The outcomes of the new NZ-EU free trade agreement

10 August 2022

A version of this article was first published by The DCN in August 2022.

New Zealand (NZ) has landed its free trade agreement (FTA) with the European Union (EU) just ahead of Australia’s deal with the EU, writes Customs & Trade law expert Andrew Hudson.

There is a lot to like about New Zealand (NZ). For a small country a long way from the rest of the world, it has had a disproportionate level of success with trade, the arts and sport and has managed to secure widespread global affection.

Australia and NZ have shared many similar interests and pursued many similar causes from the time of western discovery and habitation. NZ was a party to some of the constitutional conventions which ultimately led to the establishment of our federation, even though NZ had withdrawn from negotiations by that time.

For many years, both countries took their lead on many international events from the United Kingdom (UK) as members of the British Empire. That was seen as providing some manner of assistance for young nations so far removed from the main players in the northern hemisphere.

That reliance began to change following the second world war, although both countries have remained members of the Commonwealth – at least for now.

The shared trade experience of Australia and NZ

Realising the need for an independent agenda, both countries have become active in trade liberalisation and facilitation negotiations reaching back as far as the establishment of the Australia-New Zealand Closer Economic Relations Agreement (ANZCERTA) in 1983 and the establishment of the Cairns Group in 1986.

Subsequently, both countries have completed other FTAs, engaged in other trade and diplomatic forums such as the World Trade Organization (WTO) and are parties to the agreements established pursuant to the WTO, including the Trade Facilitation Agreement.

Some of the FTAs where Australia and NZ are parties are the ASEAN-Australia-New Zealand FTA, the Comprehensive and Progressive Agreement for a Trans-Pacific Partnership, the Pacific Agreement on Closer Economic Relations Plus and the Regional Comprehensive Economic Partnership agreement.

The separate FTA agendas

However, both countries have also completed their own separate FTAs with China, Hong Kong, Malaysia, Singapore, Malaysia and Thailand. Further, to advance their independent post-Brexit trade agenda, both countries have been negotiating extensively to complete separate FTAs with the UK and the EU.

In a close-run race (although no one would ever concede there was a race, just the belief that the first in the market gets the best deal), Australia was first to conclude an FTA with the UK which NZ has also recently concluded, although both are some distance from those FTAs coming into force.

On 30 June 2022, NZ was able to announce completion of an FTA with the EU in the New Zealand-European Union FTA (NZ-EU FTA). The completion of the negotiations was, on its own account, a significant outcome for NZ with the EU, representing 27 member states and 450 million consumers.

Outcomes of the new NZ-EU FTA

The NZ Ministry of Foreign Affairs and Trade (MFAT) has outlined some of the most immediately relevant outcomes of the FTA. To begin with, and according to the ministerial website, ‘NZ exporters will benefit from significantly improved access into the EU market. NZ exporters will be able to compete on a more level playing field in the EU market, particularly against other global exporters who have already secured free trade deals with the EU’.

Another outcome, according to MFAT, is that ‘91% of NZ current trade into the EU will enter duty-free from day one through tariff elimination and duty-free quotas. When fully implemented after seven years, 97% of current trade will enter the EU duty-free’.

As summarised on the MFAT website, the key outcomes include:

  • ‘NZ exporters will benefit from significantly improved access into the EU market. NZ exporters will be able to compete on a more level playing field in the EU market, particularly against other global exporters who have already secured free trade deals with the EU.
  • 91% of NZ current trade into the EU will enter duty free from day one through tariff elimination and duty-free quotas. When fully implemented after seven years, 97% of current trade will enter the EU duty-free.
  • In addition, the FTA will create the conditions for NZ trade to grow in areas where it has been significantly constrained due to limited WTO quota access and high tariffs, particularly dairy and beef.’
  • The FTA provides greater certainty for NZ services exporters in the EU market and ensures that NZ services exporters can compete in the EU market on a comparable basis with other EU trading partners. With limited exceptions, NZ services exporters will be guaranteed treatment that is equivalent to both local EU competitors and services exporters from other countries, including the UK and Singapore.’
  • The investment rules in the FTA will provide greater transparency and certainty as to how New Zealand investors will be treated in the EU and vice versa.
  • NZ Trade for All agenda is reflected throughout the FTA, in commitments related to labour and the environment, gender equality, outcomes for SMEs and our regions, as well as for Māori.
  • The FTA includes ambitious outcomes on climate action that have never been included in an FTA before, making our commitments under the Paris Agreement subject to binding dispute settlement.
  • Protecting and promoting Māori interests in this FTA is a priority for New Zealand. The FTAs includes our Treaty of Waitangi exception, which protects the NZ government’s ability to adopt policies that fulfil its obligations to Māori, including under the Treaty of Waitangi. NZ has secured a Māori Trade and Cooperation chapter in the FTA which will provide a valuable new platform to advance Māori economic aspirations in the EU.
  • There will be no Investor-State Dispute Settlement in this FTA.’

Reservations on the NZ-EU FTA

Despite the largely positive outcomes identified by the MFAT, there has been some surprisingly adverse commentary within NZ. Having reviewed further public comments since some of my earlier commentary, I have identified some main concerns.

First, the concern that reservations by exporters that the NZ-EU FTA will not deliver commercially valuable outcomes for dairy and meat, which account for 40% of NZ goods exports. Even after full implementation, the dairy and meat product sectors will still experience small quotas and high in-quota tariffs. That will limit the ability to expand exports into the massive EU market which was one of the main aims of the negotiations.

Second, that while there is some new limited access for dairy products, milk powders and beef, the levels are small and the complicated quota arrangements will be difficult to implement. While one of the traditional aims of an FTA is to open new markets for trade diversification, the limited improvements in NZ’s main exports will limit the ability to increase NZ’s main export markets.

One of the significant issues between NZ and the EU was the issue of protection of the geographical indicators (GIs) related to products of NZ and the products of the member nations of the EU. Clearly there is real market value in such GIs which have developed over the years. NZ has agreed to protect almost 2200 EU GIs and amend its laws to allow for registration of GIs in NZ. That will include protection against local NZ use of the terms ‘feta’ and ‘prosecco’ and will limit the use of the term ‘parmesan’ and other terms to existing producers. At the same time, the EU has agreed to the protection of GIs associated with NZ wine exporter regions.

Another concern is that what will be included in the text of the NZ-EU FTA relating to technical ‘movement of goods’ provisions such as whether certificates or declarations of origin will be required as well as cumulation and consignment arrangements.

Possible consequences for Australia

In addition to the outcomes for NZ itself, the NZ-EU FTA does provide some guidance the possible outcomes for Australia’s FTA negotiations with the EU. It also does not resolve some of the major problems which Australia and NZ are experiencing with supply chain restrictions and the costs in that supply chain.

As always, more details will follow on the text of the NZ-EU FTA once it is issued, together with the important outcomes from Australia’s FTA with the EU.

For advice on all aspects of Australian and international trade and customs obligations, please contact our Customs & Trade team.

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