HK-CEP Consultation Report 15/15

Additional Issues Raised During Public
Consultations

This summarises some of the key messages from the public consultations based
on the discussion paper.

Lack of Cost-Benefit Analysis:
Concern has been expressed that the
negotiations are proceeding without rigorous CBA, particularly which sectors
bear the costs, which gain, and what is the pay-off of the CEP economy-wide.

Professor Nigel Haworth of Auckland University says CBA is integral to
building community confidence about outcomes, and should be a priority for
government in allocating resources. He says sophisticated economic modelling is
now available to examine scenarios in some detail.

Peter Conway, CTU economist, stresses that CBA should be a
whole-of-government exercise, as MFAT's focus is necessarily offshore.

Availability of Negotiating Texts:
Jane Kelsey of Auckland
University and Paul Goulter of CTU say draft texts should be made available to
enable quality analysis independent of officials, particularly since stretched
government resources truncate the level of CBA.

Meeting with Opponents of the Proposed CEO,
Christchurch, June 15.

About fifteen people attended a meeting in Christchurch, organised by MFAT to
hear further views from some of those whose submissions were most strongly
critical of the CEP initiative. They included Dr Bill Rosenberg, of Arena, the
Green Party co-leader, Rod Donald and policy staff of the Christchurch City
Council. In addition Christchurch City councillor David Close, a prominent
Canterbury environmentalist, Diana Shand and two representatives of the
Engineers' Union were among those who attended.

Diana Shand commented that many NGOs hadnt attended because they believed the
consultation process wasn't genuine.

Several key themes emerged:

• Little, if any, analysis of costs and benefits had been done to determine
  whether a CEP would be in New Zealand's economic, social or cultural interests.
• Given Hong Kong's zero-tariff, liberal services economy, New Zealand had
  everything to lose in unilaterally lowering its tariffs in the hope it can
  capture uncertain gains in services some way down the track. This front-loads
  demonstrable risks and back-loads speculative benefits.
• New Zealand is vulnerable to compensation claims and investor-state disputes
  arbitration under the 1995 Investment Promotion and Protection Agreement. The
  CEP would simply accentuate that risk by highlighting how "defenceless" New
  Zealand is in the face of foreign investors, who need only register a Hong Kong
  shell company to be eligible.
• Services liberalisation stands to entrench the commercialisation of core
  public services, such as education and environmental services, by removing
  governments' ability to move to more of a 'national interest' focus in future.
  Furthermore, the CEP would afford equal access to Hong Kong services providers
  for local procurement contracts, thus negating a 'buy New Zealand' or 'source
  locally' policy.
• There is no basis for confidence that Customs either here or in Hong Kong
  would be able to police cross-border trade of Chinese products destined for
  on-shipment to New Zealand under preference. The extent of 'leakage' would
  simply be a cost borne by the New Zealand garment, textiles and footwear
  industries and the wider economy.
• The increased Customs and MAF resourcing that will be required to cope with
  the increased volume of trade stimulated by the CEP will be met by the taxayer,
  not the importers.

Issues for Manufacturers Under a Possible
CEP

The Canterbury Manufacturers' Association favours a Rules of Origin model
based on substantial transformation, and emphasises the speed of policing
response - not just the robustness - will be crucial to preventing damage to New
Zealand industry from any influx of ineligible goods claiming preference under a
CEP. The Wellington Regional Chamber of Commerce suggests rules of origin could
be developed with reference to the United States, Canada and the EU, to elicit
greater scrutiny from a broader audience.

Canterbury Manufacturers' Association notes that parallel importing also
undermines the value of New Zealand brands. It notes that compensating benefits
for local industry to offset the increased pressure under a CEP will require
aggressive promotion of new opportunities by Trade New Zealand.

One CMA member noted that in the case of Macpac outdoor equipment the concern
was not just competition from cheaper products per se, but also from possible
copycat products. In this regard a robust intellectual property regime would be
of greatest benefit.

CMA warns that labelling requirements, eg for recycling requirements, can
create a competitive disadvantage if not imposed on imports as well.

A meeting of the Employers' and Manufacturers' Association (Northern)
Manufacturing Division also addressed labelling, suggesting labelling of both
packaging and product would help industry here to compete. Currently
country-of-origin labelling is mandatory only for TCF items.

The meeting registered a strong plea to maintain safeguards and anti-dumping
provisions.

The possibility of closer alignment of standards and professional
qualifications under a CEP was seen as a major gain, but raised the issue of
whether this could be pursued as a triangular exercise with Australia.
Similarly, if New Zealand and Hong Kong could reach a double taxation agreement,
not only would this facilitate investment flows, but it could "serve as a
stalking horse" for a DTA with Australia.

The Consumers Institute stresses the increasing importance of harmonising
consumer law, as imports assume an ever-greater share of the basket of goods
bought in New Zealand.

One Dunedin manufacturer of state-of-the-art building maintenance equipment,
Farra Engineering, says patenting its designs would be ineffective and too
costly, though it does copyright its drawings. Although Farra took a risk and
licensed factories to make its designs in Hong Kong - against concerns from its
New Zealand workforce that jobs would be lost to Hong Kong - in fact the
opposite has happened: With the design team based in Dunedin and the engineering
production more efficient than Hong Kong's - an advantage reinforced by the
depreciation of the NZD - most of the high-value work is done in New Zealand.

Working through a Hong Kong agent has proven beneficial, and despite a sharp
drop in demand immediately following the Asian financial crisis, Hong Kong is
recovering well as a market for Farra. Furthermore, Hong Kong is providing a
showcase stimulating increasing interest from the United Kingdom, Singapore and
Australia. Farra commented that, in this regard, the media reports of Hong Kong
plans to offer aviation beyond rights for Air New Zealand rights to pick up and
drop off passengers in Hong Kong en route between New Zealand and Europe were
very encouraging, and would boosts Farra's efforts to build its European market.

The NZ Post subsidiary, Transend, stresses the importance of aviation
liberalisation to its own air freight.

Consultation with Maori

Initial consultations have identified several consistent themes:

• Endorsement of the commitment to extensive interaction between officials and
  Maori during the course of the negotiations.
• The need for Maori input into various options under the CEP, including
  ensuring Maori interests, such as in intellectual property, are not compromised.
• The need to address the practical implications of the Treaty of Waitangi
  exemption from a CEP.
• The awareness that a CEP could provide considerable commercial opportunities
  for Maori, for example in education and tourism.
• Concern that Maori are over-represented in the industries and communities
  likely to come under most acute pressure if tariffs protecting the TCF sectors
  are significantly reduced.

While the tenor of Maori responses so far has been positive - focusing on
economic opportunities expected to arise from more liberal trade and investment
with Hong Kong - there is also an acute awareness that the CEP initiative could
backfire if Maori interests are not treated as integral to the process. Shane
Solomon of Tainui commented: "This CEP introduces another entity Maori have to
deal with. The negotiations could either disenfranchise us further or provide
more opportunities." Anita Stowers and Teresa Tepania-Ashton, of the Manukau
Enterprise and Employment Trust, strongly criticised the lack of Maori
representation on the New Zealand negotiating delegation.

Services Exports
Canterbury Development Corporation investment
advisory staff suggested New Zealand might benefit from a CEP in gaining
preferential access to an economy they described as "a hunting ground for IT
experts." If a CEP facilitated further investment, New Zealand's ability to
attract some of the international pool of IT experts operating out of Hong Kong,
or to market New Zealand's own IT services, could be enhanced.

One representative of a New Zealand engineering consultancy that does all of
its business overseas - most of it in Asia - says reciprocity of services access
is crucial. He says the barrier to this in engineering consultancy - as in other
professions - is just as likely to come from New Zealand professional bodies'
resistance to opening the market here as it is from professional bodies in Hong
Kong guarding their patch. He says in New Zealand's case, it will be important
to distinguish between closed-shop practices and legitimate grounds for
acknowledging local protection - such as consumer protection and earthquake
expertise.