Here comes Brexit, so hang onto your butter
One great thing about the British people is their gallows humour, which produced one of the funnier responses to the 2016 Brexit referendum outcome: the Twitter hashtag #grandmasworstXmaspresentever.
As the United Kingdom heads towards a messy no-deal exit from the European Union, New Zealand primary exporters look increasingly likely to experience just how bad that present could be.
Prime Minister Jacinda Ardern signed useful agreements in London this week that confirm the UK will accept New Zealand’s meat plant certification, wine labelling and conformity assessments. But they are a sideshow compared with the treatment of the sheepmeat and dairy products that enter the EU under so-called ‘‘tariff rate quotas’’ (TRQs).
These TRQs allow New Zealand to export close to 75 million kilograms of butter, 7 million kg of cheddar cheese, and 4 million kg of cheese for processing into the EU without tariffs, making that product more competitive in European markets.
Similarly, sheepmeat TRQs give tariff-free access to the EU of up to 228,389 tonnes a year.
Gaining and maintaining those quotas have been the life’s work of a generation of New Zealand’s smartest diplomats and trade negotiators since Britain entered the Common Market in 1973.
They were hard won, and are under constant threat. More to the point, the UK was the key supporter of their existence and has tended to take most of the New Zealand primary produce exported under them.
However, if and when the UK leaves the EU, they will no longer apply to New Zealand dairy and sheepmeat exports to the UK. New arrangements will have to wait for a new post-Brexit free-trade agreement, however long that may take.
Across the Channel, EU nations will still be obliged to take New Zealand produce under the TRQs, but Brussels has made it clear they’re not keen to. New Zealand already doesn’t use its quotas in full, so the EU already wants to cut them. When EU Trade Commissioner Cecilia Malmstrom was here last year, she was advocating that TRQs be halved as a result of Brexit.
Unsurprisingly, New Zealand trade officials weren’t keen. A deal’s a deal and our TRQ deal is with the EU, whether the UK is in it or not.
Whether we use them in full is also our business, and current useage largely reflects tactical seasonal trading and the gradual erosion of EU tariff levels since the TRQs were first set.
However, since we don’t live in a fair and perfect world, it’s clear there will have to be compromise eventually since the EU simply won’t in the long term wear an arrangement that reflected the EU with the UK inside the tent.
As a result, New Zealand dairy and lamb producers face both a short-term crisis and a longterm problem thanks to Brexit.
The short-term crisis is what will happen if New Zealand produce turns up on British wharves after a March 29 no-deal ‘‘hard’’ Brexit. Will the UK, in some unexpected act of kindness, continue to honour the TRQ system?
The fact that this week’s agreements didn’t cover that question means the answer is almost certainly no. Thanks a bunch, mother England.
The long-term crisis is what will replace the existing market access arrangements to both the EU and the UK.
While New Zealand is also near the front of the queue to negotiate a new free-trade agreement with the EU, the TRQ issue is unlikely to wait for that process to conclude.
The potential for severe trade disruption into some of New Zealand’s most valuable export markets for primary produce is becoming very real and is now only weeks away.
–BusinessDesk
The potential for severe trade disruption . . . is now only weeks away.