For Europe, the NZ-EU free-trade agreement isn't just about trade

Monday, 10 July 2023

From left, EU presidency representative Marcos Alonso Alonso, EU trade commissioner Valdis Dombrovskis, Prime Minister Chris Hipkins, EU President Ursula von der Leyen, and Trade Minister Damien O'Connor after the signing of the NZ-EU free trade agreement in Brussels, Belgium, on Sunday.

ANALYSIS: A free-trade agreement signed in Europe overnight is a significant win for New Zealand: cutting more than $100 million in tariffs for exporters eager to trade with a market of 447 million people.

And there is room to grow – if the 2008 China FTA is any lesson, the estimate that the EU agreement could eventually be worth $1.8 billion annually to New Zealand might be an underestimate.

If Kiwi producers fill the significantly raised trade quotas, New Zealand exports could make up 60% of Europe’s butter imports, 15% of cheese imports, and up to 96% of sheep meat (otherwise known as lamb) imports.

But for Europe, the agreement is less economically meaningful, even if its officials call it a “significant opportunity” for the union. While the 27 member countries are New Zealand’s fourth-largest two-way trade partner, New Zealand is far down Europe’s list.

In Brussels on Sunday, both sides spoke of a tough negotiation. Despite the deal putting New Zealand on more even footing with other nations, such as Chile, there were sensitivities on the European side – a now familiar fear from agricultural producers that New Zealand’s products would eat away at the local’s market share.

So why did the EU proceed? Throughout the speeches of EU President Ursula von de Leyen and her trade commissioner, there was a theme: New Zealand shares Europe’s values.

Prime Minister Chris Hipkins and European Union President Ursula von der Leyen at the signing of the NZ-EU free trade agreement in Brussels, Belgium, on Sunday, July 9, 2023.

And this matters, in a world where free trade has moved off so many countries’ agendas, where competition between global powers old and new has barriers being raised not lowered, and where trade policy is no longer distinct from security policy.

The deal with New Zealand appears to have been a low-threat way of showing the EU still believes in liberalised trading. This EU commission will end its five-year term in October, and this will be the only free trade deal it has completed. Negotiations with Australia are ongoing.

EU trade commissioner Valdis Dombrovskis at the signing of the NZ-EU free trade agreement in Brussels, Belgium, on Sunday.

“Despite being a world apart, we have so much in common. We are two robust democracies, with the same view of the world, and the same understanding of our responsibilities,” von der Leyen said.

The EU trade commissioner, Valdis Dombrovskis, reiterated the point after putting ink to paper, saying it was important for the EU to “move forward with our trade agreements”, and New Zealand was a “like-minded” and “reliable partner”.

There appears few such like-minded partners New Zealand could now pursue new free-trade deals with, at a time when economic security concerns has the Government pushing for diversification. Talk of lining up a deal with India that truly liberalises trade, including for agricultural goods, is wishful thinking at best.

But Prime Minister Chris Hipkins wouldn’t concede New Zealand has reached the end of the free trade road when in Brussels on Sunday, saying New Zealand would keep looking for opportunities.

“Opening up a free trade agreement is just the start of a process … We now need to make sure that we're actually taking up the opportunities that have been presented to us.”

When it comes to the open and affluent market that is Europe, New Zealand just got its foot in the door.