Fran O'Sullivan: NZ-UK free trade deal seen as a down payment

Britain's farmers will complain about the deal allowing their Kiwi competitors to make greater inroads into UK markets. Photo / Bloomberg

OPINION:

The UK Government is playing up the foreign and security policy benefits of the free trade deal it signed with New Zealand as making the two nations "much stronger allies".

"Like all our new trade deals, it is part of a plan to build a network of trade alliances with the most dynamic parts of the world economy, so we set the UK on a path to future prosperity," said International Trade Secretary Anne-Marie Trevelyan upon signing the deal in London this week with New Zealand's Minister for Trade and Export Growth Damien O'Connor.

Trevelyan's political rhetoric would have resonated well at this time when Europe and the UK — with Ukraine virtually on their geographical doorsteps — are coping with the uncertainties of the Russian invasion, including yesterday's shelling of the Zaporizhzhia nuclear power plant.

Having embedded trading and economic relationships with old allies — which New Zealand and the UK remain — is important at a time when global supply chains are under pressure, the global economic recovery from Covid is subject to fits and starts, and war casts a shadow over confidence.

Promotional material from Trevelyan's department talked about "our shared history, common values and commitment to free trade ... matched by a dedication to high standards and the rule of law."

Realpolitik dictates that the deal is also an effective down payment by the UK on its goal to join the Comprehensive and Progressive Partnership Agreement (CPTPP).

That is an ambition which is shared by China, which has also applied for accession to the agreement which links 11 nations across the Asia-Pacific region: New Zealand, Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, Peru, Singapore and Vietnam.

O'Connor stepped carefully on this issue when I talked to him during his Brussels whistle stop this week. The UKNZFTA has yet to be ratified by both the New Zealand and British Parliaments.

But he said earlier that the challenges facing the global trade and economic environment have been compounded by Covid-19. In this context, New Zealand sees the CPTPP objective of maintaining and growing open, rules-based trade as more important than ever.

"We believe the CPTPP can provide leadership in our region and beyond to drive post-Covid economic and trade recovery," said O'Connor. "The UK's move to join the CPTPP underlines the agreement's importance in this regard."

New Zealand holds considerable power in the CPTPP talks. It is the depositary for the agreement and next year will move into the chairmanship of the CPTPP Commission and lead the assessment process for those nations seeking to join the trade bloc.

Minister for Trade and Export Growth Damien O'Connor. Photo / Mark Mitchell

From the tenor of O'Connor's comments it would appear that New Zealand's negotiators have been firm that the bilateral deal with London had to be compliant — or better — with the clauses in the CPTPP.

The fine print in the UK's own impact assessment of the bilateral FTA is notable in that Britain has been prepared to wear a £150 million ($294m) hit to their agriculture and food sectors as the upshot of liberalising such trade with New Zealand.

There's since been the usual bleating from UK meat farmers about the impact on them from the way the deal further opens the British market to their Kiwi counterparts.

They are concerned that the Kiwis are more competitive as a result of their more efficient farming practices, which are now embedded after decades of farming in an unsubsidised free-market environment.

Uniquely among developed countries, New Zealand farmers are almost totally exposed to world market forces, and our agricultural tariffs — such as they are — are said to be the lowest in the world.

A bit of competition won't do UK farmers any harm in the long term as the planned liberalisation of their markets is gradual.

There are also benefits. As UK officials point out, removing tariffs on New Zealand products could make high-quality products that British consumers love more affordable, including things such as Marlborough sauvignon blanc, mānuka honey and kiwifruit.

O'Connor moved on from London to try bringing negotiations on an FTA with the European Union towards a conclusion so a deal can also be inked this year — ideally when the Prime Minister visits Europe with a trade mission. He found both Valdis Dombrovskis, the EU Trade Commissioner, and Janusz Wojciechowski, the EU Commissioner for Agriculture, somewhat distracted by the Russian invasion of Ukraine.

Those talks were also coloured by the Ukraine but there is optimism they will be brought to a conclusion this year.

But make no mistake, the UK views the deal inked with New Zealand as another step towards "our accession" to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

"Joining CPTPP would hitch the UK to some of the world's biggest current and future economies, populated by half a billion people and with a joint gross domestic product (GDP) of £8.4 trillion in 2020," said the British Government.

This is a rich prize for the UK, but also for New Zealand.