Net Exports of Goods and Services Labor Force, June (0008) Unemployment Rate, June (pct.) Money and Prices (annual percentage growth):1 Money Supply (M2 July/July) Base Lending Rate (actual Sept) Consumer Price Index ...... Producer Price Index (June-June) Balance of Payments and Trade: Total Imports (CIF)4 External Public Debt Debt Service Ratio (March yr.)5 Gold and Annual Debt Service 1.5 Trade Balance "Principal payments on medium and long term debt plus interest payments on total debt, as a percent of exports of goods and services and investment income. 1. General Policy Framework New Zealand is a modern developed economy, with a heavy reliance on foreign trade. Its manufacturing and export sectors are still significantly based on a large and efficient agricultural sector. Tourism has become the single most important foreign exchange earner, surpassing meat exports. Since agricultural and processed agricultural product exports are so important to the economy, New Zealand ratified the GATT Uruguay Round agreements and became a founding member of the World Trade Organization (WTO) on January 1, 1995. After several years of economic restructuring, the New Zealand economy is now largely market driven. Most formerly government-owned industries have been privatized, with electric power generation and transmission the primary remaining government-owned industries. In late 1994 economic growth was strong, inflation was under control, unemployment was falling, and the government was running budget surpluses for the first time in seventeen years. While the New Zealand government is no longer running deficits, it refinances its maturing debt (including substitution of domestic for foreign debt) and manages its cash flow through periodic issuance of government stock and treasury bills, which are held by both domestic and foreign investors. The government obtains most of its income from direct taxes (about US $11.8 billion) on company profits and personal incomes. The maximum personal income tax rate is 33 percent. The second largest revenue earner is a "goods and services" (GST) tax of 12.5 percent on all sales of goods and services. This appears as a sales tax to the consumer. The Reserve Bank of New Zealand Act of 1989 instructs the Reserve Bank to direct monetary policy towards achieving and maintaining price stability. The Act requires the Reserve Bank Governor and the Minister of Finance to agree on policy targets. The current agreement, reached in December 1992, set a goal of maintaining a zero to two percent annual rise in the consumer price index (CPI), with certain factors from this "headline" inflation removed to arrive at "underlying" inflation. These factors include interest rate rises, government taxes and charges, and oneoff external shocks, such as large oil price increases. While the CPI increase has remained below two percent per annum since late 1991, it is expected to exceed that level by late 1994, and peak at about three percent in early 1995. Underlying inflation is expected to remain below the two percent target. The Reserve Bank uses one day loans to banks of government receipts, daily open market operations, and twice weekly Reserve Bank bill tenders to implement its monetary policy. 2. Exchange Rate Policy The New Zealand dollar has floated since March 1985 as part of a broad based deregulation of financial markets. The Reserve Bank has not intervened in the foreign exchange market since the float. In mid-October 1994, the New Zealand dollar, at about 61 U.S. cents, had reached its highest point against the U.S. dollar since late 1990, having appreciated by almost 20 percent against the U.S. dollar since late 1992. At these levels, U.S. goods and services remain competitively priced in the New Zealand market. In pursuing the objective of price stability, the Reserve Bank uses the following check list of indicators: exchange rates; level and structure of interest rates; growth of money and credit; inflation expectations; and trends in the real economy. The interest rate yield gap and the trade weighted exchange rate are seen as the principal indicators. While not attempting to run a fixed exchange rate band, the Reserve Bank does seek "comparative exchange rate stability." The Reserve Bank's control of primary liquidity influences the exchange rate indirectly through its impact on short-term interest rates. 3. Structural Policies Certain New Zealand manufacturers, primarily motor vehicle assemblers and car tire, textile, carpet, footwear and apparel manufacturers, retain high but decreasing effective rates of tariff protection. In March 1991, a program was announced to cut most tariffs by one-third from 1993 to 1996. Liberalization beyond 1996 will be determined by a review held in 1994. Most observers expect further gradual reduction in tariff protection for these industries, in spite of stiff opposition from those directly affected. In December 1990, the new National Party government introduced industrial relations reform legislation, resulting in the Employment Contracts Act, which came into effect on May 15, 1991. This law abolished compulsory unions and the practice of nationwide occupational awards. The removal of these restrictive practices has generated more flexible workplace arrangements with consequent improvements in productivity. The National Party government also implemented reductions in expenditures for social benefits through better targeting, and a broad review of the social assistance structure. This process was extended in the July 1991 budget package through the introduction of partial user charges for health and education and rationalization of housing assistance. In August 1993, despite strong public resistance, the three major political parties agreed to changes to the universal retirement system to bring its costs to the government under control. 4. Debt Management Policies Gross public debt grew from 45 percent of GDP in 1973 to a peak of 77 percent of GDP in 1987. In June 1994, total public debt was US $27.2 billion, equivalent to 57 percent of GDP. This improvement is largely due to the use of proceeds from privatization to repay external debt, and to the improving economy. In the fiscal year ending March 1988, debt service on the public debt reached US $3.3 billion, or 8.4 percent of GDP and 20 percent of government expenditure. Public debt service dropped to US $1.97 billion in FY1994, or 4.4 percent of GDP and 12.1 percent of expenditures. External debt accounted for 59 percent of the total in mid-1994. Interest on external debt in 1994 equaled 12 4 percent of exports of goods and services, and investment income. 5. Significant Barriers to U.S. Exports New Zealand embarked on a unilateral tariff liberalization program in 1985 with the announcement that tariffs on goods not produced in New Zealand would be reduced to zero. In 1988, the government reported that 93 percent of imports entered duty free. In December 1987, a general tariff reduction plan was announced for goods not covered by industry plans. (Five categories of goods were covered by in dustry plans: footwear; carpet; textiles; apparel; and motor vehicles.) Tariffs on other goods were reduced in four stages between July 1988 and July 1992 from a range of 30 to 40 percent to a range of between 16 to 19 percent. In 1991 it was announced that tariff reductions would be continued between 1993 and 1996. Under separate treatment for goods covered by the former industry plans, present relatively high tariffs for apparel, textiles, curtains, carpets, footwear, motor vehicles and car tires will be reduced in stages to July 1996 by about one quarter to one third of the existing tariffs. However, even after July 1996, passenger vehicles and original equipment tires will still face a tariff of 25 percent; replacement tires, 15 percent; and apparel, 30 percent. A review for the post-1996 period was conducted in 1994. Most observers expect further gradual reduction in tariff protection for these industries, despite stiff opposition from some domestic producers. One example of a protected industry is the car assembly sector, where tariff protection will drop from the present 30 to 25 percent on July 1, 1996. The assemblers maintain that further tariff reductions will jeopardize their ability to maintain an employment level of 2,500, and kill a potential export market to Australia. Their opponents (importers of used cars, mostly from Japan) counter that the present duties make cars an average of US $3000 more expensive for every New Zealand mo torist. Thus, despite extensive reform, tariffs on goods competing with domestic products remain relatively high. With the entry into force of the GATT Uruguay Round Agreement in 1995, tariffs on only two categories of imports, used motor cars and used clothing, will be unbound. Items of particular export interest to the United States subject to high tariffs include printed matter for commercial use, aluminum products and wine. Reductions in tariff levels in accordance with the aforementioned plan should result in expanded commercial opportunities for U.S. exporters. New Zealand has completed the dismantling of a highly restrictive import licensing regime. The remaining import license controls for goods under the former industry plans were eliminated in 1992. This liberalization has benefitted U.S. exporters. The New Zealand Apple and Pear Marketing Board, a producer organization, had a monopoly right to import apples and pears, except from Australia. This monopoly was abolished effective January 1, 1994. New Zealand welcomes and encourages foreign investment without discrimination. Approval by the Overseas Investment Commission (OIC) is required for foreign investments over NZD ten million or investments of any size in specific sectors. The review of investments above NZD ten million applies to both acquisitions and greenfield investments. Specified sectors are commercial fishing and rural land. Foreign investment in commercial fishing is limited to a 24.9 percent holding, unless an exemption is granted by the Ministry of Agriculture and Fisheries. While the level of ownership is not restricted for rural land, foreign purchasers are required to demonstrate that the purchase is beneficial to New Zealand. In practice, the OIC approves virtually all investment applications, and its approval requirements have not been an obstacle for U.S. investors. For example, the entire national railroad system, including the only regular passenger and rail ferry service connecting the two main islands, was sold to a majority U.S. owned consortium in 1993. In 1991, the former government telecommunications monopoly was sold to two U.S. telecommunications companies. No performance requirements are attached to foreign direct investment. Full remittance of profits and capital is permitted through normal banking channels. The U.S. Government recognized the generally liberal trading environment in New Zealand by signing a bilateral Trade and Investment Framework Agreement (TIFA) in October 1992. The TIFA provides for periodic government to government consultations on bilateral and multilateral trade and investment issues and concerns. The first TIFA meeting was held in Washington in April 1993. 6. Export Subsidies Policies New Zealand acceded to the GATT subsidies code in 1981. At that time, New Zealand undertook to eliminate seven export subsidy programs that were inconsistent with the code by March 1985. While five of the programs were eliminated on schedule, two programs were extended through March 1987, leading the United States to deny New Zealand imports use of the injury test in countervailing duty cases. One of these programs, the export market development taxation incentive, was extended a second time, but expired in 1990. The United States reinstated the injury test for New Zealand once tax rebates under this last inconsistent program were complete. 7. Protection of U.S. Intellectual Property New Zealand is a member of the World Intellectual Property Organization, the Paris Convention for the Protection of Industrial Property, and the Berne Copyright and Universal Copyright Conventions. New Zealand has generally supported measures to enhance intellectual property protection at multilateral organization meetings. The Government of New Zealand strongly endorses the protection of intellectual property and enforces effectively its laws which offer such protection. This is done to protect New Zealand innovators both at home and abroad, and to encourage technology transfer. The government recognizes that New Zealand is heavily dependent on imported technology and that the country derives considerable benefit in providing intellectual property protection. In 1992 New Zealand repealed Section 51 of the Patents Act, 1953, which contained permissive rules for compulsory licensing of pharmaceutical products. While no licenses had ever been issued under these provisions, in 1990 a number of applications were filed with the Commissioner of Patents, generating a great deal of concern among international pharmaceutical companies. The repeal of Section 51 brought New Zealand's patent act into conformity with the intellectual property legislation in other industrialized countries. The government is engaged in a full review of its intellectual property rights regime. It is expected that major new copyright legislation, including provisions on parallel importing, will be enacted in 1994, as well as new legislation on layout designs. In addition, some amendments to patent and trademark laws, as required by the Uruguay Round's Trade Related Aspects of Intellectual Property (TRIPS) Agreement, were before the parliament in late 1994, as well as a new regime for the protection of geographical indications, expected to be enacted in 1994. Draft legislation will also protect certain data which are supplied to New Zealand regulatory authorities who give marketing approvals for pharmaceuticals and agrochemicals. These reforms are mainly aimed at bringing New Zealand's intellectual property rights law into conformity with the TRIPS Agreement. It is expected that further reform legislation will be introduced in 1995 on trademarks, patents, designs and plant variety rights. 8. Worker Rights a. The Right of Association.-New Zealand workers have unrestricted rights to establish and join organizations of their own choosing and to affiliate these organizations with other unions and international organizations. The principal labor organization, the New Zealand Council of Trade Unions (NZCTU), is affiliated with the International Confederation of Free Trade Unions (ICFTU). A second, smaller national labor federation, the New Zealand Trade Union Federation (TUF), was established in 1993. TUF is not affiliated with any global international, although some of its affiliates retain longstanding ties with the ICFTU's international trade secretariats. There are also a number of independent labor unions. Unions are protected by law from governmental interference, suspension, and dissolution. Unions have and freely exercise the right to strike. Strikes designed to force an employer to become party to a multi-company contract are prohibited. Moreover, police officers are barred from striking or taking any form of industrial action. Police, however, do have freedom of association and the right to organize and to bargain collectively. b. The Right to Organize and Bargain Collectively.—The right of workers to organize and bargain collectively is provided by law and observed in practice. Unions actively recruit members and engage in collective bargaining. Only uniformed members of the armed forces are not permitted to organize unions or to bargain collectively. Labor market deregulation intended to make New Zealand more competitive internationally was initiated with the Employment Contracts Act (ECA) of 1991, which marked a sharp break with almost a century of pro-union industrial legislation. Under the ECA, unions lost their special legal status and have no inherent right to represent any particular group of workers. Compulsory unions and the closed shop were abolished. Monopoly union coverage was dropped and workers may not be forced to join a particular union. The ECA ended a previous system of national "awards" under which a wage agreement would apply to all employers and employees in an industry whether or not they had been involved in the award negotiations. Under the ECA, employment relationships are based on contracts. Individual employees and employers may choose to conduct negotiations for employment contracts on their own behalf or may authorize any other person or organization to do so as their representative. Mediation and arbitration procedures are conducted independently of government con trol. The Employment Court hears cases arising from disputes over the interpretation of labor laws. A less formal body, the Employment Tribunal, is available to handle wage disputes and assist in maintaining effective labor relations. There are no export processing zones. c. Prohibition of Forced or Compulsory Labor.-Forced or compulsory labor is prohibited. Inspection and legal penalties ensure respect for these provisions. d. Minimum Age for Employment of Children.-Department of Labour inspectors effectively enforce a ban on the employment of children under age 15 in manufacturing, mining, and forestry. Children under the age of 16 may not work between the hours of 10 P.M. and 6 A.M. In addition to explicit restrictions on the employment of children, New Zealand's system of compulsory education ensures that children under the minimum age for leaving school (now 16) are not employed during school hours. e. Acceptable Conditions of Work.-New Zealand law provides for a 40-hour workweek, with a minimum of three weeks' annual paid vacation and eleven paid public holidays. Under the Employment Contracts Act, however, employers and employees may agree to longer hours than the 40-hour per week standard. The governmentmandated minimum wage of approximately US $3.75 an hour, applies to workers 20 years of age and older. Effective April 1, 1994, a minimum wage for younger workers was introduced at 60 percent of the adult minimum. A majority of the work force earns more than the minimum wage. New Zealand has an extensive body of law and regulations governing health and safety issues, notably the Health and Safety in Employment Act of 1992. Under this legislation, employers are obliged to provide a safe and healthy work environment and employees are responsible for their own safety and health as well as ensuring that their actions do not harm others. Under the Employment Contracts Act, workers have the legal right to strike over health and safety issues. Unions and members of the general public may file safety complaints on behalf of workers. Safety and health rules are enforced by Department of Labour inspectors who have the power to shut down equipment if necessary. f. Rights in Sectors with U.S. Investment.-The conditions in sectors with U.S. investment do not differ from conditions in other sectors of the economy. Extent of U.S. Investment in Selected Industries.-U.S. Direct |