Potential Bilateral Free Trade Agreement between the United Kingdom and New Zealand

Executive Summary

• This submission is made on behalf of the New Zealand International Business Forum (NZIBF).1 NZIBF is a forum of senior New Zealand business leaders working together to promote New Zealand’s engagement in the global economy.
• The UK has long been a significant trade and investment partner for New Zealand, with a mutually-beneficial trade and economic relationship dating back over two centuries. The New Zealand business community wants to see this relationship continue, strengthen and deepen in future. When the UK is in a position to do so, there are strong strategic, economic and commercial reasons to negotiate an ambitious, comprehensive and high-quality free trade agreement (FTA). This would enable dynamic economic growth in both economies.
• The FTA should achieve a high level of ambition and liberalisation in goods and services trade and investment, include comprehensive trade facilitation measures, and should address ‘next generation’ trade issues including digital trade, innovation and intellectual property and regulatory coherence; on non-tariff barriers we have an opportunity to set new global benchmarks for business-friendly WTO-plus approaches. The FTA would provide an opportunity for both sides to strengthen inclusiveness in trade policy, including for small business, women, our regions and (in the case of New Zealand) Maori, to enable the benefits of trade liberalisation and the economic growth that this will generate to be shared more widely by our communities.
• Strategically, an ambitious FTA could demonstrate the United Kingdom’s global trade liberalisation leadership ambitions, and also serve as a building block towards membership by the United Kingdom of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). NZIBF would welcome United Kingdom membership of CPTPP.
• Negotiating an FTA would in itself increase business awareness of the opportunities available or being created in each others’ markets, but the concluded agreement should also be complemented by an active programme of outreach and education to enhance awareness of commercial opportunities and grow the ability of firms to access these.

Report

The New Zealand International Business Forum (NZIBF) provides a voice to articulate the needs and priorities of New Zealand’s business community on international issues, and in particular the importance of open markets and trade and investment flows. The NZIBF Board brings together leaders from among New Zealand’s largest internationally-oriented companies and peak business organisations. NZIBF receives no direct government funding for its operating budget but from time to time receives funding for jointly-funded projects. Funding is also provided in respect to the policy advice NZIBF provides to the New Zealand members of the APEC Business Advisory Council (ABAC).

The bilateral trade and economic relationship

3. NZIBF warmly acknowledges the longstanding and significant relationship between the United Kingdom and New Zealand, underpinned by shared history, culture, language and values, people-to- people links and economic engagement of all kinds. We believe that there is scope to transform what is already a very good, solid bilateral connection into a dynamic, modern, world-leading and mutually-beneficial relationship that better reflects the evolution of the way that we live, do business, prosper and thrive as societies.

4. The UK is already New Zealand’s sixth-largest single export market for goods and services and eighth-largest source of imports and a substantial investment partner.2 The New Zealand business community strongly supports the continuation and strengthening of the existing trading relationship. While in turn New Zealand is a relatively modest trade and investment partner for the United Kingdom, the UK’s economic interest will clearly lie in maintaining and growing trade and investment flows through an FTA once it has left the European Union and is in a position to negotiate. This is particularly the case as New Zealand moves ahead to negotiate, implement and/or upgrade preferential trade agreements with other trading partners in a way that would set UK exporters at a competitive disadvantage in the New Zealand market. As an investment destination, too, is also worth noting that New Zealand enjoys strong sustained economic growth and consistently rates at the top of league tables for ease of doing business.

5. There would also seem to be considerable potential for this relationship to expand in the future under ambitious trade rules that better reflect 21st-Century models of business and trade. There are clear complementarities across sectors, production approaches, seasonality and market demand – in the primary sector (including for wine and other beverages, horticulture, meat and meat products, dairy products, fish and seafood, processed food and wood and forest products); in niche manufactured products including medical equipment and agri-tech, and in services such as computer and IT services, tourism, professional and business services, financial services, education, and potentially in more specialized areas such as environmental services and agriculture-related services. An FTA could foster greater cross-fertilisation of ideas, technology, people and capital.

6. Greater market openness could also help to equip UK producers and businesses to compete more effectively in the international marketplace – just as New Zealand businesses have benefited from exposure to the ‘testing ground’ of the Australia-New Zealand Single Economic Market before launching more broadly onto the world stage.

7. For business, the reduction and elimination of barriers to trade and investment, and the higher profile generated by the negotiating process itself, would potentially enable the development of new partnerships and networks into third markets around the Asia-Pacific region. New Zealand already enjoys a framework of ambitious and comprehensive FTAs with important trading partners in the region including China, the ten-member Association of South-East Asian Nations (as well as with a number of individual ASEAN members), Chile, Hong Kong, Korea and (once the Comprehensive and Progressive Agreement for Trans Pacific Partnership enters into force) with the CPTPP economies, including Canada, Japan, Mexico and Peru. New Zealand is also in negotiation with the four economies of the Pacific Alliance including Colombia; and with the participants in the Regional Comprehensive Economic Partnership Agreement, including India. Building broader linkages across hemispheres will foster more resilient, sustainable and inclusive growth and help create jobs in both economies.

8. An ambitious bilateral FTA could also serve to burnish both sides’ credentials as forward- looking and creative negotiating partners, particularly if high-quality rules can be achieved in key areas such as the digital economy. Strategically, an ambitious FTA could also be seen as a building block towards membership by the United Kingdom of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). NZIBF would welcome such membership.

Goods, services, investment

9. Although the average tariff in the United Kingdom is relatively low, a number of items of significant export interest to New Zealand continue to face barriers in the form of high tariffs and tariff-rate quotas, some with in-quota tariff rates set at levels that make the trade uneconomic. New Zealand business would want to see a comprehensive and ambitious market access outcome involving the elimination of all tariffs, significant expansion leading to elimination of tariff rate quotas and the removal of other barriers to trade including regulatory barriers. This would reduce costs for business, smooth trade flows and provide benefits for consumers in the UK market. Tangible market access improvements should take as their starting point, and build on, current legally-bound market access commitments and administrative arrangements and should not in any way undermine those longstanding mutually agreed and legally bound outcomes.

10. NZIBF acknowledges that there may be sensitivities on the British side in relation to a small number of agriculture products. But it should be recalled that for many products the United Kingdom is an efficient, internationally-competitive and high-quality producer; and that New Zealand production – limited by our size and natural resource endowment – in fact makes up only a small fraction of British consumption.

11. It should also be noted that New Zealand is a counter-seasonal producer in both the livestock and horticulture sectors, and there is real potential for British and New Zealand producers to work together to offer year-round supply in a range of markets, grow brands and consumption, and to develop innovative and complementary approaches that draw on the best expertise, ideas, resources and areas of comparative advantage in each economy for mutual benefit. Examples of such relationships include Fonterra’s partnerships with UK dairy companies in manufacturing and exporting dairy ingredients, and the potential in the horticulture sector for partnerships to ensure year-round supply of high-quality fruit and vegetables into third markets including in Asia.

12. NZIBF also stresses the importance in any FTA of robust frameworks designed to facilitate trade (including through streamlined Customs procedures and simple, predictable and flexible Rules of Origin to reduce compliance costs and foster global value chains) and to minimise non-tariff barriers. We urge the inclusion of approaches to sanitary and phytosanitary measures and to technical barriers to trade that build on existing international disciplines and deliver WTO-plus outcomes. NZIBF would support the inclusion of sectoral annexes that go even further – for example, in approaches to mutual recognition of winemaking practices or harmonisation of standards and conformity assessment for medical equipment. The bilateral FTA provides an excellent opportunity to set a high global benchmark for progressive and modern approaches to tackling non-tariff barriers.

13. On SPS issues, New Zealand is recognised as an international leader for its high-quality hygiene standards in terms of both our industry and regulatory systems in agriculture and food. We are also consistently ranked as having some of the highest and best-practice regulatory standards in the world on other matters such as animal welfare. For example, New Zealand is ranked first equal (alongside the United Kingdom) in animal welfare by the World Animal Protection’s 2014 Animal Protection Index Incorporated Index. New Zealand’s approach is well understood by the European Union, as evidenced by the European Union-New Zealand Veterinary Agreement implemented twenty years ago; NZIBF would want to see continuity of this recognition in New Zealand’s future trade relationship with the United Kingdom.

14. On services, NZIBF is a strong supporter of progressive liberalisation of this sector, both for direct services sector gains but also recognising the important role that services play in goods trade and global value chains. While New Zealand and the UK both already have relatively open services sectors, an FTA could offer gains by locking in these current policy settings, ideally through an ambitious negative list approach and with provision for ongoing review and progressive liberalisation over time. Such efforts could use as a starting point progress in the Geneva-based Trade in Services Agreement negotiations. In addition, ambitious outcomes should be pursed in services trade- facilitating measures relating to Mode 4 business mobility (e.g. business visas), commercial presence and domestic regulation including mutual recognition of qualifications and licensing.

15. On investment, NZIBF is a longstanding strong supporter of foreign investment in New Zealand and of provisions in our trade agreements which provide appropriate protection and certainty for foreign investors and investment (both inward and outward), while also recognising the centrality of the Government’s continuing right to regulate in the public interest.

Next generation issues

16. NZIBF believes that any future UK-NZ FTA should seek to set new benchmarks on a range of “next generation” trade issues, including intellectual property, regulatory coherence, the digital economy and so-called progressive trade issues.

17. On intellectual property, NZIBF supports approaches that are trade-enabling rather than trade-restricting. The CPTPP is a useful model in that regard. On one aspect of intellectual property, geographical indications (GIs), NZIBF notes that New Zealand’s GI legislation enables New Zealand to meet its international obligations relating to GIs for wines and spirits. NZIBF also acknowledges that GIs have a role in international trade law to protect the intellectual property rights of truly specialised products like wines and spirits that possess a unique and strong tie to a single geographical location. However, New Zealand exporters could not accept an approach in which the use of generic names or other terms for products widely in commercial use or production, distribution and consumption were restricted in New Zealand or other markets.

18. NZIBF strongly endorses the inclusion of provisions aimed at regulatory coherence and a commitment to good regulatory practice between New Zealand and the United Kingdom. Regulatory divergence across markets can add significant costs and red tape to business. In previous FTAs, New Zealand has used a spectrum of different institutional arrangements to address regulation, from mutual recognition and equivalence agreements, through to regulatory harmonisation, joint regulation or shared institutions. It has also been New Zealand’s experience that a process of ‘regulatory competition’ and shared learning enables stronger regulatory outcomes in both economies that can simultaneously meet domestic policy objectives while also enabling sustained cross-border trade flows. In that regard, NZIBF commends one of the approaches used with Australia – the Trans-Tasman Mutual Recognition Arrangement – as a useful model, while acknowledging that the TTMRA is underpinned by unique longstanding, close and deep regulator-to-regulator contacts and confidence-building.

19. It is worth noting that exporters can also face impediments behind the border in the form of private standards (for example, those imposed by supermarkets with significant market power, and large retail chains). We recognise that by their very nature, private standards would fall outside the scope of an FTA. However NZIBF urges consideration of establishing a cross-border dialogue involving business, retailers and regulators on how to develop private standards in such a way that they can both satisfy consumer preferences while not impeding or adding significant costs to trade. This could benefit exporters, the retail sector and consumers in both markets.

20. New Zealand and the United Kingdom have the opportunity to set new benchmarks for the digital economy, an area where global rules frameworks are lagging far behind technology and commerce but which is increasingly reshaping traditional business and trade. Central to any such groundbreaking approaches will be robust rules for the free flow of data across borders, including a prohibition on forced data localisation, while also ensuring that legitimate objectives including personal privacy, consumer protection and cybersecurity are met in the least trade-restrictive manner possible. We note that the EU has acknowledge the adequacy of New Zealand’s data privacy settings.

21. The FTA could also usefully adapt the CPTPP approach on e-commerce – for example, a commitment not to impose duties, fees or other charges on digital products; provisions on e- authentication and recognition of e-signatures; quick, transparent and predictable e-border processes, a high de minimis threshold for e-commerce transactions; fit-for-purpose intellectual property frameworks; cooperation on interoperability and conformity assessment; and consultation with stakeholders on new standards as they are developed. Given the centrality of e-payments to the efficiency of e-commerce, it will also be important to ensure coverage of financial services.

22. NZIBF welcomes the emphasis by both New Zealand and the UK on the need to ensure that the benefits of trade liberalisation can be more broadly shared by our communities. The FTA provides an important opportunity to develop cutting-edge provisions that seek to avoid uneven outcomes or unrealized potential, for example among SMEs, women, particular regions or (in New Zealand’s case) Maori communities), while recognizing that at least some of the solutions are likely lie outside the immediate scope of trade policy. An emphasis on sustainable as well as inclusive development, seeking to ensure that trade and environmental policies are compatible and mutually-reinforcing, should also be central.

Conclusion

23. There are strong strategic, economic and commercial reasons to negotiate an ambitious, comprehensive and high-quality FTA. This would enable dynamic economic growth in both economies by removing barriers to trade and investment at and behind the border.

24. NZIBF appreciates the opportunity to share its views on these issues and looks forward to continuing to engage on these topics in the period ahead.

25. NZIBF consents to the content of this submission to be used as part of the UK Government’s published consultation response; and to the Department for International Trade, or organisations working on its behalf, to contact us regarding the submission.