Thursday, November 30, 2023

UK trade deal still some way off

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Britain is scrambling for trade deals before it leaves the European Union at the end of the year. Nigel Stirling asks just how easy getting a free trade deal with the United Kingdom will be for New Zealand.
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Most of the time New Zealand negotiators are on the back foot in trade talks.

Our small consumer market and the dismantling in the 1980s of tariffs protecting local industries from imported competition leaves them precious little to bargain with.

Tougher still when top of your list of demands is the most difficult nut to crack in international trade negotiations – free trade in agricultural products.

Rarely does NZ enjoy the leverage as it has over the UK in talks now under way.

The UK is desperate for trade deals to replicate the EU’s own network of agreements it loses access to when it departs the 28-country trading bloc at the end of this year.

Along with the United States, Japan and Australia, NZ was one of the first countries the UK announced it would begin negotiations with.

NZ’s inclusion is more than a nod to the shared history of the two countries.

As a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership a deal with NZ would smooth the way for the UK to join the 11-country trade agreement and underpin market access for its exporters in the Asia-Pacific region.

Former Trade Minister Lockwood Smith agrees the pressure is on the UK to do a deal with NZ but still has reservations about its commitment to free trade.

As a recent High Commissioner to London and a member of the pro-free trade think tank advising Boris Johnson’s government, the Legatum Institute, Smith is intimately involved in the trade debate in the UK – and he is not encouraged by what he is seeing.

The beginnings of a shift in attitudes under the previous leadership of Britain’s historically protectionist-minded National Farmers Union is being undone by the current president Minnette Batters.

“The previous NFU president had accepted change needed to happen and had started work with his organisation on what sort of transition time was needed.

“He was thinking in terms of 5-10 years to transition to an unsubsidised future … the current leadership of the NFU seems to be taking a step backwards.”

That backsliding had spread to key figures in Johnson’s Cabinet including the Secretary of State for Environment, Food and Rural Affairs George Eustice and his influential predecessor Michael Gove.

Eustice is behind a proposal for a system of tiered tariffs which Smith claims will be based on “perceptions” of animal welfare and health standards rather than scientifically-based World Trade Organisation rules.

The highest tariffs would likely target chlorinated chicken imported from America which is banned in the EU and has become the focus of those in the UK opposed to a trade deal with the US.

“It would be a real shame if the UK goes down that path,” Smith said.

“One of the great benefits of the UK leaving the EU is to assume a greater leadership in international trade.

“And it sure is not going to be respected as a leader if it comes up with WTO-incompatible proposals like tiered tariffs depending on how politically they perceive food safety issues … we are still trying to get Boris’s team to understand that.”

Former trade negotiator Charles Finny is optimistic NZ will strike a reasonable deal with the UK but not quickly.

Delays in decisions on agricultural market access were likely while the UK negotiated the same with the US and the EU, which was likely to take some time given the size of the economies involved.

“Why would the UK want to give NZ a fantastic deal on agriculture when they know that the US will grab that deal and try and get better?

“In terms of dairy and everything else you name except sheep meat the US is bigger and more of a threat to UK farmers than NZ will ever be.

“We are never going to flood that market whereas the US could overnight – I assume that is why they started the US negotiation before ours.”

Dairy Companies Association chairman Malcolm Bailey said NZ exporters had not crashed prices in other markets where it had trade agreements, although he accepted that could be a difficult message for British farmers to absorb right now.

“They are faced with a lot of uncertainty. This is not just about a deal being done with NZ.

“They have to digest Brexit and what it means and I understand why the NFU on behalf of its farmers will be taking a stance which is very hesitant.

“But the desire of NZ exporters of these primary products is to get a good return in the market and not to lower pricing.

“We have got a long track record of being very constructive in the market and I think they should reflect on that.”

Smith believed British farmers would eventually be forced to give up the production-linked subsidies and tariffs protecting them from competition from the rest of the world, although it could take longer than NZ would ideally like.

That meant a trade deal with the UK similar to NZ’s 2003 agreement with China could be on the cards.

That provided NZ with immediate tariff-free entry for key dairy products but built in safeguards to protect Chinese farmers from surges in imports above pre-agreed levels by restoring tariffs to their pre-FTA levels till the start of the following year.  

The key for NZ was that the safeguards all expire by 2024.

Smith said such an agreement would deal with the fear of British farmers that they would be bankrupted by a tide of increased imports, while satisfying NZ’s demands for free trade.  

It would also give British farmers time to sharpen up to better handle increased competition.

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