Trade between New Zealand and the EU is worth a tremendous NZ$22 billion, but the stability of this trade is under threat writes Federated Farmers policy advisor Macaulay Jones.

The way New Zealand trades with Europe could be about to drastically change.

Trade between New Zealand and the EU is worth a tremendous NZ$22 billion, but the stability of this trade is under threat.

This week the European Union (EU) Parliament took action which will affect the flexibility of New Zealand exporters of key agricultural goods.

Advertisement

Astonishingly, this action was taken unilaterally and continues a worrying trend of increasing global protectionism.

Trade is what keeps the New Zealand economy afloat.

Read more from Federated Farmers here.

It is difficult to overstate the importance of trade to New Zealand, with the movement of goods and services from and into the country being vital to the country's generally high standard of living.

Agriculture is no exception, and the success of the sector is dependent upon exporting products into international markets and on importing foreign goods, services and knowledge in order to maximise domestic productivity.

Trade in key agricultural goods between New Zealand and Europe is made possible by Tariff Rate Quota's (TRQ's).

A TRQ is the amount of a product a nation can export into a foreign market before encountering the Most Favoured Nation (MFN) tariffs, which are often prohibitively high.

Read more: 'Outrageous': EU votes to reduce NZ export rights

Advertisement

When exporting to the European Union (EU) New Zealand has TRQ's for beef, sheep meat, butter and cheese.

There is currently one quota for all of the 28 members of the EU common market, giving New Zealand exporters the ability to adapt to changing market conditions and consumer preferences.

This is all set to change with the EU Parliament approving a draft to split the EU's TRQ's post Brexit.

This decision splits the TRQ between the UK and the remaining 27 members of the EU single market depending on the percentage of the TRQ's used by the UK from 2013-2015.

While there is currently a World Trade Organization (WTO) negotiation process underway the EU chose to unilaterally legislate their desired changes to the TRQ's, undermining the WTO process and adding to a worrying global trend of declining trade cooperation and liberalisation.

While it is reasonable for the UK and EU to expect TRQ's to be adjusted post Brexit, the unilateral actions of the EU go against the principal of multilateralism established by the WTO in the wake of the Second World War.

The changes will roughly halve the current TRQ for New Zealand sheep meat exports into the EU from 228,389 tonnes to 114,184 tonnes.

The TRQ's for beef, butter, cheese for processing and Cheddar from New Zealand will also be reduced by 65 per cent, 62 per cent, 42 per cent and 62 per cent respectively.

While this loss in market access to the EU will theoretically be counteracted by the post-Brexit TRQ's into the UK, it will reduce New Zealand exporters ability to adjust to trade flows between the UK and EU.

The view of third party states, such as New Zealand, is the EU-UK plan to split the TRQ's is unacceptable and were negotiated with the EU irrespective of internal membership changes.

The EU is flaunting international norms of cooperation it has trumpeted for decades.

New Zealand is not alone in voicing opposition to the planned EU-UK TRQ changes.

A letter to the WTO representatives of the UK and EU was sent from New Zealand along with Argentina, Brazil, Canada, the USA, Uruguay and Thailand voicing disapproval back in 2017.

The block of exporting nations voiced disbelief with the lack of consultation undertaken by the EU and UK, a cornerstone of the WTO, and dispute the contention that they will be no worse off, citing a loss in market flexibility.

There are currently Free Trade Agreement (FTA) negotiations underway between New Zealand and the EU, and a consultation process has begun for an FTA with the UK.

This decision by the EU, and supported by the UK, both highlights the need for New Zealand to secure a more stable FTA with the soon to be two major trading partners and raises concerns over the willingness of the EU and UK to negotiate in good faith.

The TRQ's were negotiated decades ago and are relied upon by New Zealand farmers to provide a limited window of fair market access.

The EU and UK should not alter TRQ's without careful consideration of the impacts and consultation with effected states such as New Zealand.

We are after all, old friends who have a long-shared history together.