The Big One or just a tiddler temblor? The initial dust of the British vote to leave the EU may have settled, but we are likely to see ongoing aftershocks for New Zealand and in global trade. New Zealand businesses have already experienced currency and market volatility; over the longer term the predicted slow-down in UK and EU economic growth are likely to dampen demand for our exports and we may see a drop in inwards investment too. The EU is a significant trading partner and the UK has traditionally served as a stepping-off point for New Zealand exports into the rest of Europe as well as accounting for a large share of trade itself, taking around one-third of NZ goods exports to the EU and nearly half of services exports. Demand aside, in the short term at least the British market should not get any tougher: current rules will apply until the UK leaves the EU (which could take two years or longer), and even after that, the UK seems likely to default to the status quo (that is, the EU’s WTO commitments) – at least until it can negotiate new terms. (There may be complexities for agriculture products, but the picture is still murky.)
Looking ahead, New Zealand has a strong interest in making an early start in negotiating an ambitious, high-quality and comprehensive bilateral UK FTA. Britain has a solid trade-liberalising pedigree and senior British figures have already signalled a strong and urgent interest in negotiating with key partners such as China, India and the US. For New Zealand, a UK-NZ agreement would complement the FTA negotiation that we already have underway with the EU. (For the NZIBF’s EU FTA discussion paper, click here.) That said, it is daunting to contemplate the choreography involved in the next months and years as the EU and UK try to settle the terms of the UK exit and then negotiate a new bilateral arrangement; as the EU effectively renegotiates current FTAs with some 50 trading partners along with continuing the scheduled negotiation of new FTAs (including with New Zealand); and whether or not (technically and politically) the UK can negotiate with others prior to its exit from the EU. As far as New Zealand is concerned, the European Commission is still well-disposed, but politically the Brexit impact continues: the Commission has just announced that under pressure it has scuppered earlier plans for a fast-track approval of its landmark FTA with Canada, giving EU Member States a stronger national parliamentary role in ratification. More broadly, it is hard to gauge the extent to which there will be any broader geopolitical Brexit impacts, at a time when many countries globally are engaged in efforts towards negotiating regional trade deals. For better or worse, Brexit may yet come to be seen as a seismic shift in global trade.
This post was prepared by Stephanie Honey, NZIBF Associate Director