New Zealand’s successful free trade deal with the United Kingdom appears to be a big win for the New Zealand negotiating team.
That may be because the British were not going to go to the wall over access to a market of 5 million people (half the size of London) but had other reasons for doing the deal.
Those appear to be included in a section about “additional outcomes”, which are described as being “in parallel to negotiations” on the Free Trade Agreement.
And this is where New Zealand’s leverage is clearly visible.
As part of the deal, it has agreed to remove its objections to the United Kingdom’s World Trade Organisation Goods Schedule.
New Zealand’s objection was blocking the UK from having its full slate of tariffs approved by the WTO, which has some implications for legal disputes it might get involved in.
New Zealand lodged the objection as part of its campaign to pressure the UK to restore the post-Brexit access for sheep and beef to the same level it had before Brexit.
And the “additional outcomes” also says New Zealand will not seek additional tariff liberalisation from the UK during its talks to enter the Comprehensive and Progressive Trans Pacific Partnership.
In effect, that confirms that we will now unreservedly support those parts of Britain’s application to join the CPTPP, which are covered in the Free Trade Agreement.
So the New Zealand negotiating team were able to use these external issues as what the negotiators call “negotiating coin” to force the UK to make the concessions it has on a range of agricultural tariffs.
There is, however, one fish-hook in the “additional outcomes”; a commitment to a “mobility dialogue” which will focus on people-to-people links and will include the NZ-UK Working Holiday scheme.
But two years ago, Britain’s then Trade Secretary, Liz Truss, in a visit to Canberra, floated the possibility that Britain and Australia could have free movement of people between the two countries, perhaps similar to the arrangement Australia and New Zealand have with each other.
It is probable that the idea is still alive in British minds.
But whether New Zealand, which is currently reviewing its immigration policies, would agree to it would seem questionable.
Four days ago, in London, Australia’s Trade Minister, Dan Tehan, said that would be “willing to do more” than what its new Free Trade Agreement would offer on mobility, “because if we can’t have free exchange and movement of people between ourselves, then who can we have it with?”
But there was more to yesterday’s announcement than a simple trade deal; it was in some sense a vindication for New Zealand for its long-standing objections to the restrictions Britain placed on New Zealand imports of dairy products and lamb in 1973 when it joined what was then the European Economic Community.
As a measure of how things have changed, New Zealand’s largest export to Britain now is wine, and British tabloids were yesterday full of headlines about how the Free Trade Agreement would make New Zealand Sauvignon Blanc cheaper because once the agreement is in place, the wine will enter duty-free.
But that will reduce a $NZ20 bottle of wine in a British high-street wineshop by only about 40 cents.
In a 1978 speech, the then Trade Minister, Sir Brian Talboys, outlined the impact of Britain’s entry into the EEC had on New Zealand.
“Britain remains our largest single market, but in regional terms, Western Europe as a whole is of relative insignificance measured against the Pacific Basin countries,” he said.
“In 1958 Britain accounted for more than 50 per cent of our total export trade, while those Pacific Basin countries to which we then exported took less than 25 per cent.
By 1975-76 when Britain’s share had fallen to 19.4 per cent of the total (with Eastern Europe taking 14%). our exports to the Pacific Basin countries amounted to 40 per cent.”
In numerical terms, in 1973, when Britain joined the EEC, New Zealand had a butter quota of 165,811 tonnes and a cheese quota of 68,580 tonnes.
Britain was taking over 70 per cent of all New Zealand cheese and around 80 per cent of its butter.
Now the British market is minuscule; for the year ended March 2020, we exported just 339.2 tonnes of butter and paid $3.74 a kilo duty on that. (Tesco, a British supermarket chain, advertises British butter at $NZ11.38 a kilo).
It is the same story with cheese; a high tariff, $3.58 a kilo and only 100.8 tonnes of exports.
Under the deal announced yesterday, New Zealand will be able to export 7000 tonnes of butter a year duty-free working up to 15,000 tonnes after five years.
Cheese exports will start at 24,000 tonnes duty-free and rise to 48,000 tonnes after five years.
Sheep and beef farmers have hardly done any better over the years.
In 1973, 58 per cent (258,400 tonnes) of all New Zealand’s sheepmeat exports went to Britain, but only eight per cent (16,700 tonnes) of beef exports went there.
For the year ended March 2020, New Zealand exported 35,950 tonnes of sheepmeat to the UK and 540 tonnes of beef.
New Zealand currently has a duty free quota for sheepmeat exports into Britain of 114,200 tonnes a year which comes nowehere near filling. Even so, that will now rise for four years by 35,000 tonnes a year and then for ten years by 50,000 tonnes a year, at which point New Zealand sheepmeat will face no quota or tariff restrictions in Britain.
A similar regime will apply to beef.
THE BRITISH COMPLAIN
That the moves could see a significant increase in New Zealand agricultural exports to Britain was evident yesterday in the reaction of farmers and the British Labour Party.
One of their fears – possibly with some justification – is that if New Zealand’s huge dairy and meat trade with China were to be disrupted, product could be diverted to Britain.
“The fact is that UK farm businesses face significantly higher costs of production than farmers in New Zealand and Australia,” Minette Batters, president of the National Farmers’ Union, said.
“The government is now asking British farmers to go toe-to-toe with some of the most export-orientated farmers in the world, without the serious, long-term and properly funded investment in UK agriculture that can enable us to do so.
“We should all be worried that there could be a huge downside to these deals, especially for sectors such as dairy, red meat and horticulture.”
The British Labour party was even harsher.
Labour’s shadow international trade secretary, Emily Thornberry, echoed the farmers’ criticism and said the deal would generate just £112m in additional exports for UK firms compared with pre-pandemic levels. Referring to the price tag of a new national flagship, she claimed the total value for businesses from the agreement would be “less than half the cost of Boris Johnson’s new yacht”.
Thornberry said: “It is a deal whose only major winners are the mega-corporations who run New Zealand’s meat and dairy farms, all at the expense of British farmers who are already struggling to compete. But for British jobs, growth and exports, this deal is yet another massive failure.”
Thornberry’s figures for British gains sound about right; a British Government study found a Free Trade Agreement with New Zealand would add only about .01 per cent to British GDP.
Asked if Thornberry’s criticism was a sign that New Zealand had done well, Ardern agreed.
“This is a significant deal for New Zealand, and one of our seasoned trade negotiators said it’s one of the best deals he has seen New Zealand achieve,” she said.
“So I take great heart from that, and you can see it in the fact that 97 per cent of tariffs eliminated from the beginning of the agreement, almost $40 million in tariffs, that our exporters face; almost a billion dollars coming into the economy over time as a result.
“This is a historic but substantial deal, and it’s been achieved basically in a year.
“That has never been done before, so I’m very proud of the efforts of our team.
“They have served us very well with this agreement, and I look forward to seeing the benefits coming into force at a critical time for the New Zealand economy.
“And I’m happy to speak to my counterparts in the Labour Party in the UK.”
BORIS TALKS RUGBY
But Britain’s irrepressible Prime Minister wasn’t claiming anything other than victory.
He kicked off a video call with the Prime Minister with a “kia ora” and then a booming “good morning”.
Ardern had to explain that it was 9.00 p.m. in New Zealand.
Undaunted, he continued.
“This is a big moment for the UK and for our partnership with New Zealand, and we’re absolutely thrilled that we seem to have driven for the line; we’ve scrummed down, we’ve packed tight and together we’ve got the ball over the line, and we have a deal,” he said.
Possession, however, went to Ardern.
“I loved your use of rugby metaphors,” she said.
“But if we were going to continue that on, then naturally, it would conclude with the All Blacks winning.
“And I know that New Zealand feels that way with this free trade agreement, but it’s actually good for both of us as it happens.
“It’s good for our relationship, which is long-standing, which is unique, which has always included our people to people. exchanges being incredibly important to us, but also our trading relationship, being incredibly important to both of us as well.”
But while New Zealand has seen the deal in largely trade terms, Britain has been playing a longer game, and Johnson alluded to it.
“It’s part of our vision in the UK, as you know, Jacinda, to deepen our ties with the Indo-Pacific region, particularly with New Zealand, our whole Indo-Pacific tilt is in your direction, and we see this deal as a big, big part of that.”
Next stop, CPTPP.