The European Union (EU) is New Zealand’s fourth largest trading partner.
In 2022, New Zealand exported $4.86 billion of mainly meat, dairy, fruit, fish and seafood, and wine to the EU. Services exported to the EU totalled $759 million.
The signing of a free trade agreement (FTA) between New Zealand and the EU is set to create additional economic opportunities for our exporters. An impact assessment indicates that trade between the two parties is expected to increase by 30 percent per year. This FTA could, however, add yet another layer of potential complexity for exporters.
What distinctly separates this FTA from previous FTAs that New Zealand has signed, is the inclusion of enforceable climate change and gender equality commitments. Firstly, let’s briefly highlight some of the main economic levers that will be enabled through this FTA.
NZ-EU FTA brings benefits from day one of implementation
As soon as the NZ-EU FTA comes into force, which is expected to be in 2024 at the earliest, New Zealand exporters are poised to gain instant savings from duty-free access and the removal of tariffs on 91 percent of current trade. It is estimated that this will initially result in $100 million in tariff savings.
This FTA was welcomed by the exporters of horticultural goods, for example, kiwifruit, onions, and apples, and other agriculture-related goods, such as wine and honey, who are set to gain the most from the FTA. Essentially, all tariffs (99.9 percent) on horticultural exports will be eliminated once the FTA is in effect, and 97 percent of the tariffs on wine, honey, and other agricultural exports will also be eliminated. On the other hand, two of our leading exports, meat and dairy, will face the same level of tariff protection as previously, although they will benefit from some level of improved market access.
Commitment to the Paris Agreement set in law in the NZ-EU FTA
The NZ-EU FTA makes a bold and enforceable commitment to respect and implement the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. This commitment is consistent with both parties’ shared recognition of the importance of taking “urgent action to combat climate change and its impacts”. Both parties must support trade and climate policies, remove obstacles to trade and investment associated with climate change mitigation and adaptation, and promote emissions trading.
It is the first FTA to integrate the EU’s “Together for Green and Just Growth” approach to trade and sustainable development (TSD). A core aspect of this approach is a “stronger focus on implementation and enforcement.”
The key point is the ability to enforce. Under law, both parties are obligated to “refrain from any action that materially defeats the object and purpose of the Paris Agreement”. This legally binding aspect of the FTA is a world first, and unlike the Paris Agreement itself, it creates a process for enforcement of the Paris Agreement commitments.
This means that if one party is found to be in breach of such commitments, other obligations under the FTA could potentially be lifted through trade sanctions (after a disputes panel process). For example, tariffs on horticultural goods could be restored, which could have a very negative impact on exporters.
Commitment to gender equality and women’s economic empowerment
In the same manner that the Paris Agreement is now legally binding, both parties have made a strong commitment to advancing “gender equality and women’s economic empowerment”. This commitment puts enforceable obligations on both parties to deliver on, and implement, relevant United Nations (UN) conventions, and core International Labour Organization (ILO) labour standards. It requires both parties to:
- Promote public awareness and transparency of its gender equality laws, regulations, and policies
- Work together on trade-related aspects of gender equality policies and measures
- Acknowledge the importance of work on trade and gender being carried out at the multilateral level.
Any breach of this commitment can lawfully be followed by trade sanctions.
A different type of FTA
Although trade sanctions have been noted as a “last resort”, setting these commitments in law with enforceable consequences shows that both parties are committed to honouring their commitments. It is a real sign of wanting to implement and achieve commitments that both parties have already pledged to undertake. And now there are actual potential repercussions.
There is a level of uncertainty about how this process will play out over time. But if a government policy was ruled to be in breach of these commitments, exporters could then be faced with the consequences.