Weaning NZ off China depends on diplomacy elsewhere, exporters say

Thursday, 27 May 2021

New Zealand is treading a fine line between satisfying its largest market, China, and reducing trade barriers with the UK and EU.

Dairy exporters say New Zealand must make better progress on tariffs in heavily protected markets before they can reduce their reliance on China.

Foreign Minister Nanaia Mahuta has continued this week to urge exporters to diversify their markets, as New Zealand faces pressure from Western allies to address China’s human rights record.

In an interview published in the Guardian on Tuesday, Mahuta spoke about New Zealand’s concern it might be penalised with tariffs or other economic pressure from China as the more outspoken Australia has.

“We cannot ignore, obviously, what is happening in Australia with their relationship with China. And if they are close to an eye of the storm or in the eye of the storm, we have got to legitimately ask ourselves – it may only be a matter of time before the storm gets closer to us,” she said.

National Party's deputy leader Shane Reti was asked whether he thought criticism of the Government over its relationship with our Five Eyes partners is justified.

* NZ-UK Free Trade Agreement negotiations to be 'accelerated', as Australia streaks ahead

* Australian Foreign Minister Marise Payne takes no issue with New Zealand's Five Eyes' wariness

* Trade Minister Damien O'Connor wary of 'ad hoc' carbon tariffs proposed by Britain

China is New Zealand's biggest sheepmeat market and competes with the US as our biggest export beef destination.

In response, a Chinese communist party official said China – which renewed its FTA with New Zealand in January – hoped New Zealand would “rise above external distractions”.

Others in the dairy industry have underlined how Chinese trade helped New Zealand recover from pandemic disruptions.

While it treads a fine line with one major customer, New Zealand is in the middle of negotiating a trade deal with the UK, one of several nations critical of Chinese policy on Hong Kong and treatment of the Uyghur minority.

Kimberly Crewther, executive director of the Dairy Companies Association of New Zealand (Decanz), said New Zealand sent about a third of its dairy exports to China and that moving away from that would require some heavy lifting on other trade barriers.

“Dairy continues to be one of the most protected and distorted sectors in global trade, so many markets remain locked to us due to their prohibitively high tariff levels.”

She said it had been a long-standing goal to see less dairy protectionism in markets like Europe, the UK, US and Japan.

Sirma Karapeeva of the Meat Industry Association, said meat exporters were already diversified across 110 countries and that had been vital during the pandemic when markets were locked down.

But it would be wrong not to make hay while the sun shone in China.

“The prices we’re getting for our products, a wide range of products, are really, really strong and I think it would be commercially silly not to pursue those prices.”

Wine is among many New Zealand exports which could benefit from zero tariffs in the UK.

In an effort to broaden New Zealand’s trade access, Trade Minister Damien O’Connor is due to visit his UK counterpart Liz Truss next month to step up what could be the first of Britain’s free trade agreements after exiting the European Union.

He will also discuss an FTA with EU delegates.

Agricultural tariffs are usually one of the key sticking points with the UK, affecting many New Zealand exports including meat, wine, apples, honey, shellfish, beef, vegetables prepared foods and beverages.

Lowering these tariffs would not only be a win for New Zealand, but potentially cheaper for British consumers.

Acknowledging this, in March the UK Agriculture and Trade Commission recommended completely wiping tariffs and quotas on agricultural imports within free trade agreements, where food standards were equivalent.

Fintech companies like CoGo have already found a willing market in the UK.

British farmers, however, have been apprehensive, warning last week that “irreversible damage' could result from a bad deal with Australia.

As far as dairy products go, Crewther says Britain can’t be too sensitive, given it is already one of the world’s biggest importers of dairy products, largely from Europe, which until now has had duty-free status.

Getting in on the game

Alongside more traditional exporters hopeful of a good trade deal with the UK are emerging exporters such as the burgeoning fintech industry in New Zealand

FinTech NZ’s general manager James Brown said the gaming and software sector had thrived under Covid, “and we’re definitely seeing a lot of organisations in the fintech space in New Zealand looking at the UK’’.

A good example was CoGo, a Kiwi-founded company which specifically targeted the UK with an app which allowing users to calculate their carbon footprint using their bank transaction data,

A FinTechNZ report last year said there were no major trade or investment barriers to fintech between the UK and New Zealand, but the countries could create a “fintech bridge,” similar to those that the UK already had with Australia and other trade partners.

An FTA or separate agreement could also bring New Zealand and the UK closer together in a “more open exchange of financial data,” while preserving data privacy, it said.

Fintech companies already had common standards on open banking between the two countries that they could leverage.

But any agreement would have to address areas where anti-money-laundering compliance was creating barriers to entry, it added.

Brown said Kiwi fintech companies had historically gone to Australia, the US and Asia first, but there was now a lot of strategic positioning with partners like the UK to drive products to market more quickly.

And unlike other key New Zealand exports to the UK – wine, dairy and meat – fintech was not an industry likely to be impacted by climate change, he added.

“The UK was the first country in the world to launch a green bank and they were very clear about the role of financial services in climate change, so when I think about a free trade agreement, I think we’ve got to come at this from multiple angles.

“Yes, it’s about access to talent, access to capital, but it’s also about what’s the role in financial services between our two nations that could actually have a significant impact in decreasing carbon emissions.”