British Prime Minister Theresa May says she wants to “build a truly global Britain”, but the ‘hard Brexit’ path she has proposed has many risks and challenges – including for New Zealand exporters.
PM May’s recently-announced 12-point plan for Brexit involves a clean break from both the EU Single Market and Customs Union and the negotiation of a suite of new FTAs (including with New Zealand and also with Australia, China, Korea and the United States – although on the latter, President Trump’s vehement inaugural declaration to “buy America and hire America” sounds a dissonant note). Despite the promises of a bright new future, this strategy will require a host of complex, long-drawn-out and potentially highly fractious negotiations. These will be required not only with the remaining European Union members – in respect of which the mandated two-year deadline seems an impossibly close target, even leaving aside challenges of ratifying any deal – but also individual trading partners both bilaterally and in the context of tidying up post-Brexit WTO commitments.
May’s presentation of her thesis to the World Economic Forum met with only a lukewarm response from international leaders. She is also likely to face a bruising internal consultative process with domestic stakeholders such as the agriculture, manufacturing (e.g. vehicles and aerospace) and financial services sectors. The business community is worried about the prospects for securing good post-EU deals, with some concerning implications for their future investment decisions. EU Member States have already made clear that they would not see the current zero-tariff environment of the Single Market being duplicated for a divorced Britain without commensurate commitments on immigration – a red line for the UK (although of course the success of services and many other exports depend on good labour mobility).
Recall too that current ‘non-preferential’ EU tariffs on agriculture are high. Likewise MFN trade arrangements for manufactures and financial services would face substantial non-tariff barriers. May has suggested that sectoral arrangements with the EU may be the answer, but these would likely not meet WTO rules.
What does this all mean for New Zealand? For agriculture in particular, there are important questions around the allocation of our existing EU agriculture market access as between the EU27 and the UK, and about new terms of access to the UK, especially if the British agriculture sector is in turn facing restricted access to its former European markets. And of course all of this takes place as we move forward in pursuit of an ambitious FTA with the EU itself, and for which the Brexit process may complicate timing, if nothing else. (For our EU-NZ FTA discussion paper, click here.)
This post was prepared by Stephanie Honey, NZIBF Associate Director.