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Brexit: How New Zealand Might Cope

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The strategic view that Britain needs to be in the EU remains universal among New Zealand strategists. However the Leaves did not vote geopolitically but on domestic considerations including, apparently, resentment of immigration and of the unequal gains from trade. New Zealand has little alternative but to accept the direction the Brits are taking, albeit with regret.

Withdrawing from the EU is proving more difficult than anyone anticipated. Almost every week there is a revelation of an additional complication. Two years to negotiate the deal is just absurd, indicative of how little David Cameron, the previous British prime minister, had thought things through.

I do not think any informed person – anywhere in the world – takes seriously Theresa May’s view that Brexit represents no retreat, but rather that it will be the making of a ‘truly global Britain’ and that as a result the country will be ‘more outward-looking than ever before.’ The hard fact is that, as every New Zealander working in the international sector knows, being a small country isolated from the big trading blocs is a huge challenge. Sure, Britain is bigger than New Zealand but small compared to China, the EU and the US.

New Zealand’s interests will be challenged by Brexit. A couple of examples. We are currently in early negotiations with the EU over a free trade agreement. Almost certainly they will be delayed because the EU will be focusing on the Brexit negotiations; in any case they were going to be tortuous because they involve every member of the EU agreeing to the deal which, if it is of any significance to us, is going to affect their key farm interests.

Second, because of Brentry and subsequent multilateral negotiations, such as the Tokyo and Uruguay rounds, we already have various trade deals with the EU. However they are not with its individual members. What happens to them when one leaves?

For instance, there is a New Zealand sheep meats quota for the whole 28 countries; about two fifths of our lamb goes to Britain. That quota is ‘bound’, in effect it has a standing in international law and cannot be unilaterally abrogated. What happens to it if Britain leaves? We could insist that we will continue to have access for the whole quota to the remaining 27 countries and then negotiate a separate one with Britain outside the EU in exchange for trade concessions here. I imagine the EU will want us to agree that the quota be divided between the EU27 and Britain. The permutations are enormous; it will be a miracle if they are settled within two years, given there are many other examples like this involving other commodities and other countries.

So tiny New Zealand will be directly involved in some aspects of the Brexit negotiations even if we find it hard to get the EU 27 to focus on an FTA. Meanwhile, according to EU rules, Britain cannot begin negotiating trade agreements on its own behalf until after it leaves the EU.

During the Brentry negotiations, half a century ago, New Zealand’s negotiating strength included some ‘moral’ weight. At that time more people living in New Zealand said they were British-born than said they were Maori, underlining emotional attachments between the two countries. But those attachments have become attenuated with the external and internal diversification.

I won’t say we had a veto on Brentry in 1973, but undoubtedly the British government of the day wanted our support because it feared the anti-Brentry forces would use New Zealand to intensify their campaign.

That won’t happen this time. Instead of moral considerations we are going to have to depend upon the WTO rules. In principle that should mean that we will be no worse off – except where we have better deals than the legal bindings. And undoubtedly, we will suffer if the British economy suffers, as it is expected to. (However, except for some products, ties of sentiment mean New Zealanders tend to overestimate the importance of the British economy to us today.)

Moreover with a few exceptions, such as the RCEP (the Regional Comprehensive Economic Partnership of 14 Asian nations and Australia and New Zealand), other international trade deals are going to go be put on hold. That particularly affects our campaign to reduce world food protectionism in the interest of consumers and efficient farmers.

Of course, Brexit may not go ahead. A possible scenario is that when the deal is agreed, Britain will have a second referendum offering a real choice between the specific Brexit terms and Remain. May’s ‘hard-Brexit’ is designed to meet the demands of the extreme Brexiters, especially over migration, but it sacrifices a lot to do that. The softer Brexiters may reject the hard-Brexit terms. Already there is a growing group of doubters – Bregretters.

Although there are hard liners among the other 27 EU, who will not offer Britain an easy deal, one hopes commonsense will mean the 27 will leave open the option of Britain abandoning Brexit when the terms are settled and it becomes evident (to just about everyone) how painful the exit option is.

What may be crucial may be this year’s elections in France and the Netherlands, where immigration issues are expected to play an important role. Supposing that the electoral outcomes do not totally disrupt EU unity, it seems likely, nonetheless, that the EU will soften its commitment to free movement of labour. That would make it easier for Bregretters to change their minds.

Whatever, New Zealand’s global trading ambitions – especially over better access for its farmer products to protected markets – are going to have to be put on hold. But we will still pursue quality trade deals whenever the opportunities arise even if there are less of them.

| By Brian Easton published on pundit  |  March 6, 2017  ||

This is a follow up ‘Brentry: How New Zealand Coped’, setting out some of the challenges which face New Zealand today.