Editorial: Time out to butter up Europeans

Breathing space has been granted New Zealand on the vexed issue of butter exports to the European Union. An embargo on the multi-million-dollar trade was lifted this week, enabling it to continue uninterrupted in the short term. The rapid lifting of the ban could not, however, disguise the fact that the underlying issues remain, and that some nifty footwork will be required to fashion a permanent resolution. Or that this country was caught on the hop, and that the Government's subsequent talk of a legal technicality played down the potential hazards.

The Trade Negotiations Minister chose to focus on a case brought successfully before the European Court of Justice. In that, a German dairy company, Egenberger, argued that Britain, which controls all the EU's import licences for New Zealand butter, should not be allowed to continue with that "costly" monopoly because it discriminated against other European importers. Yet, as Herald columnist Fran O'Sullivan noted, that was only the tipping point for the European Commission's action.

Previous rulings have underlined the Europeans' concerns about aspects of this country's butter access. First, there is the legislated position that allows Fonterra, according to critics, to exploit monopoly rents through its exclusive control over New Zealand's preferential dairy quota. Then there is the import arrangement, certified initially in this country, that sees the company licensed by the British authority as the sole importer into the EU.

This preferential access stems from agreements reached when Britain joined the European market in 1973. As such, they are the fruits of a much different time and persuasion. Now, while benefiting this country, they sit uneasily alongside its championing of free trade through the World Trade Organisation - and its criticism of European protectionism.

This dichotomy has not passed unnoticed in Brussels, particularly among those angered at being branded the culprits for the stalled WTO talks. Nor have previous rulings by lower courts, which noted the potential cost to consumers of Fonterra's monopoly over New Zealand butter import licences.

On the table for negotiations for a permanent solution, which is due to take effect at the end of next year, will be the question of whether it is Britain or any other EU member that awards dairy licences, and, indeed, whether New Zealand or the EU controls the import licensing arrangements. Likely, Fonterra will find itself having to sell to European importers as well as its own British-based subsidiary. Substantial quota rents could also be lost if the importing countries took control of quota allocations through a Brussels-based administration.

The danger is that thrashing out the new arrangements will degenerate into a points-scoring opportunity for the Europeans. They may perceive an element of payback for their own grudging retreat from protectionism. That, of course, is hardly tenable, given the circumstances of the two parties. Indeed, the ideal scenario, not least for European consumers, would be the removal of the quota, with all the protective arrangements enjoyed by Europe's pampered farmers. Then, New Zealand's farmers would be able to compete in that market on quality and price.

That will not happen, of course. A compromise set of rules will be found. If some of these are not in this country's best short-term interests, there may be a crumb of comfort in their closer alignment with its free-trade manifesto. As there would be consolation if the Europeans showed a greater inclination to move in the same direction.