Phil O'Reilly: Talks first step to really big deal

Cars and trucks are among the commodities exported by Europe to New Zealand. Photo / AP

Opinion

NZ businesses stand to benefit hugely with the removal of costly tariffs — if an FTA with Europe eventuates.

There was the best news out of Europe this week. Just as good as the World Cup victory was the news that New Zealand and the European Union are to begin working towards negotiating a free trade agreement.

It's hard to overstate how historic this would be. A free trade agreement with Europe would be of enormous value, making it easier and more profitable for us to sell our goods and services there.

The EU - an economy of $20 trillion with half a billion consumers - is already our third largest trading partner and export market, so improvement in the terms of our trade would bring huge benefit.

We export a lot to the EU - sheepmeat worth $1.3 billion a year, fruit worth $500 million and wine worth $450 million. Other exports include butter, wool, casein, hides, medical appliances, aluminium, beef, fish, cheese, honey and retail medicines.

On the other side of the ledger, we buy EU cars, aircraft, tractors, trucks, harvest machinery, medical instruments, cranes, valves and generators.

A free trade agreement would be a big deal because the EU currently imposes stiff tariffs on our goods.

Dairy exports are severely limited by EU tariffs and quotas. Beef is loaded with a tariff of 20 per cent. Honey faces a 17 per cent tariff. For fish and seafood it is more than 12 per cent. For kiwifruit it is 9 per cent.

Meanwhile, those countries with a free trade agreement or other forms of preferential arrangements with the EU get their products into Europe duty-free. This is a huge competitive disadvantage for New Zealand.

Our manufactured goods face less stringent tariffs than primary products - mostly less than 5 per cent - but even that can be enough to make it uneconomic for New Zealand manufacturers to compete against other producers with preferential access to the EU.

Tariffs are only part of the disadvantage. Regulations also add cost and difficulty, for example the EU requires each batch of New Zealand wine to undergo laboratory testing - but not wine from countries that have a free trade agreement with the EU.

Non-tariff barriers impose additional cost, adding around 20 per cent to the cost of providing IT services, and up to 50 per cent in services generally.

Getting a temporary entry visa for a skilled worker in the EU is complicated and costly. Meeting the requirements for setting up an office or factory in the EU can be prohibitively difficult.

How would a free trade agreement with the EU change things? The obvious benefit would be increased revenues from our major exports, potentially worth billions. The competitive skills of our producers would begin to reap more proportionate rewards.

We would gain more benefit from our seasonal complementarity - the fact that our growing season is different from Europe's - allowing us to sell more summer produce into European winters.

It would mean more New Zealand goods and services in sophisticated European value chains, further integrating our economy in global trade and boosting prospects for New Zealand producers of technology, services, niche manufacturing and more.

It would mean New Zealand companies being able to grow businesses and brands in Europe. It would mean more European companies investing in New Zealand. And it would help New Zealand and European partners work together in joint ventures in third markets.

The benefits would not just flow one way - a free trade agreement would also be good for the EU, allowing it to benefit from New Zealand's unparalleled collection of free trade agreements with Asian nations.

Given our existing agreements with China, Taiwan, Hong Kong, and the Asean countries, the opportunity exists for EU companies to work together with New Zealand counterparts in trading with Asia.

The discussions in Europe last week that resulted in agreement to begin work towards a free trade agreement were also notable for joint statements of common understanding on issues important to us.

There was a joint commitment to achieving an internationally agreed outcome on climate change at the Paris talks this month, and on phasing out environmentally harmful subsidies.

And there were statements of agreement on sustainable development, poverty eradication, co-operation in the Pacific and joint work on science, research and innovation.

These highlight how closer trade relations can help nations work together in many ways for good. A successful New Zealand-EU free trade agreement would be a great prize to win.

Phil O'Reilly is chief executive of BusinessNZ - businessnz.org.nz