The Ministry of Business, Innovation and Employment (“MBIE”) has recently undertaken a market-level study into the residential construction sector. Its aim was to identify barriers to improved housing affordability, in particular, the competitiveness and productivity of the section.
The study found that anti-dumping duties on residential construction materials are acting as a barrier to competition and productivity in the construction sector. The immediate reaction to this finding resulted in Government suspending the application of anti-dumping duties on imported residential construction materials for three years.
This overview is derived from the Dumping and Countervailing Duties Act 1988 and discussion paper released by the MBIE.
What is ‘dumping’ and ‘anti-dumping duties’?
A good is ‘dumped’ in New Zealand’s domestic market if the export price to New Zealand is less than the normal value or price it is sold for in the domestic market of the exporting country.
Anti-dumping duties are imposed under the Dumping and Countervailing Duties Act 1988 (“the Act”) at the border to ‘level the playing field’. It is viewed that imposing duties on imports immediately at the border protects domestic industries in New Zealand.
Whilst the study concerned housing affordability, the study revealed that the test for imposing anti-dumping duties is too narrow. It does not allow any consideration to be given as to whether the imposition of duties is in the public interest. Rather, it provides only for the Minister of Commerce with limited or no discretion to impose anti-dumping duties or countervailing duties on imported goods if the goods are dumped or subsidised and have caused or threatened to cause material injury to a domestic industry producing the same type of goods as the imported goods.
In particular, MBIE identified that:
- the Act does not allow for consideration of whether the imposition of an anti-dumping or countervailing duty is in the wider public interest, including the effect of the additional cost of duties on down-stream producers and final users; and
- there is no ability to consider significant events which affect an industry or the public, for example the Christchurch earthquakes.
This, in effect, reduces competition in industries and increases the prices paid by Kiwi consumers. Industry participants have confirmed that this is in fact the situation in the New Zealand. They are prevented from offering lower prices and, therefore, anti-dumping duties are a barrier to competition in the residential construction industry and the cost of construction is increased.
In the short term, Government suspended the application of anti-dumping duties on imported residential construction materials for three years. This suspension relates only to reinforcing steel bar from Thailand, plasterboard from Thailand and nails from China. This was done with a view to supporting and encouraging the Christchurch rebuild but also to support increased residential construction needed in Auckland.
In the long term, the fundamentals of the trade remedies regime will not be reformed, rather the intention is to retain the integrity of the regime by amending the Act to include a test which enables a degree of flexibility and discretion in imposing the anti-dumping duties. The anti-dumping and countervailing duties regime forms part of New Zealand’s wider trade policy and it is administered in accordance with the World Trade Organisation guidelines and rules, accordingly its retention and integrity is integral for New Zealand and its reputation worldwide.
New Zealand is considering drawing on the approach of the European Union and Canada, its WTO counterparts, and introduce a bounded public interest test into the Act by either:
- Option One
To providing criteria in the Act on public interest matters that must be taken into account in deciding whether or not to impose a duty. This criteria would be in addition to the current test in the Act and could encompass competitive elements to allow consideration of the impact to impose duties on competition, and proportionality elements to allow consideration of whether duties would disproportionality harm a party or interest.
The criteria may include, amongst other factors, the likely impact on employment in the domestic industry and drawing on competition law, whether the imposition of duties would be likely to eliminate or substantially lessen competition in the market.
- Option Two
Introducing numerical thresholds into the Act that must be met before a duty can be imposed. Given the nature of this test, which would also be in addition to the existing test, there would be little or no discretion or subjective element.
Such a test, in either form, would “allow for consideration to be given to whether the imposition of an anti-dumping or countervailing duty is in the public interest by weighing the benefits conferred on a domestic industry that the duty is designed to protect against the wider economic impact of imposing the duty, within curtained defined parameters”.
There are evident negatives and positives in relation to option one and option two. For example, option one should maintain the integrity of the regime provided the public interest criteria is transparent and tightly-specified so as to avoid broad interpretation resulting in the duties never being imposed. In addition, it has the potential to be less certain because it in effect involves a balancing exercise of competing interests. Option two, for example, is unlikely to be able to capture all circumstances whereby duties will substantially limit competition in markets in New Zealand or have significant impact on another interest in the economy, and moreover, such numerical tests which do not enable individual factors to be considered, may result in duties not being imposed even when it would have been in the public interest to do so.
Accordingly, whilst there are numerous negativities, issues and matters that need to be considered before amending the Act, it seems, drawing on aspects of the European Union and Canadian bounded public interest tests, that it may positively impact competition in the New Zealand market and greatly benefit the Kiwi bank balance, particularly, in relation to housing affordability. Provided, of course, that the Act addresses the tension between supporting the ‘dumping’ of some goods in the New Zealand market and preventing the exploitation of the New Zealand market by foreign counterparts.
If you have any questions on the matters discussed in this update please contact:
DDI: +64 9 965 2660
DDI: +64 9 965 2662
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This publication is necessarily brief and general in nature. You should seek further information before taking any action in relation to the matters dealt with in this publication.