- About Our Global Tax Services
- Country Tax Advisory
- Cross Border Tax Advisory
- Global Trade
- Global Compliance and Reporting
- Human Capital
- Personal Taxes
- Tax Accounting
- Tax Performance Advisory
- Tax Policy and Controversy
- Transaction Tax
- Transfer Pricing and Tax Effective Supply Chain Management
- VAT, GST and Other Sales Taxes
New Zealand exports to China – are you paying too much duty?
The New Zealand - China Free Trade Agreement (FTA), which entered into effect in October 2008, has been repeatedly reported as a success; however, trade statistics suggest that New Zealand exporters of goods to China are significantly underutilising the agreement’s preferential tariff opportunities.
2010 figures obtained by the Ministry of Foreign Affairs and Trade show that:
- Less than 40% of all exports of goods to China were fully utilising available preferential rates of duty
- Approximately 13% of exports were partially using available tariff preferences
- Approximately 25% of exports were underutilising available tariff preferences
- Over 20% of exports were not using available tariff preference at all
Trade Minister, Tim Groser, has stated that local businesses have overpaid over NZ$90 million in duties by not taking advantage of the FTA.¹
In particular, the fishing, textile and apparel and minerals and metals industries have been identified as underutilising preferential duty opportunities. The following table illustrates the duty savings offered by the FTA for a sample of exported product in those and other industry sectors:
|Product type||Normal duty rate|| Preferential duty rate |
|Fresh, chilled or frozen fish & fish fillets||10% - 12%||0%|
|Minerals (excluding fuels, oils, etc.)||3% - 5%||0%|
|Clothing||14% to 25%||0% to 4%|
|Iron and steel||1% to 10%||0%|
|Iron and steel products||3% to 30%||0% to 4%|
|Aluminium and related products||1.5% -30%||0% to 4%|
|Mechanical and electrical equipment||1% to 35%||0% to 4%|
Note that the actual preferential duty rate applied depends on the specific product’s Harmonized System tariff code. Accordingly, FTA preferential rates may differ within a product category.
While the findings by New Zealand Customs are surprising, there are a number of challenges for businesses that may have contributed to the underutilisation of the FTA tariff preferences.
The sometimes complex rules of origin can be a stumbling block for some products. Evidencing that the product meets the regional value content requirements and/or tariff shift requirement can require extensive documentary support and be subject to interpretation by China Customs.
The non-manipulation rules for goods that transit through a third country can also prevent eligible goods from gaining the tariff preferences. For instance, there may be challenges in obtaining a certificate of non-manipulation from the third country upon request by China Customs.
Particularly in complex supply chain structures, goods sold for export to China may undergo multiple related party sales transactions prior to importation. In this scenario, China Customs may reject claims for FTA preferences where the documentation does not clearly support FTA qualification.
The certificate of origin requirement can also be a deterrent to using the FTA. Although certificates of origin are not required for goods imported into New Zealand from China, exports of goods to China require the certificate of origin to claim the FTA preference. China Customs is likely to deny FTA qualification where the original certificate of origin is not provided upon request. The burden of obtaining the certificate of origin is on the New Zealand exporter. Depending on the sales arrangement, the exporter may have less incentive to take on the certificate of origin and FTA obligations when the benefit goes to someone else.
Despite these challenges, FTA strategies can be effectively employed. Given that almost all goods exported under the FTA will reduce to zero in 2013, it may be worthwhile for companies that are not utilising FTAs to consider doing so. An FTA feasibility analysis may uncover eligible goods and significant duty that is being unnecessarily overpaid. FTA considerations in supply chain restructuring activities can lead to cost savings opportunities. Internal trade processes, procedures and internal controls can be put in place to safeguard FTA benefits. In other words, there are a number of ways that businesses can effectively utilise and manage FTA preference opportunities to ensure you are not paying too much.
For additional information, please contact
Connect with us
Stay connected with us through social media, email alerts or webcasts. Or download our EY Insights app for mobile devices.
Tax Watch is now available as a printable document
Download (the latest newsletter as a PDF)