Matthew Hooton: EU and UK deals big chance

Brexit was probably inevitable at some point given the UK and the EU were never comfortable bedfellows. Photo / Bloomberg

The old legend bears repeating.

For at least a century after European settlement and especially since the Dunedin sailed in 1882, New Zealand was Britain's farm. The UK regularly took two-thirds of exports, and up to 90 per cent during the Great Depression. As late as 1965, it was over 50 per cent.

In 1973, with Charles de Gaulle no longer able to exercise his veto, Britain joined the then European Economic Community and New Zealand was cast adrift.

The UK was drawn ever deeper into the sewer of the EU's Common Agricultural Policy (CAP), a bizarre combination of protectionism, farmer welfare and export subsidies that has arguably done more to entrench poverty in the developing world than any other single policy in history.

The CAP is less monstrous than it was but remains averse to New Zealand's interests and the wallets of European taxpayers.

The initial response to the UK's narrow Brexit vote in June 2016 was highly negative. The pound dropped 8 per cent against the US dollar and 6 per cent against the euro. Shares fell; gold rose. Criticism of voters' stupidity was even stronger among the London liberal elites who dominated media reporting and they were right that Prime Minister David Cameron's referendum process was superficial and reckless.

Nevertheless, it is unthinkable that Brexit will be as catastrophic as feared by one side or as beneficial as promised by the other. Moreover, Brexit was probably inevitable at some point given the UK and the EU were never comfortable bedfellows. The EU suffers from a profound democratic deficit and is committed to an "ever-closer union" intolerable to a majority of British people, not just Little Englanders.

Brexit offers the opportunity to renew old friendships to balance the new.

Matthew Hooton

A year since Theresa May formally began withdrawal, issues that neither voters nor the media thought about have made the negotiations highly complex. But it is clear that grownups will prevail and the EU and UK will reach some suitable settlement. Markets aren't as terrified as they were and nor should be the liberal media elite.

For New Zealand, Brexit is all upside. After a slow start in the 1970s, we have diversified our export economy but risk becoming overly dependent on China. Brexit offers the opportunity to renew old friendships to balance the new.

The proposed NZ-EU free-trade agreement (FTA) was set to be launched last November but was delayed by elections here and in Europe. While Jacinda Ardern failed to mention Europe in her big foreign policy speech in February, it seems that was just sloppy Beehive speechwriting rather than a diplomatic signal, with officials pointing out Canada was similarly neglected. Ardern has more than made up for it with this week's successful visits to Paris and Berlin putting the FTA negotiations again clearly in sight.

The EU without the UK has annual GDP of around US$15 trillion but the NZ-UK FTA may offer New Zealand greater gains.

With annual GDP of US$2.6 trillion, the UK is still the world's fifth largest national economy. Our personal, cultural, political, legal, historical and linguistic similarities remain relevant in terms of ease of doing business. If May's "Global Britain" slogan represents a genuine desire to return to the free-trade club, it is possible the value of the NZ-UK deal will exceed the NZ-EU arrangement, especially for agriculture. Brexit also makes more plausible Winston Peters' proposal — included in the Coalition Agreement — for Closer Commonwealth Economic Relations. While still sneered at by some in the Wellington foreign policy establishment, it offers a way for New Zealand to gain better access to India as well as establish closer ties with parts of Africa where we have no material economic links.

Peters is also keen for the UK to play a greater role in the Pacific. His Maori heritage makes him suitably sensitive to any risk of re-colonisation and New Zealand has a long-standing policy of wanting great powers out of our region. But Peters also sees that greater UK engagement in the Pacific on issues like climate-change adaptation is a way of checking China, especially in light of reports it may be talking to Vanuatu about establishing a permanent military presence in the South Pacific.

However else she may be struggling in her job, Ardern's interpersonal skills are off the charts.

So too are Peters' when he puts his mind to it. If their work in the EU and UK this week delivers as promised, NZ exporters will owe them a debt of gratitude through the second quarter of the century and well beyond.

Disclosure: Matthew Hooton's lobbying and PR firm, Exceltium, has clients in the UK and New Zealand with interests in closer UK-NZ relations and the trade deals referred to above. These views are his own.