What are the prospects for a strong outcome from the NZ/UK FTA negotiation?

We’ve said it before: it’s in the nature of trade negotiations to teeter on the brink before they are concluded.  The same may be true for the NZ/UK FTA, although it has to be said the negotiation has proceeded comparatively smoothly and in a generally positive atmosphere.  Things are now going down to the wire as the end of August deadline looms for a conclusion to an agreement in principle.  Negotiators are working (virtually) through the night as the last elements – including critically a commercially meaningful market access package – are hammered out.

Why do we want an FTA with the UK again?

The best summary of what’s on offer is contained in a report published on this site back in 2018.  Aptly entitled “Old Friends, New Opportunities” the report said an FTA would “satisfy commercial, economic and strategic objectives, and would better reflect the way that the UK and New Zealand do business, trade and live in the 21st Century”.   Three years down the track this bold assumption still holds true: the FTA should open up new opportunities for NZ (and UK) exporters in the short to medium term and will set the long term framework for the economic relationship with post-Brexit Britain.

It’s not every year that a new trading entity like the UK comes onto the scene.  As we said when the negotiation was launched in June 2020, “The UK is not only a key market for sheep meat, wine, apples, and honey, and with untapped potential for dairy and beef, the British are world leaders in services trade, in the tech sector and in the creative economy, and there are some exciting potential synergies there. The UK also offers a high-value market for sophisticated niche manufactured products such as agri-tech and medical devices”.

But wait, there’s more: “This FTA can help position the UK as a leader of global trade liberalisation.  The UK would be a welcome member of arrangements like the Comprehensive and Progressive Agreement on Trans-Pacific Partnership (CPTTP)”.  Let’s face it – the global trading system needs more friends and the UK could well become one of those.

Why not just do this deal?

As always the devil is in the detail. To be a champion of free trade, you have to believe in it. You have to believe that the benefits of opening your market outweigh any potential short-term pain. And sometimes you have to do things you’d rather not do.  So in the case of the UK, New Zealand has made it clear that we want to see a commercially meaningful market access package on all items of trade interest, including sheepmeat (where our access to the UK has already been impaired by Brexit), beef, dairy, and horticulture.  And the UK has said it wants a substantive outcome on investment, financial services, and labour mobility.  These are not the only “sensitive” issues, but they are the ones that are taking up most time right now.

To be a champion of free trade, you have to believe in it.  You have to believe that the benefits of opening your market outweigh any potential short-term pain.

For New Zealand, the stakes have been raised by Australia’s recent progress in securing an FTA and the attractive outcomes they achieved for products like dairy and meat.  New Zealand will want an outcome that does not leave us worse off than Australia, particularly when it comes to products where we have a major commercial interest.  Australia sweetened the deal with the UK by agreeing to a number of measures allowing freer movement of people – it would not be surprising if the UK sought the same thing from New Zealand.  Indeed, when it comes to investment and labour mobility there would seem to be no reason for New Zealand not to be very receptive – we need more of both to keep our economy growing.

Does New Zealand have any cards to play?

For once we do.  The UK is keen to join CPTPP which is a high-quality agreement currently in force among eight economies. New Zealand would need to join the consensus in favour of UK accession if this is to happen.  There’s no doubt that UK membership would help expand the coverage of the agreement and encourage future ratifications.   As we have said, accession to CPTPP would demonstrate the extent of the UK’s commitment to free trade principles but only if the UK can meet the agreement’s high standards and satisfy NZ’s market access interests. 

Playing the CPTPP card is not without complication.  Other CPTPP members may wish to see the UK join as quickly as possible.  PM Ardern and Trade Minister O’Connor may need to hang tough on this depending on developments over the coming week.

Is 31 August really the drop-dead deadline?

There are very good reasons to want to keep to the August deadline for an agreement in principle.  There is considerable momentum in the negotiation.  The key issues will not be any easier to resolve later.  The UK Government, with an agreement with Australia in the bag, clearly wants it done.  The NZ Government is also keen to complete a deal, but only on the right conditions.  Substance however needs to drive the timetable.

We may yet see some theatre over the coming week.  Both sides need to show maximum receptiveness to each other’s concerns as high noon approaches.

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