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Chinese checkmate: why Sydney stopovers could be fatal for free trade
This update will be of interest to all New Zealand businesses that import Chinese-made goods via another country, especially Australia.
In April China and New Zealand signed a free trade agreement (the FTA) in Beijing and it is expected to be in force by 1 October 2008.
One of the key objectives of the agreement is to "eliminate barriers to trade in, and facilitate the cross-border movement of, goods and services between the parties" and this will be accomplished by lowering or eliminating tariff rates for most types of goods that pass between New Zealand and China.
On reviewing the details of the FTA we have become aware of an apparent limitation in that the preferential tariff treatment only seems to apply to goods that are consigned directly between China and New Zealand.
Where goods pass through a third country, the preferential tariff treatment will only be allowed where:
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the goods do not enter into the trade or commerce of that country; and
- the goods do not undergo any operation in the third country other than unloading and reloading, repacking, or any operation required to keep the goods in good condition.
In addition, where goods transit through a third country, the duration of that transit or any storage in that third country cannot exceed six months.
Whether either of these requirements are met will be a question of law. We understand Customs to have taken the initial view that clearing goods through the customs processes of a country may well result in those goods entering "the trade or commerce" of the country.
Chinese-made product may often be brought into New Zealand via Australia. This could be because the product has been bought by an Australian reseller (perhaps an Australian parent company) or an Australian buying agent. If under such an arrangement the product has passed through Australia in the sense of having been entered into the trade or commerce of Australia then the limitations outlined above may exclude the benefits of the China-New Zealand FTA.
Further, the benefits of the Australia-New Zealand FTA only apply to goods of Australian origin – so the Australia-New Zealand FTA would also not provide relief.
If you may be affected by this and would like to discuss this further, please contact any member of our tax team.
Niels Campbell
Partner
David Simcock
Partner
Willy Sussmann
Partner
John Bassett
Senior Associate
Mathew McKay
Senior Associate
Graeme Olding
Senior Associate
Campbell Pentney
Solicitor
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.
