Saturday, March 2, 2024

EU deal gets a mixed report card

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As the dust settles on last week’s Free Trade Agreement (FTA) with the European Union (EU), it’s become clear that no one was happy with the much-criticised leftovers for the meat and dairy trade.

Neither the negotiators arguing into the night, nor Damien O’Connor working with them, nor the Prime Minister arriving for the climax, were “over the moon”, in the words of one official.

But they were clear that walking away from the talks in protest could have made things worse, not just for triumphant winners like kiwifruit, but for mauled survivors like meat and dairy as well.   

In addition, some unusual tradeoffs have become apparent, such as cheaper medicines in return for imperfect access for other sectors.

The EU FTA has been savaged on many fronts, from abandoning economic heavyweights like beef and dairy, to being little better than a publicity stunt, which provides the Government with a “win” to offset political difficulties back home.   

It has even been called a “shocker” and “the worst FTA ever signed” by an actual exporter with money on the table, not by a politician trying to win an argument.

But not even O’Connor’s National Party counterpart Todd McClay – himself a former trade minister – will say he would have walked away from the talks if he had been there.

Instead, he would have ‘”continued to talk” in preference to signing.

“It may be that the Government had decided that there was no more to get. They will need to answer those questions,” McClay said.

In the aftermath of last week’s down-to-the-wire talks, it has been suggested that New Zealand did not have time on its side.   

Instead, the moment had to be seized. 

There was a spirit of co-operation between New Zealand and the EU that needed to be made the most of, there was geo-political tension that made friends worth hanging onto, and there was a risk of being overtaken by Australia in the FTA derby if New Zealand had halted its negotiations.  

“In addition, you can’t just walk away from talks, and come back six months later, and expect all the cards to still be on the table,” an official said.  

According to this argument, New Zealand needed to climb through the trade window while it was open and not come back later, by which time it might have been closed. 

McClay counters that by signing now, the Government has ensured that the window will not be opened again.

“ It was important that we got more for dairy and meat because we will now never get an opportunity again – at least not in the lifetime of people farming today.

“For the European Union, this is it.”

In other words, according to McClay, the EU FTA has an ominous finality which will weigh heavy on later generations.  

Meanwhile, it has become clear that cheaper medicines for sick New Zealanders have been acquired at a cost paid by the dairy and meat sectors.   Europe has many large pharmaceutical manufacturers and they made clear they wanted better protection of patents by New Zealand, to enhance their profits.

New Zealand resisted this “as a red line”, according to a negotations insider, because it would have substantially increased costs to Pharmac.  

Acccording to this argument, New Zealand’s position on medicines substantially reduced the appeal of this FTA to the EU negotiators, and a tough stand on meat and dairy might have finished it off.

Alternatively, high medicine prices might have been forced on New Zealand in return for a few thousand more tonnes of meat, which would not have been palatable back home.

In fact, meat and dairy did win some gains from this FTA: new quota opportunities worth more than $600m in annual export revenue for dairy and red meat and an eight-fold increase in beef access.

But this is a drop in the bucket according to both sectors in this country, who reacted angrily to what they were left with.

On the other hand, some sectors were ecstatic.   

Zespri, for example, welcomed an end to tariffs worth $46.5m on sales to the EU of $1b.   

Moreover, the agreement put New Zealand on a level playing field with its southern hemisphere rival, Chile. 

Seafood New Zealand is also welcoming a $20m gain for its line of work, and New Zealand Winegrowers are also happy.  

McClay himself gave the FTA a mark of six out of ten, but said the treatment of meat and dairy remained a fatal flaw.   

“It is a misssed opportunity, we needed more from the EU to say this is a high quality deal.”

O’Connor by contrast praised the FTA, saying it could increase the value of New Zealand’s exports to the EU by up to $1.8b a year from 2035. 

“The deal provides duty-free access on 97% of the New Zealand’s existing goods trade to the EU within seven years, 91% from day one,” O’Connor said.  

In addition, exporters would save approximately $110m per annum on tariff elimination, with $100m slashed from day one.

In a final comment, Stephen Jacobi of the NZ International Business Forum shared the view that this deal was a mixed bag for New Zealand.

But he added a warning, the poor deal for dairy and meat could create an unfortunate precedent for future trade talks with other nations.

Meanwhile, some trade experts remain convinced that getting any sort of deal with Europe on dairy was a miracle in itself.   

When Charles de Gaulle asked how anyone could govern a nation that has two hundred and forty-six different kinds of cheese, everyone understood the metaphor immediately.

Where France goes, the EU tends to go too, forcing New Zealand to wade through a very strong culture indeed.

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