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Home > Trade and Economic Relations > Trade Agreements > Gulf Cooperation Council > FTA with GCC

New Zealand-Gulf Cooperation Council (GCC) Free Trade Agreement

Background information paper

New Zealand's interest in pursuing an FTA with the GCC

The objective of an FTA with the GCC would be to move towards deeper economic integration between New Zealand and the GCC countries. The aim of the FTA, at this stage, would be to cover substantially all trade, including goods, services and investment, and other issues including trade and labour, trade and environment, government procurement and intellectual property.

There are, at this stage, three broad benefits accruing to New Zealand in pursuing FTA negotiations with the GCC:

Removal of tariff barriers to maintain our competitive edge

Table 2:

The following table shows the average value of the top 25 New Zealand export products to the six Gulf countries from 2004-06, and comparison of their percentage share of exports to the GCC with their percentage share of New Zealand’s global exports over that period:

		average value of exports to GCC, 2004-06 (NZ$000)	% share of total exports to GCC, 2004-06	% share of New Zealand's global exports 2004-06
New Zealand's global exports, average 2004-06		32,049,537
Total exports to GCC, average 2004-06		686,175
Exports to GCC as % of global exports		2.1%
Subtotal of top twenty five exports to GCC		676,043
Top twenty five as a % of total exports to GCC		98.5%

1	Dairy produce	460,095	67.1%	8.4%
2	Meat and edible meat offal	93,982	13.7%	2.0%
3	Wood and articles of wood	39,668	5.8%	1.9%
4	Machinery and mechanical appliances	14,262	2.1%	0.8%
5	Fruit and nuts	9,523	1.4%	0.8%
6	Electrical machinery and equipment	9,475	1.4%	0.9%
7	Iron or steel articles	4,491	0.7%	1.6%
8	Vegetables and certain roots	4,399	0.6%	1.2%
9	Paper and paperboard	3,849	0.6%	0.9%
10	Apparel and clothing accessories; not knitted or crocheted	3,175	0.5%	2.3%
11	Vehicles	3,075	0.4%	1.0%
12	Optical, photographic, medical or surgical instruments	3,074	0.4%	0.8%
13	Albuminoidal substances; starches; glues; enzymes	2,892	0.4%	0.3%
14	Food residues and wastes	2,824	0.4%	1.5%
15	Fish	2,673	0.4%	0.2%
16	Furniture	2,419	0.4%	1.5%
17	Rubber and articles thereof	2,322	0.3%	1.8%
18	Apparel and clothing accessories; knitted or crocheted	2,217	0.3%	2.2%
19	Carpets and other textile floor coverings	2,105	0.3%	1.8%
20	Preparations of cereals, flour, starch or milk	1,804	0.3%	0.4%
21	Beverages, spirits and vinegar	1,786	0.3%	0.3%
22	Plastics and articles thereof	1,716	0.3%	0.4%
23	Pharmaceutical products	1,621	0.2%	0.8%
24	Furskins and artificial fur	1,576	0.2%	2.2%
25	Cocoa and cocoa preparations	1,018	0.1%	1.0%

New Zealand’s top two exports items to the GCC over this period were dairy and sheep meat products, which have together accounted for an average 80 percent (or NZ$554 million) of exports to the region over the last three years.
Putting these figures into context, in 2006 the GCC was New Zealand’s fourth largest market for sheep meat by volume, and fifth by value. For beef, the GCC was New Zealand’s 11th largest market by volume and 12th by value.
Exports of non-agricultural and industrial products have also grown rapidly. New Zealand exports of wood, paper, furniture, machinery, iron and steel products, apparel, carpets and seafood to the GCC averaged $132 million from 2004-06.
Since 2003 members of the GCC have applied a common external tariff (CET) at an applied rate of (generally) 0% or 5%. The vast majority of New Zealand’s exports fall within the CET of 5 percent. For agricultural products the applied tariff is generally 0% for fresh product and 5% for frozen product.

Table 3:

The average tariff level at the HS chapter heading against the average value for New Zealand’s key exports to the GCC from 2004-06.

HS2	HS2 Description	Average ad valorem duty rate	NZ exports (2004-06) $NZ 000
04	Dairy produce; birds’ eggs; natural honey, edible products of animal origin	4.89	460, 095
02	Meat and edible meat offal	4.27	93, 982
44	Wood and articles of wood; wood charcoal	5.00	39, 668
84	Boilers, machinery and mechanical appliances, parts thereof	4.99	14, 262
85	Electrical machinery and equipment and parts thereof	5.00	9, 475
08	Fruit and nuts, edible; peel of citrus fruit or melons	2.27	9, 523
40	Rubber and articles thereof	5.00	2, 322
48	Paper and paperboard; articles of paper pulp, of paper or paperboard	5.46	3, 849
73	Iron or steel articles	5.00	4, 491
07	Vegetables and certain roots and tubers; edible	2.30	4, 399

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Although the GCC’s tariffs are generally low by international standards, New Zealand’s competitive edge, most obviously in agricultural products but also in New Zealand’s rising manufactured exports, could be eroded by agreements the GCC is reaching with a number of economies, including the EU, Mercosur , India, China, Japan, Australia, Korea and Singapore. Many of these countries are New Zealand’s major competitors in the Gulf region.
The immediate case for entering into an FTA with the GCC therefore rests on retaining New Zealand’s competitive position in the six GCC-member countries’ markets for our export of goods. We would do this by seeking removal of the GCC’s 5 percent common tariff across the board and of the remaining tariffs in individual GCC-members.
GCC members also have WTO bound rates which are higher than the CET rates. Saudi Arabia, for instance has a WTO bound tariff of between 5-7 percent for beef and sheep meat, while Kuwait has a 100 percent WTO bound tariff for all agricultural products. While unlikely given the trade policy settings of the region, GCC members could have recourse to higher WTO bound tariff rates.
In the medium- to long-term, an FTA with the GCC could have wider advantages beyond tariff concessions. An FTA would provide a platform for New Zealand businesses to deepen their commercial links with the region, helping to diversify New Zealand’s range of exports, for example in forest products, apparel and carpets, manufactured machinery, food and beverage products, and in niche high-end products such as environmental goods.

A platform to develop trade in services and investment

While goods currently dominate our exports, New Zealand has growing interests in services areas such as information and communications technology, education services, architecture and engineering services, consultancies, legal services, environmental services, and construction. Saudi Arabia and Oman are a growing and important source of international fee-paying students.
New Zealand had at least NZ$185 million invested in the GCC as of March 2005, and the GCC members had investments in NZ totalling NZ$44 million. Commitments made on investment provisions under an FTA with the GCC could encourage these stocks to grow.
Current estimates indicate GCC investment in New Zealand is a tiny fraction of the total outward GCC foreign investment during 2003-05, estimated at US$273 billion. This was in other Arab countries – primarily into projects, private equity, real estate and capital markets.

Reducing non-tariff barriers to trade

Longer-term, an FTA would also provide a basis for consultation to deal with a range of non-tariff issues affecting trade, such as Sanitary and Phyto-sanitary (SPS) measures (ie animal and plant quarantine, including food safety); and Technical Barriers to Trade (TBT) (eg standards, technical regulations and conformity assessment procedures). Examples of such measures include: