Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill

We now turn to the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill. The question is that clause 1 stand part. I will just remind members that this is a clause by clause debate, and the clauses are very narrow.

The Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill is a short and straightforward bill, and the clauses are actually interdependent. There are two main things that it does: it amends the Tariff Act and it amends the notes to the Tariff Act. First of all, what it does is enable preferential tariff rates to be applied to the Republic of Korea, and this is in order to implement the free-trade agreement that was negotiated earlier this year in Seoul. It also allows for transitional safeguard measures to be applied if there is a surge in imports and there is a danger to New Zealand producers.

It is important to say that the tariffs that apply to the Republic of Korea are currently low, and they are few. If I were to find a couple of examples, we would be looking at things like washing machines and car tyres, which have a tariff of 5 percent. What we know about a tariff of 5 percent is that it is not much protective help at all to New Zealand industry. It is easily traded over, and the removal of that tariff is not going to have much impact on any New Zealand enterprise—most particularly, because the free-trade agreements that we already enjoy with countries like China have taken away those tariffs, and if the industries were at risk, then they would be at risk from much larger trading entities than Korea. The transitional safeguard mechanisms are there in case there is a surge in imports that would devastate a New Zealand production line. Although we have put these in all of our free-trade agreements for as long as I can remember, I do not think that we have ever evoked those safeguard mechanisms, so they are not going to be of great importance either. In essence, the argument with the clauses that are under consideration is that they will do no harm to New Zealand manufacturing, but, by contrast, the removal of many tariff lines imposed on New Zealand exports to the Republic of Korea is quite valuable to our exporters, as well as to Republic of Korea consumers.

Let us just take a look at some of the examples of what the trade-off is for giving preferential access to Korean goods. For example, wine is a growing export to Korea and it currently has a tariff of 15 percent, and that will be gone on entry. Obviously, if we get this bill through the House as quickly as possible, we will have the removal of tariffs immediately and then we will have the removal of tariffs at the beginning of the next calendar year, so there is some importance in passing this legislation without delaying it unduly. Then you have lines of New Zealand exports that face much higher tariff levels than that—for example, the kiwifruit industry, which faces tariffs of 45 percent. Our main competitor in the Korean market is Chile, and its tariffs have been phased out altogether. So you can see the competitive disadvantage that New Zealand kiwifruit exporters are under. This agreement will be of real benefit to them. Butter has a tariff level of 89 percent; it will be phased out over a 10-year period. Cheese has a tariff level of 36 percent; it will be phased out over a 12-year period. Wood has a tariff level of 10 percent, which will be phased out over 10 years. And salmon has a 20 percent tariff level, which will be phased out over 4 years.

The estimates that the select committee got on the value of the removal of tariffs was, I think, from memory, about $68 million in savings to New Zealand exporters in the first year. Ultimately, the savings would amount to around $229 million per annum. The essence of these changes is that this is a deal that is worth having. That is not because it will give us competitive advantage. Unlike the New Zealand - China free-trade agreement, we do not have first-mover advantage. This is actually about catching up. It is about catching up with the other major exporters into Korea, which are competing with New Zealand exporters and have already got a free-trade agreement and the benefits that we have negotiated in this deal. These are major countries like the United States, Australia, Canada, China, the European Union, the ASEAN countries, and Chile. These are countries that will be able to defeat our ability to get major exports into Korea if we do not get this agreement through.

Having given that praise to the agreement, I have got to say that in my mind it does not meet the definition of being high quality and comprehensive, which the free-trade agreements with China and then Taiwan did. I regret that. This is not just a personal opinion; I think it is the opinion of Russell McVeagh, which is an expert in this area and has said that those expecting this agreement to achieve results similar to those with the free-trade agreement with China will be disappointed. I think we are bound to say that as well as the winners that I have just elaborated on, there are losers in this. The losers include milk powder, where there is a tariff level of, I think, 176 percent, which continues for those exports that are out of the quota. The quota will go up, but there will be milk powder exports that are paying a phenomenally high tariff level.

There is frozen deer velvet—75 percent of our exports of deer velvet to Korea are frozen, and Korea is our biggest single market. It still has a 15 percent tariff, and there is no move to take that away in the changes that come out of the free-trade agreement. Fresh abalone and frozen squid face 22 percent tariff lines, and, again, they appear to remain in perpetuity in terms of our exporters of those goods to Korea.

So those things will be disappointing, and I am not saying that the Minister in the chair, Tim Groser, has not done his best. I have absolute confidence that he has done his best on that deal, but it is a step down from the agreements that we got with China and with Taiwan. Having said that, I think it is important to take what is on the table. Korea is the fifth-largest market for our exported goods to other countries. It is a trade that over the past 5 years or so has been growing at around 10 percent per annum. It is a large market—51 million people. It is an increasingly affluent market. It is also the world’s 13th-largest economy and eighth-largest trading country. So as well as the advantages of some of the primary commodities that I have mentioned, there are advantages in terms of our export of manufactured goods. I would instance aviation, medical devices, precision engineering, and marine manufacturing. There are advantages in the service sector, and to education, legal, and other professional services.

When you weigh up the pros and cons of the deal, you come to the conclusion that if we do not take this deal, we will become increasingly uncompetitive in the Korean market. We would be foolish not to take the deal on the table. I think that any party that is considering opposing this deal has got to get up and explain why we should walk away from something that is of real net advantage to New Zealand. The Labour Party will be supporting this measure. I think that some of the opposition, certainly in submissions, came as a result of this deal being a surrogate for the Trans-Pacific Partnership agreement and in opposition to investor-State dispute settlement provisions. Actually, we do not need these with Korea. You need investor-State dispute settlement provisions when you are investing in a country that does not have the rule of law—where our investors cannot enforce their contracts through the court and judicial systems of the country under which they are operating. Nobody has ever made that suggestion of Korea. Korea does have the rule of law. We actually do not need investor-State dispute settlement provisions in this agreement and the only reason that they are in there—when we quizzed officials on this, they said that they are there at the insistence of the Republic of Korea.

The investor-State dispute settlement provisions follow closely those that we put into the ASEAN and China deals. Over the years—and it has been 7 years since we negotiated that deal and I signed it in Beijing—we have not had any problems. Those provisions are carefully drafted so as to leave room for the New Zealand Government to legislate in the public good in areas like the environment and health. Provided that we do not discriminate between our trading partners, we are unlikely to get into trouble.

Labour supports this deal. We have got a proud track record of negotiating free-trade agreements, but we oppose one aspect of the bill, and that is—

Order! I am going to take a point of order in a moment, but before I do, when we are in a clause by clause debate, we have to follow the clauses as per the bill. [Interruption] Order! Although it is good background material that you have given us, clause 1 is actually the title, and in a clause by clause debate, we actually have to speak to the clause. I know what is going to come—[Interruption] All right, I did not want to interrupt your 10-minute speech because it was very informative, and it certainly set the scene.

This will come as the surprise of the century. I seek leave for all clauses of the Tariff (Free Trade Agreement between New Zealand and the Republic of Korea) Amendment Bill to be debated as one question, with the votes on each clause to be taken separately.

The question is that all provisions of the bill be taken as one question for the purposes of the debate and that separate questions be put at the end. Leave is sought for that purpose. Is there any objection?

💬 Hon Phil Goff: Can we apply it retrospectively?

The CHAIRPERSON (Lindsay Tisch): No. All right, there is no objection.

Clauses 1 to 8