Editorial: EU trade nod sends pointed message

The Ports of Auckland. Photo / Richard Robinson

Editorial

For years the prospect of a free trade deal with Europe has seemed like a fanciful dream for New Zealand.

Images of butter-mountains in Brussels and angry French farmers sent a clear message that our cheaper, unsubsidised agricultural exports were not welcome – at least not without the application of costly tariffs.

So the announcement by the European Union that formal negotiations will proceed, for deals with both Australia and New Zealand, is very welcome.

The timely result exceeds the expectations of most trade officials when scoping discussions began in 2015.

There are hopes that deal might now be done within two years.

Challenges remain – we're unlikely to get a free ride on key agricultural products – but there seems to be serious momentum and a significant lift in enthusiasm out of Europe.

Which begs the question - what has changed?

The answer has something to do with much a much larger political power game.
In progressing quickly on trade deals with Australia and New Zealand, the EU sends a not- so-subtle message to Britain, which has talked up its prospects for going it alone with bilateral deals post-Brexit.

It also sends a broader message to the United States – as President Donald Trump ramps up his protectionist rhetoric – that the EU remains committed to a path of globalisation and trade liberalisation.

In New Zealand too it's a timely reminder that, despite having changed to a left-leaning Government, we have been spared the ravages of isolationist nationalism.

New Zealand remains open for business and – as this Government heads into battle with employers over workplace relations - it can point to its stance on trade as evidence of ongoing economic pragmatism.

Labour can claim that it is a party of progress on free trade.

Former Prime Minister Helen Clark drove the successful China Free Trade Agreement. And, when push came to shove, the current leadership did what was required to ensure the Trans Pacific Partnership (now CTPP) got across the line.

For many on the left a deal with the EU may be less problematic than those deals because of a greater alignment on issues of human rights and intellectual property.

Political signals aside, any movement on tariffs in Europe is effectively money in the bank for local exporters.

Latest trade figures show New Zealand exports to the EU total $5.2 billion, comprising $1.9 billion in services and $3.3 billion in goods.

The EU's own estimates of the value of a deal suggest a GDP boost for New Zealand of between $1.2 billion and $2 billion, and a 10 to 20 per cent increase in exports.

These estimates can sometimes prove conservative once an FTA heightens the focus on a region.

New Zealand's exports to China have increased five-fold since that free trade deal was signed in 2008.

China was going through a historically unprecedented phase of economic growth in this period of course. Europe is a mature market.

But regardless of the exact gains New Zealand achieves with this deal it will, along with the CTPP and an upgraded China FTA, provide some much needed security in a time of increasing trade tensions.