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Don't hold your breath for an NZ-UK free trade agreement as Brexit drags on

Amidst the Brexit carry on, we're holding our breath for a New Zealand-UK free trade agreement when there are other, better trade opportunities to chase.

The latest episode of the Brexit drama has seen the October 31 “do or die” deadline for Britain to leave the European Union (EU) die in inglorious death. The Brexit clock has now moved to the end of January 2020 and Britain’s parliament is now heading to a general election on December 12. While we might smugly look on from the comfort of the South Pacific at what from the outside looks like a never ending maul, our desired free trade agreement with Britain could fall victim to the same malaise.

Not that New Zealanders should be losing sleep over Brexit’s long gestation causing delay to a future New Zealand-United Kingdom Free Trade Agreement. We have two other trade deals in the pipeline that deserve much more attention: one with the EU itself that could unlock the continent and its frustrating array of regulation and control, especially in the agricultural sector. The other, with the unnecessarily long title of “Regional Comprehensive Economic Partnership” (RCEP), is a grouping covering India, China, South East Asia, Australia and New Zealand. Little attention has been given to RCEP yet it offers the most potential for new export markets, especially with India.

Depending on the economist or statistician you ask, India’s economy is either about to or already has overtaken the United Kingdom. The potential for New Zealand trading in dairy (although due to our economies of scale, liberalisation of that trade might have to wait under the RCEP agreement), tourism and IT services is huge. Numerous New Zealand and Indian IT firms already collaborate through frustrating layers of permits and controls. New Zealand’s time zone, essentially being awake when most of the world is asleep, is a huge advantage for us. And yet, much like the agreement with the EU, trade with India or the rest of the RCEP block barely gets a mention.

We can thank Brexit for that. Even before Britain voted in that fateful referendum of June 2016, Winston Peters was extolling in the House of Lords no less the virtues of a Commonwealth-wide free trade agreement. This proposed agreement made it into the Labour-New Zealand First coalition agreement, but appears to have made little progress.

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The Commonwealth free trade agreement is pure fantasy. The former British Empire abandoned its attempts at Imperial preference for trade in the 1930s, when the Great Depression unleashed a dose of economic reality. Sticking solely to Britain and the Empire was unsustainable mercantilism. The modern Commonwealth is a much looser grouping than the British Empire ever was, and to suggest the Commonwealth could agree to free or preferential trade that even the Empire failed to agree to is wishful thinking of the worst kind.

Sure, we had a visit from Liz Truss, Britain’s minister of international trade. This was a pleasing turnaround from the 1960s and 70s when it was New Zealand ministers jetting off to Europe to beg for trade concessions. There was a media release with the usual flattery but hardly anything solid came out of this visit. While Truss was here, a speech she made prior to becoming a minister of the Crown, was circulated. She attacked Britain’s huge cheese imports, which at the moment come mainly from France, in what is a worrying sign for New Zealand’s exporters. We now have in place a mutual recognition agreement in the event of an increasingly unlikely no-deal Brexit to keep our exports to and imports from Britain flowing.

This is a relief because in February this year Michael Gove, another minister in Britain’s government and now senior advisor to Britain’s prime minister, made a statement to the National Farmers Union that was very worrying to New Zealand exporters. Gove stated that in the event of a no-deal Brexit, a 30 percent tariff would be imposed on all agricultural exports to Britain. This was across the board, with no suggestion of Commonwealth preference.

At the time of writing, it appeared the “great new deal” negotiated by Boris Johnson’s government and the EU will pass. Once it does, since Britain (Northern Ireland excepted) will be out of the single customs union, Britain is free to negotiate free trade agreements. But economic reality will still apply: almost half of Britain’s exports go to the European Union, and about 20 percent go to the United States. We are kidding ourselves if we think the EU and the US will not be ahead of us in the queue.

As the Brexit maul unfurls, we can only be certain that we will see even more delay. And even when the end of the Brexit road is reached we can't be certain that we will get the free trade agreement we want. What is certain is that there is no going back to pre-1973 New Zealand dependence on Britain. And anyway, we now have other irons in the trade agreement fire that present huge opportunities. Instead of worrying about Brexit, we should grab new opportunities from the fire. 

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