The New Year will ring in new opportunities for New Zealand’s red meat exporters in a number of markets, as the newly inked Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) comes into force. Meat Industry Association chief executive Tim Ritchie takes a look at what the tariff-rate cuts and other benefits brought by CPTPP mean for the sector.
The new multi-lateral trade agreement will bring benefits for New Zealand’s already substantial meat exports of $1.1 billion in 2017 to the 11 CPTPP nations – not least of this will be in the estimated tariff reductions of around $63 million a year once the agreement is fully implemented.
On 31 October, the red meat sector was delighted at the news Australia had become the sixth nation to ratify CPTPP, following Singapore, Mexico, Japan, New Zealand and Canada. This was the minimum number of countries required to trigger a 60-day countdown to the agreement coming into force on 30 December this year.
This now means the first round of tariff cuts will take place on 30 December. For those countries running a calendar tariff year, which is all but Japan, the second round of tariff cuts takes place very quickly afterwards on 1 January 2019. For Japan, the second round of tariff cuts will happen on 1 April 2019.
Exports of New Zealand beef are set to benefit the most from the agreement, we believe.
Historically an important market for New Zealand and our fourth biggest market for beef in the year ending September 2018, Japan is where our exporter members will start to immediately feel the benefit at entry-into-force (EIF) on 30 December.
Japan’s tariffs will lower from the current 38.5 percent to 27.5 percent, then on 1 April – at the second round of tariff cuts – they drop further to 26.6 percent. This is really significant as this will put us on level pegging with Australian beef exporters, which have already been enjoying a preferential tariff-rate for the past few years (currently 29.3 percent for chilled beef and 26.9 percent for frozen), thanks to their free trade agreement with Japan. The tariff rate will then progressively drop for all CPTPP parties to nine percent over 16 years – the lowest level Japan has ever agreed in any trade agreement. It is worth noting the US currently has no FTA with Japan and their exporters will be subject to the previous high tariff rates.
Canada ranked sixth in value for New Zealand’s beef exports at the end of September 2018. Our beef exporters to that market are currently subject to country-specific World Trade Organisation (WTO) quota of 29,600 tonnes and a 26.5 percent out-of-quota tariff. The out-of-quota tariff rate will be reduced to zero over six years and all beef exports will be tariff-free from 30 Dec 2023.
Mexico, another market with good potential for New Zealand beef, applies various levels of tariffs for different chilled and frozen cuts. These will reduce from 20-25 percent to zero over 10 years, apart from one product – inside and outside beef skirt for the marinated Arrachera for tacos – which will see tariffs removed on 1 January 2032.
Tariffs of 17 percent currently imposed by Peru on New Zealand beef will be eliminated at EIF.
Sheepmeat exporters will also see better trading conditions, especially in Canada, our seventh largest sheepmeat market at the 2018 September year-end, where nearly all of the tariffs on New Zealand’s sheepmeat exports will be eliminated on 30 December.
Current sheepmeat tariffs of 10 percent in Mexico will be eliminated on EIF for some products and for other products will reduce to zero over eight years.
CPTPP will also eliminate Peru’s current tariffs of nine percent on sheepmeat on EIF and beef tariffs of 17 percent over 11 years.
Tariffs on most red meat co-products will also be eliminated on EIF, though Japan’s tariffs on offal and processed meats will be eliminated over 11-13 years with a 50 percent reduction at EIF. Vietnamese tariffs on processed meat products will be reduced to five percent from 2022 and eliminated from 1 January 2028.
Vietnam will see all trade under CPTPP becoming tariff-free within 10 years of coming into force.
New Zealand’s exports to Australia already enjoy tariff-free access under CER and exports to Chile, Malaysia (currently New Zealand’s ninth most valuable beef market) and Singapore are also already tariff free. New Zealand does not currently export red meat or co-products to Brunei as the country does not allow for pre-slaughter stunning, which is a non-negotiable animal welfare requirement for commercial slaughter in New Zealand.
Streamlining trade between CPTPP countries
But it’s not only about tariffs. The CPTPP is also includes provisions to streamline and simplify border arrangements to enable products to move easily across borders and reduce costs. CPTPP also provides mechanisms to address non-tariff trade barriers and strengthen regulatory cooperation among the parties.
For example, it includes a requirement that when conducting audits of another country’s systems, the costs incurred by the auditing party are borne by the auditing party (unless otherwise mutually agreed). This is a ‘WTO-plus’ provision which should minimise the cost burden for New Zealand. The cost of hosting audit visits, which can be up to $100,000, currently has to be borne by the New Zealand government and industry.
Another welcomed move by our members in CPTPP is the banning of ‘consular transactions’, such as consular invoices and visas. These transactions are costly, ranging from $200 to $1,000 per consignment, time-consuming and unnecessary, particularly in the case of meat exports, which are accompanied by official health certificates signed by the Ministry of Primary Industries (MPI).
Border controls also need to be transparent and not impose unnecessary costs on importers and exporters, for trade to flow freely. We have welcomed new requirements in the CPTPP Customs Administration and Trade Facilitation Chapter. This means goods must be released as quickly as possible – no greater than required to ensure compliance with a Party’s customs law, and to the extent possible within 48 hours of arrival and within six hours for express shipments.
The Agreement also sets out a process, including a timeframe, for obtaining advance rulings on tariff classifications. This will help provide certainty for exporters of further processed products about how their goods will be classified and what tariffs (if any) they will be subject to.
There is also a common set of rules of origin to determine whether a product originates within the CPTPP region and so qualifies for the preferential tariff rates. Product specific rules of origin are included, along with ‘accumulation’, where inputs from one CPTPP party are treated the same as materials from any other CPTPP party, if used to produce a product in any CPTPP party. So, effectively, for example, New Zealand meat could be combined with Australian meat in a ready meal put together in Canada. Exporters will self-certify that the exported product meets the CPTPP rules of origin in order to qualify for tariff preference.
The red meat sector is strongly supportive of these provisions which should facilitate trade within the CPTPP region.
We look forward to a positive 2019 for the sector.