs,thoughtariffremovalinsensitiveareaswillbegradualandfirmsinprotectedsectorswill

already be positioning themselves to transition to a tariff-free environment (given previous FTA

commitments,mostnotablytheNewZealand–ChinaFTA).Positiveemploymenteffectscanbe

expected in areas of the economy where activity increases, as a result of increased export

opportunities and cheaper imports under this agreement. The Labour MOU includes explicit

recognitionbybothPartiesthatlabourlaws,regulations,policies,andpracticesshouldnotbeused

fortradeprotectionistpurposes,norweakenedorreducedtosecuretradeadvantage.

Cultural Effects

TheCEPcontainssafeguards tohelpensure that therearenoadverseeffectsonNewZealand

culturalvalues,includingMäoriinterests(seesection6.3).

Environmental Effects

New Zealand has sufficiently robust environmental laws, policies, regulations, and practices in

placetomanageanypotentialnegativeimplicationsoftheCEP(seesection6.4).TheEnvironment

Agreement reinforces the commitment of both Parties to improving environmental

protectionstandards.

Costs

AswithanyFTA that results in the reduction in tariffs, therewillbeacost in termsof lost tariff

revenue. In 2008-09 the estimated tariff revenue collected on imports from Hong Kong was

$4million.2AstariffsarephasedoutovertimeundertheCEP,theNewZealandCustomsService

will progressively collect less and, by 2016, no revenue from duty payments on imports from

HongKongwillbecollected.

One-offcostsassociatedwiththeCEPareestimatedtoamountto$150,000forpromotionand

outreach activities (including processes and documentation required to support the legislative

process).Fundingfortheseactivitieshasbeensecuredfromtheinter-agencyTradeNegotiations

Fund(TNF).FurthercostswillarisefromthenegotiationofanInvestmentProtocolwithintwoyears

fromentryintoforceoftheCEP.ThesenegotiationswillalsobefundedfromtheTNF.

Subsequent Protocols and/or Amendments to the Treaty

The CEP provides for amendment by agreement of the Parties. New Zealand would consider

proposedamendmentsonacase-by-casebasis.Anydecisiontoacceptanamendmentwouldbe

subjecttoNewZealand’snormaldomesticapprovalsandprocedures.

2 EstimatedusingNewZealand’s2009MFNtariffandaverage2008and2009Juneyears(valueforduty(vfd))tradedata.

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Specificprovisions in theCEPenvisagethepossibilityof reviewofexistingcommitments,or the

conclusionoffurtheragreementsorarrangementsbetweentheParties.Inaddition,theInvestment

EoLrequiresthePartiestonegotiatean InvestmentProtocol totheCEPwithintwoyearsof the

CEP’sentryintoforce,andanon-bindingexchangeofletterscommitsthePartiestoreviewsome

specificmovementofbusinesspersoncommitmentsoneyearaftertheCEPentersintoforce.A

separatenon-bindingletterconfirmsthatNewZealandwillreviewtheoverseasscreeningregime

thresholdinthecontextofanduponconclusionofthenegotiationsofanInvestmentProtocol.

While the Labour MOU, the Environment Agreement and the Investment EoL have no specific

provisions covering amendment, consistent with international treaty practice, the Parties could

agreetoamendtheseagreementsiftheywished.

Implementation

LegislativeandregulatoryamendmentsarerequiredtoalignNewZealand’sdomesticregimewith

therightsandobligationscreatedbytheCEPrelatingtotariffsandtheROO.Therearenolegislative

orregulatoryamendmentsrequiredforNewZealandtoimplementtheLabourMOU,theEnvironment

Agreement,ortheInvestmentEoL.

Consultation

Therewasaprocessofconsultationwithinterestedstakeholderspriortothecommencementof

negotiationsin2001.31submissionswerereceived.Furthersubmissionswereinvitedbyinterested

stakeholders following the relaunch of negotiations in 2009 and this was supplemented by a

programmeofoutreachwithstakeholdersconsideredlikelytohaveaninterestinthenegotiations.

Thisalsoincludedanonlinesurveyof236NewZealandexportcompanies,ofwhich54%(128out

of236)identifiedHongKongasacurrentexportmarket.

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1 NATuRE AND TIMING OF PROPOSED TREATY ACTIONS

ThenegotiationsonaNewZealand–HongKong,ChinaCloserEconomicPartnershipAgreement

(“theCEP”)wereconcludedinNovember2009andtheCEPwasinsignedinHongKongon29

March2010.NegotiationsontheLabourMOU,theEnvironmentAgreement,andtheInvestment

EoLwereconcludedalongsidetheCEPandthoseagreementshavealsonowbeensigned.

TheCEPwillenterintoforce30daysafterNewZealandandHongKonghaveexchangedwritten

notificationthatnecessaryinternalproceduresforentryintoforcehavebeencompleted(theParties

are aiming for 1 October 2010). The Investment EoL will enter into force on the same day as

theCEP.

BoththeLabourMOUandtheEnvironmentAgreementwillenterintoforce60daysafterNewZealand

andHongKonghaveexchangedwrittennotificationthatanynecessarydomesticproceduresfor

entryintoforcehavebeencompleted,oraftersuchotherperiodasthePartiesmayagreeinthe

writtennotification.Itisintendedthattheseagreementswillenterintoforcepriortoorconcurrent

withentryintoforceoftheCEP.

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2 REASONS FOR NEW ZEALAND bECOMING A PARTY TO THE TREATIES

2.1 Background

HongKongwasoneofNewZealand’sfirstbilateralFTAnegotiatingpartners,withnegotiationsfirst

commencing in 2001. Hong Kong was seen as an important strategic partner with which

NewZealandcouldconcludeahighqualityandcomprehensiveFTA.Negotiationsstalledin2002,

however,primarilybecauseofdifficultiesoverrulesoforigin(ROO).Apossiblewayforwardtosolve

thosedifficultiesbecameevidentoncetheNewZealand-ChinaFTAhadbeenconcluded.

Following a series of informal discussions, it was agreed in February 2009 to resume the CEP

negotiations. Negotiations were held in Hong Kong and New Zealand, with a final session in

Singapore,betweenMayandNovember2009. InNovember2009thesuccessfulconclusionof

negotiationswasannouncedbyPrimeMinisterKeyandHongKongChiefExecutive,DonaldTsang,

inthemarginsoftheAPECEconomicLeadersmeetingatSingapore.

NewZealandwasthefirstOECDcountrytosignanFTAwithChina,andispoisedtobecomethe

firstcountry(outsideofMainlandChina)tosignaCEPwithHongKong.3

2.2 Benefits from Enhanced Trade and Economic Links

ThissectionsetsoutthedirectandindirectbenefitsoftheCEPineachkeyarea.

2.2.1 Direct Benefits from Enhanced Trade and Economic Links with Hong Kong

TheprimaryobjectiveofNewZealand’stradepolicy isto improveopportunitiesforexportersby

strengthening relationships with trading partners, removing barriers to trade, and establishing

frameworksthroughwhichtradelinkagescanbetterdevelop.Concludingbilateraltradeagreements

isoneavenueforachievingthisobjective.

TheCEPwithHongKongprovidesNewZealandwithanopportunitytostrengthenanddeepenits

relationshipwithanimportanttradingpartner,andprovidesgreatercertaintyandtransparencyfor

NewZealandbusinesseswishingtooperateinHongKong.HongKonghasrecentlybecomeone

ofNewZealand’stoptenexportdestinations.

TheCEPwithHongKong is separatebut complementary to theNewZealand-ChinaFTA, and

furtherenhancesNewZealand’seconomicintegrationwiththeAsiaregion,followingonfromthe

conclusionoftheThailandandSingaporeCEPs,theP4,theNewZealand-ChinaFTA,AANZFTA,

andtheMalaysiaFTA.

2.2.2 Indirect Benefits from Enhanced Trade and Economic Links with Hong Kong

HongKongisastrategicallyimportanttradingpartnerinAsia.Morethan70percentofNewZealand’s

tradeandinvestmentoccursintheAsia-Pacificregion.TheCEPwillleaveNewZealandinastronger

positioninthefuturetocapitaliseonnewtradeandinvestment4opportunitiesinthisregion.

3 HongKong,knownformallyasHongKong,China,isaSpecialAdministrativeRegionofChinawhichinteraliahasfullautonomyinrespectoftrade.

4 WhiletheCEPdoesnotincludeaninvestmentchapter,NewZealandandHongKonghaveagreedinthelegallybindingInvestmentEoLtonegotiateacomprehensiveProtocoltotheCEPcoveringinvestmentwithintwoyearsoftheCEP’sentryintoforce.

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TheCEPcomplementsNewZealand’sFTAwithChinaandenhancesthepotentialforHongKong

tobeusedasaplatformfortradeintoChina.SomeNewZealandcompanieslookingtoexpand

theirbusinessintoChinachoosetostartoutinHongKong.NewZealandTradeandEnterprise’s

NewZealandFocuswassetupinHongKongwiththisobjective;offeringexportersalowrisk,low

costvehicletotest theirproducts inasophisticatedethnicChinesemarket. HongKong isalso

attractive toNewZealandcompanies for its commitment to the ruleof law, thepreservationof

individualrights,andtheindependenceofthecourts.

BothNewZealandandHongKongaremembersoftheWorldTradeOrganization(WTO)andtrade

liberalisationthroughnegotiationsattheWTOremainsNewZealand’sprimarytradepolicyobjective.

NewZealandworkscloselywithHongKongintheWTOacrossarangeofissues.Theconclusion

oftheCEPconstructivelycomplementsandstrengthenscooperationbetweenthetwoeconomies.

Attheregionallevel,NewZealandandHongKongarebothmembersoftheAsia-PacificEconomic

Cooperation (APEC) forum. APECcontinues tomakeprogress in facilitating tradeandopening

marketsinmembereconomieswithaviewtoachievingfreeandopentradeandinvestmentinthe

Asia-Pacificregion.Workisnowbeingundertakentoidentifypossiblepathwaysfortheregionto

movetowardsaFreeTradeAreaoftheAsia-Pacific(FTAAP).

NewZealandalsoworkscloselywithHongKongontradeandeconomicissuesinarangeofother

multilateral organisations including the Asian Development Bank (ADB), the World Customs

Organization (WCO), the International Monetary Fund (IMF), and the International Chamber of

Commerce(ICC).

2.3 Benefits of Closer Cooperation with Hong Kong on Labour and Environment

TheNewZealandstudyonthebenefitsofaCEPbetweenNewZealandandHongKongidentified

sustainabledevelopmentasacorenationalobjectiveforbotheconomies.TheLabourMOUand

theEnvironmentAgreementhighlighttheimportanceofthelinksbetweentradeandenvironmental

outcomes,andtradeandlabourstandards.Theagreementsaffirmsharedunderstandings,and

establishmechanisms for ongoing cooperation and for addressing any issues thatmay arise in

theseareas. The intention is that thePartieswillwork together inareasofcommon interest in

relationtotrade,labour,environmentalperformance,andsustainabledevelopment.

The Labour MOU and Environment Agreement provide an opportunity for the New Zealand

Government to seek input from non-government sectors in identifying and developing potential

areasforcooperation.

TheLabourMOUandEnvironmentAgreementarebroadlysimilartothelabourandenvironment

outcomes negotiated within the context of other FTAs: including with Thailand (through the

NewZealand–ThailandCEP);withBruneiDarussalam,Chile,andSingapore(throughtheP4);with

China(throughtheNewZealand–ChinaFTA);withtheRepublicofthePhilippines(inthecontextof

theAANZFTA));andwithMalaysia(throughtheNewZealand–MalaysiaFTA).

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3 ADVANTAGES AND DISADVANTAGES TO NEW ZEALAND OF THE TREATY ACTIONS

3.1 Advantages to New Zealand in Entering into the CEP

3.1.1 Trade in Goods5

• HongKongistheninthlargestexportdestinationforNewZealandexports,accountingfor$823

millionofNewZealand’smerchandiseexports.

• NewZealandimported$199millionofmerchandisegoodsfromHongKongintheyearending

June2009,makingitNewZealand’sthirty-firstlargestsourceofimportedgoods.

• HongKongaccounts for1.9percentofNewZealand’s totalgoodsexportsand0.4percent

ofNewZealand’stotalgoodsimports.

• IntheyeartoJune2009,goodsexportstoHongKonghadincreased33.6percentfromthe

yearprior,goodsimportsweredownby2.5percent,andtotalgoodstradehadincreasedby

24.6percent.

WhileHongKongalreadyoffersduty-freeimportsforallcountries,theCEPwillofferthefollowing

specificgainsinrelationtogoods:

• TheCEPwillensurethatNewZealand’sexistingduty-freeaccessis“lockedin”bybindingin

place the duty-free access for New Zealand exports.6 This means that Hong Kong cannot

unilaterally change thisduty-free level of access forNewZealandexporterswithoutbeing in

breachof its internationalobligations toNewZealand. ThiswillgiveNewZealandexporters

addedcertaintythatalltheircompetitors,outsideofMainlandChina,donotenjoy.

• Thephase-outofNewZealand’s remaining tariffsover timemaybenefit someNewZealand

producerswhoimportHongKongcomponentsorcapitalequipmentforuseintheproductionof

theirgoods.ThiswilllowermanyNewZealandfirms’inputcostsandcouldhelpimprovetheir

internationalcompetitiveness.

In order to help mitigate the potential for any negative adjustment effects associated with the

phase-out of these tariffs, the longest tariff phase-out periods apply to industry sectors in

NewZealandthatareparticularlysensitivetoimportsfromHongKong,suchastextiles,clothing,

andfootwear.Delayedtariffphase-outswillapplytootherproductssuchassteel,furniture,plastic

andrubberproducts.

3.1.2 Rules of Origin (ROO)

roo are designedtoprotecttheintegrityoffreetradebetweencountriesbypreventingexporters

fromthirdcountriesfromgainingpreferentialaccesstothemarketofthePartiestotheagreement.

HongKongisprimarilyatradinghubwithasmallmanufacturingsector.Itisveryimportanttherefore

toensurethatproductsimportedintoNewZealandfromHongKongunderpreferentialtariffrates

areproduced inHongKong. VerifiableROOand robustverificationproceduresare required to

ensurethatonlygoodsthatqualifyasgenuinelyoriginatingundertheROOobtainthetariffpreference.

5 AllstatisticscovertheperiodfromJuly2008-June2009.

6 Currentlyaround14%ofNZexportstoHongKongareintarifflineswhichare“unbound”.ThismeansHongKongisfreetoincreasetariffstoanylevelwithoutbreachingitsWTOcommitments.

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TheROOintheCEPareprimarilybasedontheChangeinTariffClassification(“CTC”)approach.

ACTCapproachensuresconsistencyforexportersacrossNewZealand’sothercurrentFTAsand:

• providesgreatercertaintyofpreferentialaccesstoNewZealandexporters;

• reduces compliance costs to exporters by simplifying administrative requirements for origin

verification;

• facilitatesaccesstoglobalsupplychains;

• facilitateschangestomanufacturingprocessesasnewtechnologiesandsystemsdevelop;and

• simplifiesborderadministrationandverification.

TheCEPROOprovide “co-equal” or alternative rules for certainproduct lines.Thismeans that

manufacturers/exporterscanchoosebetweenaCTC,RegionalValueContent(RVC),oraprocess

rule,dependingonwhichapproachbestsuitsaparticularproductionmodel.TheCEPwilladopt

productspecificrules(PSRs)agreedundertheNewZealand-ChinaFTAforamajorityofproduct

lines.SomealternativePSRswereagreedforafewnon-sensitiveproductlineswherethevariation

wasnotsignificantandthetarifflevelsareeitherzeroorlessthan5percent.

Withrespecttotheproductsinclothingchapters61and62oftheHarmonizedSystem(HS),the

PSRsareidenticaltothoseoftheNewZealand-ChinaFTAexceptthattheyallowHongKongto

meetthePSRacrossHongKongandMainlandChina.ThisallowsHongKongtoundertakepart-

processing(inanagreedmanner)ofclothingproductsofHSchapters61and62inChinawithout

losing itsstatusofHongKongorigin.This facility takesaccountofHongKong’ssmallsizeand

specialrelationshipwithChina,alongwiththefactthatNewZealandalsohasanFTAwithChina.

Accordingly,part-processingofalimitedcategoryofgoodsinChinamakeslittlematerialdifference

forNewZealand,giventhemirroringoftariffphasingbetweenthetwoagreements.Thesameability

isprovidedforNewZealandalsotopartly-processtheseparticularproductsinChina.

TherequirementforHongKongproducerstoobtainacertificateoforiginandtoretainrecordsin

relationtotheseproductswillhelpensurethattheoriginofproductswithspecifiedpartialprocessing

respectivelyinHongKongandChinacanbeverifiedintheintendedmanner.Forotherproducts

meeting standard ROO requirements for specified processing to be undertaken in Hong Kong,

standardmethodsforverificationoforigin,basedonself-declaration,willapply.

3.1.3 Customs Procedures and Cooperation

ProvisionsintheCEPoncustomsproceduresandcooperationbuilduponlongstandingassistance

andcooperationprovided intheCo-operation Arrangement between the New Zealand Customs

Department and the Hong Kong Customs & Excise Department. This Arrangement reflects

historicallystrongrelationsbetweenthetwoCustomsAdministrations.

ThechaptercreatesabindingframeworkforfacilitatingtradebetweenNewZealandandHongKong

attheleastcosttogovernmentandstakeholders.Italsoprovidesaprocessforaddressingany

trade-relatedproblemsthatmightariseandforestablishingadialogueonissuesofrelevancetothe

twoCustomsAdministrations.Indoingso,thischapterintheCEPdrawsuponinternationalbest

practiceasadvocatedby theWorldCustomsOrganizationand isconsistentwith theapproach

followedbyNewZealandinitsotherrecentFTAs.

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Thechapterincludeskeyprovisionsontradefacilitationdesignedtoensure:

• that customs procedures and practices are predictable, consistent, transparent, and help

facilitatetrade;

• theefficientandexpeditiousclearanceofgoodsandmeansoftransport;and

• thatincreasedlevelsofcooperationtakeplacebetweenthetwoCustomsAdministrations.

Outcomeswhichwillachievepredictabilityandcertaintyandreducecostsfortradersinclude:

• NewZealandgoodswillbeclearedwithin48hoursofthetimeofarrival,inthenormalcourse

ofevents;

• aprovisionforwrittenadvancerulingsontariffclassification;

• ariskmanagementapproachwhichfacilitatestheclearanceoflow-riskgoods;and

• provisionsonreviewandappeal inrelationtoCustomsadministrativerulings,determinations,

ordecisions.

Thecustomscooperationprovisionswilllessenthelikelihoodofcustoms-relatedproblemsandwill

helpbothPartieseffectivelytodealwithanyissueswhichmightarise.

3.1.4 Trade Remedies

TheCEPTradeRemediesChapter:

• retainsNewZealand’sabilitytotaketraderemedyactionsinaccordancewithWTOrules;

• requires that trade remedyactionsarenot taken in anarbitraryorprotectionistmanner, are

carriedout inaccordancewiththeprincipleofprocedural fairness,andapplyacceptedWTO

standardsofbestpractice;

• providesforenhancedrulesontransparency,notification,andconsultation;

• prohibitsexportsubsidiesonallgoods;and

• allowsfortheexemptionofNewZealandexportersfromglobalsafeguardsappliedbyHongKong.

New Zealand manufacturers have consistently argued that there should be no weakening of

New Zealand’s ability to take trade remedy actions in accordance with WTO rules. The CEP

preserves the ability of either Party to take anti-dumping, countervailing, and global safeguard

actions under WTO rules. Hong Kong does not have legislation allowing it to undertake trade

remedyactions,althoughthisdoesnotprecludeitfromadoptingsuchlegislationinfuture.

TheprohibitionoftheuseofexportsubsidiesonallgoodstradedbetweenthetwoPartieswillhelp

ensure that New Zealand manufacturers are not disadvantaged by having to compete with

subsidisedexportsfromHongKongandthatthetradeingoodsgenerallyisnotdistortedbythe

existenceofexportsubsidies.

3.1.5 Sanitary and Phytosanitary (SPS) Measures

TheCEPenhancestheimplementationoftheWTOSPSAgreementbyprovidingaframeworkfor

enhancedcooperationontheapplicationofSPSmeasures,includingequivalenceandadaptation

to regional conditions. The objective is to address SPS issues and to facilitate trade in goods

affectedbySPSmeasuresthroughimprovedcommunicationandconsultation.

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The framework offers both Parties a formal avenue to address any SPS-related practices or

regulationswhichactasanunnecessarybarriertotradeorwhichgiverisetounnecessarycosts.

TheSPSChapterprovidesforthetwosidestoconcludeimplementingarrangementsontechnical

matterstofacilitatetrade.NegotiationsonthefirstSPSimplementingarrangement,whichsetsout

thecompetentauthoritiesandthecontactpointsforthetwosides,wereconcludedatthesame

timeastheCEPandtheimplementingarrangementwillenterintoeffectonthesamedateasthe

CEPentersintoforce.

3.1.6 Technical Barriers to Trade (TBT)

Thecostofcomplyingwithtechnicalregulationscanconstitutesignificantbarrierstotradeingoods.

Withoutformalarrangements,itisdifficulttoengagewithothercountriesatthetechnical/regulatory

levelinawaythatwillproducetangiblesolutionstotheadverseimpactsthatstandards,technical

regulations,andconformityassessmentprocedurescanhaveontradeflows.

TheCEPprovidesformechanismsthatenabledueconsiderationtobegiventoanyconcernarising

from different standards, technical regulations, or conformity assessment procedures. These

mechanismsenablesolutionstobeexploredwithHongKongwithaviewtoreducingand,where

possible,eliminatingTBT.Themechanismsinclude:

• exchangeofinformation;

• cooperationbetweenregulators,tradeofficials,andothertechnicalexperts;

• atoolboxofmechanismstofacilitatetheacceptanceofconformityassessmentprocedures;and

• regularmeetingsandworkinggroupsestablishedtoaddressspecificissues.

Inaddition,provisionsforgreatertransparency,cooperationandinformationsharingweredesigned

to facilitate trade, reduce transactioncosts forpeopledoingbusinessbetween theParties,and

strengthenriskmanagementsystems.TheCEPalsocreatesaplatformforregulatorycooperation

tosupporttradefacilitationinthecontextofeffectiveriskmanagement.Provisionisalsomadefor

the two sides to conclude arrangements or agreements/annexes to the CEP in the future on

regulatory issues or agreed principles and procedures relating to technical regulations and

conformityassessments.

3.1.7 Competition

TheCEPrecognisestheimportanceofpromotingandmaintainingcompetitionforthepurposesof

enhancingtradeandinvestment,economicefficiency,andconsumerwelfare.TheCEPplacesan

emphasis on cooperation, which is important as the international development of competition

policies and competition law complement open trade policies and help provide a stable and

predictabletradingenvironment,tothebenefitofbusinessesinbotheconomies.

TheCEPprovidesthat,attherequestofeitherParty,thePartiesshallconsultonparticularanti-

competitivepracticesthatadverselyaffecttradeorinvestmentbetweenthem.TheCEPprovides

that,attherequestofeitherParty,thePartiesshallconsultonparticularanti-competitivepractices

thatadverselyaffecttradeorinvestmentbetweenthem.Thisconsultationmechanismwillprovide

thePartieswithanavenuetodiscusscompetitionissuesthatmayarise.TheCompetitionChapter

isnotsubjecttothedisputesettlementmechanism.

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3.1.8 Electronic Commerce

Electroniccommerce(e-commerce)playsanimportantandgrowingroleintradeandinvestment

activities,includingbywayofinternetdeliveryofservices,onlinepurchasing,onlinemonitoring,and

electronic documentation. The e-commerce provisions of the CEP establish principles for the

conductofe-commercebetweentheParties,andconsultationbetweenthePartiesone-commerce

policies.TheElectronicCommerceChapterisnotsubjecttothedisputesettlementmechanism.

3.1.9 Intellectual Property

The intellectual property provisions of the CEP provide more certainty over the provision and

enforcementof intellectualproperty rights in thebilateral tradeand investment relationship. The

CEPreaffirmstheParties’commitmenttotheprovisionsoftheWTOAgreement on Trade-Related

Aspects of Intellectual Property(TRIPS).Inaddition,theCEPaffirmsparticularrightsandobligations

asrelevanttothebilateralcontext, includingbyrequiringHongKongtoestablishandmaintaina

transparentintellectualpropertyrightssystem.

TheCEPrequiresthat,atNewZealand’srequest,HongKongwillprovideinformationtoNewZealand

aboutanynewlawsthatenterintoeffectinrelationtointellectualpropertyanddevelopmentsinthe

implementationofitsintellectualpropertysystemsandinintellectualpropertyrightsenforcement.A

consultationmechanismmeansthatNewZealandcanrequestconsultationstoseekatimelyand

mutuallysatisfactorysolutiononanyintellectualpropertyissuewithinthescopeofthechapter.

3.1.10 Government Procurement

TheCEPwithHongKongisthefirstFTAsincetheP4(2005)toincludeaGovernmentProcurement

(GP)chapter.ThisisausefulprecedentasNewZealandpursuesotherFTAnegotiations.HongKong

andNewZealandareopenandnon-discriminatoryintheirGPpractices.SuppliersofbothParties

alreadyenjoyopenaccesstoeachother’sGPmarkets.TheGPcommitmentsinthisCEPagreement

thereforehavetheadvantageofbindingcurrentpolicyregimesinaformalagreementwithtreaty

status,forthoseentitiescoveredbytheCEP.

TheCEPsecurestheGPmarketbetweentheParties.Whereprocurementsarevaluedatorabove

thethresholds,thePartieshaveagreedthatthosegovernmententitiescoveredbytheCEP(listed

in each Party’s schedules) will follow certain procedures that provide for transparent and

competitivetendering.

3.1.11 Trade in Services

TheCEPprovidesNewZealandwithan“earlyharvest”ofmostofwhatHongKonghasofferedthe

entireWTOmembershipintheyettobeconcludedDohaRoundservicesnegotiations.

Hong Kong’s commitments beyond its existing WTO General Agreement on Trade in Services

(GATS)levelsincludethefollowingnewservicessectorsofkeyinteresttoNewZealand:

• Business:

− Professional Services (Architectural, Engineering, Integrated Engineering, Urban Planning

andLandscapeArchitectural,Veterinary)

− Computer&RelatedServices(Other)

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− OtherBusinessServices (Related toManagementConsulting,TechnicalTesting,Services

Incidental to Manufacturing, Related to Scientific and Technical Consulting, Packaging,

Printing&Publishing,CreditReporting,CollectionAgency).

• Communication:

− Telecommunications (Telex,Telegraph,ElectronicMail,VoiceMail,Online Informationand

DatabaseRetrieval, ElectronicData Interchange,Enhanced/Value-Added Facsimile,Code

andProtocolConversion)

− Audiovisual(MotionPictureProjection).

• ConstructionandRelatedEngineering(GeneralConstructionWorkforCivilEngineering).

• Distribution(CommissionAgents,WholesaleTrade,Franchising).

• Education (Primary,Secondary,HigherandOtherEducation)–seesectionbelow fora fuller

discussionontheeducationoutcome.

• Environmental (Sewage,RefuseDisposal,Sanitation,Cleaning,NoiseAbatement,Natureand

LandscapeProtection,Other).

• SportingandOtherRecreationalServices.

• TourismandTravelRelated(Lodging).

• Logistics:

− Air Transport (Selling andMarketing,ComputerReservationSystems,AircraftRepair and

Maintenance)

− Maritime Transport (Passenger Transport, Pushing and Towing, Supporting Services,

MaritimeFreightForwarding,Pre-shipmentInspection)

− ServicesAuxiliarytoAllModesofTransport–exceptAirandRail–(Cargo-handling,Storage

andWarehousing,FreightTransportAgency).

InservicesectorswhereHongKonghasexistingGATScommitments ithasmadeanumberof

improvementsofinteresttoNewZealand:

• Business Services (Accounting and Auditing, Taxation, Advertising, Market Research,

Management Consulting, Services Incidental to Agriculture, Maintenance and Repair of

Equipment,BuildingCleaning,Photographic,Convention,TranslationandInterpretation,Public

Relations).

• Computer & Related Services (Installation, Software Implementation, Data Processing and

Database).

• Distribution(Retailing).

• TourismandTravelRelated(Hotel,RestaurantandCatering,TravelAgencies).

• MaritimeTransport(Freight,RentalofVesselswithCrew,MaintenanceandRepairofVessels,

Cargo-handling,MaritimeAgency).

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These commitments will provide New Zealand service suppliers with the certainty of continued

opennessintheseareasconsistentwiththeCEP.SincetheyareadditionaltothosemadetoWTO

membersundertheGATS,servicesuppliersofothercountrieswillnotbenefit fromthemunless

coveredbysimilarCEP-typebilateralcommitments.WereHongKongatsomepointtoreducethe

currentlevelsofopennessinthesesectors,itcouldnotdosoforNewZealandsuppliersifdoingso

breacheditsCEPcommitmentstoNewZealand.

TheCEPusesa“negativelist”approachtoschedulingservicescommitments.ThisisNewZealand’s

preferredapproach.Underanegativelist,ifaservicesectorisnotlistedintheservicesschedules

(orotherwiseexcludedbyprovisions in theCEP), thentheCEPobligationsareapplicable. This

promotes greater transparency and is a more comprehensive approach to expressing services

commitmentsthanthealternative(apositivelistapproach).

NewZealandservicesexporterswillalsobenefitfromstrong“future-proofing”oftheirpositioninthe

HongKongmarket.ThetwomechanismswhichprovidethisaretheMostFavouredNation(MFN)

clause (automaticallyproviding toeachotheranybetter treatmentwhich theyprovide toservice

suppliersofothercountriesinthefuture–subjecttocertainreservationsandexceptions)andthe

“ratchetclause”whereinsomesectors,HongKongbindsinanyunilateralliberalisationofspecified

restrictionscurrently inplace. In legalandenergyservicesaseparate,non-bindingexchangeof

lettersprovidesthatHongKongwillpositivelyconsideraccordingMFNtreatmenttoNewZealand

servicesuppliersinthefuture.

TheMFNclauseinthisCEPissimilartotheclauseintheP4andgoesfurtherthanAANZFTA(which

hasnoMFNprovision),theNewZealand–ChinaFTAandtheNewZealand–MalaysiaFTA(both

ofwhichhavelimitedMFNprovisions).

Domestic Regulation

TheCEP includesnewrules relating todomestic regulationofastandardhigher thanhasbeen

reachedintheWTOorinanyofourearlierFTAs.Thiswillprovidegreatercertaintyandtransparency

forNewZealandservicesuppliers,particularlyinrelationtoauthorisationandlicensingprocessesin

Hong Kong. None of the domestic regulation commitments go beyond New Zealand’s current

regulatorysettings.

Education Services

AswithrecentFTAs,securingimprovementsinaccessfortheeducationservicessectorwasoneof

NewZealand’shighestprioritiesfortheservicesnegotiations.

HongKonghadpreviouslymadenocommitmentstoeducationeitherinGATSorinitsDohaRound

offer.TheCEPcontainsarangeofcommitmentsaffectingPrimary,Secondary,HigherandOther

education, although these are subject to a range of existing restrictions and a broad carve-out

relating to the admission of non-local students to education institutions located in Hong Kong.

Theseexistingrestrictionsaresubjecttothe“ratchetclause”,meaningthatanyfutureunilateral

liberalisation undertaken by Hong Kong will be bound in and committed to New Zealand.

NewZealandeducationexporterswillalsobenefitfromMFNtreatment,ensuringtheywillneverbe

anyworseoffthantheircompetitorsinHongKong.Thecarve-outrelatingtonon-localstudentswill

notextendtostudentsfromNewZealand.

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TheCEPalsoallows foracloser relationshipbetweenNewZealandandHongKong regulators

throughaneducationcooperationarrangement.

Review

TheServicesChapter includesanumberofmechanismsforreviewofthecurrentcommitments.

ThereisacommitmenttorevisitAirTransportServicesandsubsidiesundertheCEPinlightofany

WTO developments and the Committee on Services established under the CEP will review the

implementation of the Services Chapter and explore measures for the further expansion of

tradeinservices.

3.1.12 Movement of Business Persons (MBP)

TheCEPprovidescommitmentsaimedatfacilitatingthemovementofbusinesspeopleengagedin

trade and investment and ensuring transparent application procedures for temporary entry

processesforbusinesspeople.

TheCEPobligesbothPartiestopublishallrelevantinformationabouttheirimmigrationrequirements

inrespectofthecategoriesofbusinesspeopleandservicesupplierscoveredbytheirschedulesof

commitments. Anychanges to these regulationsmustalsobepublishedpromptly. There isa

requirementthatfeesforprocessingimmigrationformalitiesarereasonableand,withintendaysof

makinganapplicationfortemporaryentry,businessvisitorsandservicesuppliersmustbeeither

informedofadecision,orinformedwhenadecisionwillbemade.

LiketheServicesChapter,therulesrelatingtomovementofbusinesspersonsincludesaschedule

of specific commitments from each of the Parties. It is important to note that Hong Kong’s

commitmentsdonotgenerallygobeyonditscurrentimmigrationpolicysettings.Commitmentsto

NewZealandhavetheeffectofguaranteeingcertaintreatmenttoNewZealandbusinesspeople.

Hong Kong’s schedule contains commitments on the temporary entry and duration of stay for

particularcategoriesofbusinesspeople,investors,andservicesuppliersonthefollowingbasis:

• The commitments for all business visitors (e.g. those attending meetings, taking orders,

negotiatingcontracts–notjustservicesuppliers)allowfortemporaryentryof90days.

• ForservicesuppliersHongKongprovidesadditionalcommitmentsbeyondWTOlevelsfor‘intra-

corporatetransferees’(seniormanagersorspecialists)inabroadrangeofsectors,essentially

reflectingtheopennessprovidedforthesameservicesinits“negativelist”.Thesecommitments

allowentryforoneyear,extendableforuptofiveyears.

• HongKong’scommitmentsfor‘installersorservicers’alsogobeyonditsWTOcommitments

withtemporaryentryofthreemonthsinayear(subjecttoaneconomicneedstest)inelevennew

sub-sectors.

HongKongwasnotwillingtoexpandthescopeofitscommitmentsbeyondelevensub-sectorsfor

installersorservicersnortomakeanycommitmentstoindependentservicesuppliers.BothParties

have,however,committedinanon-bindingexchangeofletterstoreviewtheirMBPcommitments

inthesetwoareasoneyearafterentryintoforce,withaviewtoimprovingthesecommitments.This

is important to New Zealand since many of our service suppliers may not have a commercial

presenceinHongKongandwouldthereforerelyonbeingabletotraveltoHongKongforshort

periodstosupplyaserviceorsupporttheinstallationofequipment.

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3.1.13 Dispute Settlement

TheCEPincludesaconsultationanddisputesettlementmechanismfortheavoidanceorsettlement

ofdisputesthatmayariseoutoftheCEP.ThismechanismissimilartoNewZealand’spreviousFTA

precedentsandWTOprocedures.

TheCEPdisputesettlementmechanismsetsoutclearanddetailedprocessestoallowfordisputes

tobedealtwithquicklyandeffectively.Theprocessiscompulsoryandtheoutcomesarebinding.

ItensuresthatNewZealandisabletopursueamattertoarbitrationshouldHongKongnotactin

accordance with its obligations under the CEP, and provides a bilateral channel which can sit

alongsidetheWTOdisputesettlementchannelbutwhichmaybemoreexpeditioustopursue.

3.1.14 Exceptions

TheExceptionsChapterprovidestheNewZealandGovernmentwithflexibilitytointroducemeasures

which would otherwise be inconsistent with the CEP in a range of sensitive areas, including

measuresnecessarytoaccordmorefavourabletreatmenttoMäoriandsupportingcreativeartsof

nationalvalue.

ConsistentwithNewZealand’spreviousFTAs,theCEP:

• maintainsNewZealand’sability to takemeasureswhich itdeemsnecessary toaccordmore

favourable treatment to Mäori, including in fulfilment of its obligations under the Treaty of

Waitangi;and

• doesnotprecludeNewZealandfromtakingmeasuresnecessarytoprotectnationaltreasures

orspecificsitesofhistoricalorarchaeologicalvalue,ortosupportcreativeartsofnationalvalue.

InadditiontotheexceptionsrelatingtotheTreatyofWaitangiandcreativeartsofnationalvalue,the

CEPwillnotpreventNewZealandfromtakingmeasuresnecessarytoprotecthuman,animalor

plantlifeorhealth,orpublicmorals.

TheCEPwillnotpreventNewZealandfromtakinganyactionsnecessaryto:

• protectitsessentialsecurityinterests;or

• respondtoseriousbalanceofpaymentsissuesorfinancialdifficulties.

TaxationmeasuresarealsolargelyexcludedfromtheCEP.TheCEPonlyaffectstaxationmeasures

wheretherearecorrespondingrightsgrantedorobligationsimposedundertheWTOAgreement.

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3.1.15 Other Outcomes of the CEP

ConsistentwithNewZealand’spreviousFTAs,theCEP:

• provides for enhanced transparency by requiring each Party to publish or otherwise make

availablerelevantrules,regulations,proceduresandadministrativerulingsofgeneralapplication;

• provides for notification and information exchange, should any proposed or actual measure

affecttheotherParty’sinterestsoroperationoftheCEP;

• establishesaJointCommissiontoreviewtheimplementationandoperationoftheCEP,along

withanumberofspecialistcommitteestomaintainoversightandensure interactionbetween

officialsonthevariousaspectsoftheCEP;and

• providesforthereviewoftheCEP,whichaffordsNewZealandandHongKongtheopportunity

toexpandthecommitmentsundertheAgreement.

3.2 Advantages to New Zealand in entering into the Labour MOU and Environment Agreement with Hong Kong

These treaty-level agreements provide a basis for New Zealand to advance its objectives for

environmental protection, labour standards, andbuilding strongerbilateral relationships in these

areas.TheinstrumentshavebeenconcludedinthecontextoftheCEPandarelinkedtotheCEP

viaareferenceinArticle4ofChapter18oftheCEP.

3.2.1 Advantages to New Zealand in entering into the Labour MOU with Hong Kong

TheLabourMOUenumeratesasetofsharedcommitmentswhichincludestatementsrecognising

that labour laws, regulations, policies and practices should not be used for trade protectionist

purposes,norweakenedorreducedtoencouragetradeorinvestment.TheLabourMOUestablishes

abroadframeworkforpromotingthemutuallybeneficialsharingofexperienceandexpertise,and

representsanopportunityforNewZealandtoimprovedialogueandconductcooperativeactivities

withHongKong inareasofcommon interestandconcern thatarespecifically identifiedby the

Parties.TheLabourMOUincludesexplicitreferencestotherelationshipbetweentradeandlabour.

NationalcontactpointsareestablishedtooverseetheimplementationandoperationoftheLabour

MOU, with the Parties meeting on a regular basis to establish an agreed work programme of

cooperativeactivities,overseetheoperationoftheLabourMOU,andexchangeviewson labour

issuesofinterestorconcern.ThePartiesmayconsultorseektheadviceofrelevantstakeholders

overmatters relating to theoperationof theLabourMOU. Aprocessofconsultationhasbeen

agreedtoaddressissuesthatmayarisewhichrelatetoanyofthecommitmentsorothermattersin

theMOU.

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3.2.2 Advantages to New Zealand in entering into the Environment Agreement with Hong Kong

TheEnvironmentAgreementprovidesforsharedobjectivesbetweenNewZealandandHongKong

aimedatimprovingtheenvironmentandenhancingthecapacityandcapabilityofeachcountry’s

government agencies, research organisations, academic institutions and businesses to address

trade and environment matters. A specific reference to the relationship between trade and

environmentisincluded.

TheEnvironmentAgreementenumeratesasetofsharedcommitments,whichincludesstatements

recognising that the primary purpose of environmental laws, regulations, policies and practices

shouldbetoachieveenvironmentalobjectives,andthatitisinappropriateeithertoencouragetrade

andinvestmentbyweakeningtheeffectivenessoftheirenvironmentallawsandregulations,ortoset

orusethoselawsandregulationsfortradeprotectionistpurposes.Aframeworkisestablishedfor

cooperation,withthe intentionofencouragingthePartiestoworktogethertoadvancecommon

interests in relation to trade, environment, and sustainable development. The Environment

AgreementprovidesforthePartiestoestablish,overseeandevaluatecooperationactivities.

ThePartieswillmeetwithinthefirstyearaftertheEnvironmentAgreemententersintoforceandthen

on a regular basis by mutual agreement. Each Party is required to appoint a contact point to

facilitatecommunicationbetweenthePartiesfortheimplementationoftheEnvironmentAgreement,

andtoestablishandcoordinateacooperationprogramme.Eachpartymayconsultwithmembers

ofitspublicorotherorganisationsonmattersrelatingtotheoperationoftheEnvironmentAgreement

andmay,inconsultationwiththeotherParty,invitethemtomeetingsoftheParties.

3.3 Advantages to New Zealand in entering into the Exchange of Letters on Investment (Investment EoL)

Thetreaty-levelInvestmentEoLcommitsHongKongandNewZealandtoconcludeacomprehensive

InvestmentProtocolwithintwoyearsofentryintoforceoftheCEP.ThePartieshaveagreedthat

the Investment Protocol will build upon and be broader in scope than the existing

New Zealand-Hong Kong Agreement for the Promotion and Protection of Investments,andwillalso

be drafted with reference to the New Zealand – China FTA. The Investment EoL sets out the

elementsandprincipleswhichthenegotiationswillcover,andwillservetoguideNewZealandand

HongKongtowardsahighqualityoutcomeoninvestment.

3.4 Disadvantages to New Zealand entering into the CEP

3.4.1 Market Access – Imports

Anytradeagreementinvolvingreciprocaltariffremoval,whileprovidingbetteraccessforexporters,

cancreateadjustmentcostsfordomesticproducers.Domesticproducersarelikelytofaceincreased

competition from imports as foreign suppliers take advantage of reduced protection at the

NewZealandborder.However,aspreviouslyexplained,NewZealandwillbeusingthesametariff

reductionscheduleastheNewZealand–ChinaFTAforimportedproductsfromHongKong.The

longest tariff phase-out periods apply to industry sectors in New Zealand that are particularly

sensitivetoimportsfromHongKong(andfromChina).

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The impact of tariff liberalisation for Hong Kong products is expected to be minor as firms in

protectedsectorswill alreadybepositioning themselves to transition toa tariff-freeenvironment

givenpreviousFTAcommitments,includingthoseintheNewZealand–ChinaFTA7.Itisrelevant

tonote thatproducts fromthesesectorsproduced inHongKongtendtobe imported inmuch

smallervolumesthanproductsproducedinMainlandChina.8

3.4.2 Exchange of Letters on Investment

ThekeydisadvantageintheapproachagreedtointheInvestmentEoL(i.e.agreeingtoconcludea

comprehensiveInvestmentProtocoltotheCEPwithintwoyearsofentryintoforceoftheCEP),is

thattherewillbenoinvestmentchapterintheCEPwhenitentersintoforce.WhileNewZealand

investorsinservicesseekingacommercialpresence(mode3)inHongKongwillbenefitfromspecific

market access commitments provided for in the services outcome as well as services national

treatmentandMFN, investors innon-servicessectorswillnothavethe immediatebenefitofany

improved investmentmarket access, higherquality disciplinesgoverningnational treatment and

MFN,orotherimprovedinvestmentprotectionsthatwouldcomefromaninvestmentchapter.Until

theInvestmentProtocolhasbeenconcludedandhasenteredintoforce,NewZealandinvestorswill

continuetohavethebenefitofthecurrentNew Zealand-Hong Kong Agreement for the Protection

and Promotion of Investments, which does provide some minimum protections for investors,

includingnationaltreatment,fairandequitabletreatment,anddisciplinesonexpropriation.

3.5 Disadvantages to New Zealand entering into the Labour and Environment Agreements with Hong Kong

No disadvantages have been identified in New Zealand entering into these instruments with

HongKong(see section 4.21 for further information on these instruments).

7 The National Interest Analysis for the New Zealand-China FTA can be found at: www.chinafta.govt.nz/1-The-agreement/3-Publications/National-interest-analysis.pdf

8 IntheJuneyears2008and2009NewZealandimportedonaverageNZ$21millionworthofapparelfromHongKong,whereasweimportedNZ$905millionworthofapparel frommainlandChina. DuringthesameperiodNewZealand importedonaverageNZ$92millionworthofmachineryandelectricalmachineryfromHongKong,whileweimportedNZ$2.1billionworthofthesameproductsfromMainlandChina.

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4 LEGAL ObLIGATIONS WHICH WOuLD bE IMPOSED ON NEW ZEALAND bY THE TREATY ACTIONS AND AN OuTLINE OF THE DISPuTE SETTLEMENT MECHANISM

TheCEPprovidesforthe liberalisationoftradebetweenNewZealandandHongKong,withthe

objective of building on a long standing economic and trading relationship and serving as an

important building block towards regional economic integration and sustainable economic

development.

ThekeyobligationsthatNewZealandwillassumeineachchapteroftheCEParesetoutbelowin

thesequenceinwhichtheyappearintheCEP.AlsoincludedinthisSectionaretheobligations

arisingfromtheLabourMOU,EnvironmentAgreement,andInvestmentEoL.

4.1 Initial Provisions

ThePreambleandChapter1oftheCEPsetouttheobjectivesofstrengtheningtheParties’bilateral

relationshipthroughestablishingaclosereconomicpartnership.

ThePreambleandInitialProvisions(Chapter1)oftheCEP:

• outlinethebroadobjectivesofadeeperbilateralrelationshipintermsofliberalising,facilitating

andexpandingtrade,andpromotingconditionsforanopenandcompetitivemarketinthefree

tradearea(PreambleandChapter1,Article2);

• confirmtheParties’rightsandobligationsundertheWTOandtheirsupportfortheAPECgoal

offreeandopentradeandinvestment(PreambleandChapter1,Article2);and

• confirm that the CEP is consistent with Article XXIV of GATT 1994 and Article V of GATS

(Chapter1,Article1).

4.2 Trade in Goods

UndertheprovisionsofChapter3,NewZealandisrequiredtoeliminateitscustomsduties(ortariffs)

ongoodsoriginatingfromHongKonginaccordancewiththephase-outschedule inAnnexI9to

Chapter3(TradeinGoods)oftheCEP,andmaynotincreaseexistingcustomsduties.

TheCEPimposesobligations,consistentwithWTOrequirements,to:

• accordnationaltreatmentinrelationtointernaltaxesandregulationsinaccordancewithWTO

requirements(Chapter3,Article2)(i.e.toensureNewZealandtreatsgoodsfromHongKongno

lessfavourablythanNewZealandgoods);

• ensure that any fees, charges, formalities and requirements imposed in connection with the

importation and exportation of goods are consistent with their WTO obligations (Chapter 3,

Article4);and

• ensurethatanynon-tariffmeasuresareconsistentwithWTOrightsandobligationsorwiththeCEP

anddonotcreateunnecessaryobstaclestotradebetweentheParties(Chapter3,Article5).

9 Asummaryofthecommitmentsinthetariffphase-outschedulesisinTable4insection6.1.5.

24

TheParties are also required toprovide the legalmeans for their authorities and, to the extent

permittedbytheirlaw,interestedpartiestopreventthesaleofproductswhicharelabelledinafalse,

deceptiveormisleadingmanneror likelytocreateanerroneousimpressionaboutthecharacter,

composition,qualityororiginof theproduct (Chapter3,Article6). Inaddition,eachParty is to

provide the legal means for its authorities, to the extent permitted by its domestic law, and its

interestedpartiestoclaimcompensationforanylosssufferedfromsuchsale(Chapter3,Article6).

TheseprovisionsareconsistentwithexistingNewZealandlaw.

There isprovision for consultationanddiscussionof any issuesarisingpursuant to thechapter

(Chapter3,Articles7and8).

4.3 Rules of Origin (ROO)

Chapter 4 of the CEP establishes the rules for determining whether goods traded between

NewZealandandHongKongqualifyforbilateraltariffpreferences.

TheCEPprovidesthreeavenuesthroughwhichgoodscanqualifyforpreferentialtarifftreatment

(Chapter4,Article2):

• thegoodsarewhollyobtainedineitherParty;

• thegoodsareproducedexclusivelyfrommaterialsthatoriginatefromeitheroftheParties;or

• thegoodsareproducedinoneorbothofthePartiesusingnon-originatingmaterialsthatconform

to a Change in Tariff Classification (CTC) requirement, a Regional Value Content (RVC)

requirementorotherrequirementsasspecifiedinProductSpecificRulesSchedule(setoutin

AnnexItoChapter4(RulesofOrigin));and

• thegoodsmeettheotherapplicablerequirements.

UndertheCTCapproach,agoodwillqualifyforpreferentialtarifftreatmentifallthirdpartyinputs

usedinitsproductionhaveundergoneaspecifiedchangeoftariffclassification.Mostproductlines

undertheCEPhaveanapplicableCTCrule.

UndertheRVCapproach,agoodwillqualifyforpreferentialtarifftreatmentprovidedthevalueof

originating inputs is equal toorgreater than the specifiedRVCvalueof thatgood. For certain

productsthereisanoptionalRVCrequirement,whichallowsproducerstochoosewhichrulebest

suitstheirparticularbusinessmodel,andalsoallowsfororiginconferringtransformationwherethe

structureoftheTariffScheduledoesnotprovideforanappropriateCTCrule.

Underthealternativeprocessrules,specifiedprocessesmustbeundertakenonthegoodineither

oftheParties.Processrulesarepredominantlyusedinthechemicalschaptersasanalternativeto

CTCrules.

Foranygoodtoqualify for thetariffpreferences, itmustbeconsigneddirectlybetweenthetwo

Parties(Chapter4,Article9).Iftransportedthroughathirdparty,thegoodmustnotenterintothe

trade or commerce there or undergo any operation there other than unloading and reloading,

repacking, or any operation required to preserve it in good condition or to transport it to the

importingParty.

25

UndertheCEP,HongKongmayrequireadeclarationoforiginofagoodexportedfromNewZealand

forwhichpreferentialtarifftreatmentisclaimed(althoughatpresentallappliedtariffsarezeroand

undertheagreementalltariffswillbeboundatzerofromentryintoforce).NewZealandwillrequire

acertificateoforigintobeobtainedforHongKongproductsimportedintoNewZealandthatfall

within Chapter 61 or 62 of the Harmonized System and for which preferential tariff treatment

isclaimed.

TheimportingPartymay,throughitscustomsadministration,conductverificationforeligibilityfor

preferential tariff treatment, including through requesting information from the importer/exporter/

customsadministrationorvisitstothepremisesoftheexporter/producer.

4.4 Customs Procedures and Cooperation

Chapter4involvesarangeofcommitmentsontradefacilitationandcustomscooperation.These

commitmentsfallwithincurrentpolicysettingsandinclude:

• providingconsistencyandpredictabilityofproceduraloutcomes(e.g.providingadvancerulings,

customsvaluationsandusinginternationallyacceptedtariffclassifications)(Chapter5,Articles4,

5and6);

• encouraging theuseof internationalbestpracticeoncustoms,suchasapplying information

technology tosupportcustomsoperationsandapplyinga riskmanagementapproachwhich

enablesthefasterreleaseoflow-riskgoods(Chapter5,Articles7and10);

• encouragingcustomscooperationandinformationexchangeandprovidingforcontactpoints

andconsultationstodiscussanyissueswhichmightarise(Chapter5,Articles12and13);and

• publishingcustomslawsandadministrativeprocedures(Chapter5,Article14).

4.5 Trade Remedies

Chapter6ensuresthateachPartyretainsitsWTOtraderemedyrightsandobligationsandthatany

traderemedyactionsarecarriedout inaccordancewiththeprincipleofprocedural fairnessand

accepted WTO standards of best practice. The Trade Remedies Chapter imposes WTO-plus

obligationsonNewZealand,includingto:

• prohibitexportsubsidiesongoodsexportedtoHongKong(Chapter6,Article2.1);

• exemptHongKong fromanyglobalsafeguardaction if the imports fromHongKongdonot

cause,orthreatentocause,seriousinjury(Chapter6,Article3.2);

• notifyHongKongoftheinitiationofaglobalsafeguardinvestigationandprovidethereasonsfor

initiation(Chapter6,Article3.3);

• notify Hong Kong no later than 7 days after New Zealand receives a properly documented

applicationfortheinitiationofananti-dumpinginvestigation(Chapter6,Article4.2);

• hold consultations on any trade remedies matters which arise between New Zealand and

HongKong(Chapter6,Article5.2);and

• refrain from taking any trade remedy measures in an arbitrary or protectionist manner

(Chapter6,Article1.1).

26

4.6 Sanitary and Phytosanitary (SPS) Measures

TheCEPmaintainsNewZealand’sexistingrightsandobligationsundertheWTO Agreement on the

Application of Sanitary and Phytosanitary Measures(theSPSAgreement)(Chapter7,Article4).It

alsoprovidesforthedevelopmentofmechanismstoallowthePartiestoenhanceimplementation

oftheSPSAgreement,includingthedevelopmentofImplementingArrangementstodetermineand

recognisetheequivalenceofeachother’sSPSmeasures,andeachother’spestfreeareasorlow

pestprevalenceareas(Chapter7,Article2,6,7,and8).

The CEP designates the competent authorities of each Party as the agencies responsible for

implementationofthechapter,includingdecidingonworkprogrammesandensuringthattheyare

carriedout(Chapter7,Article5).Thedetailsofcompetentauthoritiesandtheircontactpointsare

set out in Implementing Arrangement 1. There are specific procedures outlined in the chapter

concerningverificationofsystemsandnotificationofSPS-relatedchangesbyeitherside(Chapter

7,Article9,10,11,and12).Thechapteralsosetsoutamechanismtoseekanexplanationofand

consultationsonanySPSmeasurethatisaffectingtrade(Chapter7,Article14).

Decisionsonmattersaffectingbiosecurityandfoodsafetywillcontinuetobemadeandenforcedin

accordancewithNewZealand’sexistingregulatoryregime.

4.7 Technical Barriers to Trade (TBT)

TheTBTChapter (Chapter8)preservesNewZealand’sexistingrightsandobligationsunder the

WTO Agreement on Technical Barriers to Trade (Chapter8,Article4). This includestherightto

adopt or maintain technical regulations necessary to ensure national security, the prevention of

deceptivepracticesandtheprotectionofhumanhealthorsafety,animalorplantlifeorhealthorthe

environment.

ThekeyprovisionsoftheTBTChapterincludecommitmentsto:

• promotetradefacilitationincludingthroughinformationexchangeandstrengthenedregulatory

cooperation(Chapter8,Article1);

• userelevantinternationalstandards,guidesorrecommendations(Chapter8,Article5);

• enablecooperationtosupportregulatoryeffectivenessandriskmanagement(Chapter8,Article8);

• givepositiveconsideration toacceptingasequivalent technical regulationsof theotherparty

(Chapter8,Article6);

• facilitatetheacceptanceofconformityassessmentproceduresthroughtheuseofabroadrange

ofmechanisms,onacase-by-casebasis(Chapter8,Article7);

• upholdandreinforcetheprovisionsoftheTBTAgreementincludingthroughacommitmentto

transparencyandtheestablishmentofcontactpoints(Chapter8,Articles9and10);and

• establish a Joint Committee on Technical Barriers to Trade and agree a work programme

(Chapter8,Article10).

ConsultationscanbesoughtwhereanyTBT-relatedmatterarisesbetweentheParties(Chapter8,

Article12)andadditionalannexesorarrangements/agreementsmaybeconcludedbythePartiesin

thefuture(Chapter8,Article11).

27

4.8 Competition

Chapter9 includesacommitment topromotecompetitionand toendeavour toensure that the

designoftradeandcompetitionpoliciesgivesduerecognitiontotheeffectoncompetition(Chapter

9,Article2).TheCompetitionChapterencouragescooperationandcoordinationbythePartiesin

the area of competition policy and requires them to consult on any anti-competitive practices

adverselyaffectingtradeorinvestmentbetweentheParties(Chapter9,Article5).Italsorecognises

that exemptions and exceptions from competition regimes may be necessary to achieve other

legitimatepolicyobjectives(Chapter9,Article3).TheCompetitionChapter isnotsubjecttothe

disputesettlementmechanism.

4.9 Electronic Commerce

TheElectronicCommerceChapteroftheCEPestablishesprinciplesfortheconductofe-commerce

betweentheParties. Inparticular, it requires themaintenanceofapredictableandsimple legal

environmentfore-commercebasedontheUNCITRAL10ModellawonElectronicCommerce1996

andothermodellaw(s)onelectroniccommerceasmaybeadoptedorrevisedbytheUNCITRALor

other internationalorganisations fromtimeto time (Chapter10,Article2). There isprovision for

consultationbetweenthePartiesone-commercepolicies(Chapter10,Article4).TheElectronic

CommerceChapterisnotsubjecttothedisputesettlementmechanism.

4.10 Intellectual property (IP)

TheIntellectualPropertyChapter(Chapter11)reaffirmstheParties’commitmenttotheWTOTRIPS

Agreement(Chapter11,Article3.1).BothPartiesarerequiredtomaintaintransparentintellectual

property regulations, efficient and non-discriminatory enforcement mechanisms and access to

expeditiousremedies,inaccordancewithTRIPSobligations(Chapter11,Article3.4).

AtHongKong’srequest,NewZealandwillhavetoprovideinformationtoHongKongaboutanynew

lawsthatenterintoeffectinrelationtointellectualpropertyanddevelopmentsintheimplementation

ofitsintellectualpropertysystemsandinintellectualpropertyrightsenforcement(Chapter11,Article

5). The cooperation provisions include committing New Zealand to cooperating with a view to

eliminatingtradeingoodsinfringingintellectualpropertyrights(Chapter11,Article6).

EachPartymust,whenrequestedbytheotherParty,enterintoconsultationswithaviewtoachieving

amutuallysatisfactoryresolutioninrelationtoanyintellectualpropertyissuethatariseswithinthe

scope of Chapter 11 (Chapter 11, Article 9). The CEP also recognises both Parties’ rights to

establishappropriatemeasures toprotectgenetic resources, traditionalknowledgeand folklore,

subjecttointernationalobligationsincludingtheTRIPSAgreement(Chapter11,Article8).

4.11 Government Procurement

ThecommitmentsintheCEP(Chapter12)areconsistentwithNewZealand’sexistingGovernment

ProcurementPolicyandtheMandatoryRulesforProcurementbyDepartments.Nonewobligations

arecreatedand,therefore,nonewmeasuresarerequiredtoimplementthechapter.

10 UnitedNationsCommissiononInternationalTradeLaw

28

The CEP provides that, where procurements are valued at or above the specified thresholds

(Chapter 12, Annex II), those government entities covered by the CEP (listed in each Party’s

schedules to Annex I) must afford national treatment (Chapter 12, Article 5) and follow certain

procedures that provide for transparent and competitive tendering (Chapter 12, Articles 8-17).

ThethresholdsareSDR130,000(approximatelyNZ$289,00011)fortheprocurementofgoodsand

servicesandSDR5million(approximatelyNZ$11million)forconstructionservices.

NewZealandhascommitted30of the37governmententitiesalreadyobliged toconduct their

procurement in accordance with the New Zealand Government Procurement Policy and the

MandatoryRulesforProcurementbyDepartments(Chapter12,AnnexI).HongKonghascommitted

all 59of its central government entities,but not the5 “other entities” included in itsWTOGPA

schedule12(Chapter12,AnnexI).

Allgoodsarecovered(Chapter12,AnnexI),butthelistofservicescoveredbyHongKong,while

consistentwiththecoverageofferedunderitsGPAschedules,ismorelimitedthanthecoverage

offered by New Zealand, and does not include consultancy services or build-operate-transfer

contracts(i.e.private-publicpartnerships)(Chapter12,AnnexI).ConsistentwithNewZealand’sP4

commitments,NewZealandhasexcludedprocurementofpubliceducation,health,welfare,and

researchanddevelopmentservices(Chapter12,AnnexI).

4.12 Trade in Services

TheCEPisintendedtofacilitateexpansionoftradeinservicesbetweenNewZealandandHongKong

bybuildingoncurrentWTOcommitmentstofurtherliberalisebilateralservicestrade.

TheCEPestablishesthegeneralobligationsofnationaltreatment(Chapter13,Article5)andmarket

access(Chapter13,Article4)thoughthesearesubjecttosomereservationsandexceptions.This

meansthat,whereapplicable,HongKongservicesupplierswishingtooperateinNewZealandare

entitledtoaccessthemarketwithoutquotarestrictions(marketaccess)andonthesamebasisas

domesticsuppliers(nationaltreatment).

Inaddition,inmostcasesNewZealandcannotrequireaHongKongservicesuppliertoestablisha

localpresence(forexample,setuparepresentativeoffice)orberesident,asaconditionforsupplying

theirserviceinNewZealand(Chapter13,Article6).Thisobligationisreferredtoas‘localpresence’.

TheCEPalsoprovidesforMostFavouredNationtreatment(MFN)treatment(Chapter13,Article

12).ThismeansthatHongKongservicesuppliersreceivethebenefitsofanybettertreatmentwhich

NewZealandprovidestoservicesuppliersofothercountries,subjecttocertainreservationsand

exceptions(forexample,bettertreatmentofservicesuppliersunderanexistingFTAwouldnothave

tobeextendedtoHongKongservicesuppliers)

11 ThresholdsareexpressedinIMFSpecialDrawingRights(SDRs).TheconversionfromSDRstoNewZealanddollarsmaychangeperiodicallywithcurrencyfluctuations.

12 Theseentitiesare:HousingAuthorityandHousingDepartment,HospitalAuthority,AirportAuthority,MTRCorporationLimited,andKowloon-CantonRailwayCorporation.

29

NewZealand’smarketaccess,nationaltreatment,localpresenceandMFNtreatmentcommitments

intheCEPgobeyondNewZealand’sexistingWTOcommitments,buthaveeitheralreadybeen

madebyNewZealand inotherFTAsorofferedbyNewZealand intheWTODohanegotiations.

None of these new commitments go beyond New Zealand’s current regulatory environment or

policysettings.

TheCEPusesa“negativelist”,whichallowseachpartytolistreservationstothemarketaccess,

nationaltreatment,localpresenceandMFNtreatmentobligations.Eachparty’sschedulehastwo

parts.Thefirstpart(AnnexI)setsoutexistingmeasures(laws,regulations,decisions,procedures

etc) that restrict theaccessof foreignservicesuppliers– forexample,by imposingquotas that

restrictmarketaccessand/orcaveatnationaltreatment.Thesereservationsaresubjecttotheso-

called“ratchet”clause (Chapter13,Article7(1)(c)). ThismeansthatNewZealand is requiredto

automaticallyextendthebenefitofanyfutureunilateralliberalisationofameasurelistedinAnnexI

toHongKong.TheliberalisationbecomesthenewlevelofcommitmentintheCEPandcannotbe

takenaway fromHongKongservicesuppliers–even if themeasure is repealedormademore

restrictiveinthefuture.Unlessspecificallyreservedagainst,AnnexIreservationsarealsosubjectto

theMFNobligation.

Thesecondpartoftheschedule(AnnexII)listssectorsandactivitiesthatareexemptedfromthe

marketaccess,nationaltreatment,MFNtreatment,and/orlocalpresenceobligations.The“ratchet”

clause does not apply to any measure captured by one of these reservations. New Zealand’s

servicesreservationsaredetailedinBox1below.

BOX 1: NEW ZEALAND’S RESERVATIONS ON TRADE IN SERVICES

New Zealand’s commitments were guided by the existing reservations in the P4 Agreement

negotiated in 2004/05. Those reservations were in turn developed on the same 10 guiding

principlesthatwereusedtoguidethepreparationin2003ofNewZealand’sinitialofferinthe

WTODohaRoundservicesnegotiations,andrevisedservicesofferthatwastabledinJune2005.

BelowisasummaryofsomeofthereservationsthatNewZealandhastaken.

NewZealand’sAnnex Ireservationsinclude:

• financialreportingrequirementsonforeigncompanies;

• registrationofpatentattorneys;

• limitations and obligations related to herd testing data and investment in the Livestock

ImprovementCorporationundertheDairyIndustryRestructuringAct2001;

• Telecomshareholding;

• theacquisitionoflicencesormanagementrightstousetheradiofrequencyspectrum;and

• marketinganddistributionservicesrelatingtocertainstatutorymarketingorganisations.

30

NewZealand’sAnnex IIreservationsinclude:

• NewZealand’soverseasscreeningregimeincludinga$20mthreshold;categoriesthattrigger

screening;criteriausedforassessingapplications;

• socialservicesestablishedforapublicpurpose,coveringchildcare,health,incomesecurity

and insurance, public education, public housing, public training, public transport, public

utilities,socialsecurityandinsurance,andsocialwelfare;

• theprovisionofpubliclawenforcementandcorrectionalservices;

• water,includingtheallocation,collectionandtreatmentanddistributionofdrinkingwater;

• thesaleordevolutionofstate-ownedenterprisesorassets;

• protectedareas,includinglandandwater,setupforheritagemanagementpurposes,public

recreationandsceneryprotection,andspeciesownedorprotectedunderenactmentsby

theCrown;

• animalwelfare,andthepreservationofplant,animalandhumanlifeandhealth.Thisincludes

foodsafety,animalfeeds,foodstandards,biosecurity,biodiversityandcertificationofplantor

animalhealthstatus;

• measuresinrespectoftheforeshore,seabed,internalwatersasdefinedininternationallaw

(including thebeds, subsoil andmarginsof such internalwaters), territorial sea,Exclusive

EconomicZoneandissuanceofmaritimeconcessionsinthecontinentalshelf;

• publiclyfundedlegalservices,firefightingservices,researchanddevelopmentservicescarried

out by state-funded tertiary institutions or Crown research institutes for public purposes,

testingandanalysisservices,licensingofimmigrationadvice;

• fishing,andactivitiesofforeignfishingvessels;

• nuclearenergy;

• servicesincidentaltomining;

• postalservices;

• filmandtelevisionco-productions,publicbroadcastingservices;

• theholdingofsharesintheco-operativedairycompanyarisingfromamalgamationunderthe

DairyIndustryRestructuringAct2001;

• marketinganddistributionservicesrelatingtokiwifruitundertheKiwifruitIndustryRestructuring

Act1999;

• cooperative dairy company and quota allocation schemes for rights to export agricultural

products,agriculturalexportmarketing;

• useofeducationaltermsandtitlesprotectedbystatute;

• financialserviceslimitedtoWTOGATSobligations;

• adoption services, hospital services, medical services, pharmaceutical services, maternity

andmidwifeservices;

• gambling,bettingandprostitutionservices;

31

• culturalheritageofnationalvalue, includingethnological,archaeological,historical, literary,

artistic, scientific or technological heritage, as well as collections of museums, galleries,

libraries, archives and other heritage-collecting institutions; public archives; library and

museumservices;andpreservationofhistoricalorsacredsitesorhistoricalbuildings.

• maritimeandportservices;and

• “MarketAccess”commitmentsinallsectorsarelimitedtoWTOGATSlevels,exceptinthe

case of the following sectors: Professional Services (Integrated Engineering, Consultancy

related to Urban Planning & Landscape Architecture); Computer and Related Services

(Maintenance&Repair,Other);OtherBusinessServices(ManagementConsulting,Services

Related to Management Consulting, Services Incidental to Animal Husbandry, Placement

andSupplyofPersonnel,PhotographicServices,ConventionServices,InteriorDesign,Credit

ReportingServices,CollectionAgencyservices);EnvironmentalServices;MaritimeAuxiliary

Services (Customs Clearance, Container Station and Depot Services; Maritime

Agencyservices).

IntheCEP,NewZealandhasagreedtodoublingtheoverseasscreeningregimethresholdfrom

existingWTOlevelsof$10millionto$20million.Inaseparatenon-bindingletterNewZealandhas

alsocommitted,inthecontextofanduponconclusionofnegotiationsonanInvestmentProtocolto

theCEP,toreviewthisthresholdwithaviewtoincreasingit.

The CEP also contains provisions relating to domestic regulation. The core function of these

provisions is toensure that, for thoseservicesonwhichNewZealandhasmadecommitments,

access to the services markets of each party is not made unnecessarily difficult by onerous

regulation.Themainobligationimplementingthisfunctionistheobligationtoensurethatmeasures

relatingtolicensingrequirementsandprocedures,qualificationrequirementsandprocedures,and

technicalstandards,donotconstituteunnecessarybarrierstotradeinservices(AnnexIIItoChapter

13,Article6).

Otherdomesticregulationprovisionsaimtofacilitatetheattainmentoflicensesandqualifications,

andthefulfilmentoftechnicalstandards,byservicesuppliersthroughsettingstandardsofpractice

for governments and their competent authorities. Examplesof these include requirements that

licensingfeesaredeterminedwithregardtotheadministrativecostsinvolved(AnnexIIItoChapter

13,Article21)andthatadequateproceduresexist forverifyingaservicesupplier’squalifications

(AnnexIIItoChapter13,Article22).

None of the domestic regulation commitments go beyond New Zealand’s current

regulatorysettings.

4.13 Movement of Business Persons

TheCEPalsoprovidescommitmentsbyNewZealandaimedatfacilitatingthetemporaryentryof

HongKongbusinessvisitors(i.e.servicessuppliers,goodssellersandinvestors)toNewZealand

through expeditious (Chapter 14, Article 5) and transparent (Chapter 14, Article 6) immigration

processes.Noneofthesecommitmentsgobeyondexistingregulatorysettings.

32

LiketheServicesChapter,therulesrelatingtomovementofbusinesspersons(MBP) includesa

scheduleofspecificcommitmentsfromeachoftheParties.Theseschedulescontaincommitments

on the temporary entry and stay of particular categories of business people, investors and

servicesuppliers.

KeyelementsoftheNewZealandschedule(Chapter14,AnnexI)arethat:

• allbusinessvisitorsfromHongKong(e.g.thoseattendingmeetings,takingorders,negotiating

contracts–notjustservicesuppliers)willbeabletotemporarilyenterNewZealandforaperiod

notexceedingthreemonthsinaggregateinanyoneyear;

• all intracorporate transferees (seniormanagersandspecialists) fromHongKongwillbeable

temporarilytoenterNewZealandforaperiodofinitialstayofuptothreeyears.Inthecaseof

seniormanagers,theymusthavebeenemployedbytheirbusinessforatleast12monthsprior

totheirtransfertoNewZealand;and

• installersorservicersfrom11specifiedsub-sectors(matchingthosecommittedbyHongKong)

willbeabletovisitforperiodsnotexceedingthreemonthsinany12monthperiod.

• ThesecommitmentsgobeyondNewZealand’sexistingWTOcommitmentsbutnofurtherthan

NewZealand’srecentcommitmentsintheNewZealand-MalaysiaFTA.Allareconsistentwith

currentNewZealandimmigrationpractice.TheMFNand“ratchet”clausedonotapplytothese

commitments.

• Both Parties have committed, in a non-binding exchange of letters, to review their MBP

commitmentsonindependentservicesuppliersandinstallersorservicersoneyearafterentry

intoforcewithaviewtoimprovingthesecommitments.

4.14 Transparency

TheCEP’sTransparencyChapter containsobligations that ensure that eachPartypublishesor

makesavailableitslaws,regulations,proceduresandadministrativerulingsofgeneralapplication

(Chapter15,Article2).ThereareadditionalrequirementsforeachPartytomakeavailableinformation

on their business laws and to encourage cooperation between their regulatory authorities on

business law (Chapter 15, Article 3). Each Party commits to providing impartial administrative

proceedings and reviews and appeals in accordance with general due process requirements

(Chapter15,Articles4and6). TheCEPalsoprovidesfornotificationandinformationexchange

shouldanyproposedoractualmeasuresubstantiallyaffecttheotherParty’sinterestsormaterially

affect the operation of the CEP (Chapter 15, Article 7). Contact points are also established to

facilitatecommunicationsbetweentheParties(Chapter15,Article5).Thesetransparencyprovisions

areconsistentwithNewZealand’sexistinglawandadministrativepractice.

4.15 Dispute Settlement

TheDisputeSettlementChapteroftheCEPprovidesamechanismfortheresolutionofdisputes

betweenHongKongandNewZealandresultingfromtheimplementationoftheCEP.

33

Thedisputesettlementmechanismprovideseffective,efficientandtransparentprocessestosettle

anydisputesarising.Theprocessiscompulsoryandtheoutcomesarebinding(Chapter16,Articles

6(4)and12). Thisensures thatNewZealand isable topursueamatter toarbitrationshould it

considerthatHongKonghasnotactedinaccordancewithobligationsundertheCEP.Conversely,

NewZealandmayalsobeheldtoaccountifHongKongconsidersthatNewZealandhasnotfulfilled

itsobligations.

Ifconsultationsarenotabletoresolveadispute,thecomplainingPartymayrequesttheestablishment

ofanarbitraltribunaltomakefindingsandrulingsontheissue.Suchfindingsandrulingsarebinding

onthePartiestothedispute(Chapter16,Article12).

TheCEPdisputesettlementmechanismincludesthenon-violationgroundofcomplaint(wherea

Partyconsidersthatthebenefititcouldreasonablyhaveexpectedtoaccruetoitisbeingnullifiedor

impairedasaresultofameasurethatisnotinconsistentwiththeCEP)(Chapter16,Article2(1)).

The findings and rulings of the arbitral tribunal must be complied with immediately or within a

reasonableperiodoftime(Chapter16,Article12).Ifthereisdisagreementastowhethertherelevant

Party has complied with the findings and rulings within a reasonable period of time, then the

disagreementwillbedecidedthroughrecoursetothedisputesettlementprocedures(Chapter16,

Article 13). If a Party’s failure to comply with the findings and rulings of the arbitral tribunal is

established, thenthereareoptions forcompensatoryadjustment tobenegotiatedorbenefitsof

equivalenteffecttobesuspended(Chapter16,Article14).

CommitmentsundertheCompetition(Chapter9,Article6)andElectronicCommerce(Chapter10,

Article5)Chaptersareexcludedfromthescopeofthedisputesettlementmechanism.Specified

commitmentsunder theTransparencyChapterarealsoexcluded (Chapter15,Article3(3)),and

commitments under the Movement of Business Persons Chapter are subject to the dispute

settlementmechanismonlyinlimitedcircumstances(Chapter14,Article7).

TheModelRulesofProcedureforArbitralTribunalsareannexedtotheDisputeSettlementChapter.

Theseprovideclarityandcertaintyaroundtheprocessandproceduresrelatedtoarbitraltribunal

proceedings,suchasrequiringallwrittencommunicationtobecopiedtoallthearbitratorsandthe

otherParty(AnnexI,Rule2),requiringthearbitraltribunaltosetthetimetableforthearbitraltribunal

process (Annex I,Rule8 following),providing forconfidentiality (Annex I,Rule27 following)and

settingoutdetailsfortheconductofthehearing(AnnexI,Rule16following).

4.16 Administrative and Institutional Provisions

TheCEP’sAdministrativeandInstitutionalProvisionsChaptersetsouthowtheimplementationof

theCEPwillbeoverseenbyaJointCommissioncomprisingrepresentativesfromNewZealandand

HongKong.

A Joint Commission is established under the CEP to consider any matters relating to the

implementation of the CEP (Chapter 17, Article 1). Its functions include monitoring the various

specialistcommitteescreatedbytheCEP,establishingadditionalcommitteesorworkinggroups

andexploringmeasuresforfurtherexpansionoftradeandinvestmentamongtheParties(Chapter

17,Article2).TheJointCommissionwillmeetwithinoneyearoftheCEPenteringintoforceand

thereaftereverysecondyearorasotherwiseagreedbytheParties(Chapter17,Article3).

34

AgeneralreviewoftheAgreementwilltakeplace,atMinisteriallevel,withintwoyearsofentryinto

forceoftheAgreementandatleasteverythreeyearsthereafter,unlessthePartiesagreeotherwise

(Chapter 17, Article 4). This review provides the opportunity to accelerate and expand the

commitmentsundertheCEP.

4.17 General Provisions

TheGeneralProvisionsChapterconfirmsthatnothing intheCEPderogatesfromanyrightsand

obligationsofNewZealandorHongKongundertheWTOAgreement,oranyotheragreementto

whicheithercountry isaParty (Chapter18,Article3). Italsoconfirms that, in theeventofany

inconsistencybetweentheCEPandanyotheragreementtowhichthePartiesareparty,theParties

shall immediately consult with each other with a view to finding a mutually satisfactory solution

(Chapter18,Article3).

ThePartiesalsoagreetoenhancetheircommunicationandcooperationonlabourandenvironment

matters through theLabourMOUand theEnvironmentAgreement (Chapter18,Article4). Any

cooperativeactivitiesundertheCEParesubjecttotheavailabilityofresourcesandtothedomestic

lawsandpoliciesoftheParties(Chapter18,Article7).

4.18 Exceptions

The CEP Exceptions Chapter contains provisions that allow New Zealand to take measures in

certaincircumstances todealwithanemergencyor toachievecertainprioritypolicyoutcomes,

evenifthesemeasuresmayaffecttheirobligations.Theseexceptionscontaindisciplinestoensure

thattheyarenotusedfortradeprotectionistpurposes.

TheWTOGeneral Agreement on Tariffs and Trade (GATT) Article XX and General Agreement on

Trade in Services(GATS)ArticleXIVareincorporatedintotheCEP.Theseprovisionsstipulatethat

Partiesareabletoadoptorenforcemeasuresnecessarytoprotectpublicmorals,human,animal

orplant life,providedthat thosemeasuresarenotusedfor tradeprotectionistpurposes. Other

exceptionsincludetheabilitytotakemeasuresrelatingtotheconservationoflivingandnon-living

exhaustible natural resources, and to protect national works or specific sites of historical or

archaeologicalvalueortosupportcreativeartsofnationalvalue(Chapter19,Article1).

TheCEPalsoprovidesthataPartyisnotpreventedfromtakingactionwhichitconsidersnecessary

fortheprotectionofitsessentialsecurityinterests(Chapter19,Article2)orfromtakingmeasures

for prudential reasons (Chapter 19, Article 5), or to deal with serious balance of payments and

externalfinancialdifficulties(Chapter19,Article6).

NewZealand’sabilitytotakemeasurestoaccordmorefavourabletreatmenttoMäori,includingin

fulfilmentofTreatyofWaitangiobligations,isexpresslyprovidedfor(Chapter19,Article3),aslong

assuchmeasuresarenotusedasameansofarbitraryorunjustifieddiscriminationagainstpersons

oftheotherPartyorasadisguisedrestrictionontradeingoodsandservices.

TheCEPonlyaffectstaxationmeasureswheretherearecorrespondingrightsgrantedorobligations

imposedundertheWTOAgreement(Chapter19Article4).

35

4.19 Final Provisions

TheFinalProvisionsChapterprovidesthattheCEPisopentoaccessionorassociation,onterms

to be agreed between the Parties, by any WTO member, State or separate customs territory

(Chapter20,Article3).

4.20 Notification to the WTO

Uponsignature,NewZealandandHongKongwillneedtonotifytheCEPtotheWTOasafreetrade

areawithinthemeaningofGATTArticleXXIV(goods)andGATSArticleV(services).

4.21 Labour Memorandum of Understanding and Environment Cooperation Agreement

TheLabourMOUandtheEnvironmentAgreementcommitNewZealandtocooperateonlabour

and environment issues, including establishing a cooperation programme, and holding regular

meetingsbetweenseniorofficialsintheseareaswithHongKong.

Labour MOU

The Labour MOU contains the generally recognised “core” trade and labour principles and is

consistent with the policy framework for integrating labour into free trade agreements. These

include explicit recognition by both Parties that labour laws, regulations, policies and practices

should not be used for trade protectionist purposes, nor weakened or reduced to secure

tradeadvantage.

Thespecific(reciprocal)obligationsforNewZealandundertheMOUoncooperationandrelated

mattersare:

• tomaintainclosedialoguewithitsstakeholdersintheformulationoflabourpoliciesandpractices

(art.2(5));

• topromotepublicawarenessofitslabourlawsandregulationsdomestically(art.2(6));

• tocooperatewithHongKongonlabourmattersofmutualinterestandbenefit(art.3(1));

• todesignateanationalcontactpointforlabourmatterstofacilitatecommunicationbetweenthe

Partiesandestablishacooperationprogramme(art.4(1));

• toseektoprovidefundingtosupportmutuallyagreedcooperativeactivities(art.4(3));

• tomeetwithinthefirstyearoftheLabourMOU’soperationandthereafterasmutuallydecided

bytheParties(art.4(4));and

• to consult the other Party in the event of an issue arising over the MOU’s interpretation or

application(art.5(1)).

Under theprovisionsof theMOU,anydifferencesor issuesbetweenthePartiesconcerning the

LabourMOUshallbesettledamicablythroughmutualconsultationand/ornegotiationsbetweenthe

Parties,andnotbyanythirdpartyorinternationaltribunal(art.5(1)).Ifconsultationsfailtoresolve

thematterandaPartyseeksameetingtoassistinitsresolution,thePartiesshallmeetassoonas

practicable,andnolaterthan90daysfollowingtherequest(art.5(2)).If issuesareunabletobe

resolved,theycanbereferredtoajointmeetingoftheParties,whichmayincludeMinisters(ortheir

HongKongequivalent–art5(3)).

36

Environment Agreement

TheEnvironmentAgreement isconsistentwith thepolicy framework for integratingenvironment

objectivesintofreetradeagreementsandincludesthecoreprinciplesthatestablishafoundationfor

thebilateralrelationship.TheseincludeexplicitrecognitionbybothPartiesthatenvironmentallaws,

regulations, policies and practices should not be used for trade protectionist purposes, nor

weakenedorreducedtosecureatradeadvantage.

The specific (reciprocal) obligations for New Zealand under the Agreement on cooperation and

relatedmattersare:

• tocooperatewithHongKongonmutuallydeterminedenvironmentalissuesofcommoninterest

andtoprovidealistofareasofNewZealand’sinterestandexpertise(Art3.1,3.5);

• to encourage and facilitate information and cooperation activities between relevant experts

(Art3.3);

• todesignateanationalcontactpoint toenablethePartiestomeet toestablish,overseeand

evaluatecooperationactivities;toserveasachannelfordialogueonmattersofmutualinterest

or concern; and to review the operation and outcomes of the Environment Agreement

(Art4.1,4.3);

• toseektoobtaintheresourcesrequiredtosupportcooperationactivities(Art4.2);

• tomeetwithinthefirstyearaftertheEnvironmentAgreemententersintoforceandthenona

regularbasiswhendeemednecessary(Art4.3);and

• intheeventthatHongKongrequestsameetingwithNewZealandtodiscussanyissuearising

over the interpretation, implementation or application of the Agreement, to meet as soon

as practicable and, unless otherwise mutually agreed, within 90 days following the request

Art5.1,5.2).

4.22 Exchange of Letters on Investment

TheInvestmentEoLrequiresNewZealandandHongKongtonegotiateandconcludeanInvestment

ProtocoltotheCEPwithintwoyearsfromthedatetheCEPentersintoforce.ThePartieshave

agreed that the negotiations must cover those elements referenced in the Investment EoL

(paragraphs2and4),andthattheresultingInvestmentProtocolwillbuilduponandbebroaderin

scopethantheexistingNew Zealand – Hong Kong Agreement for the Promotion and Protection of

Investments,andwillalsobedraftedwithreferencetotheNewZealand–ChinaFTA(paragraph3).

37

5 MEASuRES WHICH THE GOVERNMENT COuLD OR SHOuLD ADOPT TO IMPLEMENT THE TREATY ACTIONS

A small number of legislative and regulatory amendments are required to align New Zealand’s

domesticlegalregimewiththerightsandobligationscreatedundertheCEPandtherebyenable

NewZealandtoratifytheCEP.

Thefollowingchangeshavebeenidentifiedasbeingrequired:

• anamendmenttotheTariffAct1988toenabletheapplicationofpreferential tariff rates,and

regulationstoimplementtheserates;

• regulationswillalsoneedtobemadeundertheCustomsandExciseAct1996toimplementthe

agreedrulesoforigin,includingviaChapterNotesstatingthatcertificatesoforiginarenecessary

forclothingandclothingaccessoriesimportedfromHongKong;and

• changestotheCustoms(ImportEntry)Rules1997torequireimportersofclothingandclothing

accessoriesfromHongKongtoindicatethataHongKongcertificateoforiginisheld13.

IthasbeenproposedthataCEPBillbeincludedinthe2010legislativeprogrammeasacategory

2bill.

13 Thesechangescanbemadeundersection288oftheCustomsandExciseAct1996.

38

6 ECONOMIC, SOCIAL, CuLTuRAL AND ENVIRONMENTAL COSTS AND EFFECTS OF THE TREATY ACTIONS

6.1 Economic Effects

6.1.1 Summary

Overall,theCEPtogetherwiththeLabourMOU,theEnvironmentAgreement,andtheInvestment

EoL,isexpectedtohaveapositiveimpactontheNewZealandeconomyby:

• providing increased certainty for exporters of goods, services, including those targeting

government contracts, about the level of openness which they are guaranteed to enjoy in

thefuture;

• providingmechanisms forpromotionofgreater transparency, cooperation, andconsultation;

and

• strategicallypositioningNewZealandintheAsia-Pacificregion,highlightingtheimportanceof

thebilateral trading relationshipand reinforcing thepotentialofHongKongasaplatform for

tradingintoChina,complementingNewZealand’sFreeTradeAgreementwithChina.

AllgoodsimportedbyHongKongcurrentlyenterduty-free.ThismeansthattheusualFTA/CEP

gainsderivedfromtariffreductionsdonotapplyforNewZealand.TheCEPwill,however,ensure

thatduty-freeaccessislockedinplaceforNewZealandexports.ThiswillprovideNewZealand

exporterswithaddedcertaintythatNewZealand’sexportcompetitors(otherthanMainlandChina)

donotcurrentlyenjoy.

ThevalueofFTAs/CEPsisnotjustlimitedtotariffreductions,however.TheCEPwilldeliverarange

ofothereconomicbenefitstoNewZealandexporters,including:

• by cementing market access for the export of certain services and access to government

tenders;

• offering improved mechanisms for cooperation and consultation across a range of areas

(includingcustoms,SPS,TBT,intellectualpropertyandcompetitionpolicy);and

• byraisingtheprofileofthetradingrelationshipbetweenNewZealandandHongKong.

Theeconomicbenefitsofthisagreementareinareaswhicharetypicallydifficulttomodelrobustly,

givendataconstraints.Economicmodellinghasthereforenotbeenconducted.Modesteconomic

gainsare,however,expectedtoaccruetotheNewZealandeconomyovertimeasaresultoftheCEP.

39

Inadditiontoeconomicbenefits,thereareimportantstrategicbenefitsofconcludingFTAs/CEPs,

suchasincreasedregionalconnectivity.HongKongisavaluableexportdestination–bothinits

ownright(asNewZealand’sninthlargestexportdestinationintheyearendedJune2009)–butalso

intermsofthepotential itoffersasaplatformintoMainlandChina(NewZealand’sfourthlargest

export destination in the year ended June 2009). New Zealand exporters wishing to realise

opportunitiesunderNewZealand’sFTAwithChinawill bebetterpositioned if theywish touse

HongKongastheplatformforrealisingtheseopportunities. FTAs/CEPsalsohavetheabilityto

highlighttheimportanceofthebilateralrelationship.InadditiontotheCEP,in2009NewZealand

also concluded an Arrangement on Cooperation on Wine-related Business and a Statement of

Intent Regarding an Arrangement on Cooperation between Audio-visual (Film and Digital

Entertainment) Industries.

6.1.2 Increased Certainty for New Zealand Business

WhileallNewZealandexportscurrentlyenterHongKongduty-free,HongKong’sWTOcommitments

allowHongKongtheoptiontoincreasethedutyonsomeofitsproducts(around14%oflinesthat

NewZealandtradesoverare“unbound”orabletobeincreasedtoanyrateatthediscretionofthe

Hong Kong authorities). The CEP removes this option. This provides greater certainty for

NewZealandexportersoperatinginHongKong.

Toprovideanexampleof thepotential benefit of locking in current tariff rates at zero a simple

modellingexercisehasbeenconducted.ThescenariotestedmodelledtheeffectsofHongKong

increasingitstariffsby10percentinkeyareas,consistentwithWTOrules(i.e.in“unbound”areas

only).Theresults,bothwithandwithouttheCEP,areshowninTable1below.

WithouttheCEPNewZealandexportstoHongKongintheaffectedareaswouldfallbybetween6

and14percent,withclothingandtextilesexportsaffectedthemost.If,ontheotherhand,HongKong

unilaterally increased its tariffs after theCEPhadentered into force, exports fromNewZealand

wouldincreasesignificantlygiventhecompetitiveadvantagewhichNewZealandexporterswould

nowhaveintheHongKongmarket(i.e.wewouldgainattheexpenseofcompetitors,whowould

now face higher tariffs). Exports of ‘other transport equipment’ would increase by 93 percent;

rubberandplasticgoodsexportswouldincreaseby58percent;andtextilesandclothingexports

wouldincreaseby45percentand61percent,respectively.Thismodellingprovidessupportforthe

potential‘lock-in’benefitstoNewZealandoftheCEP.

TABLE 1 CHANGE IN HONG KONG, CHINA’S IMPORTS FROM NEW ZEALAND FOLLOWING A 10 PERCENT TARIFF INCREASE

Product Without NZ/HKC CEP With NZ/HKC CEP

RubberandPlasticGoods -6% 58%

OtherTransportEquipment -11% 93%

Textiles -14% 45%

Clothing -14% 61%

OtherManufactures -6% 65%

Source: Global Trade Analysis Project (GTAP) Database Version 7 and MFAT calculations.

40

6.1.3 Relationship between Trade and Macro-economic Performance

Thereisanimportantpositiverelationshipbetweenproductivityandeconomicgrowthandbeing

openandconnected to the restof theworld. It is the flowsof trade,people,capital and ideas

between New Zealand and the rest of the world that help generate productivity and economic

growth,particularlyforasmalleconomywithlimitedresourceslikeNewZealand.

6.1.3.1 Static and Dynamic Effects

Therearetwokeyeconomiceffectsassociatedwithtradeliberalisation–staticanddynamic.Static

effects refer to theone-offbenefitsobtained through themoreefficientallocationof resourcesas

resourcesmoveout of previously protected sectors to sectorsof greater comparative advantage

followingtradeliberalisation.Dynamiceffectsor“dynamicproductivity”effectsrelatetotheproductivity

linkages,pro-competitiveeffects,andinvestmentdynamicsoftradeliberalisation.Currentinternational

tradeliteraturesuggeststhateconomicmodelstypicallyunder-predictthegainsassociatedwithtrade

liberalisationifeffectsrelatedtodynamiceffectsarenottakenintoaccount.

ThestaticgainsoftheCEParelikelytobeminimal.Around58percentofNewZealand’starifflines

are already duty-free. In 2009 New Zealand’s average applied tariff across all goods was 2.5

percent,withhighertariffsof10percentapplyingtocertainclothingandfootwearproductsand

carpets.ReducingthebarriersonimportsfromHongKongisthereforeonlylikelytodelivermodest

efficiencygainsacrossthewiderNewZealandeconomy.

NewZealandhasprogressivelyreduceditstariffsoverthepasttwodecades.Assuch,muchofthe

adjustmentrequiredbyNewZealandfirmstooperateinalow-tariffenvironmenthasalreadytakenplace.

InthecaseofHongKongwhichallowsallgoodstoenterduty-free,thestaticgainsoftheCEPwill

bederivedfrom:

• thereductionoreliminationofnon-tariffbarriers(assisted,forexample,throughnewmechanisms

for traders to address any issues or obstacles in areas such as customs procedures and

intellectualproperty);and

• greaterbilateralconsultationandtransparencyinarangeofareasincludinge-commerceand

competitionpolicy.

Gainsfromreducednon-tariffbarriersaremuchmoredifficulttoestimateinarobustwaythangains

fromtariffreductionsandassuchnomodellingofthiskindwasundertakenfortheCEP.TheCEP

is expected to provide concrete benefits to New Zealand firms, however, through the various

mechanismsandprocesseswhicharedesignedtoreducecompliancecostsforbusiness.

ThereareanumberofotheraspectsoftheCEPthatmighthelpgenerate“dynamicproductivity”

gainsfortheNewZealandeconomy.Tradereformseesanincreaseinimportcompetition,thereby

encouraging domestic producers to pursue productivity gains, either through the use of better

technologyandbusinesspractices,orthroughinnovationand/orquickeradoptionofnewideas.

Improveddomesticefficiencyand liberalisationofothercountries’ tradebarrierswill improve the

competitivepositionof exporters, andgreater exportsmayalsobeassociatedwithproductivity

gains. The experience and knowledge gained through greater/deeper participation in export

marketscanalsotranslateintoproductivitygains.Exportingmayalsoallowproducerstoexpand

outputandexploiteconomiesofscale,therebyloweringaverageproductioncosts.

41

Amoreefficienteconomyislikelytoopenthewayfornewforeigninvestmentopportunitiesleading

to transfer of technical know-how (through market-based cooperation or spill-over) and capital

accumulationwhichcan,inturn,stimulateproductivitygrowthandleadtohighereconomicgrowth.

Althoughithasnotbeenpossibletoquantifythepreciseeconomiceffectsoftheseprovisions,on

thebasisoftheGTAPmodellingthatwasundertaken(seesection6.1.2,Table1)andgiventhe

increasedlevelsofcertaintythattheCEPprovidesfor,officialsassessthatNewZealandcompanies

are more likely to benefit than to lose from the application of improvements to the framework

governingthetradeandeconomicrelationshipwithHongKongviathesigningoftheCEP.Modest

dynamicproductivitygainsareexpectedtoaccruetotheNewZealandeconomyovertime.

6.1.4 Relative Significance of New Zealand – Hong Kong Bilateral Trade

HongKongwasNewZealand’sninthlargestexportdestinationintheyearendedJune2009,with

exportsof$823million.HongKongreceived1.9percentofNewZealand’stotalgoodsexportsin

theyeartoJune2009.NewZealand’stoptenexportstoHongKongareshowninTable2.

Hong Kong was New Zealand’s thirty-first largest source of imports in the year to June 2009.

NewZealandimported$199millionofgoodsfromHongKongintheyeartoJune2009,accounting

for 0.4 percent of New Zealand’s total goods imports. New Zealand’s top ten imports from

HongKongare shown in Table3. Thebilateral goods tradepatternover timecanbe seen in

Figure1below:

FIGURE 1 VALUE OF TRADE WITH HONG KONG

$0

$700

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$100

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1991 1993 1995 19991997 20032001 2005 2007 2009

Imports Exports

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Source: MFAT

42

TABLE 2 TOP TEN NEW ZEALAND EXPORTS TO HONG KONG (AVERAGE 2008/09 JUNE YEARS)

Product Export value (average 2008/2009)(NZ$ millions)

% of total exports

Fishandfishproducts $213.2 30%

Animalproducts $116.7 16%

Dairyproducts $60.9 8%

Fruit,vegetablesandplants $50.4 7%

Leather,rubberandfootwear $36.9 5%

Mineralsandmetals $35.5 5%

Chemicals $32.4 5%

Wood,pulp,paperandfurniture $31.8 4%

Otheragriculturalproducts $30.5 4%

Electricalmachinery $29.6 4%

Subtotaltoptenexports $638.0 89%

Totalexports $719.2

Source: World Trade Atlas and WTO Agriculture and NAMA sector codes. Exports are valued fob (free on board – the value at New Zealand ports before export).

TABLE 3 TOP TEN NEW ZEALAND IMPORTS FROM HONG KONG (AVERAGE 2008/09 JUNE YEARS)

Product Import value (average 2008/09)(NZ$ millions)

% of total exports

Electricalmachinery $57.1 28%

Non-electricalmachinery $36.9 18%

Miscellaneousmanufactures $24.3 12%

Clothing $22.6 11%

Mineralsandmetals $15.0 8%

Wood,pulp,paperandfurniture $12.9 6%

Chemicals $12.9 6%

Textiles $7.9 4%

Leather,rubberandfootwear $4.7 2%

Cerealsandpreparations $3.4 2%

Subtotaltoptenexports $197.6 98%

Totalimports $201.6

Source: World Trade Atlas and WTO Agriculture and NAMA sector codes. Imports are valued cif (cost, including insurance and freight to New Zealand).

43

6.1.5 Potential Impacts on New Zealand of Tariff Liberalisation under the CEP

NewZealandhascommittedtoremovealltariffsonimportsfromHongKongby2016.Over53

percentofNewZealand’scurrentimportsfromHongKongalreadyentertheNewZealandmarket

freeofduty.Theremaining47percentwillbeliberalisedinaphasedfashion.Thebroadstructure

ofNewZealand’sCEPcommitmentstoHongKongispresentedinTable4.

Extended timeframes for tariff elimination have been provided for a number of import sensitive

sectorsand,inparticular,clothing,textilesandfootwearproducts.DetailsareshowninTable5.

Theseextended timeframeswill reduce thepotentialadjustmentcostson thesesectorsas they

competewithgreaterimportsfromHongKong.Theseadjustmentcostsarelikelytobeminimal

givenfirmsinprotectedsectorswillalreadybepositioningthemselvestotransitiontoatariff-free

environmentgivenpreviousFTAcommitments(mostnotablytheNewZealand–ChinaFTA).

TABLE 4 SUMMARY OF NEW ZEALAND’S TARIFF REDUCTION COMMITMENTS

Average, 2008-2009 June years

Percentage of Tariff Lines Duty-free

Percentage of NZ Imports from Hong Kong duty-free

Key Products Duty-free / Becoming Duty-free

AlreadyDuty-free

58.0% 53.1% Machineryparts,telephoneequipment,books,computers,watches

2010 63.7% 54.0% Electrictransformers,shaversandhairclippers,spectacles

2011 63.7% 54.0% Nofurtherreductions

2012 90.8% 85.6% Whiteware,steel,plastics,furniture,Jewellery,microphones,toymodels,lamps

2013 92.0% 85.7% Somefabricsandtwineproducts

2014 98.4% 88.5% Sometextilesandclothing

2015 98.4% 88.5% Nofurtherreductions

2016 100.0% 100.0% Textiles,clothingandfootwearproducts

Source: MFAT. Valued cif (cost, including insurance and freight to New Zealand). Excludes “parts” and confidential tariff lines, which account for 0.4% of New Zealand’s total imports from Hong Kong.

44

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45

Thephase-outofduties is alsoexpected tobenefitNewZealandproducerswhouse imported

components or capital equipment from Hong Kong in the production of their goods. Cheaper

importsofmechanicalandelectricalmachineryequipment($98millionofimportsfromHongKong

in 2009),14 simply transformed manufactures ($8 million), and unprocessed primary products

($1 million), will lower the costs of production for New Zealand producers and manufacturers

of highly processed goods. This is expected to improve the competitiveness of many

NewZealandfirms.

ConsumerswillalsobenefitfromtheCEP.Overtime,importedconsumeritemsfromHongKong

willnolongerattractatariff,thusreducingthecosttoNewZealandbuyers,deliveringwelfaregains

tohouseholds.

6.1.6 Potential Impacts on the New Zealand Economy of the Outcome in Services

Asnotedinsection4.12,theservicescommitmentswhichNewZealandhasmadetoHongKong

havebeencommittedalreadytootherFTApartnersor,inthecaseofseveralinrelationtomaritime

transport services, have been offered in New Zealand’s WTO Doha offer. Furthermore, all are

within existing policy settings. In practice, therefore, the services sectors are already open to

foreigncompetition.

ItisdifficulttomeasurethespecificeconomiceffectofthenewcommitmentsagreedbyHongKong

intheservicesnegotiations,duetothedifficultyincollectingservicesdataonasectoralbasisupon

whichtobasemodelling. Nonetheless,asnoted insection3.1.11,HongKonghasmadeWTO

“plus”commitmentsinabroadrangeofsectors(includingeducation,NewZealand’ssinglemost

importantservicesexportaftertourism).Inadditiontothestrongfuture-proofingprovidedbythe

agreement,thesecommitmentsandtheWTO-plus,commitmentsonthemovementofbusiness

personsshouldovertimeencouragegreaterexportsofservicestoHongKong.

6.2 Social Effects

TheCEPandtheassociatedinstruments,includingtheLabourMOU,theEnvironmentAgreement,

andtheInvestmentEoL,arenotexpectedtohaveanydiscernibledetrimentalimpactonNewZealand

sociallyandshouldhaveanoverallnet-benefit.Thefollowingsectionexaminespotentialeffectson

domesticemployment,socialregulationandimmigration.

6.2.1 Employment

FTAs/CEPsmayhavebothpositiveandnegativeemploymenteffects.Positiveemploymenteffects

canbeexpectedinareasoftheeconomywhereactivityincreasesasaresultofgreaterdemandfor

exports and cheaper imports. The negative effects can be expected to be found in industries

previouslyprotectedbytariffsorotherbarrierstotrade,whichmayfinditdifficulttocompetewith

cheaperimportsunderanFTA.

14 LevelofprocessingstatisticssuppliedbyStatisticsNewZealand.

46

TheCEPprotectsNewZealand’sdomesticinterestsinsensitivesectorssuchasclothing,footwear,

carpet and furniture through longer transitions, or longer phase-out periods for tariffs on these

sensitiveitems.ThetariffreductionsagreedforHongKongarenotexpectedtohaveanysignificant

impactondomesticmanufacturingoremployment,giventhelowvolumesofimportstoNewZealand

fromHongKongandgiventhatthephase-outperiodsareidenticaltothoseintheNewZealand–

ChinaFTA.Similarly,thespecialfacilityforpart-processingofproductsfallingunderchapters61

and62 isnotexpected tohaveanymaterial impact,since likeproductsmanufactured inChina

underthesameProductSpecificRuleswouldenteronthesameterms.

6.2.2 Social Regulation

NewZealand’ssocialregulationframeworkswillnotbeaffectedbytheCEP.Intheareaoftradein

services,theCEPexcludesservicessuppliedintheexerciseofgovernmentauthority.NewZealand

hasnotmadeanycommitments in respectofpubliclyprovidedservices,suchaspublichealth,

education,housingandsocialwelfare.Intermsoflabourstandards,theLabourMOUaffirmseach

country’srespectivecommitmenttotheprinciplesoftheILODeclarationonFundamentalPrinciples

andRightsatWorkanditsFollow-up(1998).Therightsofeachpartytosettheirownpoliciesand

prioritiesarerespected.

6.2.3 Immigration

TheCEP includesspecificcommitments in relation to themovementofbusinesspeople.These

commitmentsdonotrequireanychangestoexistingimmigrationpolicy.TheCEPis intendedto

raiseNewZealand’sprofileasatradeandinvestmentdestinationandthereforeitispossiblethat

theremaybeincreasedinterestinNewZealandasanoptionforpeople(includingskilledmigrants)

emigratingfromHongKong.HongKongisnotalargemarketforpermanentresidents.Wehave

notseenanydiscernibleincreaseinpermanentresidentsasaresultofpreviousFTAs.Anyincrease

isnotlikelytohaveaneffectonvisaprocessing.

6.3 Cultural Effects

TheCEPanditsassociatedAgreementsarenotexpectedtohaveanynegativeculturaleffects.The

CEPincludessafeguardstoensurethatNewZealandpreservestheabilitytopursuecertaincultural

policyobjectives,suchassupporting thecreativeartsand takingmeasures in relation toMäori,

includinginfulfilmentofTreatyofWaitangiobligations.

6.4 Environmental Effects

New Zealand seeks to ensure that FTA outcomes contribute to sustainable development and

environmentalobjectives,consistentwiththe2001PolicyFramework.TheCEPanditsassociated

EnvironmentAgreementcontainarangeofprovisionsthatrecognisetheimportantrolethattrade

liberalisation can play in supporting environmental improvements and the role that improved

environmental performance can play in underpinning integrated economic development. Key

environmentalaspectsoftheCEPandEnvironmentAgreementare:

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• Theliberalisationoftradeinenvironmentalservices.HongKonghasagreedtonewcommitments

inallenvironmentalservices includingSewageServices;RefuseDisposalServices;Sanitation

and Similar Services; Cleaning Services of Exhaust Gases; and Noise Abatement Services.

NewZealandhasalsoprovidedareciprocallevelofcommitments.

• Theestablishmentofmechanismstofacilitatecooperationandcommunicationwiththeaimof

buildingcapacityandcapabilityforimprovedenvironmentalperformanceandtoaddresstrade

andenvironmentmattersofmutualinterest.

FTAshavethepotentialtoaffecttheenvironmentinpositiveandnegativeways.Therearefourmeans

bywhichtheenvironmentcanbeaffected:throughchangesinenvironmentalregulation;changesin

thetypesofgoodsandservicesthataretraded;changesinthedistributionandintensityofproduction

andconsumption;andchangesinthescaleofproduction.Thesearediscussedbelow.

6.4.1 Regulatory Effects

TheCEPwillnotrestrictNewZealandfromapplyingexistingorfutureenvironmentallaws,policies

andregulations,providedthattheyareappliedtomeetalegitimateobjectiveandarenotimplemented

in a discriminatory fashion. The general exceptions are consistent with those provided for in

multilateraltreatiesincludingtheGATTandGATS.NewZealand’sexistinglegislationisdesignedto

addressanypotentialadverseenvironmentaloutcomesofeconomicactivity.15Voluntaryinitiatives

(such as the Clean Streams Accord) sit alongside and support this legislative framework, and

NewZealandalsoencouragesmultinational firms toadoptenvironmentalmanagement systems

throughitssupportoftheOECD’sGuidelinesonMultinationalEnterprises.

6.4.2 Product Effects

TradeliberalisationundertheCEPcouldleadtoachangeinthemixofproductsthatNewZealand

exportsandimports.InthecaseofchangesinthecompositionofNewZealand’simportsthatmight

arisefromtheCEP’strade liberalisationprovisions, it ispossiblethattheremaybean increased

bio-securityrisk.However,NewZealand’sexistingframeworkofenvironmentalandbio-security

laws,regulations,policiesandpracticesarespecificallydesignedtomanagesuchrisks.

6.4.3 Structural Effects

Structuraleffectsrelatetothewaysinwhichtradeliberalisationcanaffecttheproductionprocesses

ofgoodsandservices.TheCEPisunlikelytoresultinstructuraleffectsofsufficientmagnitudeto

createanysignificantnewnegativeenvironmentaleffects.Structuralreformsduringthepastthree

decades and New Zealand’s domestic environmental policy and regulatory regime will help to

mitigatetheenvironmentalrisksfromanystructuraleffects.

15 Relevantexisting legislation includes: theResourceManagementAct1991;theHazardousSubstancesandNewOrganismsAct1996;theOzoneLayerProtectionAct1996;theSoilConservationandRiversControlAct1941;theEnergyEfficiencyandConservationAct2000;theClimateChangeResponseAct2002;theAquacultureReform(RepealsandTransitionalProvisions)Act2004;theBiosecurityAct1993;theConservationAct1987;theCrownMineralsAct1991;theFisheriesAct1949(amended1993);theForestsAct1949(amended1993);andtheWildlifeAct1953

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6.4.4 Scale Effects

Wheneconomiesexpandasaresultoftradeliberalisation,theremaybeariskofincreasingpollution

levels and natural resource depletion. This risk stems largely from the potential product and

structuraleffectsoutlinedabove.However,thisriskmaybeoffsetbytheproductivityimprovements

(and hence income gains) that are also associated with liberalisation. As a result of allocative

efficiencygains, itmay in factbepossibletoproducemoregoodsandservicesusingthesame

amountofaggregateresources.Overtime,technologicalimprovements,whichcanbehastened

bytradeliberalisationandbroadereconomicintegration,maycontributetoamoreefficientuseof

naturalresources.

Given New Zealand’s existing environmental and resource management policy and regulatory

frameworks,andtheprovisionsintheCEPtopromotetheliberalisationoftradeinenvironmental

goodsandservices,andtopromotecapacitybuildingonenvironmentalissues,itisunlikelythat

scale effects resulting from the CEP would result in any significant increase in levels of

environmentaldegradation.

The CEP, the Environment Agreement, and the Investment EoL, are not expected to have any

negativeeffectsontheenvironmentinNewZealandthatcannotbemanagedusingexistingpolicy

frameworks.Itsprovisionsmayencourageimprovedproductivityintheuseofnaturalresources.

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7 COSTS TO NEW ZEALAND OF COMPLIANCE WITH THE TREATIES

7.1 Tariff Revenue

In2008-09 theestimated tariff revenuecollectedon imports fromHongKongwas$4million.16

As tariffs are phased out over time under the CEP, the New Zealand Customs Service will

progressivelycollectlessand,by2016,norevenuefromdutypaymentsonimportsfromHongKong

willbecollected.

7.2 Costs to Government Agencies of Implementing and Complying with the Treaties

The implementationof theCEP,LabourMOU,EnvironmentAgreement,andInvestmentEoLwill

havefiscalimplications.Thecostsareexpectedtobeincurredacrossdifferentdepartmentsand

over anumberof years. Activitiesundertakenbygovernmentdepartments in supportof these

agreementsareexpectedtobefundedwithinexistingdepartmentalbaselines.Wherethisisnot

possible,Cabinetapprovalforadditionalfundingmaybesoughtbytherelevantdepartment.The

inter-agencyTradeNegotiationsFund(TNF)hasafundingpoolavailabletoprovidedepartments

withfundingfor“bedding-in”activitiesassociatedwiththeCEP,foraperiodof18monthsfromthe

dateofentryintoforceoftheagreement.TheInvestmentProtocolnegotiationswillalsobefunded

bytheTNF.

7.2.1 FTA Implementation Costs

The CEP establishes a Joint Commission to consider the implementation of the Agreement. In

addition to the Joint Commission, the CEP provides for the establishment of three specialist

committeesintheareasof:

• trade ingoods (includingRulesofOrigin,CustomsProceduresandCooperation, andTrade

Remedies);

• technicalbarrierstotrade(TBT);and

• tradeinservices.

While thespecificobjectivesof thesecommitteesdiffer, theirgeneralobjective is to facilitate the

ongoinginteractionofrelevantofficialstodiscusstheimplementationandoperationoftheCEPand,

inthecaseoftheTBTCommittee,identifyareasforenhancedcooperation.Someofthechapters

withoutcommitteesprovidefortheestablishmentofcontactpointstofacilitatecommunicationsin

specificareas.ThereisalsoprovisionforcontactpointsintheTransparencyChaptertofacilitate

communicationsbetweenthePartiesonanymattercoveredbytheCEP.

TheestablishmentandoperationoftheJointCommission,specialistcommittees,andexchanges

betweencontactpointsareexpectedtobeundertakenwithinthebaselinesoftherelevantagencies,

withtheinter-agencyTradeNegotiationsFundprovidingfundingtoactivitiesthatwouldembedthe

CEPduringthefirst18monthsfollowingitsentry-into-force.

16 EstimatedusingNewZealand’s2009MFNtariffandaverage2008and2009Juneyearsvalueforduty((vfd)i.e.thevalueofimportsbeforeinsuranceandfreightcostsareadded)tradedata.

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AnumberofchaptersoftheCEP,aswellastheLabourMOUandEnvironmentAgreement,establish

mechanismsthatallowforfuturecooperationbetweenNewZealandandHongKonginareasof

mutual interest. Cooperationproposalsareexpected tobedevelopedover time through these

mechanisms and are expected to fall within the scope of existing departmental activity and be

funded from within baselines. Any proposal for cooperation activities will however need to be

assessedagainstotherdepartmentalprioritiesfundedoutofexistingbaselines.

7.2.2 Promotion and Outreach Costs

One-off costs associated with the CEP are estimated to amount to $150,000 for promotion

andoutreachactivities(includingprocessesanddocumentationrequiredtosupportthelegislative

process). Funding for these activities has been secured from the inter-agency Trade

NegotiationsFund.

7.3 Costs to Businesses of Complying with the Treaties

AsoutlinedinSection3.1,thepredominanteffectoftheCEPshouldbetoreducetransactioncosts

forNewZealandbusinessintradingwithHongKongthroughtradefacilitatingoutcomesacrossthe

agreement,includinginareassuchascustomsprocedures,SPSandTBTmeasures,anddomestic

regulationofservices.

Theresultingcostreductionsareexpectedtodevelopandincreaseovertime,resultingfromthe

platformthattheCEPcreatesfortradefacilitationandenhancedcooperationandconsultationin

areassuchascustoms,SPSandTBT.

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8 COMPLETED OR PROPOSED CONSuLTATION WITH THE COMMuNITY AND PARTIES INTERESTED IN THE TREATY ACTIONS

8.1 Inter-departmental Consultation Process

ThenegotiationoftheCEPandassociatedinstrumentswasconductedbyaninter-agencyteamled

by theMinistryofForeignAffairsandTrade (MFAT)andcomprisingofficials fromtheMinistryof

EconomicDevelopment(MED),theNewZealandCustomsService,theNewZealandFoodSafety

Authority,theMinistryofAgricultureandForestry,theMinistryfortheEnvironment,theDepartment

ofLabour,TheTreasury,theMinistryofEducation,andtheNewZealandQualificationsAuthority.

TePuniKökiri,theMinistryforCultureandHeritageandtheMinistryofTransportwereconsultedon

areasofspecificinterest,andtheDepartmentofthePrimeMinisterandCabinetandNewZealand

TradeandEnterprise(NZTE)werealsoconsultedthroughoutthenegotiatingprocess.

Relevant departments were also consulted during the negotiations in the preparation of

NewZealand’sservicescommitments. Inparticular,thepreparationofNewZealand’s“negative

list”involvedaspartofabroaderprocessconsultationwithall35corepublicservicedepartments

listedintheFirstScheduletotheStateSectorAct1988.17Thisbuiltuponanearlierinter-agency

exercisein2004/05whichdevelopedanegativelistfortheP4.

8.2 Public Consultation Process

Anextensiveconsultationprocesswasundertakenintheleaduptoandthroughoutthe2001-2002

CEPnegotiations.Theseconsultationsrevealedanumberofconcernsincluding:

• theriskthatthird-partyeconomiesmightbeabletounfairlybenefit;

• uncertaintyfromsomeaboutthedirecteconomicbenefitsofaCEP,despitebroadrecognition

ofthestrategicvalueofaCEPwithHongKong;

• somegeneralquestionsaboutNewZealand’sapproachtonegotiatingFTAs;and

• someconcernaboutaspectsof theexistingAgreement for thePromotionandProtectionof

InvestmentsbetweenNewZealandandHongKong.

Thedecisiontosuspendthe initialnegotiationswaspartlybasedontheconcernthatthird-party

economiesmightbeabletounfairlybenefitfromtheCEP.Thecontextinwhichnegotiationswere

resumedwasverydifferentfromthatin2001.Since2001,NewZealandhasconcludedanumber

ofotherFTAs,inparticulartheNewZealand–ChinaFTA.Mostsignificantly,theconclusionofthis

FTAwithChinaprovidedtheshapeofapossiblesolutiontotheearlierdifficultiesoverROO.

17 The35corepublicservicedepartmentsareasfollows:MinistryofAgricultureandForestry;ArchivesNewZealand;DepartmentofBuildingandHousing;DepartmentofConservation;DepartmentofCorrections;CrownLawOffice;MinistryforCultureandHeritage;MinistryofDefence;MinistryofEconomicDevelopment;MinistryofEducation;EducationReviewOffice;MinistryfortheEnvironment;MinistryofFisheries;MinistryofForeignAffairsandTrade;GovernmentCommunicationsSecurityBureau;MinistryofHealth; InlandRevenueDepartment;DepartmentofInternalAffairs;MinistryofJustice;DepartmentofLabour;LandInformationNewZealand;MinistryofMäoriDevelopment;MinistryofPacificIslandAffairs;NationalLibraryofNewZealand;NewZealandCustomsService;NewZealandFoodSafetyAuthority;DepartmentofthePrimeMinisterandCabinet;MinistryofResearch,ScienceandTechnology;SeriousFraudOffice;MinistryofSocialDevelopment;StateServicesCommission;StatisticsNewZealand;MinistryofTransport;TheTreasury;andMinistryofWomen’sAffairs.

52

From February 2009, the Ministry of Foreign Affairs and Trade (MFAT), together with other

government agencies, organised and conducted a consultation programme to raise public

awarenessoftheresumptionofthenegotiationsandtoseekstakeholderviews.Thisprogramme

used printed, emailed, and website information, supported by specific discussions with key

stakeholders,includingtheexportersandindustrysectorslikelytobeinterestedinoraffectedbythe

outcomesoftheCEP.

8.2.1 Communication Programme

Thecommunicationprogrammesupportingtheconsultationsincluded:

• acallforsubmissionsinFebruary2009;

• regularupdatingoftheMFATwebsitewithinformationonthenegotiations,aswellascontact

detailstoencouragedirectfeedbackfromstakeholders;

• regularupdates in thebi-monthlyMFATnewsbulletin,Business Link (distributedtoover900

subscribersandpublishedontheMFATwebsite);

• updates in MFAT’s ‘International Treaties List’ (produced every six months by MFAT and

publishedontheMFATwebsite);and

• asurveysentouttoallmembersoftheHongKongNewZealandBusinessAssociation.

8.2.2 Consultation Programme

Theabovecommunicationsprovidedthebasisforaconsultationprogrammeinvolving:

• presentationstoChambersofCommerce(Auckland,Wellington,andChristchurch);

• anonlinesurveyof236NewZealandexportcompanies,ofwhich54percent(128outof236)

identifiedHongKongasacurrentexportmarket;

• meetings with New Zealand business and financial sector representatives currently based in

HongKong;and

• meetings with, or otherwise directly contacting, interested companies, industry groups and

sectoralorganisations,todiscusselementsofthenegotiations.Thesegroupsincluded:

BlackburnCroft,BusinessNewZealand,CambridgeClothingLtd., theCouncilofTradeUnions,

EducationNewZealand,EskayLtd.,FashionUniformsLtd., theFederationofMäoriAuthorities,

FletcherChallengeGroup,Fonterra,FourWindsCommunications,FrenziHoldingLtd.,HillsHats

Ltd.,HeavyEngineeringResearchAssociation,theHongKong/NewZealandBusinessAssociation,

HubbardsFoodLtd.,JaedonEnterprisesLtd.,theKiwiSockCompany,LearningMediaLtd.,Meat

andWoolNewZealand,theNewZealandChamberofCommerceinHongKong,NZGloves,the

New Zealand Law Society, the New Zealand Manufacturers and Exporters Association, the

NewZealandRegisteredArchitectsBoard,theNewZealandSockCompanyLtd.,OtagoKnitwear

Ltd., Robyn Mathieson Design Ltd., SafeKiwi Ltd., Swazi Apparel Ltd., Tapestry Knitwear Ltd.,

TemperZoneLtd.,TextilesNZ,VictoriaUniversity,YakkaApparelSolutionsLtd.

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8.2.3 Submissions

During the 2001-2002 negotiation, 38 formal submissionswere received, and 11 letters/written

comments. The 2009 consultation process elicited one further written submission from Meat &

WoolNewZealand.

8.2.4 Issues Covered in the Consultation Process

Viewsweresoughtfromstakeholdersonthefullrangeofissuesinthenegotiations.Thefollowing

isasummaryofthepointsexpressedbythosewhorespondedtotheconsultationprocess:

• In the2001-2002consultationperiod, thekeyconcern frombusinesswas thatconcludinga

CEPthatofferedHongKongexporterspreferentialaccesscouldcreateariskofproductentering

NewZealandfromthird-partyeconomiesandunfairlybenefitingfromtheagreement.

• Someof the submissions in2001 raisedconcernsabout theexisting investment agreement

(IPPA)withHongKong.AnInvestmentEoLrequiringHongKongandNewZealandtonegotiate

anInvestmentProtocolwithintwoyearsoftheCEP’sentryintoforcewasconcludedalongside

theCEP.

• Whennegotiationswereresumedin2009,consultationsindicatedstrongoverallsupportfora

CEPwithHongKong.

• Alargenumberofstakeholdersconsultedattheoutsetofthe2001-2002negotiationsandmore

recently viewed the CEP as of strategic importance and also of importance in terms of

NewZealand’swiderprogrammeofeconomicintegrationwithAsia.

• Therewassomesupport for the legal-certainty thatabinding tozeroofHongKong’s tariffs

wouldoffer.

• SomestakeholderswerebroadlyinfavouroftheCEP,butdidnotseeitasaparticularlyhigh

priorityincommercialterms,giventhatHongKongisaduty-freeport.

• Many organisations emphasised the ease of dealing in the Hong Kong market and found it

difficulttoidentifyanydifficultiesorbarrierstotrade.

• SomefoodindustrycontactsexpressedaninterestinrobustSPS,TBT,andCustomsProcedures

andCooperationChapteroutcomes.

• Educationindustrycontactsstressedtheimportanceofarobustoutcomeineducation,including

aMostFavouredNationoutcome.

8.2.5 Specific Consultation on New Zealand’s Tariff Reductions and Rules of Origin

InApril2009,MFATandtheMinistryofEconomicDevelopment(MED)conductedface-to-facecalls

ona selectionof20companiesand industrygroups inWellington,Auckland,Christchurchand

DunedintoseektheirviewsontariffreductionswithrespecttopotentialFTAsincludingHongKong.

WithrespecttoHongKong,mostcompanieswereambivalent;NewZealandexportsalreadyenter

HongKongduty-freebutnoneof thecompaniessaid theyneeded tariffs toprotect specifically

againstcompetitionfromHongKongexporters.

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InJuly2009,MEDconductedconsultationswithTextilesNZandarangeofNewZealandclothing

manufacturerstoseekthe industry’sviewsconcerningpossibleallowanceof‘HongKongorigin’

status for clothing products18, which have been partially manufactured in Mainland China and

partiallymanufacturedinHongKong.TheparticipantswereinformedaboutNewZealand’sintention

to replicate, as far as possible, the New Zealand – China FTA’s ROO for these products. The

consultationwasconductedbysystematictelephoneinterviews.

The feedback gathered from these consultations indicated that there were not any particular

concernsoverHongKongmanufacturersundertakingpartialprocessingofclothingproducts in

MainlandChina,providedthatProductSpecificRules(PSRs)fortheseproductsreplicated,asfar

aspossible,thosenegotiatedundertheNewZealand–ChinaFTAandrobustverificationsystems

wereestablished.AsmallminorityoftheparticipantsindicatedthattheydidnotsupportFTAsin

general,althoughaccesstopotentiallymorecosteffectiverawmaterials (specifictotheclothing

industry)thatcouldresultfromtariffreductionswasidentifiedasanopportunity.Oneparticipant

expressedtheviewthatthemarginofvalueofHongKongclothingproductsoverChineseproducts

isdisappearingand,giventhevolumeofChineseimports,anyinfluxofHongKongproducts(asa

resultoftheCEP)wasthereforeunlikelytohaveanydiscernibleimpactonthelocalindustry.

18 HSchapters61and62

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9 SubSEQuENT PROTOCOLS AND/OR AMENDMENTS TO THE TREATIES AND THEIR LIKELY EFFECTS

The CEP provides that it may be amended by agreement in writing by the Parties and that any

amendmentswouldcomeintoforceonthedateordatesagreedbytheParties(Chapter20,Article2).

Specificprovisions in theCEPenvisagethepossibilityof reviewofexistingcommitments,or the

conclusionoffurtheragreementsorarrangementsbetweentheParties.Theseinclude:

• ImplementingArrangementsprovidedforintheSPSChapter(Chapter7,Article6);

• trade-facilitatinginitiativesregardingstandards,technicalregulationsandconformityassessment

procedures(TBTChapter8,Article11);

• reviewofrelevantServicescommitments,asappropriate,followingtheconclusionofairtransport

services,subsidies,anddomesticregulationnegotiationsintheWTO(Chapter13,Articles2,9,

and11);and

• the Education Cooperation Arrangement envisaged under Annex III to the Services Chapter

(Chapter13).

Inaddition,theInvestmentEoLrequiresthePartiestonegotiateanInvestmentProtocoltotheCEP

withintwoyearsoftheCEP’sentryintoforce,andanon-bindingexchangeofletterscommitsthe

PartiestoreviewsomespecificmovementofbusinesspersoncommitmentsoneyearaftertheCEP

entersintoforce.Aseparatenon-bindingletterconfirmsthatNewZealandwillreviewtheoverseas

screening regime threshold in the context of and upon conclusion of the negotiation of an

InvestmentProtocol.

While the Labour MOU, the Environment Agreement and the Investment EoL have no specific

provisions covering amendment, consistent with international treaty practice, the Parties could

agreetoamendtheseagreementsiftheywished.

NewZealandwouldconsiderproposedamendmentsonacase-by-casebasisandanydecisionto

acceptanamendmenttotheCEP,theLabourMOU,theEnvironmentAgreement,ortheInvestment

EoLwouldbesubjecttothenormaldomesticapprovalsandprocedures.

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10 WITHDRAWAL OR DENuNCIATIONTheAgreementmaybeterminatedbyeitherPartygiving180dayswrittennoticetotheotherParty

(Chapter20,Article4).

BoththeLabourMOUandtheEnvironmentAgreementcanbeterminatedbyeitherPartygivingsix

monthswrittennoticetotheotherParty.Terminationoftheagreementswouldnotaffectthevalidity

ofanyarrangementsalreadymadeunderthematthatpoint(Article6ofbothagreements).The

InvestmentEoLdoesnotspecificallyallow forwithdrawalordenunciation. NewZealandcould

withdrawfromtheInvestmentEOLinaccordancewiththeVienna Convention on the Law of Treaties.

AnydecisionbyNewZealandtowithdrawfromorterminatetheCEP,LabourMOU,Environment

Agreement,orInvestmentEoLwouldbesubjecttotheusualdomesticapprovalsandprocedures.

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AGENCY DISCLOSuRE STATEMENT

ThisextendedNationalInterestAnalysis(NIA)hasbeenpreparedbytheMinistryofForeignAffairs

andTrade.TheextendedNIAidentifiesthoseobligationsintheNew Zealand-Hong Kong, China

Closer Economic Partnership Agreement and associated instruments which require legislative

implementation. Although theGovernmenthas identifiedcertain typesof regulatoryeffects that

would require aparticularly strongcasebefore regulationwouldbeconsidered, implementation

oftheobligationsarisingundertheCEParenotexpectedtogiverisetoeffectsofthistype.

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