Sunday, December 3, 2023

You’ve got to hand it to NZ trade envoys

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NZ trade negotiators have done a sterling job in concluding FTAs over recent decades.
The latest research by BLNZ and the MIA shows New Zealand red meat exports have benefited substantially from concluding FTAs, with tariffs reducing by 47% between 2010 and 2022.
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Free Trade Agreements have long been viewed as the ultimate goal of trade negotiations on behalf of New Zealand’s exporters, although the population may not always view the reverse obligation to grant equivalent benefits to imports quite as favourably. There are 14 FTAs in force at present with more under negotiation or scheduled to come into force in the near future. 

NZ trade negotiators have done a sterling job in concluding these agreements over recent decades and the ultimate compliment to their excellence was the United Kingdom government’s decision to engage ex-NZ ambassador to the World Trade Organisation and chief negotiator, Crawford Falconer, to the role of chief trade negotiation adviser following Brexit.

Beef + Lamb NZ estimates over 50% of red meat exports are covered by FTAs, and this will rise to nearly three-quarters when deals about to be concluded are in place. The United States-based International Trade Administration suggests 90% of NZ exports will be covered by FTAs by 2030, although the lack of interest shown by both US and Indian governments may make this target unduly optimistic.

The FTAs concluded with the UK and the European Union are calculated to result in immediate tariff savings of $37 million and $100m respectively from year one, with further savings on certain products, such as beef, sheepmeat and dairy products over a staggered timeframe. 

The Ministry of Foreign Affairs and Trade calculated these amounts by applying the existing tariff rate to the average of exports over the three-year pre-covid period 2017-19, to give a tariff saving for each product covered by the FTA. It further assesses the predicted benefits as an underestimate, with importers generally deciding to buy more product than before because of the tariff removal. 

Although this argument is intuitively correct at face value, it may not hold water immediately.

Rick Walker, ANZCO’s GM of sales and marketing, says customers aren’t stupid; they know the removal of a tariff means the product is now cheaper, so they are unlikely to agree to continue paying the previous price including the tariff in full. Walker believes buyers will agree to pay what they need to keep their customers happy, which probably means sharing the saving with the exporter. 

As a rule of thumb this may result in keeping half the benefit gained from the FTA, although the end result will almost certainly be a higher volume of goods being bought, either because there is higher demand at a lower price or the removal of quota restrictions allows pent-up demand to be satisfied. Naturally the price paid must be at least as good as that available from an existing buyer.

The agreement signed with the UK sees 99.5% of current exports entering without restriction from day one, ultimately moving to 100%, with major beneficiaries being the wine industry, other horticultural sectors, fish and seafood, and the dairy industry, which gains 60% access immediately and 100% by year seven. The European Union FTA also frees up seafood and horticulture from day one with kiwifruit, wine, apples, onions, honey, and vegetable seeds featuring prominently as valuable items.

Concessions on beef and sheepmeat will be phased in over 15 years under the FTA with the UK, which is unlikely to be a problem for sheepmeat at least, while the EU agreement only allows 10,000t of beef after seven years with an in-quota tariff of 7.5% reduced from 20% on the minimal volume currently allowed under WTO access. 

Sheepmeat gains separate allowances under the FTAs in addition to the quantities negotiated through the WTO access agreement when the UK joined the EU and subsequently split down the middle after Brexit.

Australian lamb and beef will pose a competitive threat in the UK, so there may be few instant gains as a result of the FTA, and lamb sales may even suffer in the short term in what is a depressed market. 

However, Australia may not sign a FTA at all with the EU, as Australian farmers have warned their trade minister he should under no circumstances accept a similar deal to New Zealand with few advantages for beef and dairy.

NZ export volumes of sheepmeat to the UK and Europe have fallen dramatically as a result of the reduction in the sheep population since the 1980s and the increasing importance of China as an importer. Last year NZ exporters shipped less than half their quota entitlement to these traditional markets, with North Asia and North America providing valuable alternative destinations. 

The latest research by BLNZ and the Meat Industry Association shows NZ red meat exports have benefited substantially from concluding FTAs with tariffs reducing by 47% between 2010 and 2022 (before the impact of the UK and EU FTAs). 

However, these organisations are concerned the international trading landscape is now affected by greater protectionism, geopolitical tensions and economic volatility following the pandemic. The research indicates our red meat sector faces an average of 2.3 times more non-tariff measures than the global average, adding $1.5 billion a year in costs to red meat exports.

These non-tariff measures impose an additional $370m a year in administrative costs, nearly double the amount imposed by tariffs, for unnecessary requirements such as document certification at the importing country’s consulate as opposed to electronic certification or overly strict standards that are not justified by scientific evidence. Importantly the FTA concluded with the UK is a prime example of a high quality agreement that goes beyond a narrow focus on tariff removal.

While Australian farmers and, no doubt, a number of NZ red meat and dairy producers are not impressed by the EU FTA deal, it is a good one overall for many sectors of our economy. The trade negotiations team deserves credit for reaching a successful agreement when NZ is a minnow on the world stage. It remains to be seen if Australia’s greater economic size gives it more clout.

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