New Zealand has been dismantling barriers to import competition for over 20 years.

Earlier 'fortress New Zealand' policies led to inefficient production of goods like cars and television sets, high prices to consumers, and cost burdens on export industries.

Import licensing as well as high tariffs meant effective tariff rates were sometimes 100% or more.

Today goods subject to tariffs usually face rates of 5–7%, though some face rates of up to 19% – or more where specific duties apply.

New Zealand is thus within sight of full free trade, like countries such as Singapore and Hong Kong which have had no tariffs for years.

The business community at large accepted the previous government's decision to phase out remaining tariffs by 2006 – most by July 2001. The decision by the incoming government in 2000 to freeze this programme was unnecessary.

This year the government must decide what happens after 2005.

The circumstances for removing all tariffs are favourable. Compared with the challenges of adjusting to the removal of import licensing and high tariffs, the adjustments required to complete the process are small.

Unemployment is down to 4.9% of the labour force. At a time when resources are locked up in the protected apparel sector, firms in the unprotected export fashion business are crying out for machinists.

Tariffs on clothes and shoes hit low income consumers hardest. Such tariffs are a tax of up to 19% or more compared with the GST rate of 12.5%.

Getting rid of tariffs would also save taxpayers' money on customs administration, reduce compliance costs to businesses, prevent resources being wasted by firms petitioning governments for assistance, and facilitate free trade agreements such as the stalled negotiations with Hong Kong .

It makes no sense for New Zealand to wait for other countries to make similar moves. A policy to refrain from taxing our own consumers and misallocating resources only if other countries do likewise is inherently silly.

People benefit from giving up their smoking habits even if others don't, and even if they are still harmed by other smokers.

New Zealand benefits from liberalisation moves by other countries, but a small country can reap most of the gains from free trade by simply removing its own trade barriers. Doing so would make it easier, not harder, to negotiate a wider trade agreement with the United States , as the recent conclusion of an agreement by that country with Singapore illustrates.

In multilateral negotiations, what matters is actual tariff rates, not bound rates, so New Zealand loses nothing by unilateral action.

Research indicates that the sum of the gains from removing even low tariffs is significant. Many policies to improve economic growth are politically difficult. Given New Zealand 's current circumstances, and its existing APEC commitment to remove all tariffs by 2010, a move to full free trade is relatively easy.

If the government is serious about its goal of restoring New Zealand to the top half of the OECD income ladder, tariffs are low-hanging fruit in a growth strategy.

For more information, contact:

Roger Kerr
Executive Director
Ph: 04 499 0790
Email: rkerr@nzbr.org.nz

David Young
Communications Manager
Ph: 04 499 0790
Email: dyoung@nzbr.org.nz

Web: www.nzbr.org.nz