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
In 2017, Australia imported 221,360 million dollars (MD) representing 1.2% of world imports and ranking it as the 24th largest import market in the world. Australia’s imports coming from Mexico stood at 2,134 MD, represented 0.96% of total imports, this figure made Mexico ranked as Australia’s 20th largest import supplier.
In terms of tariff lines, Australia imported from Mexico throughout 1,843 tariff lines at 10-digit level in 2017, according to Australian import data, while world imports were registered in 7,163 tariff lines; namely, Mexican imports entered into Australia using only 24.6% of the Australian Harmonized Tariff Schedule available, meaning that there are a lot of opportunities for Mexican exports to expand and wait to be tapped.
In order to assess partially the tariff liberalization made by Australia in the CPTPP for Mexican exports, it is proposed to carry out a simulation analysis using Australia’s Tariff Schedule in the CPTPP and apply this negotiating results to actual Mexican imports made by Australia for the calendar year of 2017.
For purposes of simplicity and representability, I will be analyzing only 300 tariff lines of Australia’s imports coming from Mexico in 2017 out of the 1,843 tariff lines abovementioned, descendingly-ordered in value terms, which in this case accounted for almost 94% of total importation.
Some important results and implications of this simulation exercise are:
- 115 tariff lines out of the 300 Mexican universe of this exercise are entering duty free nowadays, namely, 38.3% in terms of number of tariff lines or 58.6% in terms of import value. This set of tariff lines is called the consolidation of the MFN duty-free regime under the CPTPP for Australia which is of special interest to Mexico.
- The first year of implementation of the CPTPP for Australia (expected to be 2019), Mexico will be saving at least 35.3 million US dollars in payments of customs duties for 185 tariff lines which will become tariff free or will be getting a reduced base rate tariff. Conversely, Australia’s Treasury authority will be facing a reduction in its tariff collection for the same amount.
- On 1 January 2019, the expected date of Entry Into Force (EIF), Australia will allow 155 tariff lines out of the 300 Mexican universe analyzed to enter duty-free at EIF, that is, 51.7% in terms of tariff lines or 29.3% of Australia’s import value coming from Mexico in 2017. This tariff elimination will mean for Mexican imports not to face tariff collection payments for an amount of almost 31 million US dollars. This set of tariff lines is called the new tariff liberalization commitments made by Australia under the CPTPP which is of special interest to Mexico. Some tariff lines in this set are: new passenger motor vehicles, vessels, single loudspeakers, distilled alcoholic beverages, among others, which now are facing a 5% ad valorem tariff. Also, there are 2 tariff lines in the apparel sector that Mexico exports regularly to the Australian market which now are facing a 10% ad valorem tariff that will become tariff free at EIF.
- On 1 January 2019, 25 tariff lines will be getting a tariff cut from 5% to 2% and will be tariff free in a linear fashion by 1 January 2021. Some of these tariff lines are sparking piston engines, gear boxes of a kind used as components in passenger motor vehicles, parts and accessories of motor vehicles, motor vehicle wiring harness, clutches and parts thereof, lead-acid type electric accumulators, among others. Also, the 10% ad valorem tariff of 2 tariff lines of the apparel sector will be cut by half at EIF, benefiting Mexican exports for 3.4 million dollars in 2017.
- Only 3 tariff lines out of the 300 Mexican universe will be facing the toughest Australian phasing out schedule, namely, AU4-B (the 4-year bullet/grace period) and these Mexican products (machinery for lifting, handling, loading or unloading; still image and other video camera recorders; and leather (including sides), further prepared after tanning or crusting) will be receiving the 5% MFN tariff for 3 years but by 1 January 2022 will be duty-free.