What does Boris Johnson's hard Brexit plan mean for NZ?

Friday, 26 July 2019

Kiwi exporters' gateway to Europe via Britain will be all but closed in the event of a no-deal, or hard Brexit, an expert in international relations says.

A hard Brexit is a worst-case scenario for Britain, by which it would leave the EU without an agreed deal.

Professor of international relations at Otago University, Robert Patman said New Zealand businesses saw the UK as a natural entry point for trade with the European Union.

This was especially true for small businesses that could not afford to have a foot in both markets.

This would be jeopardised if new British Prime Minisiter Johnson successfully pulled a 'hard Brexit' off, he said.

But that woudld not happen, Patman said.

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Johnson's 'no ifs, no buts' comment that the UK would leave the EU on October 31 with or without a deal was a fantasy show, he said.

'He's made a promise he can't keep and he won't get a better deal from the EU.'

A free-trade agreement with Britain would pale in significance for New Zealand compared to a free-trade agreement with the EU, Patman said.

'Do [businesses] want tariffs on their products going to the EU? Commercially it's a no-brainer. Smaller companies are confronted with very difficult choices. They will see their market shrink from 550 million to 65m [people],' he said.

The New Zealand meat industry was not so sanguine about Brexit as Foreign Affairs Minister Winston Peters, Patman said.

Peters told Radio New Zealand this week that Johnson was 'a seriously intelligent chap' with 'a very kind and a very affectionate stance towards New Zealand' and that Brexit represented an opportunity for New Zealand in both the UK and the EU.

Britain is New Zealand's sixth largest export market and an important one for New Zealand's chilled sheep meat exporters, as well as wine and dairy exporters.

Meat Industry Association chief executive Tim Richie said the UK was an extremely important market for New Zealand chilled lamb legs.

'There is nowhere else in the world where the consumer will buy that sort of volume at that sort of price. It's a market we've been serving for 135 years and its not a market one lightly walks away from,' Richie said.

There were short and long-term issues facing exporters in the event of a hard Brexit, Richie said.

The UK normally exported 30 per cent of its sheep meat to Europe. This would probably stay in the UK if there were no trade arrangements in place, and New Zealand imports could be turned away.

The EU and UK have indicated they would split New Zealand's quota for meat exports, giving less flexibility to exporters.

Currently exporters can send the meat where there is most demand, but if the quota was split they would not have as much freedom to put product in the right part of the market.

International Business Forum executive director Stephen Jacobi said if this happened it could cause a big trade dispute and at the same time New Zealand would be wanting to negotiate a free-trade agreement with the UK.

Export New Zealand executive director Catherine Beard said exporters and officials had been working on a worst-case scenario basis and planning for a hard Brexit.

​'This is a well signalled event. It's given customs officials enough time to work with other countries to do all they can to expedite normal trade flows,' she said.

Beard said imposing tariffs and denying the British public goods and services they had become used to would be politically damaging for Johnson.

'I think there would be a period of the UK waving logistical barriers in the short-term, in the event of a hard Brexit,' she said.

The New Zealand Customs Service posted a dedicated customs counsellor to the UK to help smooth the way for exporters ahead of Brexit. Andrew Badrick was posted to London in February.

The counsellor works with Britain's Revenue & Customs, Border Force and other customs attaches, and advises Government on developments around Brexit.

The challenge would be for goods and services going between the UK and Europe, Beard said.

UK shipments diverting to European ports were not currently a problem, but would become 'actually quite a big deal,' if there was a hard border, she said.

Richie said the last thing exporters wanted was a chilled product that could not be unloaded because of congestion.

'The shipping company is not just going to sit there, it's going to move on to the next port on the continent and once the product is there it can't be brought back,' he said.

Patman said that post-Brexit Britain would be a much weaker trading partner and any new free-trade agreements would take at least two years to negotiate.

Countries like India and the United States would not give the UK a better deal than it has under the EU.

'No country in history has ever given up painlessly 46 per cent of its trade,' he said.

Claims by Johnson that the UK would be out of the EU by October 31 could be taken with a 'huge grain of salt,' Patman said. 

Because New Zealand was negotiating a free-trade agreement with the EU, worth more than $20 billion, in the long term New Zealand's exporters would land on their feet, he said.

Jacobi said that most New Zealand businesses had been reassessing their European strategy for while. 

'Those links need to be rethought by companies that have relied on Britain as a gateway. But that's been changing anyway,' he said.