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Brief Counsel

Stronger safeguards for local industry

08 April 2009

Legislation to provide local manufacturers and goods producers with temporary relief against a sudden flood of imports in the domestic market is now before Parliament.

The Trade (Safeguard Measures) Bill 2008 (the Bill) has been referred to the Foreign Affairs, Defence and Trade Select Committee for consideration. Submissions close on 14 April.

The Bill replaces the Temporary Safeguards Authorities Act 1987 (the Act) and brings New Zealand into line with the 1995 WTO Agreement on Safeguards. It will not affect New Zealand's tariff reduction programme which will continue on schedule. 

This Brief Counsel examines the Bill and identifies some potential issues for business.

What are safeguards?

Trade safeguards are temporary protections which a domestic industry or company can seek from the Government if under threat of "serious injury" from a sudden increase in imports. They can take the form of import quotas or of imposing or increasing tariffs and are intended to allow the domestic producer time to adjust to competition from imported goods. A safeguard may last for up to four years.

Safeguards are different to anti-dumping measures. Anti-dumping measures protect against dumped or subsidised goods from a specific country. Safeguard measures apply to fairly traded goods and are imposed against imports from all countries. 

Safeguards can only be imposed in respect of physical goods, including animals. They cannot be imposed on imported services or financial products.

Why change?

Under the present rules, the Minister of Commerce decides if an inquiry will be conducted and decides whether any relief will be given. The actual investigation is done by safeguard authorities appointed under the Act. Two were appointed: Neil Plimmer and John Gilbert. Both appointments are due to expire on 10 June this year although they will likely be extended pending the Bill's passage. 

The regime, however, is rarely used. Only four safeguard inquiries have been undertaken and only one (men's underwear, in 1992) resulted in a safeguard measure being imposed. The Act also predates the 1995 WTO Agreement on Safeguards and important developments in international case law.

Changes in the Bill

The major amendments in broad order of importance are:

  • The authorities will be abolished. Instead the Minister for Economic Development will decide whether an inquiry is warranted and MED will conduct the investigation and will recommend to the Minister whether any action should be taken. There will be a single point of contact (the Trade Rules, Remedies and Tariffs Group at MED) for key trade protection issues (subsidies, safeguards, and anti-dumping).
  • New Zealand will adopt the WTO definition of domestic industry which refers to "like or directly competitive products". Other governments, including the United States, consider the WTO definition to be disjunctive in that it is necessary to establish only that the local product is "like" the imported goods not that it is also "directly competitive". The current New Zealand regime requires both of these criteria to be satisfied.
  • New Zealand will adopt the WTO definition of "serious injury". The WTO agreement refers to "significant overall impairment in the position of a domestic industry". The MED takes the view that the current New Zealand definition which refers to the domestic industry's "economic viability" could be interpreted as being a lesser standard than the WTO rules, thus opening a New Zealand safeguard to a greater risk of successful challenge at the WTO.
  • The WTO requires that a safeguard may be of no more than four years' duration but provides also for extended safeguards (up to eight years) where specific conditions apply. The Bill incorporates these rules.
  • Safeguard investigations will be more thorough. Now they must be completed within 30 working days. That will be extended to 75 working days. 
  • The Bill provides for a separate "safeguard duty" rather than simply introducing a variation to the normal working tariffs regime.

Conclusion

The Bill is timely and makes some practical changes.

It brings New Zealand more into line with international practice and will ensure that any safeguards which are imposed will be less exposed to WTO challenge. It is also a useful reminder that when entering trade agreements the Government needs to consider its obligations lest it find itself having to pay compensation for the negative impact of domestic legislation on foreign investors. 

It is currently more difficult than in other jurisdictions for New Zealand manufacturers to show injury and the investigation procedure is not sufficiently detailed, increasing the risk of a WTO disputes panel overturning a safeguard were one to be imposed.  These two shortcomings are remedied by the Bill. The decision to clearly separate any safeguard duties from normal tariffs is also a good move. 

We do have one reservation. The Bill requires a person applying for a safeguard investigation to include as much information as is "reasonably possible" about the increased imports, the unforeseen developments, and the nature of the domestic industry.

We think this drafting is problematic. An applicant should certainly shoulder some (or even most) of the cost of an investigation and will usually have better knowledge of his or her particular industry than the MED. But "reasonably possible" is a high standard: does it mean that every research avenue must be followed, regardless of cost and time? Could it lead to applications which have merit being declined by the MED for resource reasons?

Next steps

We encourage clients in the manufacturing and primary production sectors to make a submission. If you require assistance with this or would like to discuss any aspect of the Bill or trade safeguards generally, please contact Grant David or Nick Wells.

Our thanks to Colin Fife, solicitor, for writing this edition of Brief Counsel. The views expressed here might or might not be shared by clients of the firm or others within it.

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