Let’s wish O’Connor well, as he dines with UK Minister in quest to secure a free trade deal – but Aussies are higher in the queue

Trade minister Damien O’Connor dines with his UK counterpart Liz Truss tomorrow  to begin the heavy-lifting on a NZ-UK free trade agreement.

The early signs are ominous.  Ozzie PM Scott Morrison managed to attend part of the G7 meeting in Cornwell where Australia’s FTA agreement was raised with the UK’s Boris Johnson.

Morrison says he’s waiting for ‘the right deal’ before the UK-Australia free trade agreement (FTA) is finalised, and the UK is eager to launch its post-Brexit economy by securing free trade agreements covering 80% of its trade within the next three years.

The UK Department for International Trade believes a trade deal could secure an additional £900 million ($1.6 billion) in exports to Australia.

In 2019-20, two-way goods and services trade was valued at $36.7 billion, making the UK Australia’s fifth-largest trading partner, according to the Department of Foreign Affairs and Trade.

Morrison hopes to finalise the FTA tomorrow if certain issues can be dealt with.

But elements of the Australian FTA have created alarm within the UK. The National Farmers’ Union publicly begged for tariffs to remain on Australian beef and sheep.

NFU president Minette Batters says a tariff-free trade deal with Australia will jeopardise UK farming and could cause the demise of many, many beef and sheep farms throughout the UK.

There are several challenges for NZ.  It’s just as well, therefore, that O’Connor is accompanied by NZ trade supremo Vangelis Vitaly, a recognised world authority on trade policy. 

First, we are behind Australia in the queue.

Second, the initial UK offer was derisory according to several government and private sector observers.  UK farmers have watched NZ farming diversify, become more efficient and export focused.  They have sheltered behind EU tariffs (from which they have done extremely well, judging by the expensive farm machinery on UK farms.

The UK government has tried to placate farmers’ and union opposition by offering to phase in the tariff removals over 11 to 15 years.  Whether Canberra or Wellington would accept this is doubtful.

Hormonal growth promotants (HGPs) are an issue.  They have been banned in the EU and, therefore, the UK since 1998.

Around 40% of cattle in Australia are given HGPs, which are used to accelerate weight gain, according to Food Standards Australia New Zealand.

NZ and Australia might have to concede to higher standards imposed on exports, although the use of HGPs in New Zealand has always been low, says our Ministry for Primary Industries, and has declined over the past decade. In the 2015-2016 agricultural year, less than 0.0001% of beef cattle were treated with an HGP — down from 0.03% a decade earlier.  

The economic impact of a free trade deal with Australia on the UK would be small. The government’s own estimates suggest it would add an extra 0.01 – 0.02 per cent to gross domestic product over 15 years. The UK exported about £4.5bn worth of goods to Australia in the 12 months to March 2021 compared with £139bn shipped to the EU and £45bn exported to the US. Exports of services were slightly higher at £5.4bn in 2020.

But the combined export of goods and services still only accounted for 1.7 per cent of the UK’s total last year, making Australia the 14th largest UK exports destination. Australian goods and services accounted for less than 1 per cent of total UK imports in 2020.

Like the Australian deal, Truss has eagerly pursued membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), which includes fast-growing economies such as Mexico, Malaysia and Vietnam along with established regional players such as Japan, Australia, NZ and Canada, as one of the Johnson government’s key goals in fulfilling its post-Brexit “Global Britain” agenda.  British agreement to FTAs with Australia and NZ will boost its prospects for membership of the CPTPP.

As a prelude, the British High Commissioner to NZ, Laura Clarke, is bullish. Much has been done, the overall architecture has been agreed and an ambitious timetable has been suggested. A revised market access offer for agriculture has been laid down.

Still, there is distance to go.  At Point of Order, we suspect it will be a test of wills. If O’Connor can hold out, the Johnson government might be prepared to move even further, especially after the weekend G7 summit.

Johnson needs a US FTA. He and President Joe Biden thrashed through the issue at the weekend but all that emerged in the public information was agreement to “expand and enhance” relations.  Not much beef there.

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