According to WTO tariff profiles, in 2017, the simple average MFN applied tariff for all goods in New Zealand (NZ) was just 2.0% weighted by 1.4% for agricultural products and 2.1% for non-agricultural products. As a matter of fact, New Zealand ranks as the third most-open economy, in terms of tariff levels, within the CPTPP bloc just behind Singapore and Brunei Darussalam.
Then what’s the deal in negotiating an FTA with such an open economy?
Here are a few reasons:
- In order to get new and preferential access to non-traditional export markets with a view to diversifying our excessively concentrated export base. Let us be clear, when a country has a geographical export structure such as the Mexican one, any effort to widen its export markets away from its easy, preferential, huge, rich and neighborly main market will be undoubtedly the right move to make in all cases, even if the prospected markets are small.
- The “get to know it, first” argument, in order to diversify export markets away from the US, we need, first, that our exporters know them and assess their export potential, and then begin a serious effort to export to the new markets. Unluckily, this is a long and costly process that seems only a few Mexican exporters are willing to carry out or put into practice, even though recent experience has shown that depending on a sole market is too way risky. Sadly, as it was briefly described in an older entry of this Blog, the task in front of us is colossal and has not been taken seriously by the private sector which keeps on its US comfort zone since forever, except by some remarkable exceptions.
- To get and allow preferential access to more cost-efficient import suppliers in agricultural products in which Mexico has been a net importer historically, so as in a way to signal other preferential import suppliers that the Mexican market is open and ready to diversify its import sources.
These are some basic features of New Zealand’s base-rate duty structure:
- NZ exhibits six different types of base-rate customs duties: MFN duty-free (0%/free), 2 different levels of ad valorem (5% and 10%), 2 specific (NZD$0.5/L al and NZD$1.87/kg), and 1 special ad valorem duty (Parts which depend on the good or item in which those parts or components have been designed or assembled for, these tariff lines will receive the same tariff treatment as goods provided for in the corresponding non-parts tariff items).
- There are 7,510 tariff lines in NZ’s 2012 Harmonized Tariff Schedule (HTS) at the 8-digit level.
- 4,382 tariff lines were already MFN duty free, namely, 58.35% of NZ’s tariff lines when negotiating the CPTPP. For purposes of this analysis, I have called this previous tariff liberalization effort of NZ, when referring to CPTPP tariff commitments as the consolidation of its current MFN duty-free status.
- The highest New Zealand base rate is 10% ad valorem applied in 417 tariff lines, namely, 5.55% of total tariff lines are the most tariff-protected products in NZ, nowadays.
- The most frequently applied MFN tariff in NZ,after the duty-free regime, is 5% ad valorem in 35.59% of total tariff lines (2,673 tariff lines). Again, pretty low for international standards but when taking into consideration distance costs and a very competitive international setting among firms this 5% tariff could mean the difference between exporting or not.
- The base rates of customs duties established in the Tariff Schedule of NZ reflect the MFN rates of duty in effect on 1 January 2010 for all products.
En la entrada del Blog del 24 de enero de 2018 se abordó por primera ocasión el cambio metodológico en los flujos de IED recibidos por México en relación con el criterio anterior de registro de país inversor inmediato por el actual de país inversor final. En aquel momento se mencionó que se realizarían algunos ejercicios comparativos de dicho cambio metodológico, casi un año después se desentierra esta “entrada-reliquia” anecdótica de aquella promesa y que ahora está por cumplirse.
Some empirical studies have made clear the existence of a long-run relationship between tariff liberalization and trade growth, but this substantial and significant association has been gradually losing ground, because of the reduced level of tariffs, on average, over recent decades. This may suggest that there is little room left for tariff liberalization to contribute to welfare gains through trade and income growth, except perhaps for some developing countries that continue to maintain high tariff levels. However, despite of this, evidence exists that when considering a more complex and realistic world-production setting with production linkages, supply chains and multiple sector models, the removal of even small tariffs could deliver significant welfare gains.
In the case of the CPTPP bloc, the simple average Most-Favoured-Nation (MFN) applied tariff in 2017 for all goods, according to WTO data, fluctuates from 0.0% in Singapore to 9.6% in Vietnam. For agricultural products, there are notorious tariff peaks in Canada, Vietnam, Mexico and Japan, and their simple average MFN tariff levels remain at the two-digit level. Although in the non-agricultural sector, customs duties, on average, are below the two-digit level for all CPTPP member countries, one can still find average tariff levels above 5.0% in Vietnam, Chile, Mexico and Malaysia. Therefore, much room exists in the sectorial and economy-wide spectrum for a comprehensive tariff liberalization process, even in wide-open and almost tariff-free economies such as Singapore, Brunei Darussalam, New Zealand, Peru and Australia where their simple average MFN applied tariffs are below or equal to 2.5%.
 Nenci, S. (2009) “Tariff liberalization and the growth of world trade: a comparative historical analysis for the evaluation of the multilateral trading system”, University of Roma Tre, accessed 27 April 2017, http://www.stat.unipg.it/aissec2009/Documents/papers/88_Nenci.pdf
 Caliendo, L, R C Feenstra, J Romalis and A M Taylor (2017). “Theory and evidence for the last two decades of tariff reductions”, 26 April 2017, VOX CEPR’s Policy Portal, accessed 27 April 2017, http://voxeu.org/article/theory-and-evidence-last-two-decades-tariff-reductions