The Customs Tariff has been developed over the years to meet changes in New Zealand's economy, in the pattern of its industry, and in its trading relations with other countries. From a simple document, which was adequate for the colony's early conditions and aims, the tariff has grown into a complex instrument designed to meet the conditions of modern trade.
Provision for the collection of Customs duties was made as early as January 1840 on the eve of the establishment of British sovereignty over New Zealand. At the outset, duty was collected under the New South Wales tariff, but in May 1841 New Zealand was made a separate colony and one of the first laws to be placed on the Statute Book was the Customs Ordinance. This document was a simple tariff providing for duties at different rates on spirits, wine, tobacco, cigars and snuff, tea, sugar, flour, wheat, and all other grain or pulse. All other goods, except those which were the produce or manufacture of Britain, New South Wales, and Van Diemen's Land (Tasmania) – which were admitted free – were liable to a duty of 10 per cent. Thus the British preferential system was introduced with the first tariff, but it was discontinued in 1844. It was, however, reintroduced in 1903 and since then has remained an important feature of the New Zealand tariff.
In October 1844 Governor FitzRoy began a policy of free trade, and all Customs duties were abolished, the Property Rent Act being passed to replace the revenue lost through the abolition of Customs duties. It was soon found, however, that the new Act was not gaining the expected result and in April 1845 it was repealed and a Customs tariff reintroduced. In 1851 a new and more detailed tariff over a wider range of items was introduced. Frequent further changes were made up to 1879.
Until 1879 duties were applied mainly according to quantity (weight, number, etc.) but the tariff introduced in that year made provision for duty on a much greater number of items to be charged on an ad valorem basis; that is, charging duty as a percentage of the value of the goods. Other changes were made in 1895, in order to protect infant industries, and again in 1903, when the British preferential system was reintroduced in the Preferential and Reciprocal Trade Act and in 1907. A new procedure was adopted in 1921 and, for the first time, a commission was appointed to make the tariff review. Evidence was obtained from interested parties throughout New Zealand and the tariff was thoroughly revised on the basis of the evidence. A similar procedure was followed with the 1927 and 1933 tariff revisions. In 1921 provision was also made for the imposition of special duties to protect local industry. These special duties (known as “dumping duties”) may be imposed on imported goods of a kind made in New Zealand which have been “dumped” (that is, sold at prices lower than the current domestic value in the country of export, or sold at a price lower than the cost of production plus a reasonable profit, or have been the subject of any special concession – for example, subsidy, special bounty). Dumping duties are limited to the amount of the dumping or special concession, or to the amount by which the goods are sold below the cost of production plus a reasonable profit. Dumping duties may be levied in addition to the duties provided for in the tariff.
In 1950 a Board of Trade was established under the Board of Trade Act and one of its main functions was to review the tariff, which had been only slightly changed since 1933. The Board began by holding hearings from industry and some changes to the tariff were consequently made. In 1956, however, the Board began a review of the whole of the tariff. All interested parties could give evidence and the Board's recommendations to the Government in 1957 were based on this evidence and its own investigations. Some amendments were made to the existing tariff in 1960, but it was not until 1961 that a completely new tariff, based on the rates of duty recommended by the Board, was introduced, to apply from July 1962.
The introduction of the 1962 tariff represented a notable departure from the usual policy of introducing tariff changes. For the first time, a new tariff was introduced and made public before the date on which it was to come into force. This modification of a long-standing policy was dictated by the form of the new tariff and the need to give businessmen time to study it before it came into effect.
Though the tariff had been revised many times, there had been no basic modification in the form of the tariff for 40 years or more. The tariff was out of date and, having grown piecemeal, it lacked a sound technical basis on which the changes necessary to meet the needs of modern trade could be made. The nomenclature adopted in 1962 was that of the United Nations Standard International Trade Classification (revised), which lists the goods of world commerce systematically on economic significance. The text of the main headings and items is derived from the Brussels Tariff Nomenclature of the Customs Cooperation Council, and the contents of these headings is, therefore, determined by the rules of classification of the Brussels Tariff Nomenclature. The new nomenclature is designed to give, in a single document, a scientifically ordered classification of goods both for tariff and for statistical purposes.
For many years duty had been charged on goods subject to ad valorem duties on the current domestic value in the country of export plus 10 per cent. The additional 10 percent was probably originally imposed for the purpose of bringing the value for duty to an assessed “cost, insurance, freight” value. This practice had been in force in some other countries, but for many years New Zealand had been the only one to continue it. During the 1956–57 review of the tariff, the Board of Trade also examined various bases for the valuation of goods for duty, including the now commonly used c.i.f. basis, but concluded that charging duty on the current domestic value without the addition of 10 per cent had distinct advantages for New Zealand. With the introduction of the new tariff in 1962, the addition of the 10 per cent to the current domestic value was discontinued. To compensate for the lower value for duty, some, but not all, rates of duty were increased by approximately 10 per cent to yield the same amount of duty on the goods concerned.
It had been the practice in the case of goods imported from a Commonwealth country having a unit of currency in pounds to charge duty on the current domestic value of the goods expressed in the currency of the country concerned. The amount of duty paid in £(N.Z.) on goods imported from a Commonwealth country whose pound unit of currency had been depreciated in relation to sterling, was consequently higher than that paid on goods of equal value in £(N.Z.) which had been imported from Britain or another Commonwealth country having a pound unit of currency at par with sterling, the ad valorem rate of duty being the same for imports from both countries. Australia, Fiji, and Tonga had been affected by this procedure, which was now changed with the introduction of the new tariff. Today the value of all goods is converted to New Zealand currency before duty is assessed.
The tariff has been used to extend the markets for New Zealand's exports through the negotiation of reciprocal tariff agreements. New Zealand has used a preferential tariff system since 1903. Goods from Britain and the colonies and the British Dominions are, in general, admitted at rates of duty lower than those levied on goods from other countries. The difference between these two rates of duty is known as the “margin of preference”.
During the Imperial Economic Conference of 1932, an agreement (known as the “Ottawa Agreement”) was concluded with Britain. Under the terms of this agreement New Zealand guaranteed specified margins of preference (generally 20 per cent on imports from Britain and British non-selfgoverning colonies and protectorates) in return for preferences on New Zealand products. The Ottawa Agreement continued in force until modified by the Britain – New Zealand Trade Agreement of 1958, under which the margins of preference on goods from Britain and colonies may be reduced to 5 per cent, 7 ½ per cent, or 10 per cent according to the item. Advantage was taken of this agreement to reduce the margins of preference on many items in the 1962 tariff, but in only a few cases was the margin reduced to the limit provided for in the agreement.
In 1922 an agreement with Australia enabled an exchange of tariff preferences. Under a new agreement in 1933, special rates of duty were introduced on specified goods from Australia, while all other goods were admitted under the British Preferential Tariff. A similar type of agreement had been concluded with Canada in 1932. Both these agreements provided for reciprocal preferences on New Zealand goods entering those countries. These agreements are still in force, although modifications have been made to them from time to time. In 1933 a trade agreement was concluded with Belgium, following which most-favoured-nation rates of duty (intermediate between the British preferential and general rates) were applied to a limited range of goods imported from that country. Similar agreements, which extended the range of goods covered by the Most-Favoured-Nation Tariff, were negotiated with Germany and the Netherlands in 1938.
In 1947 the General Agreement on Tariffs and Trade (GATT) came into existence and New Zealand became a contracting party. This agreement has as its principal aims the reduction of barriers to trade and the development of agreed rules for the conduct of international trade. As regards tariffs, the general agreement laid down the principle of most-favoured-nation treatment for all contracting parties, but provision was made for the retention (but not extension) of existing preferences. A multilateral tariff conference was held in 1947. The participating countries negotiated reciprocal tariff concessions, which consisted of the reduction of rates of duty on some items and an undertaking not to increase the rates of duty on others. Four other series of multilateral tariff conferences were held in 1949, 1950, 1956, and 1960. Following these negotiations, the Most-Favoured-Nation Tariff was considerably extended in the range of items covered and in the number of countries to which it was applied. As a result of all these agreements, the New Zealand tariff is now made up of five duty columns – the British Preferential Tariff, Australian and Canadian agreement rates, the Most-Favoured-Nation Tariff, and the General Tariff.
When New Zealand's first tariff was introduced there was almost no manufacturing industry in the country. The tariff existed only to yield revenue and tariff policy was directed towards this end. Tariffs produced for revenue alone have, however, rarely been limited to this aim in their results. Some industries will inevitably take advantage of the incidental protective effects of a revenue tariff. Thus it was not long before some industries became established under the shelter of the Customs duties imposed for purely revenue purposes. Nevertheless, until 1895, tariff policy was directed almost exclusively to gaining revenue. But a change took place as a result of the 1895 review, which gave closer attention to the protective function of the tariff due to the industrial development that was taking place within the country. The 1895 tariff, therefore, was the first to be framed with the two-fold purpose of yielding revenue and protecting industry. Industry continued to develop and tariff policy reflected the changes. In the revisions made between 1895 and 1933 the protective functions of the tariff received more detailed attention. The revenue function, however, still remained the most important.
Population and industrial development grew markedly after the Second World War, an increasing proportion of the labour force being employed in the manufacturing industries, in building and construction, in transport, and in finance and distribution. It was apparent that if the existing standards of living were to be maintained industry would have to be further developed. Official announcements by successive Governments made it clear that the tariff was to be used to protect domestic industry. In framing the recommendations on which the 1962 tariff was based, the Board of Trade studied the need to safeguard avenues of employment for the increasing population. Thus the new tariff is designed to give reasonable protection to sound industries and to encourage the growth and diversification of the manufacturing industry in New Zealand.
Under the provisions of the Tariff and Development Board Act of 1961, the Board of Trade (established in 1950) was abolished and a Tariff and Development Board was appointed in its place. Under its terms of reference, the Board must consider and make recommendations on (among other things) alterations to the tariff, the general effect of the operation of the tariff on trade and commerce and the farming, manufacturing, and distributing industries of New Zealand. It must also have regard for the interests of consumers and any matter affecting the protection or development of industry or the development of overseas trade, whether by means of the tariff or otherwise.
With the increased importance of the tariff as a protective instrument, its significance as a source of revenue has declined. Under the influence of a protective tariff, the pattern of New Zealand's imports has changed and, no doubt, will continue to change with the further development and diversification of industry. Already an increasing proportion of imports consists of raw materials, semi-manufactured goods, and machinery, which are admitted free of duty or at concessional rates of duty for use in industry. Nevertheless, the tariff is likely to remain an important source of revenue.
by John Francis Cummings, Comptroller of Customs, Wellington.