On 1 July 2022, New Zealand and the European Union (EU) announced that they have concluded negotiations on a free trade agreement (FTA). Work on this FTA began in March 2017, with 12 rounds of negotiations held between June 2018 and March 2022, concluding with the final agreement.
While the FTA has been agreed, it will take until at least 2024 for the agreement to come into effect as it needs to be ratified by both New Zealand and the European parliament.
The question is what does it mean for New Zealand? And what does New Zealand give up?
From the details that have been released so far, the agreement has effectively three main components: merchandise trade access, services market access, and agreements on trade rules.
Merchandise Trade Access
This section of the FTA provides details of the tariff and quota changes that will take effect once the agreement is ratified. As New Zealand is a small trading nation with a focus on merchandise exports this section usually gets the most attention. For New Zealand the agreement is providing the following gains:
- 94 percent of all tariffs will be eliminated on New Zealand goods to the EU when the agreement comes into force
- Major New Zealand exports of kiwifruit, seafood, wine, onions, apples, mānuka honey and manufactured goods will be tariff free on day one of the agreement coming into force. Currently kiwifruit pays $8.80 per $100 of exports in tariffs, while seafood pays $25 per $100 of exports in tariffs
- The quota on New Zealand beef exports will increase to 10,000 tonnes, from the current quota of 1,102 tonnes. In addition, the current 20 percent tariff paid on that quota will drop to 7.5 percent. Exports outside the quota attracts tariffs of 50 percent
- The tariff free quota on New Zealand sheep exports will increase to 163,769 tonnes, from the current quota of 125,769 tonnes
- The quotas on New Zealand butter and cheese exports to the EU will increase, and the tariffs paid on these quotas will decline.
Overall, the reduction in tariffs and increase in quotas, will have a positive impact for New Zealand exporters. Only six percent of our exports go to the EU (in 2019), and food and primary exports make up eight of the top 10 New Zealand export groups to the EU as shown in the table below.
Top Ten NZ Export Groups to the EU
The main products are sheep meat ($800 million), and kiwifruit ($550 million) exports, and lastly wine, which comprised almost 100 percent of the $206 million in beverage exports to the EU.
In exchange, the EU is getting tariff free access to New Zealand, for their merchandise trade exports, from day one of the FTA coming into force.
What to Expect When the Agreement Comes into Force?
Initially it is expected that we will see some trade diversion, as New Zealand exporters move exports from lower revenue generating countries to the EU. This will be true especially for primary goods such as hoki (which is one of our main fish exports to the EU), as the amount of hoki able to catch each year is capped by our fishery management system. To increase the volume of exports of hoki to the EU they will need to be diverted from another market.
Unless the removal of tariffs enables New Zealand exporters to substantially increase their market share in the EU market, the level of tariffs being removed does not seem to be high enough to incentivise exporters to substantially expand their operations.
While we would expect to see more exports to the EU once the FTA is in force, we would not expect to see substantial overall increases in export volumes for any of New Zealand’s main exports to the EU.
New Zealand exported $1.87 billion in services to the EU (March 2020), making it New Zealand’s fourth largest service export market. While merchandise trade is controlled by tariffs and quotas, services are controlled by licensing and regulation.
Under the FTA, both New Zealand and the EU have agreed to improve access for service providers. This includes ensuring that domestic regulations, licensing requirements, and procedures are transparent, fair and not unduly burdensome, and also any such applications are charged only reasonable fees and are processed in a timely and impartial manner.
Overall, this FTA should make it easier for New Zealand service providers to export their services to the EU, allowing for potentially strong increases in our service exports to the EU.
Agreements on Trade Rules
The last section of the FTA focusses on rules governing interactions between New Zealand and the EU regarding investment, intellectual property, subsidies, rules of origin, digital trade, non-tariff measures, public procurement, trade measures, sustainable food systems, movement of people, and Māori trade and economic cooperation.
The areas of focus for us are intellectual property (which contains geographical indicators), sustainable food systems (which is a first of its kind agreement), and Māori trade and economic cooperation. Under the intellectual property chapter, New Zealand has agreed to expand our regime for registration of wine and spirits geographical indicators to include agricultural products, foodstuffs, and beverages. Overall New Zealand has agreed that we will stop using terms like sherry, port, and feta, and while existing users can still use gruyere and parmesan, new producers will not be able to use these terms. The EU has agreed to protect 23 New Zealand wine geographical indicators.
The limitations for New Zealand producers using terms such as sherry, port and feta will be a blow to New Zealand producers, given that these terms are often seen by consumers as the generic term for the product, rather than, as for example feta, a cheese specific to Greece. Producers will have between five and nine years to convince the New Zealand public that their renamed products can still be purchased by those busy consumers hunting for sherry, port or feta.
What does it mean for New Zealand?
Overall, it will be positive, as reductions in tariffs, increases in quotas, and reductions in non-tariff measures will be good for New Zealand exporters. The reduction of these barriers faced by New Zealand exporters getting goods and services into the EU market will help increase export volumes and revenue.
What does New Zealand give up?
Overall, New Zealand will eliminate all tariffs on EU goods, although New Zealand tariffs are already fairly limited. In addition, the increase in geographical indicators can be seen as a loss for New Zealand, with producers losing the right to name product sherry, port or feta, and limiting the use of gruyere and parmesan. Although there is a win here for New Zealand, in that the EU will recognise mānuka as a name only usable by New Zealand exporters. In addition, there are also further opportunities for New Zealand, and in particular Māori, to use and protect te reo Māori names for products going to the EU.
The devil will be in the detail, but from the limited details released so far, New Zealand seems to have gained considerable reductions in tariffs on our exports apart from dairy and meat, where gains were very limited, in exchange for reducing our already limited tariffs on EU goods. Of course, only once the full text of the FTA is released will we be able to identify any fishhooks in any of the chapters, especially those dealing with investments, intellectual property, subsidies, rules of origin, digital trade, non-tariff measures, etc.
Article courtesy of berl.co.nz