Brexit and NZ/UK Trade – Will There Be Blue Birds?

Dame Vera Lynn’s iconic song about the hope which sustained Britain during WWII might point equally to the challenges posed by Britain’s messy divorce from the European Union.  The date for the decree nisi – 31 December – is just two months away, with much detail around the final exit package and the future relationship remaining to be resolved.  As we have explained before in these pages, New Zealand interests are caught up in the process – our continuing ability to trade without undue disruption with our old friend and sixth largest trading partner, as well as our hopes for a post-Brexit FTA, which could send a signal to the world about our shared belief in the value of openness.

New Zealand interests are caught up in the process – our continuing ability to trade without undue disruption with our old friend and sixth largest trading partner, as well as our hopes for a post-Brexit FTA

Brexit – what’s been happening ?

Earlier this month British PM Boris Johnson appeared to throw caution to the wind and threaten to end the negotiations about Britain’s future relationship with the EU unless the EU adopted a “fundamental change of approach”.  Whether this was a serious threat or not,  the negotiation was then (and still is) beset by major and complex issues around the border in Ireland, the rules applying to fair competition and domestic subsidies for business and access for EU fishers in British waters.  PM Johnson has spoken of a choice for Britain between a deal with the EU which resembles that of Canada, which has an FTA, or Australia, which trades , like New Zealand, on WTO rules.  In reality the comparisons are not all that useful as neither Canada nor Australia have with the EU the degree of integration which is currently enjoyed by Britain.  Things seem to have calmed in recent days and the EU President, Ursula von der Leyen, is said the negotiations are making “good progress”. At stake though is the nature of the future relationship between Britain and its largest trading partner by far.

Does the nature of Brexit matter for New Zealand ?

These developments matter especially for NZ exporters and the kiwi businesses that are established in Britain, many of which use this base to do business throughout the EU.  The NZ Government has negotiated a number of transition arrangements to keep trade flowing including in relation to veterinary issues, conformity assessment, customs, organics, plant inspection, fishing and data adequacy. Even so, it cannot be excluded that a messy end to the Brexit negotiations could result in disruption and NZ businesses are advised to keep a close eye on the MFAT, NZTE and UK Government websites. 

Free trade on the horizon ?

Meanwhile New Zealand is in the process of negotiating FTAs with both the European Union and the UK.  The second virtual round of NZ/UK negotiations were underway at the end of October, by all accounts in a positive atmosphere. We understand discussions were held on a number of issues but negotiations on the likely thorny issue of market access had not yet begun.  The negotiation with New Zealand is one of several the UK currently has underway, including with the United States, as part of its transition to what has been called “global Britain”. Recently Trade Secretary Liz Truss has spoken about Britain learning from the “twin errors” of “values-free globalisation and protectionism”:  “we are instead rooting our approach for global free trade on the values of sovereignty, democracy, the rule of law and a fierce commitment to high standards”, said the Minister.

Walking the free trade talk – remember the TRQs

In the world as it is, such sentiments are refreshing and a future high standard, high quality, comprehensive  NZ/UK FTA could well be built on these important principles.  That would also assist Britain’s future entry into the Comprehensive and Progressive Agreement on Trans Pacific Partnership (CPTPP).

It is somewhat ironic then that New Zealand, the UK and the European Union are embroiled in dispute about the future of New Zealand’s WTO-sanctioned tariff rate quotas (TRQs) which the UK and the EU propose simply to split after 1 January.  Such a proposal is not acceptable to New Zealand or to other partners who have similar arrangements with the EU.  Discussions on these issues are continuing at the WTO but time is rapidly running out to resolve them and they too could amount to considerable disruption especially for New Zealand’s valuable sheepmeat trade to Britain and the EU.  The consequence of not sorting these out will likely be a trade dispute action in the WTO, not the best way to start a new era of values-based economic co-operation.

Whether blue birds will be seen over the white cliffs of Dover, depends on developments in the next few months.  The world is desperately short of hope right now and trade is no different.  It’s high time to demonstrate the value of openness and a new commitment to the rules-based trading system –  hopefully it is around the corner: just you wait and see.

This post was prepared by Stephen Jacobi, Executive Director of the NZ International Business Forum.