EU to open free trade discussions with New Zealand and Australia

19 February 2016

Article by Rachel Prior, National Assembly for Wales Research Service

The European Commission is preparing to negotiate two new Free Trade Agreements (FTAs), with New Zealand and Australia.

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Image from Flickr by Xavier Häpe. Licensed under the Creative Commons

European Commission President Jean-Claude Juncker and European Council President Donald Tusk, in separate statements with New Zealand Prime Minister John Key (October 2015) and Australian Prime Minister Malcolm Turnbull (November 2015), have announced agreements to start progressing towards negotiations for two separate FTAs – between the EU and New Zealand, and between the EU and Australia.

The details of global trade negotiations are usually kept private to preserve the bargaining power of the negotiating parties. However, the Commission’s Trade for All strategy sets out plans to increase transparency as much as possible, while also maintaining the Commission’s negotiating ability. This is in response to criticism over the perceived high levels of secrecy during the negotiations with the US over the Transatlantic Trade and Investment Partnership (TTIP). It’s therefore possible, that more information will be made available to the public during the negotiation of the New Zealand and Australia FTAs, than has been the case in the past.

When can we expect the deal to be completed?

The Commission must first request permission from the European Council to begin the negotiations. The earliest it will do this for the New Zealand FTA will be in 2017, with the Australian FTA following soon after.

EU trade negotiations are a lengthy process, with negotiations usually lasting a minimum of two to three years. This is followed by legal scrutiny lasting three to nine months, following which the European Parliament can vote on the proposals. Should the proposals be approved, the effects may still not be felt for some years as the provisions laid out in the agreement are often staged over time to allow smooth adoption of the new procedures.

Why New Zealand and Australia?

The EU already enjoys significant levels of cooperation over international issues with both New Zealand and Australia. However, the two countries are two of only six World Trade Organisation (WTO) members that do not yet have a FTA with the EU. While the EU was the second and third largest source of imported goods for New Zealand and Australia respectively in 2014, the two countries were the 51st and 21st largest source of imported goods into the EU respectively in 2014.

These low exports to the EU by New Zealand and Australia could be due to a recent refocussing of trade partners in the Asia-Pacific area, following a number of new trade agreements. Some commentators suggest that this puts EU exporters and importers at a competitive disadvantage to countries that have existing trade agreements with New Zealand and Australia, such as China, Japan and the US.

The Commission hopes that the FTAs will comprehensively lower trade boundaries between the EU and New Zealand and Australia. Australasia is also a location of great interest to the Commission because of the potential for expansion into the Asia-Pacific market.

Potential issues for agriculture

Concerns have been raised about a potential influx of New Zealand and Australian agricultural products, which could impact on the competitiveness of agricultural business in the EU.

The European Dairy Association has highlighted the “competitive advantage” of the New Zealand dairy sector over that of the EU. Concerns have also been raised regarding a potential increase in cheaper New Zealand lamb products on the shelves of the UK, an issue that has the potential to affect Wales due to its high number of sheep farmers. NFU Cymru is campaigning for the Welsh public to demand more Welsh lamb in shops, as it is concerned by the prevalence of New Zealand lamb competing with local produce. It has expressed concern to the Commission on New Zealand imports.

In response to these concerns, the Commission stated in its Trade for All strategy that it will take into account “EU agricultural sensitivities” in its negotiations.

For the last five to six years, New Zealand has been importing in the region of 160,000 tonnes of sheep and goat meat into the EU annually, of which approximately 35 per cent comes to the UK. The UK Agriculture and Horticulture Development Board (AHDB) says that the UK takes a disproportionately high amount of New Zealand lamb compared to other countries in the EU despite being a significant exporter of lamb to the rest of the EU.

However, AHDB says that New Zealand does not currently fill its present toll-free quota for sheep and goat meat exports to the EU, at 228,254 tonnes, and so removing the cap would have little to no impact upon export levels. The New Zealand Meat Industry Association says that the peaks and troughs of supply from New Zealand are complementary to those of local producers, and that therefore New Zealand fills the gaps where demand outstrips supply for Welsh lamb.

Australian sheep and goat meat exporters currently use 99.6 per cent of their annual quota, and have in the past called for it to be increased from its current level of around eight per cent of the EU market share. AHDB suggests in its World Sheep Meat Market to 2025 report that if restrictions were lifted, of all EU sheep meat suppliers, only Australia would be in a real position to increase shipments.

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