EU-NZ tariff spat clouds FTA progress

Sheepmeat exports to the UK and EU could be negatively affected by a post-Brexit tariff change, exporters fear. Photo: Lynn Grieveson.

A free trade deal between the European Union and New Zealand is moving closer to fruition - but a full-blown spat over market access could be a sign of troubles ahead.

The EU’s Ambassador to New Zealand has pushed back at suggestions it and the United Kingdom are undermining their trade commitments, saying some arguments being made hold no water.

The discontent centres on proposed changes to the UK’s and EU’s tariff rate quotas (TRQs), which allow imports from certain countries - like New Zealand - with low or no tariffs, below certain volumes.

As part of their Brexit negotiations, the EU and the UK have proposed dividing their current TRQs based on historical averages of where imports have gone previously.

While the move was hailed as a “big breakthrough” by some in Europe, New Zealand and six other countries - including the United States - have written to the UK and EU suggesting the proposal would not fully honour the existing WTO commitments, and leave them worse off as a result.

“The obligation to honour the full value of those commitments binds both the European Union as an entity and the individual Member States within the Union.”

Stephanie Honey, associate director of the New Zealand International Business Forum and a former trade negotiator, said the TRQs were a result of “finely-honed” negotiations during the WTO’s Uruguay Round which some countries believed the EU-UK proposal would undermine.

“The problem that New Zealand and the US and Brazil and Canada and various others have with that is that it doesn’t reflect what the actual value of that original concession was.”

While the current arrangement meant New Zealand exports of sheepmeat and other products could go into one country’s port then seamlessly move on to any of the 27 other EU member states depending on demand, that flexibility would be lost in the proposed amendment.

“The argument is quantity and quality are both diminished by the EU-UK deal...

“The value for the export [currently] is that essentially it gives you access to the market of 510 million consumers in Europe and it’s not limited.”

Dave Harrison, Beef + Lamb New Zealand’s policy and advocacy general manager, said the proposed quota changes meant sheepmeat exporters would unfairly lose some of their current advantages in the market.

“We don’t want to gain anything out of it, and we don’t want anything more than we had before, we just don’t want anything worse than we had before.”

Harrison said it was difficult to put a dollar figure on the potential impact of the changes, but it was important for exporters to have some flexibility in where they could send their products during an unstable time.

“Brexit is going to have an economic impact on trade between the EU and the UK, it’s going to play havoc with market dynamics up there, and so flexibility is going to be really important to be able to manage that.”

Harrison said the “unprecedented” problem would require a creative solution from the countries to keep people happy.

Arguments 'don't hold water' - EU

Vangelis Vitalis, Mfat’s deputy secretary of trade and economic issues, has publicly mooted a “1+1=1” approach, where both the UK and the remaining EU states would separately retain their existing TRQs in full, but third-party countries would ensure their overall combined exports did not exceed the original agreed volume.

That seems a stretch at present, given the current breakdown in Brexit negotiations between the UK and EU, but might be more palatable in the future if relations improve.

There have been suggestions New Zealand could take the TRQ dispute into account when deciding whether to back or block the UK's accession to the WTO's agreement on government procurement.

Bernard Savage, the EU Ambassador to New Zealand, told Newsroom the EU and UK intended to respect their trade commitments to other countries, and had come up with a draft approach for further discussion.

“This has been interpreted, I would argue somewhat disingenuously, by others as a way of putting the other members of the WTO in front of an already agreed situation - that was never the intention.”

While Brexit added a layer of complication to the flow of goods within Europe, there would be “not one iota of difference” to the quantity which was allowed to enter without attracting full tariffs.

Savage said the EU did not accept the argument that the change would unfairly restrict exporters from moving their goods to areas of higher demand.

“There are other arguments regarding the ups and downs of economies and demand within those economies which are, that is just the landscape within which trade takes place and to my knowledge has never been the subject of [international trade] compensations...

“There are a number of arguments that have been made publicly which we have difficulty in seeing that they hold water.”

The next step was for the EU and UK to hold discussions in Geneva with WTO member states, where they could propose an alternative model if they wished, Savage said.

In a statement, a British High Commission spokeswoman said the TRQ proposal was “the start of our open and constructive engagement with the WTO membership, including New Zealand”. The UK intended to “replicate as far as possible” its current commitments as part of the EU.

FTA progress

The fracas comes as the European Parliament’s trade committee voted in favour of starting FTA negotiations with New Zealand, while protecting “sensitive” industries like agriculture.

Savage said the trade negotiations were part of a “fairly wide-ranging partnership” between the EU and New Zealand, which was political as much as economic.

While there would be sensitivities with the EU’s agriculture sector during talks, there would be sensitivities on both sides, he said.

The EU “has in its DNA a commitment to multilateralism” and was moving ahead with trade negotiations in the wider Asia-Pacific region.

“We remain absolutely convinced for reasons of both principle and pragmatism that multilateralism has to be upheld, because it is the system of global commons.”

Honey said the EU was a significant trading partner for New Zealand, with many shared interests and values.

While New Zealand had been clear in all its FTA negotiations that it supported “comprehensive, high-quality agreements”, it was aware some countries had areas of sensitivity when it came to market access.