Australia & New Zealand, UK Australia & NZ

New Zealand: EU and UK FTAs herald healthy new competition for good deals

Both the United Kingdom and the European Union have agreed free trade agreements with New Zealand this year.  While there are many differences in text – some particularly striking such as in agriculture market access – these shouldn’t be exaggerated. The UK and EU competing for trade agreements might even improve their deals.

In the UK, differing expectations of post-Brexit trade agreement pathways largely followed views on Brexit itself. Supporters believed that London would be able to sign more agreements, with more UK-specific content, leaving the more bureaucratic EU behind. Opponents expected the UK to struggle to achieve as much as Brussels in its trade agreements, as third countries valued the larger market of the EU.

There is some inherent difficulty in comparing different FTAs. For example, analysing specifically what impact different goods and services schedules may have on particular sectors takes time. A first analysis of the text, however, indicates that reality is more nuanced than the politicised expectations: the UK can sign successful agreements, but the EU remains an extremely strong negotiator.

Some sharp differences – but fundamentals similar

Take for example the crucial motor vehicle sector. The UK government clearly prioritised this in negotiating the most generous origin rule provision only requiring 25% content to come from the UK to qualify for zero tariffs in New Zealand. This reflects a UK concern that currently many components assembled into the final vehicle in the UK come from elsewhere – not least the EU.

For the EU, motor vehicle component origin, given that it is seeking to keep as much of car production in the bloc as possible, is not an issue. Cars are still a bloc priority, though, and the EU managed to go beyond the UK in an annex to the ‘technical barriers to trade’ chapter in which New Zealand commits to accepting EU type-approval certificates. On balance this is an advantage to the EU. But the UK obtained something – and may be able to subsequently negotiate the same as the EU in a separate deal.

Most attention has been paid to the EU-New Zealand FTA’s sustainable development chapter, which covers commitments on labour and the environment.

After a long debate, a limited number of commitments around upholding fundamental International Labour Organisation conventions and not undermining the Paris Agreement on climate have been made subject to dispute settlement and potential sanctions.

By contrast, the UK New Zealand FTA makes the entire labour and environment chapters subject to disputes, but contains slightly weaker commitments. This follows the model of the CPTPP – itself based on the US model FTA – which the UK wants to join.

New Zealand has a 2050 net zero target enshrined in law, so arguably the exact phrasing of its environment chapters in FTAs are not as important as with other countries, as it is relatively likeminded. It is noteworthy that for both the UK and EU, such commitments are being strengthened.

The EU has succeeded in its aim of New Zealand recognising Geographical Indications for food products. However, a provision in the UK New Zealand FTA foresees that this issue will also be discussed – after the EU agreement.

The EU ‘technical barriers to trade’ chapter is more explicit in a number of areas such as conformity assessment than the UK equivalent. But the UK has a clause in the goods chapter about resolving non-tariff barriers.

The UK digital chapter goes further than the EU equivalent in commitments to trade openness, though perhaps not by as much as some have suggested. The EU includes language on data privacy.

Unsurprisingly, the UK opens up to New Zealand agricultural produce much more than the EU, including committing to a swift customs release time for perishable goods.

Much of the remaining content, however, and indeed the market access for UK and EU business, is similar. Both the UK and EU are committed to what they would describe as high-quality rules governing trade, such as in Intellectual Property or Customs.

UK and EU cautious on venturing into new topic areas

New Zealand is a flexible negotiating partner, open to extending the scope and format of trade policy-related deals – as they did for example with Chile and Singapore on the Digital Economy Partnership Agreement.

In contrast, UK and EU FTAs do not venture much further than their traditional topic areas.

In both FTAs new animal welfare and antimicrobial resistance are included. But these are relatively weak provisions centred around inter-governmental cooperation.

The EU has an energy and raw materials chapter, the UK one on anti-corruption, but both are predominantly about maintaining domestic laws which are already in place.

Both continue the tradition of including an SME chapter that focuses in making information more easily accessible. The UK include a weak consumer chapter.

Regulatory cooperation chapters are similarly relatively weak in the scope and depth of their commitments. Neither the UK nor the EU seem to want to go too much further on that subject in FTAs.

The benefits of competition

In the years following the Brexit vote, with President Trump in office in the US, observers envisaged a possible split in the approach to trade policy, with the US and UK taking a hard-line regulatory approach against the EU – particularly on agriculture.

The arrival of president Joe Biden in the White House, the establishment of EU-US Trade and Technology Council, and now Russia’s invasion of Ukraine the reality might be one of cooperation – if not always harmonious.

Both the UK and the EU are talking to India about an FTA: this will test their labour and environmental models. There is a plausible scenario in which the UK agrees first on a deal with India, with weaker content. An EU deal would follow, with India persuaded to go further on labour and environment issues, because it is the price to pay for access to the EU’s larger market.

This wouldn’t necessarily be a bad result, the UK as the more open economy setting a trail that the EU can follow. The UK deal would be the basis on which Brussels can obtain greater commitments from the partner. This scenario just isn’t one that necessarily suits the political discourse on both sides.

Ultimately, much of the content of free trade agreements that developed countries sign is similar. And indeed many emerging issues are being dealt with in other ways – such as through trade dialogues.

That scenario will probably unfold again in an EU-Australia deal.

The differences in emphasis of trade policy objectives are therefore exaggerated: the UK and EU still share geography and many values. Indeed, pursuing separate trade policy may even incentivise them to match the other to go further whether on market access or on sustainable development.

Competition in general improves performance, and that may be also be the case for free trade agreements.

 

 David Henig runs the column ‘Perspectives’ on the politics of global trade for Borderlex. He is also a UK director at the think tank ECIPE.

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