EU-NZ trade deal a bright spot in gloomy times

8:49 pm on 24 May 2018

Opinion - Trade is frequently in the news these days, often with gloomy stories about trade wars.

No caption

Photo: 123RF

But in a welcome contrast, this week has seen European Union ministers decide to proceed with negotiations for a high-quality, comprehensive and ambitious new trade agreement with New Zealand.

Trade Commissioner Cecelia Malmstrom will visit in June to launch the process officially. Both sides are keen to wrap up the talks quickly (at least in trade negotiations terms), ideally within a couple of years.

The decision builds on years of effort by New Zealand governments, diplomats and business representatives to make the case for a modern trade agreement with the EU. This week's decision is a welcome turbo-charging of that process.

New Zealand exporters have been at a growing competitive disadvantage in Europe: the rules governing our trade are now thirty years old, while most of the EU's other trading partners have already negotiated or are in the process of negotiating preferential trade agreements. Despite this, Europe is already a very significant partner for New Zealand: a 510-million strong consumer market ranking as our third-largest export destination, our biggest supplier of imports, and our second-largest source of investment, with strong people-to-people linkages.

But we can do more, and better.

For New Zealand, areas of interest will include growing exports of high-quality agriculture, horticulture and wine, services such as tourism, education and creative sector exports, and well as high-tech and niche manufacturing.

In the other direction, Europe will want to see enhanced trade in sophisticated machinery and equipment, vehicles and services.

For both sides, getting rid of the 'grit in the gears' represented by non-tariff barriers to trade, enhancing the functioning of global value chains and taking full advantage of the digital economy are also likely to feature.

As with any negotiation, the talks are likely to have their challenges.

Agriculture market access and distorting agriculture subsidies have long been contentious, particularly for our meat and dairy products, where export volumes have been strictly limited by tariff rate quotas. Although New Zealand's production equates to only a tiny fraction of the EU's overall consumption and our production is counter-seasonal, new access is a point of acute sensitivity for European farmers.

Another area likely to be a major focus on the European side is "geographical indications" (or GIs) for food products - names that evoke a particular place and traditional production methods.

The EU is likely to argue that names such as "parmesan" cannot be used by New Zealand cheesemakers, although many of these products are now produced and consumed widely outside of Europe and have a real commercial significance.

Likewise, we can expect some pressure on inwards investment, where European companies have complained that New Zealand's investment regime is cumbersome and frustrating - and of course inflows of capital are a key ingredient to grow our own productivity and innovation.

Negotiations are always a matter of trying to find a balanced outcome, and they are rarely straightforward.

This negotiation is likely to be no different, but there is a strong value proposition for both sides in the deal. The export boost at the New Zealand end is likely to be significant, with EU modelling suggesting the deal could add up to 0.5 percent to New Zealand's GDP - a gain of up to $2 billion. This could help generate better jobs and living standards for New Zealanders.

There is also huge scope to develop and deepen global value chains spanning from Europe through New Zealand into the Asia-Pacific incorporating the best of our complementary goods, services, capital, R&D, technology, ideas and innovation to service customers beyond both of our shores.

Visionary business partnerships can make the most of New Zealand's impressive portfolio of Asia-Pacific FTAs, where we have a stronger range of preferential deals than Europe does.

We can also expect the negotiations to consider some progressive, modern aspects of a deep and close economic relationship, where we share values and are aligned in many ways with Europe. These elements include the challenges of environmental sustainability and climate change, and how best to help small and medium sized enterprises, women, and indigenous communities to participate more successfully in trade.

Importantly, it seems likely that both sides are likely to emphasise a deeper engagement with stakeholders, including the general public, through the negotiating process. This improved transparency is to be strongly welcomed and should lead to a greater sense of shared ownership and better outcomes overall.

Finally, the FTA process gives both sides a valuable opportunity to affirm our collective interest in more open markets, deeper global economic integration and more widely shared benefits.

At a time when it can otherwise seem hard to escape the long shadow of protectionism and inward retrenchment, that's great news for all of us.

* Stephanie Honey is Associate Director of the New Zealand International Business Forum and a trade policy consultant at Honey Consulting. She is a former trade negotiator for New Zealand.

Get the new RNZ app

for ad-free news and current affairs