The stock of U.S. foreign direct investment was $3.6 billion in 1994, 16 percent more than in 1993. U.S. direct investment in New Zealand is largely concentrated in telecommunications, forestry and paper, food processing, transportation, petroleum, and finance.

IMPORT POLICIES

Tariffs

In an effort to open its market to international competition, New Zealand has unilaterally instituted a program of significant tariff liberalization since December 1985. At that time, New Zealand announced that tariffs on goods not produced in New Zealand would be cut to zero unless trade policy considerations dictated otherwise. In 1988, the government reported that 93 percent of imports entered duty free and instituted a multi-year program to reduce remaining tariffs. By July 1, 1996, the tariffs on most goods manufactured in New Zealand will fall within the range of five to 15 percent.

Certain sensitive sectors will still retain tariffs which are above OECD averages after July 1, 1996. Tariffs for motor vehicles, tires, textiles (except yarns), curtains, carpets, clothing, and footwear will range from 20-to-30 percent as of July 1, 1996. Passenger vehicles and original equipment tires will still face a tariff of 25 percent; replacement tires 15 percent; clothing and adult shoes 30 percent; children's shoes 25 percent; and carpets 20 percent. New Zealand assesses tariffs of between 13 and 20 percent on imports of distilled spirits. These rates are scheduled to be reduced to 5 percent by the year 2000. We are negotiating with New Zealand in the WTO to complete the "zero for zero" on distilled spirits.

In the context of the Uruguay Round market access negotiations, the United States sought further reduction of New Zealand's tariffs and also sought a substantial increase in New Zealand's tariff bindings. As a result of the Uruguay Round, all New Zealand tariffs will be bound except those for used motor vehicles and used clothing. In addition, all remaining tariffs on pharmaceuticals will be eliminated by July 1, 1997, on beer by July 1, 2002, and on pulp and paper by July 1, 2004. On December 16, 1994, New Zealand announced a further unilateral tariff reduction plan for July 1, 1997 through July 1, 2000 which will reduce all tariffs to no more than 15 percent. Under this plan, goods with a tariff rate over 20 percent in 1996 will have a rate of 15 percent in 2000. Goods at 15 percent to 20 percent in 1996 will have rates of ten percent in 2000. Goods at rates below 15 percent in 1996 will have rates of five percent in 2000 (with the exception of car parts which will carry a tariff of ten percent). Goods with a tariff of five percent in 1996 will enter duty free after July 1, 1998.

It is the stated policy of the government that opening the New Zealand economy to competition, particularly international competition, is a key element of a successful growth and employment strategy. Thus, tariff reductions after 2000 are scheduled for review in 1998 to determine how to move towards a zero end point under a unilateral domestic tariff reduction program.

STANDARDS, TESTING, LABELING, AND CERTIFICATION

Sanitary and Phytosanitary Controls

New Zealand maintains a strict regime of sanitary and phytosanitary control for all imports of agricultural products. Due to the government's use of basic risk analysis in developing agricultural inspection requirements, access for some agricultural products has improved or is improving. A U.S.-New Zealand import protocol was reached in 1995 which allows for the importation of U.S. peaches and nectarines. However, New Zealand prohibits the import of U.S. salmon because it has not completed the required risk assessment for this salmon, contrary to its obligations under the WTO agreements

In 1983, New Zealand and Australia entered into a "closer economic relations" (CER) agreement seeking for the two countries harmonization of the standards, technical specifications and testing procedures, domestic labeling and restrictive trade practices. One side effect has been that phytosanitary or animal health restrictions held by one country are often followed by the other.

GOVERNMENT PROCUREMENT

In practice, the government's procurement system is open, transparent, and competitive. While government policy is to give local producers a fair chance, chief executives are responsible for limiting costs and will source purchases wherever they can get the best value for the money. Stiff laws against bribery of government officials and those accepting bribes are enforced. New Zealand has not joined the GATT/WTO Government Procurement Code because the government believes the benefits would not justify the compliance cost of trying to police New Zealand's totally deregulated government procurement system.

LACK OF INTELLECTUAL PROPERTY PROTECTION

TRIPs Obligations

New Zealand is a member of the World Intellectual Property Organization, the Paris Convention for the Protection of Industrial Property, the Berne Convention and the Universal Copyright Convention. It fulfilled its TRIPs Agreement obligations with the passage of the Copyright Act of 1994; Layout Designs Act of 1994; and 1994 amendments to the Patents Act of 1953, to the Trademarks Amendment Act of 1953, and the Plant Variety Rights Act of 1987. Amendments made to existing intellectual property statutes came into force on January 1, 1995.

The 1994 Copyright Act substitutes civil for criminal penalties for parallel importers. It is now the responsibility of the copyright owner to inform New Zealand Customs that goods are being parallel imported into New Zealand (notice forms are to be accompanied by a fee of $1,072) and to take civil action against the importer.

In two areas, New Zealand's legislation goes beyond its TRIPs obligations. New Zealand's 1994 copyright legislation allows its regime to keep pace with technological changes and ensures compliance with the 1971 revision of the Berne Convention. Scheduled to be brought into force in 1996, the Geographical Indications Act of 1994 establishes a regime for protecting New Zealand and international geographical indications (e.g., for wine) from misleading or deceptive use. The government also continues to review its intellectual property legislation for further reforms that will take into account such developments as the global information infrastructure.

Pharmaceuticals

The New Zealand government adopted amendments to its Medicines Act in 1989 which significantly weakened patent protection for pharmaceutical products. In response to international concern, New Zealand passed the Medicines Amendment Act in 1990 to replace the 1989 legislation. However, the 1990 Act waived government liability for trademark or copyright infringement related to the importation, sale or distribution of medicines for which the patent has expired. Consequently, materials under copyright or trademark that are used in connection with an "off patent" medicine imported by the government (e.g. pamphlets) now may be imported, reproduced, translated, or adapted without permission from the holder of the copyright or trademark. In practice, the government has not actually imported such "off patent" medicines since the enactment of the 1990 Medicines Amendment Act. The Copyright Act of 1994 preserves the ability of the government to parallel import printed materials associated with parallel imported medicines for which the patent has expired.

INVESTMENT BARRIERS

Overseas Investment Commission

While there is an active public debate over the issue, foreign direct investment is welcomed. Approval by the Overseas Investment Commission (OIC) is required for all foreign direct investment (both acquisitions and greenfield investments), where an "overseas person" is to acquire or take control of "significant" assets in New Zealand. Control is defined as 25 percent ownership or a controlling interest of an asset. Significant assets include: businesses or property worth more than NZD 10 million (US $6.6 million); land over five hectares or worth more than NZD 10 million; and certain "sensitive" land over 0.4 hectares (e.g., on islands, on or next to reserves, historic/heritage areas, foreshore, and lakes). No performance requirements are attached to foreign direct investment. Full remittance of profits and capital is permitted through normal banking channels.

The Overseas Investment Amendment Act of 1995 replaced an outmoded, duplicative approval system for foreign land purchases and places the responsibility for such approvals solely with the OIC. The act gave the OIC for the first time the authority to monitor foreign investments after approval to enable the OIC to check when and if investment proposals proceed, and to ensure investors live up to approval conditions. It also increases the penalty for noncompliance. If foreign investors are found to have lied on approval applications, the high court can order the disposal of their New Zealand holdings.

Although the screening process is discriminatory, in practice, the OIC approves virtually all investment applications. Its approval requirements have not posed a problem for U.S. investors. There is no limit to foreigners buying into any sector or acquiring 100 percent ownership of any firm. The exceptions are a maximum 35 percent ownership of Air New Zealand to preserve landing rights; the 1983 Fisheries Act which allows foreigners only to lease New Zealand fishing rights; and a general edict that while crown forestry assets and cutting rights can be acquired by foreigners, the land on which the assets are situated should remain in government hands.

International Tax Reform

As part of the government's deregulation strategy, Parliament passed an International Tax Reform bill on December 12, 1995. Going into effect on April 1, 1996, the reforms grant foreign firms and investors national treatment on corporate taxes; transfer pricing rules will be aligned with OECD practices; and thin capitalization regulations will be tightened to discourage foreign companies from using excessive debt to avoid New Zealand taxes. The new rules offer foreign investors greater transparency and predictability.

ANTI-COMPETITIVE PRACTICES

PHARMAC

Another issue which adversely affects both New Zealand and foreign pharmaceutical companies is the monopsony purchasing practices of the Pharmaceutical Management Agency (PHARMAC). Established in 1993 by New Zealand's four government-owned regional health authorities to manage the purchasing or funding of public medical services, PHARMAC is effectively exempted from New Zealand's normal competition laws. PHARMAC controls a pharmaceutical schedule on which all government-subsidized pharmaceuticals are listed. Private medical insurance companies, furthermore, will not cover unsubsidized medicines. Thus, PHARMAC effectively controls what prescription medicines will be sold in New Zealand and, to a large extent, at what price they will be sold.

Pharmaceutical suppliers, domestic and foreign, complain that it is difficult to list new chemical entities and line extensions on PHARMAC's schedule. As PHARMAC tries to restrict the growth of New Zealand's pharmaceutical budget, suppliers must be prepared to offer substantial discounts to be listed. Pharmaceuticals can be de-listed if a new, cheaper alternative becomes available, and the manufacturer of the original product refuses to discount its price to that of the new lower priced alternative.

Marketing Boards

Statutory producer boards continue to have an effect on agricultural products and cover many of the most important products produced and exported by New Zealand. Export market monopolies remain in place for dairy, apples, pears, and kiwifruit. Regulatory producer boards exist for meat and wool, but these do not exercise control over export operations. The government does not fund board operations. Either retained revenue from domestic growers or domestic grower checkoffs provide funding. The Apple and Pear Board Act was amended in September 1993 and the domestic market in this product area is now open to importers. Legislation is pending in 1996 which would address domestic concerns over marketing boards' ownership, accountability, and powers over the dairy, meat and wool industries.

Other

Given the small size of the New Zealand market, we estimate that removal of any one of the still existing barriers to trade and investment would not result in a potential U.S. export gain of more than ten million dollars a year. Nonetheless, New Zealand's increasingly open trade and investment policy is a bellwether for regional and global trade and investment liberalization. Thus, what New Zealand does to open its markets to further competition and foreign participation is watched closely by our larger trading partners in the Asia-Pacific region and elsewhere.