NZ free trade agreement with the EU up for debate

New Zealand sparkling wine faces significant tariffs when exported to Europe.

New Zealand sparkling wine faces significant tariffs when exported to Europe.

 “If the EU can’t do a free trade agreement with New Zealand, it can’t do one with anyone.”

As a former diplomat and now the director of the European Centre for International Political Economy (ECIPE), a trade think tank based in Brussels, Hosuk Lee-Makiyama is in a good position to judge.  

But while an EU-NZ deal may appear to be an open and shut case, there are clouds on the horizon, not least of which is an increasing anti-free trade sentiment within some of the 28 EU nations.

The 228,000-tonne sheepmeat quota for the EU is worth more than $2 billion.

The 228,000-tonne sheepmeat quota for the EU is worth more than $2 billion.

The latest manifestation is the Wallonia region of Belgium, which is blocking the EU-Canada FTA , because it says the deal is bad for Europe’s farmers and gives too much power to global corporate interests.

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New Zealand ambassador to the EU, David Taylor, notes a different landscape to a few years ago, with rising concerns over migration, globalisation and now Brexit, although he does not believe they will be major stumbling blocks.

The EU already has 34 free trade agreements, many of them with very small states.

The EU already has 34 free trade agreements, many of them with very small states.

Peka Pesonen, secretary general of the farming lobby group Copa-Copega, said leading export countries like Germany in particular had become more protectionist in the last five years.

FTAs with individual countries are more troublesome than multi-lateral agreements through, say, the World Trade Organisation, because of the sensitivity of certain sectors – and in trade negotiations, no sector is more contentious than agriculture.

“Politically I don’t envisage any major political problems with New Zealand, it has a similar outlook to the EU, but there are sensitive issues, so it won’t be an easy ride because there are some sensitive product groups,” Pesonen said.

It has taken eight years to thrash out a free trade deal between the EU and Canada, but it still faces opposition and ...

It has taken eight years to thrash out a free trade deal between the EU and Canada, but it still faces opposition and the prospect of a last minute block by the Wallonian governmment of Belgium.

FTAs with the EU are nothing new – it has already signed 34, going back to 1973 when it created a special deal with Switzerland. Barring a last minute hitch, Canada should be the latest member to join the club when it signs up at the end of this month, after eight years of negotiation.

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Taylor is optimistic a NZ-EU deal will not be  dragged out over such a lengthy period.

“We would welcome a quick process. Prime Minister John Key and European Commission President Jean-Claude Juncker have identified mid-2019 for a signature,” Taylor said.

Lee-Makiyama agrees. There is good reason for the EU to push it through.

“It’s an agreement the EU can probably do reasonably quickly and to a high standard. And politicians are looking for a positive narrative on free trade. If they can’t do this they’ll have to rethink the future of the EU and trade – it’s a litmus test.”

So what has New Zealand to gain?

For a start, a market of 500 million people, many of whom are ready consumers of New Zealand products.

Already the EU is New Zealand’s third-largest trading partner, with two-way trade valued at $20.9 billion in goods and services to June 2016. At a value of $2.8b, food is New Zealand’s major goods export; in return the EU sells $448 million worth of food to New Zealand.

New Zealand exporters have to pay tariffs on a variety of food products, from fish (an average 12.5 per cent); honey (17.3 per cent); kiwifruit (8.8 per cent, a dollar value of nearly $25m); sparkling wine (€32 per 100 litres);  apples (10.4 per cent at the times of the year they are allowed to sell); beef (20 per cent).

For all these products New Zealand is up against other nations which have duty-free access: Chile and kiwifruit, South Korea and tomatoes, Argentina and sparkling wine, Turkey and honey, Canada and beef.  

The EU is a lucrative market for New Zealand sheepmeat. The trade earned over $2b last year, with a significant proportion of these exports entering under WTO quotas.

The quota of 228,000 tonnes of sheepmeat, even though it is not fully subscribed (75 per cent at the moment) was historically hard earned and New Zealand negotiators will look to build on that base.

Besides food, much NZ-EU trade is based on foreign direct investment. The EU is the second-largest source of it in New Zealand ($10.9b) and third-largest destination for New Zealand direct investment abroad ($2.89b).

At a value of $2.8b, the EU is New Zealand’s second-most important destination for services exports, and its most important source of services imports, worth around $2.6b. Nearly 40 per cent of all New Zealand international research collaboration is with EU partners.

Lee-Makiyama said it did not matter that New Zealand was a small market.

“In trade there are two parameters that matter – growth and size. If the economy is growing, then you can sell them infrastructure, if you’re growing you’re building stuff, you need machinery and cars. Even if you’re small, growth really matters.”

Makiyama said there was no country with whom Europe had such an array of mutual regulatory agreements, which would smooth the path for an FTA. These include a veterinary agreement and a common standard on data privacy.

Right now EU states are carrying out an impact assessment of the proposed FTA. By early next year we should know just how much these states welcome the deal or regard it as a threat.

The writer travelled within Europe courtesy of the EU Delegation to New Zealand. 

 – Stuff

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