British free trade opportunity not to be missed
More than two months on from Brexit – or the date Nigel Farage hoped would be known as “United Kingdom Independence Day” – we have little more knowledge about what a post-European Union Britain will look like.
The ambiguity will persist for some time, with new Prime Minister Theresa May promising to have established Britain’s exit plan before triggering Article 50 – which will then be followed by up to two years of negotiations.
This lack of certainty presents risks for New Zealand’s agricultural exporters, as well as opportunities for our much-vaunted trade negotiators.
Over 13 per cent of our agricultural exports went to the EU in the year to December 2015. Britain received around a third of that portion.
Sheep farmers are the most reliant on this market. The EU is the destination for almost half of Kiwi sheep meat product exports, with the Britain responsible for more than 40 per cent of that.
“Under WTO rules, New Zealand expects that our overall levels of sheep and beef access to both the EU and Britain will remain the same,” Beef + Lamb New Zealand chief executive Sam McIvor told Farmers Weekly.
Though this is one possible scenario, it is not guaranteed. New Zealand agriculture’s current access to the British market is dependent on tariff rate quotas which exist under World Trade Organisation rules, but rest with the EU.
Britain’s exit will likely require a separate process of normalisation with the WTO before the same conditions apply to it as an individual nation.
Another unknown is whether Britain will implement a domestic equivalent to the EU’s Common Agricultural Policy (a subsidy paid to farmers by the EU). The CAP currently accounts for around 50-60 per cent of British farm income according to a House of Commons Library briefing paper. If such support is not replaced, British producers may reduce production.
As Britain now exports 90 per cent of its sheep meat products to the EU, this could open up a gap in the EU market New Zealand producers would be prudent to exploit.
The British government has already guaranteed the subsidies will remain until 2020, but should they remain beyond that period this could create a glut in the British market (if the Britain-EU FTA fails to transpire).
It is likely Britain will seek to negotiate an FTA with New Zealand. Another risk is that the loss of a close ally at the EU table will jeopardise our FTA negotiations with the European bloc.
Without Britain’s involvement, negotiations may be slower or on terms less favourable.
The British free-trade-agreement opportunity must not be missed, and negotiations must begin now. Importantly, the deal New Zealand requires to maintain or even grow exports in the wake of Brexit is itself dependent on how the relationship between Britain and the EU plays out.
Whether British sheep meat producers retain zero-duty access to the EU market, for example, will affect whether our exports remain focused on Britain or recalibrate to greater Europe as British products become less competitive.
This requires our negotiators and diplomats to have their ears to the ground, and to use the strong trading relationship between the two countries to gain signals as to how the cards are falling.
Only then will our exporters and the middle men be able to begin preparations for the new export landscape.