SUBMISSION TO THE PARLIAMENTARY FOREIGN AFFAIRS, DEFENCE AND TRADE COMMITTEE

INTERNATIONAL TREATY EXAMINATON OF THE NEW ZEALAND EUROPEAN UNION FREE TRADE AGREEMENT, JULY 2023

Introduction and Summary

This submission is made on behalf of the New Zealand International Business Forum (NZIBF) whose members are listed at Annex A^[1]. NZIBF is a forum of senior business leaders working together to promote New Zealand’s engagement in the global economy.

While supporting the ratification and implementation of the New Zealand/European Union Free Trade Agreement (“the Agreement”), NZIBF believes that considerable efforts will need to be made over time in the progressive implementation and review of the Agreement if it is to deliver significant commercial benefits to New Zealand. The Agreement delivers improved market access to the EU for goods and services for a number of sectors of export interest; it also usefully opens further New Zealand’s market to goods, services and investment from the EU.  Unfortunately however the Agreement delivers only very limited market access for dairy products and beef as major export sectors, thus limiting significantly the overall value in terms of both trade diversification and contribution to the NZ economy.  New Zealand undertakings in the area of geographical indications (GIs), which limit the use of certain generic names such as feta and prosecco also serve to reduce the value. The Agreement includes useful and in some cases innovative rules in a number of areas including digital trade, Māori economic co-operation and sustainability.  The latter also presents some risks to NZ interests given different regulatory approaches between the EU and New Zealand. Considering however the size and scale of the EU economy the Agreement represents only limited gains and is unlikely to make a material impact on the NZ economy unless the market access provisions can be further improved over time.

In this submission we comment on matters of direct interest to NZIBF members.  We regret, however, the short time frame which was available to develop our submission. As with the earlier NZ UK FTA, we believe a longer period should have been envisaged to enable the public to make submissions.  This would also have assisted our own analysis of the Agreement.

About NZIBF

NZIBF provides a voice to articulate the needs and priorities of New Zealand’s international business community, and in particular the importance of open markets, to the New Zealand Government and public stakeholders.  The NZIBF Board brings together leaders from amongst New Zealand’s largest internationally oriented companies and peak business organisations representing many exporters of all sizes. (A list of Board Members is in Annex A.)

Incorporated in May 2007, NZIBF works with companies, business organisations and government agencies to implement projects in the international trade and economic sphere, including working to develop New Zealand’s key international business relationships and conducting activities to promote New Zealand’s competitiveness. NZIBF receives no direct government funding for its operating budget, but from time to time receives funding for jointly funded projects. Funding in respect to the policy advice and support which NZIBF provides to the New Zealand members of the APEC Business Advisory Council (ABAC) is provided by both NZIBF and the Ministry of Foreign Affairs and Trade (MFAT).

NZIBF offers qualified support for the NZ EU FTA

NZIBF has been a strong supporter of the concept of an FTA with the EU. In 2015 NZIBF released a report “Towards a New Zealand European Union FTA – A business perspective”[2].  At that time we said:

“ New Zealand businesses should fully and actively support the concept of a free trade agreement between New Zealand and the European Union. An ambitious and comprehensive trade and investment agreement will provide economic benefits to both sides and foster new and deeper economic partnerships across all sectors. It will build on existing links between the two economies and offers the chance to show the world how to negotiate a modern, comprehensive and forward-looking trade agreement that supports further liberalisation in the multilateral trading system as well”.

Unfortunately, despite some positive aspects, we cannot say that the Agreement has delivered fully on this vision.  The Agreement is less than fully comprehensive and does not provide a model for future agreements: further work will be required as the Agreement is implemented and reviewed to enhance its contribution to both trade diversification and the economy more generally.  NZIBF accepts that every effort was made by NZ negotiators to improve the quality of this outcome which reflects continuing agricultural protectionism on the part of the EU.

Trade Benefits for New Zealand

With a population of 450 million, the EU is the third largest economy in the world accounting for one sixth of international trade. We might have expected a substantial impact on the NZ economy from a fully comprehensive agreement. We note the estimated economic impact and trade benefits arising from the Agreement as set out in the National Interest Analysis (NIA)[3]. The NIA suggests an increase in exports to the EU of $1.8 billion by 2035, but because of trade diversion the overall impact on NZ trade by 2035 will be an increase of $735 million in exports.  By 2035, the modelling estimates that New Zealand’s annual real GDP would be up to 0.24% higher than if the FTA did not exist, adding NZ$1.4 billion to the economy in 2019 dollar terms. These estimates, while not negligible, are hardly transformational.

We find it hard to reconcile the analysis of projected trade growth with the feedback we have received from NZIBF Members.  With the exception of kiwifruit and to a lesser extent wine, sectors receiving tariff elimination on entry into force are smaller exporters.  Much is made in the NIA of the value of Agreement in terms of duties foregone in the EU: while this provides benefits to NZ exporters, it may not increase significantly the volume of goods traded.  In sectors such as dairy, it seems doubtful that the limited new access opportunities can be fully realised: although New Zealand may well enjoy better market access than other foreign competitors, this is in a context where overall access to the EU remains strictly constrained (excepting for the UK, which retains complete duty-free access to the EU market, and potentially Australia where negotiations with the EU remain underway).

Goods Market Access

NZIBF welcomes the tariff elimination provided to a range of sectors including kiwifruit, onions, other horticulture, honey including mānuka, wine, seafood and manufactured products.   The additional access provided for sheep meat, beyond our existing WTO quota, is also welcome but it is disappointing that there is an in-quota restriction on the total chilled product able to be shipped.

For dairy much is made in the NIA of improved access for butter, cheese, milk powder and key proteins but these are constrained relative to the size of the EU market by a combination of small permanent quotas and high in-quota tariff rates.  Realising the full opportunity of the FTA would require all new access to be filled, which is extremely unlikely given the remaining high in-quota tariff rates and high shipping costs. Access for butter represents less than 0.7% of EU milkfat consumption. In addition to the relatively small quota volumes given the size of the EU market, retaining the in-quota tariff rate of €95/T means that others such as the UK will retain a competitive advantage when arbitrage windows open (ie. when the New Zealand price is lower than the EU domestic price, when considering the tariff and shipping costs).  This further reduces the likelihood of the butter quota being fully utilised and demonstrates that access in this case is largely theoretical.  The additional quota volume for cheese of 25,000 MT represents less than 0.5% of total EU cheese consumption. Europe is already a highly efficient producer and the world’s largest producer and exporter of cheese globally.  Only very small quota volumes are also provided for milk powders and whey proteins.

For beef, the new beef quota of 10,000 T[1] over seven years with an in-quota tariff of 7.5% accounts for less than 2% of New Zealand’s annual beef exports, and represents less than 0.2% of annual EU beef consumption.  It has been calculated that the EU could consume NZ’s total beef production in less than 20 days ! This also stands in contrast to the access of 99,000 T under consideration in the EU-Mercosur FTA. The minimal improvement in access really restricts growth opportunities in the market.

NZIBF urges the Government to seek to improve market access for dairy and beef as the opportunity arises.

NZIBF welcomes the side letter on Wines and Spirits, which recognises specified winemaking practices used in New Zealand.

NZIBF notes the inclusion of chapters on sustainable agriculture, animal welfare and sustainable development in the Agreement.  New Zealand and the EU have adopted different regulatory approaches in these areas.  As the NIA notes these chapters may provide an opportunity to influence and mitigate the direction of EU policy, but they may also represent risk to the extent that EU approaches gain currency in New Zealand, further adding to the pressures on producers.  As far as possible, New Zealand needs to maintain the reliance on evidence/outcome-based and equivalence approaches that have served us well, for example in the area of food safety, rather than adopting the prescriptive and precautionary approach often favoured by the EU. Care needs to be taken to ensure that New Zealand producers can contribute to working groups established in these areas.

NZIBF welcomes the Agreement’s enhanced trade facilitation measures and other provisions that address non-tariff barriers impacting trade as well as undertakings in a range of technical areas affecting goods market access including rules of origin, customs procedures including clearance (albeit without firm commitments on timeframe as in other agreements including CPTPP, RCEP and NZ/UK FTA), standards, technical regulations and conformity assessment procedures, and sanitary and phytosanitary requirements. The Agreement also contains new provisions providing for temporary entry of business people which will also support market development initiatives.

[1] In addition, because 99% of beef trade with the EU is boneless, the coefficient (carcass weight equivalent) used to calculate the quota volumes means the true volume for beef will be 2,570 tonnes on EIF, and rising to only 7,715 tonnes after seven years.  This poses further constraints to the “opportunity”.

Trade in Services

NZIBF welcomes the provisions that liberalise trade in services according to a negative list so that all services trade will be on an equal footing with domestic suppliers and other international suppliers except where specified by an exception in a Member’s Schedule of Commitments.  The commitment that the EU will offer to New Zealand future concessions with other FTA partners is also useful.

Improved services commitments are valuable for goods exporters so that they can support their international business by establishing an in-market presence, form commercial partnerships and provide after sales support services.  In this context undertakings on licensing and recognition of professional qualifications, as well as temporary entry of business personnel, will be useful.

Investment

New Zealand has much to gain from increased foreign direct investment (FDI) from the EU into New Zealand and from New Zealand companies choosing to invest in the EU.  The general investment provisions in this Agreement mirror New Zealand’s other FTAs.  NZIBF welcomes that the Agreement will enable EU investors to benefit from the same screening threshold, NZ$200 million, applied to many of New Zealand’s other FTA partners, including CPTPP Parties, China, Korea and the UK.

We note that there is no Investor State Dispute Settlement (ISDS) mechanism (which is separate from the State-to-State Dispute Settlement mechanism which is included) to protect New Zealand investments in the EU market (and vice-versa).  While the NZ Government has reservations about ISDS, NZIBF does not share this view.

Intellectual Property

We note that the Agreement provides for an extension of copyright term applied in New Zealand by an additional 20 years within 4 years (compared to 15 years in the NZ/UK FTA).  This effectively aligns New Zealand with practice in several other jurisdictions.  As the NIA notes, this does imply additional costs.

Geographical Indications (GIs)

New Zealand has made a number of concessions in the area of GIs reflecting the EU priority in securing these in all the FTAs it signs.  In April 2020 NZIBF submitted to MFAT and MBIE on this issue, noting:

“In order to be acceptable, any future framework for GIs for food products would need to be part of an ambitious, high-quality and comprehensive market access outcome for food and agriculture products.  It would, moreover, need to include tight disciplines to ensure that such that protection were limited to products for which a given quality, reputation or other characteristic were essentially attributable to single geographical location; would not impinge on the rights of New Zealand producers to use generic names or terms in common use; would not override existing trade mark rights; and would include provisions for opposing and cancelling GIs, including on the basis that a name was generic, with a final decision being made on the merits of the opposition by an objective body in New Zealand[5]”.

While the provisions in the Agreement are sometimes accompanied by phase in periods, they do extend to products, such as feta, prosecco, parmesan, sherry and port, which are not “essentially attributable to a single geographic location”.  In these cases they do “infringe on the rights of New Zealand producers to use generic names of terms in common use”.  Indeed, for some generic terms, such as feta, New Zealand producers are entirely prohibited from using these terms after a transition period while, for other generic terms such as parmesan, which unlike parmigiano regianno is not a geographic name, only prior users are able to use these names. As has also been illustrated, they are not part of an “ambitious, high-quality and comprehensive market access outcome for food and agriculture products”.  The GI provisions in the Agreement further reduce the value of the Agreement for New Zealand and will have an undoubtedly significant impact on speciality food and wine producers. The fact that the agreement provides for the EU to add up to 30 new GIs ever three years is another area of significant concern, in particular given the EU’s expansionary GI agenda. Minister O’Connor’s recent comments that funding will be  available, via MPI, to support the cheese sector to re-name and re-brand specific cheese types is critical. The NZIBF supports this funding and wider support that the Government must provide to help the industry adjust to these new barriers. 

Digital trade

Although New Zealand and the EU have different approaches to digital trade, with the EU generally being more restrictive, the Agreement includes a wide-ranging digital trade chapter. NZIBF welcomes the inclusion of trade- and trust-friendly commitments on the key issues of free data flows (albeit subject to a review within three years) and data localisation, as well as practical provisions aimed at facilitating cross-border business and trade, including paperless trade, financial services and e-invoicing.   NZIBF notes that, along with the review of data flow, there are two significant carve outs from the application of this chapter: first, measures taken by New Zealand to protect or promote Māori rights, interests, duties or responsibilities, including those taken in fulfilment of the Te Tiriti o Waitangi/the Treaty of Waitangi, will not be covered by the chapter and second matters concerning privacy are also excluded presumably reflecting the more restrictive approach of the EU in this area.

On the subject of paperless trade and the use of e-documentation it should be noted that New Zealand has yet to implement domestic legislation to enable New Zealand exporters to make full use of these provisions despite their inclusion in the Agreement.

Māori trade and economic co-operation

NZIBF is pleased that as with the NZ/UK FTA the Agreement speaks to the expression of Māori aspiration to grow the contribution of the Māori economy.  It does this primarily through which is focused largely on best-endeavours collaboration between the two governments (since this chapter is not subject to dispute resolution). In future agreements it would be preferable if such undertakings were subject to dispute resolution. Māori commercial interests in dairy and beef production, which are significant, have not however been fully advanced in this Agreement.

The chapter contains a preambular reference to ‘mānuka’ as the Māori word used exclusively for the Leptospermum scoparium tree grown in New Zealand and its derivative products. It usefully describes ‘mānuka’ as culturally important to Māori as a tāonga and traditional medicine.  It is not clear however whether this reference would be sufficient to protect the exclusive use of the term ‘mānuka’ in the EU.

Other benefits

Treaty of Waitangi, right to regulate

We are pleased that New Zealand has retained its standard Treaty of Waitangi exception so that the Government can continue to meet its obligations to Māori, as well as retaining the general right to regulate for legitimate public policy purposes.  

Environment and climate

NZIBF notes the Agreement’s provisions aimed at fostering environmental protection and promoting initiatives to promote sustainable agriculture and forest management and to address climate change including in relation to fossil fuel and fisheries subsidies and to tariff elimination for environmental goods and services.

The commitment in the Agreement to be held accountable by way of dispute settlement for commitments to address climate change under the Paris Agreement is at best a high level political one: it is not clear to us how this could be actionable or enforceable in the context of a trade agreement where the value of concessions in terms of tariff elimination are likely to be much less than the impairment of the Paris commitment.

Labour

We welcome the Agreement’s provisions aimed at enhancing labour standards and practices and note New Zealand’s obligation to implement two further ILO conventions.

Gender and SMEs

As NZIBF has made clear in its submission on the Government’s Trade for All initiative[6],  NZIBF welcomes steps to address gaps in policy design and implementation which may contribute to unrealised potential or uneven outcomes among certain groups, including women and small and medium sized enterprises (SMEs) as well as Indigenous. NZIBF is pleased with the inclusion of these elements in the Agreement.

Horizon Europe fund

Although not part of the Agreement, the concurrent undertaking on the part of the EU to extend the application of Pillar 2 of the Horizon Europe Research Fund to New Zealand researchers on an equal basis is a positive and significant development.

Commitments for New Zealand

NZIBF notes New Zealand will need to take a number of legislative steps to give effect to this Agreement, including, eliminating remaining tariffs on all goods from the EU, adopting rules of origin for goods originating from the EU, providing for a higher screening threshold for FDI from the UK and amending the Copyright Act.  Tariff liberalisation in relation to goods of UK origin confers treatment similar to New Zealand’s other FTA partners.  The loss of tariff revenue is minimal.

Conclusion

It is unusual for NZIBF to express qualified support for the implementation of a free trade agreement.  This Agreement is different from others New Zealand has concluded in the less than comprehensive market access coverage and the larger number of concessions New Zealand has to make in its own domestic policy settings, including GIs, copyright and labour.  NZIBF recognises that it was always going to be difficult to conclude a fully comprehensive agreement in the face of EU protectionism and reiterates its appreciation of the efforts made by negotiators.  At the end of the day it is for the Government to determine whether there is a sufficient basis for concluding the deal.  Certainly a number of export sectors will be materially advantaged. While NZIBF queries some of the assumptions made in the NIA, declining ratification at this stage would mean the loss of the gains that have been made and send a negative signal about New Zealand’s reliability as a negotiating partner.

Recommendations to the Committee

NZIBF recommends that the Committee:

1. note NZIBF’s qualified support for ratification of the NZ/EU Free Trade Agreement
2. note NZIBF’s view that the commercial significance of the Agreement is limited by the poor market access outcome for dairy and beef
3. agree that the Government should be urged to seek to improve the market access outcome for dairy and beef as the Agreement is implemented and ratified
4. agree that the Government should be urged to provide funding and broader support to the New Zealand speciality cheesemakers, for the purpose of re-naming and re-branding of those cheese types impacted by the GI provisions in the Agreement
5. agree that the Government should be urged to include industry representatives should be included in working groups established to implement sustainability provisions in the Agreement
6. note NZIBF’s request to be heard in support of this submission.

---

[1] The views in this submission are those of NZIBF as a whole.  Individual members may make their own independent submissions on specific issues.

[2] https://www.tradeworks.org.nz/wp-content/uploads/2015/09/NZIBF-NZ-EU-FTA-9-SEPT-2015.pdf

[3] https://www.mfat.govt.nz/assets/Trade-agreements/EU-NZ-FTA/NZ-EU-FTA-National-Interest-Analysis.pdf, page 165

[4] In addition, because 99% of beef trade with the EU is boneless, the coefficient (carcass weight equivalent) used to calculate the quota volumes means the true volume for beef will be 2,570 tonnes on EIF, and rising to only 7,715 tonnes after seven years.  This poses further constraints to the “opportunity”.

[5] https://www.tradeworks.org.nz/submission-to-the-ministry-of-foreign-affairs-and-trade-and-the-ministry-of-business-innovation-and-employment/

[6] https://tradeworks.org.nz/submission-to-the-ministry-of-foreign-affairs-and-trade-trade-for-all-consultation/