Ministers opt for less radical CER rule change

New Zealand and Australian Cabinet ministers have snubbed advice they had sought from an Australian Government think tank on the reform of CER trade rules.

The Australian Productivity Commission had recommended a shift to "automatic duty-free entry" through a waiver of CER content requirements for goods produced in either country that faced small transtasman tariff differences.

The commission also said the change of the tariff classification model should not be used in the CER member countries' case.

But at their Queenstown meeting at the weekend, Australian Trade Minister Mark Vaile and Trade Negotiations Minister Jim Sutton opted for reforms modelled along the lines adopted in Australia's recent free trade deals with the US and Thailand and approved a change in the tariff classification model preferred by many multinationals that rely on outsourcing.

Under this model, all traded products are given a tariff classification. Goods that are substantially transformed in either country during the manufacturing process will qualify for duty-free access to the other.

The practice is also stipulated in New Zealand's free trade deal with Thailand, but critics say it can easily be manipulated by third countries seeking to piggyback on the free trade partners' preferential deals.

Vaile and Sutton tasked the commission with examining whether rules of origin in the 21-year-old closer economic relations agreement (CER) should be liberalised.

Officials in New Zealand - who had made a strong economic case to the commission for bold changes to rules of origin - were not too dismayed that the ministers had opted for less radical change.

Business groups say the new rules will reduce the compliance costs of calculating a product's content and remove uncertainty on whether a product has reached the content threshold at which goods gain preferential access.

Some "sensitive" product lines - such as textiles, clothing and footwear - will be settled after more negotiations.

Business New Zealand chief executive Phil O'Reilly said the shift would "reduce much of the hassle and discrimination against manufacturers who increasingly source their components globally".

Bruce Goldsworthy, manager of manufacturing services for the Employers & Manufacturers Association (Northern), said businesses should not underestimate the importance of the rules change.

"The current rules have passed their use-by date," he said. "They stipulate that goods qualifying for duty-free access to either New Zealand or Australia must reach 50 per cent ex-factory added value.

"This is holding back efficiency and productivity gains, since to meet this threshold, components and materials often cannot be sourced at the most favourable prices."