Brexit: What does it mean for NZ trade?

by RNZ / 17 January, 2019
UK Prime Minister Theresa May during the debate on a no confidence motion in the House of Commons.

UK Prime Minister Theresa May during the debate on a no confidence motion in the House of Commons. Photo: AFP PHOTO / Jessica Taylor / UK Parliament

Brexit: Theresa May survives no-confidence vote but what does that mean for NZ trade?

British Prime Minister Theresa May's government has won a no-confidence vote against it today, called by UK Labour leader Jeremy Corbyn, with 325 votes to 306.

It may come as some solace to Mrs May after MPs crushed her proposed exit deal with the EU by a 230-vote majority yesterday, the biggest defeat the UK government has faced in the House of Commons since the 1920s.

Former New Zealand trade deal negotiator Charles Finny however says the no-confidence vote has ultimately been a bit of a distraction: it's the next steps regarding Brexit that are important.

"No one was really anticipating she was going to lose it, the DUP (Democratic Unionist Party) and Tory rebels said they were going to support her.

"Now, it's essential that she shows some leadership and works with her colleagues to find a solution," he says.

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"At this point in time I don't think we should be thinking about a free trade negotiation with the UK because it's uncertain that they'll be able to negotiate one with us.

"Right now they're part of the EU. If they remain part of the customs union they won't be able to negotiate one with us, so let's not get distracted - let's just focus on monitoring what's going on and making sure that our trade can continue to flow as easily as possible."

brexit january 2019

A trader looks at at his computer screens at the Frankfurt Stock Exchange the day after a large majority of MPs in the British House of Commons rejected British Prime Minister Theresa May's Brexit deal on January 16. Photo/Getty

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Hard Brexit

Mr Finny says the possibility of a "hard" Brexit - the UK dropping out of the EU without any kind of exit deal and reverting to standard world trade rules - poses the biggest threat to New Zealand.

"I think the major implication for us now is actually around access to the UK market if there is a hard Brexit," he said.

"My first piece of advice is that exporters monitor the MFAT website... NZTE's [New Zealand Trade and Enterprise] also providing lots of helpful advice.

"It's possible there will be delays at the border, the meat industry seems to be the most potentially affected and I'm very impressed at the way they are monitoring the situation - they've actually invested in putting someone into London to manage the situation."

He says he hopes a hard Brexit is avoided, but if not then the UK would be in a position to negotiate fair trade agreements.

"I would anticipate that New Zealand will be very high up the list as a potential FTA partner," he said.

He said there would be different ways the UK could look at achieving that, however.

"Either directly, or as part of a process involving Australia and Canada, or the UK might seek membership of CPTPP [Comprehensive and Progressive Agreement for Trans-Pacific Partnership] which would be very interesting."

No Brexit

The possibility of no Brexit - the UK, whether through a second Brexit referendum or political wranglings - would be simpler.

"We've begun negotiations with the EU on a free trade agreement," Mr Finny said.

"So, once those are completed we would presumably have better access into the UK and the rest of the EU than we do right now.

"Certainly if the UK were to remain in the EU there are a number of positives - including the fact that we would become free trade agreement partners once we conclude this negotiation."

Soft Brexit

A soft Brexit is really the only other option - a situation where the UK leaves the EU with some sort of deal.

Presumably such a deal would involve the UK maintaining some access to EU markets, but with the resounding vote against Mrs May's deal it's unclear what that would look like.

One option suggested by some commentators has been a model similar to that of Norway, which is not a membership of the EU but through the European Free Trade Association is in the "European Economic area" which links it to Norway, Iceland, Liechtenstein and Switzerland.

That means it has full access to the single market, and very limited barriers to EU trade - but must pay substantially into the EU budget and follow most EU rules and laws.

"If it's the Norwegian model, there would be the potential for us to negotiate our own deal," Mr Finny said.

"The issue for the UK ... if you're going to go for a model such as that you're probably best to stay inside the EU because at least you have a say on how the rules are put together - you've got a vote around the table.

"If you move to the Norway-type model you're pretty much an EU rule taker, and I'd assume that a few of the Tory party rebels would be pretty negative on that as a possibility."

Mrs May has ruled out the possibility of such a model and vowed to leave the single market as well as the customs union, but it remains a possibility under different leadership.

brexit

Currency could take a pounding

Regardless of which way the Brexit goes, Mr Finny said the pound Sterling will suffer.

"I think it's inevitable, the money markets don't like uncertainty and I'm pretty sure that no one in the UK or around the world knows exactly how this is going to pan out.

"It's a really uncertain situation at this point in time - it may be a good time for people to plan a holiday to the UK."

This article was first published on Radio NZ.

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