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TITLE:  NEW ZEALAND ECONOMIC POLICY AND TRADE PRACTICES                           
DATE:  FEBRUARY 1994
AUTHOR:  U.S. DEPARTMENT OF STATE
                           
                           
                           
                           
                           NEW ZEALAND

                     Key Economic Indicators
         (Millions of NZ dollars, unless otherwise noted)

                                  1991      1992      1993 /1
Income, Production,
 and Employment

Real GDP (1983 prices)            35,615    34,893    35,372
Real GDP growth rate (percent)      0.2      -2.0       1.4
  Agriculture                      16.9      -5.1       0.0
  Fishing/Hunting/Forestry/Mining  -1.7       8.9      -0.4
  Manufacturing                    -5.0      -2.8       6.5
  Electricity/Gas/Water             1.0       1.8      -5.4
  Construction                     -6.8     -23.1       2.4
  Trade/Restaurants/Hotels         -1.5       0.0       3.5
  Owner-occupied Dwellings          2.2       1.7       1.5
  Transport, Communications, and
   Business and Personal Services   0.7       1.4       3.3
  General Government Services      -1.8       1.6       0.0
Net Exports of Goods and Services    272     2,110     1,649
Real Per Capita GDP (1983 NZ$)    10,419    10,100    10,123
Labor Force (000's)                1,632     1,641     1,643
Unemployment Rate (percent)         9.9      11.1      10.2


Money and Prices /1

Money Supply (M2)                 23,729    25,190    24,518
Base Lending Rate                  14.9      11.8      11.0
Personal Saving Rate /2             3.0       4.7       4.0
Investment Rate
  (gross fixed cap. form./GDP)     27.0      23.1      24.1
Consumer Price Index
  (December 1988 equals 100)      113.1     114.0     115.1
Producer Price Index
  (final quarter 1982 = 100)      170.7     172.8     177.2
Exchange Rate 
  (ann. avg. NZ$ per US$)         1.68      1.78      1.88


Balance of Payments and Trade /3

Total Exports FOB                 15,768    17,891    18,981
  Exports to U.S.                  2,047     2,295     2,252
Total Imports VFD /4              14,051    14,215    15,980
  Imports from U.S.                2,413     2,597     2,966
Aid Receipts                           0         0         0
External Public Debt              28,177    27,790    26,389
Interest on Ext. Public Debt       1,692     1,691     1,496
Gold and Forex Reserves            5,990     5,466     6,201
Trade Balance                      1,717     3,676     3,001
  Balance with U.S.                 -366      -302      -714


Notes:

1/  Reporting year ending March 31 (In 1989, New Zealand moved
    from an end-March fiscal year to an end-June fiscal year. 
    The national income accounts, however, retained an
    end-March year.)
2/  Estimates by N.Z. Institute of Economic Research.
3/  Fiscal year ending June 30.  1993 data is provisional.
4/  "Value For Duty," equivalent to "Customs Value" (cv) in
    U.S. statistics.



1.  General Policy Framework

    Historically, the engine for growth in New Zealand was
pastoral agriculture, particularly the export of lamb and
mutton , wool and dairy products to the United Kingdom. 
British entry into the European Economic Community in 1973
sharply changed the external situation for New Zealand.  The
farming industry had to diversify both its range of products
and its export markets.  In the late 1970's and early 1980's,
the government sought to support this process through extensive
subsidies.  While incomes and output were maintained, the
fiscal costs became excessive and the sector became divorced
from market signals.

    Manufacturing in New Zealand developed first in the
processing of the primary products of the rural sector.  After
World War II, the government sought to promote a broad-based
manufacturing sector through import substitution policies. 
Strong domestic demand from the good performance in agriculture
initially permitted this policy to function, but by the
mid-1970's balance of payments problems led the government to
turn to export incentive schemes to boost manufacturing.

    In general, the performance of the New Zealand economy was
lackluster from the mid-1950's until the mid-1980's.  New
Zealand fell from eighth in the world for per capita GDP in
1955 to twenty-second in 1985.  GDP per capita grew less than
one percent per annum on average for the 1965-87 period.  While
high employment was achieved, it was accompanied by high
inflation, distortions in the allocation of resources, and
chronic balance of payments problems.  In 1984, the
newly-elected Labour Party government embarked on a program of
deregulation and structural change aimed at unwinding the
previous policies of protectionism and excessive government
intervention.  The program included selling off and privatizing
NZ$9 billion in state assets.  In spite of voter opposition,
the program began auspiciously.  However, by 1988 opposition
became so fierce that the Labour Party leadership withdrew
support for the efforts of Finance Minister Roger Douglas, the
main architect of reform, leading to his departure at the end
of the year.  While some progress continued, internal divisions
in the party led to two changes of leadership and to defeat by
the National Party in October 1990.

    The change of direction introduced by the Labour Party,
however, was maintained by the National Party government. 
After the November 6, 1993 general elections, which the
National Party won by a very slim majority, one of the driving
forces in the government's economic liberalization, Finance
Minister Richardson, was replaced in a cabinet reshuffle.  Her
departure may affect the pace of future economic reform, but is
not expected to alter the program's overall direction.  To
date, the markets have reacted accordingly.

    The Labour government reduced the fiscal deficit from 6.8
percent of GDP in FY1984 to 1.2 percent in FY1990.  However, at
the time the National Party assumed office, burgeoning welfare
expenditures threatened to rapidly reverse this progress.  With
no change in fiscal policy, the deficit was projected to grow
to 4.9 percent of GDP in FY1992 and to reach 6.3 percent of GDP
in FY1994.  In December 1990, the government introduced an
economic and social initiative as the first step in tackling
this problem.  The main elements of that package were
industrial relations legislation and measures to better target
welfare assistance.  The FY1992 budget introduced in July 1991
extended that process to retirement benefits and introduced
partial user charges for health care and education.  The FY1993
and FY1994 budgets introduced in July 1992 and 1993 continued
to focus on expenditure control, but did not introduce new
policy initiatives.  The result has been significant progress
on the expenditure side of the budget, with total expenditure
falling from nearly 43 percent of GDP in FY1991 to about 37
percent of GDP in FY1993.  A further reduction to 35 percent of
GDP is expected by FY1996.  While the deficit did not reach the
high levels projected before introduction of these measures,
revenues were disappointing due to weak economic performance
until mid 1993 when they began to improve significantly.  The
deficit was around 3.5 percent of GDP in FY1991 and FY1992, but
was 2.3 percent in FY1993 and is expected to decrease to 1.8
percent in FY1994 and 1.4 percent in FY1995, and to be
eliminated by FY1996.

    The Reserve Bank of New Zealand Act of 1989 instructs the
Reserve Bank to direct monetary policy towards achieving and
maintaining price stability.  The Act requires the Reserve Bank
Governor and the Minister of Finance to agree on policy
targets.  The current agreement, reached in December 1992, set
a goal of maintaining a zero to two percent annual rise in the
consumer price index (CPI).  The CPI for the last quarter of
1991 registered only one percent above 1990.  This level of CPI
increase has been maintained through September 1993. 
Government and independent forecasts suggest that there should
be no difficulty maintaining the CPI target.  The Reserve Bank
uses one day loans to banks of government receipts, daily open
market operations, and twice weekly Reserve Bank bill tenders
to implement its monetary policy.

    The structural reforms introduced brought strong
productivity gains, but until mid-1993, output gains were
elusive.  The resultant "labor shedding" increased unemployment
to 11.1 percent in March 1992, the highest level since the
1930's.  Since then, unemployment has fallen back to 10.2
percent in March 1993.  Unemployment probably now has peaked,
but reduction of the current high level will only be gradual. 
GDP increased by 1.4 percent in the financial year ending March
1993.  Recovery began initially in the export sector, but now
appears to be consolidating, with recent improvements in 
domestic consumption, construction and business investment. 
Prospects for growth in the 2.5 percent to 3.5 percent range
appear good over the next few years.


2.  Exchange Rate Policy

    The New Zealand dollar was floated in March 1985 as part of
a broad- based deregulation of financial markets.  The Reserve
Bank has not intervened in the foreign exchange market since
the float.  In mid-October 1993, the New Zealand dollar was
worth about ten percent less on a trade-weighted basis than at
the time of the float.  However, the New Zealand dollar
appreciated by about 20 percent against the U.S. dollar during
this period.  Even so, U.S. goods and services remain
competitively priced in the New Zealand market.

    In pursuing the objective of price stability, the Reserve
Bank uses the following check list of indicators:  exchange
rates; level and structure of interest rates; growth of money
and credit; inflation expectations; and trends in the real
economy.  The interest rate yield gap and the trade weighted
exchange rate are seen as the principal indicators.  While not
attempting to run a fixed exchange rate band, the Reserve Bank
does seek "comparative exchange rate stability."  The Reserve
Bank's control of primary liquidity influences the exchange
rate indirectly through its impact on short-term interest rates.


3.  Structural Policies

    The then Labour Government's reform program begun in 1984
included deregulating financial markets; floating the New
Zealand dollar; lifting wage, price and interest rate controls;
removing export and agricultural subsidies; reducing border
protection; reorganizing public sector activities; and tax
reform.  The timing of these actions had a pronounced effect on
the pattern of adjustment among sectors.  The abrupt removal of
subsidies for agriculture, combined with the slower reduction
in protection of import-competing manufacturers, resulted in a
dramatic adjustment in agriculture.  Although efficiency
improved, profitability and income were hard hit.  Profits are
now improving, and investment in the sector is beginning to
recover.  Manufacturing has faced much more gradual change. 
Certain producers, primarily motor vehicle assemblers and
textile, carpet, footwear and apparel manufacturers, retain
high but decreasing effective rates of protection.  In March
1991, a further program was announced to cut most tariffs by
one-third from 1993 to 1996.  Liberalization beyond 1996 will
be determined by a review to be held in 1994, which of course
will be affected by the outcome of the GATT Uruguay Round.

    The major structural problems left unaddressed by the
Labour Party government were labor market rigidities and an
overly generous welfare system.  Both of these problems
adversely affect labor mobility, and welfare expenditures must
figure in any effort to control overall expenditure levels. 
The National Party government moved promptly to extend the
reform process to both of these areas after its election in
October 1990.

    In December 1990, the new National Party government
introduced industrial relations reform legislation, and the
Employment Contracts Act was passed on May 15, 1991.  This law
abolished compulsory unionism and the practice of nationwide
occupational awards.  The removal of these restrictive
practices has generated more flexible work place arrangements
with consequent improvements in productivity.

    The December 1990 initiative also included immediate
reductions in expenditures for social benefits through better
targeting, and a broad review of the social assistance
structure.  This process was extended in the July 1991 budget
package through the introduction of partial user charges for
health and education and rationalization of the assistance for
housing.  In August 1993, despite strong public resistance, the
three major political parties agreed to changes to the
universal retirement system to bring its costs to the
government under control.


4.  Debt Management Policies

    Public debt in New Zealand is high when compared with that
of most OECD member countries.  Gross public debt grew from 45
percent of GDP in 1973 to a peak of 77 percent of GDP in 1987. 
In June 1993, total public debt was NZD 47.3 billion,
equivalent to 60 percent of GDP.  This improvement is largely
due to the use of proceeds from privatization to repay external
debt, and to the improving economy.  In the fiscal year ending
March 1988, debt service on the public debt reached nearly NZD
5 billion, or 8.4 percent of GDP and 20 percent of government
expenditure.  Public debt service dropped to NZD 3.7 billion in
FY1993, or 4.7 percent of GDP and 12.1 percent of expenditures.

    External debt accounted for 42 percent of the total in mid
1993, down from 51 percent of total debt in 1987.  Interest on
public external debt in FY1993 equaled 6.3 percent of exports
of goods and services.


5.  Significant Barriers to U.S. Exports

    New Zealand embarked on a unilateral tariff liberalization
program in 1985 with an announcement that tariffs on goods not
produced in New Zealand would be reduced to zero.  In 1988, the
government reported that 93 percent of imports entered duty
free.  In December 1987, a general tariff reduction plan was
announced for goods not covered by industry plans.  (Five
categories of goods were covered by industry plans: footwear,
carpet, textiles, apparel, and motor vehicles.)  Tariffs on
other goods were reduced in four stages between July 1988 and
July 1992 from a range of 30 to 40 percent to a range of
between 16 to 19 percent.  In 1991 it was announced that tariff
reductions would be continued between 1993 and 1996.  A review
for the post-1996 period will be conducted in 1994.

    Under separate treatment for goods covered by the former
industry plans, current relatively high tariffs for apparel,
textiles, curtains, carpets, footwear, motor vehicles and tires
will be reduced in stages to July 1996 by about one-quarter to
one-third of the existing tariffs.  However, even after the 
reductions, passenger vehicles and original equipment tires
will still face a tariff of 25 percent; replacement tires, 15
percent; and apparel, 30 percent, for example.

    Thus, despite extensive reform, tariffs on goods competing
with domestic products remain relatively high.  Items of
particular export interest to the United States subject to high
tariffs include printed matter for commercial use, plywood,
aluminum products and wine.  Reductions in tariff levels in
accordance with the aforementioned plan should result in
expanded commercial opportunities for U.S. exporters.  The
United States is also pursuing further reductions on items of
particular U.S. exporter interest.

    New Zealand has completed the dismantling of a highly
restrictive import licensing regime.  The share of imports
subject to licensing dropped from nearly 25 percent in 1984 to
about three percent in 1989.  The remaining import license
controls for goods under the former industry plans were
eliminated in 1992.  This liberalization has benefitted U.S.
exporters.

    At the inaugural meeting of the U.S. Trade and Investment
Council, the U.S. raised concerns that the New Zealand Apple
and Pear Marketing Board, a producer organization, has a
monopoly right to import apples and pears, except from
Australia.  This partially shields domestic producers from
competition and constrains import growth.  The Apple and Pear
Marketing Act of 1971 was amended in 1993.  Deregualtion of the
domestic market began January 1, 1994.

    New Zealand welcomes and encourages foreign investment
without discrimination.  Approval by the Overseas Investment
Commission (OIC) is required for foreign investments over NZD
ten million or investments of any size in specific sectors. 
The review of investments above NZD ten million applies to both
acquisitions and "greenfield" investments.  Specified sectors
are commercial fishing and rural land.  Foreign investment in
commercial fishing is limited to a 24.9 percent holding, unless
an exemption is granted by the Ministry of Agriculture and
Fisheries.  While the level of ownership is not restricted for
rural land, foreign purchasers are required to demonstrate that
the purchase is beneficial to New Zealand.  In practice, the
OIC approves virtually all investment applications, and its
approval requirements have not been an obstacle for U.S.
investors.  For example, the entire national railroad system,
including the only regular passenger, motor vehicle, and rail
ferry service connecting the two main islands, was sold to a
majority U.S.-owned consortium in 1993.  No performance
requirements are attached to foreign direct investment.  Full
remittance of profits and capital is permitted through normal
banking channels.

    The U.S. Government recognized the generally liberal
trading environment in New Zealand by signing a bilateral Trade
and Investment Framework Agreement (TIFA) in October 1992.  The
TIFA provides for periodic government to government
consultations on bilateral and multilateral trade and
investment issues and concerns.  The first TIFA meeting was
held in Washington in April 1993.

6.  Export Subsidies Policies

    New Zealand acceded to the GATT Subsidies Code in 1981.  At
that time, New Zealand undertook to eliminate seven export
subsidy programs that were inconsistent with the code by March
1985.  While five of the programs were eliminated on schedule,
two programs were extended through March 1987, leading the
United States to deny New Zealand imports use of the injury
test in countervailing duty cases.  One of these programs, the
export market development taxation incentive, was extended a
second time, but expired in 1990.  The United States reinstated
the injury test for New Zealand once tax rebates under this
last inconsistent program were complete.


7.  Protection of U.S. Intellectual Property

    New Zealand is a member of the World Intellectual Property
Organization, the Paris Convention for the Protection of
Industrial Property, the Bern Convention for the Protection of
Literary and Artistic Works and the Universal Copyright
Convention.  New Zealand has generally supported measures to
enhance intellectual property protection in multilateral
organizations.

    The Government of New Zealand strongly endorses the
protection of intellectual property and enforces effectively
its laws which offer such protection.  This is done to protect
New Zealand innovators both at home and abroad, and to
encourage technology transfer.  The government recognizes that
New Zealand is heavily dependent on imported technology and
that the country derives considerable benefit in providing
intellectual property protection.

    In 1992, New Zealand repealed Section 51 of the Patents
Act, 1953, which contained permissive rules for compulsory
licensing of pharmaceutical products.  While these provisions
had not been used for several years, in 1990 a number of
applications were filed with the Commissioner of Patents,
generating a great deal of concern among international
pharmaceutical companies.  The repeal of Section 51 brought New
Zealand's patent act into conformity with the intellectual
property legislation in other industrialized countries.

    The government is engaged in a full review of its
intellectual property rights regime.  In 1990 the Ministry of
Commerce issued a two volume study on possible options for
reform.  Interested parties were invited to submit comments. 
The government has issued recommendation papers and received
comments from the public on several issues.  It is expected
that reform legislation will be introduced in 1994 on
trademarks, patents, designs, and parallel imports.


8.  Worker Rights

    a.   Right of Association

    New Zealand workers have unrestricted rights to establish
and join organizations of their own choosing and to affiliate
those organizations with other unions and international 
organizations.  The principal labor organization, the New
Zealand Council of Trade Unions, is affiliated with the
International Confederation of Free Trade Unions.  Unions are
protected from interference, suspension, and dissolution by the
Government and, in fact, influence legislation and government
policy.  Unions have and freely exercise the right to strike. 
Public sector unions, however, may not strike if work stoppages
threaten public safety.  Legislation enacted in 1991 prohibits
strikes designed to force an employer to become a party to a
multi-company contract.

    b.   Right to Organize and Bargain Collectively

    The right of labor unions to organize and bargain
collectively is provided by law.  Unions actively recruit
members and engage in collective bargaining.  The Employment
Contracts Act of 1991 ended compulsory membership in labor
unions, which now represent less than half of all wage
earners.  As a consequence of the Act, unions no longer have an
inherent right to represent any particular group of workers. 
Employment relationships are to be based on contracts
negotiated either by the individual employees or their
bargaining agent, which may be a union, another voluntary
association of workers, or a private consultant.

    Mediation and arbitration procedures are carried out
independently of government control.  The Employment Court
hears cases arising from disputes over the interpretation of
labor laws.  In addition, a less formal body, the Employment
Tribunal, is available to handle wage disputes and assist in
maintaining effective labor relations.  There are no export
processing zones.

    c.   Prohibition of Forced or Compulsory Labor

    New Zealand laws prohibit forced or compulsory labor. 
Inspection and legal penalties ensure respect for these
provisions.

    d.   Minimum Age for Employment of Children

    Children under the age of 15 may not be employed without
special government approval and must not work between the hours
of 10 p.m. and 6 a.m.  The Department of Labour effectively
enforces these laws.

    e.   Acceptable Conditions of Work

    New Zealand law provides for a 40-hour work week, with a
minimum of three weeks' annual paid vacation and 11 paid public
holidays.  Under the Employment Contracts Act, however,
employers and employees may agree to longer hours than the
40-hour per week standard.  There is a government-mandated
minimum wage for workers 20 years of age and older; most
minimum wage earners also receive a variety of welfare
benefits.  A majority of the work force earns more than the
minimum wage.

    New Zealand has an extensive body of law and regulations
governing health and safety issues, including a new Health and
Safety in Employment Act which took effect in April, 1993. 
Under this legislation, employers are obliged to provide a safe
and healthy work environment and employees are responsible for
their own safety and health, including the right to remove
themselves from dangerous or hazardous situations, as well as
for ensuring that their actions do not harm others.  Under the
Employment Contracts Act, workers have the legal right to
strike over health and safety issues.  Unions and members of
the general public may file safety complaints on behalf of
workers.  Safety and health rules are enforced by Department of
Labour inspectors who have the power to shut down equipment if
necessary.

    f.   Rights in Sectors with U.S. Investment

    The conditions in sectors with U.S. investment do not
differ from conditions in other sectors of the economy.


         Extent of U.S. Investment in Selected Industries

              U.S. Direct Investment Position Abroad
                on an Historical Cost Basis - 1992
                    (Millions of U.S. dollars)

Category                                    Amount

Petroleum                                               397
Total Manufacturing                                     417
    Food & Kindred Products                   -12
    Chemicals and Allied Products              69
    Metals, Primary & Fabricated               10
    Machinery, except Electrical                3
    Electric & Electronic Equipment             D
    Transportation Equipment                    D
    Other Manufacturing                       305
Wholesale Trade                                          82
Banking                                                   D
Finance and Insurance                                   195
Services                                                  D
Other Industries                                      1,925

TOTAL ALL INDUSTRIES                                  3,008


(D)-Suppressed to avoid disclosing data of individual companies

Source:  U.S. Department of Commerce, Bureau of Economic
Analysis.

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