By Simon Edwards
While he is “as frustrated and angry” as New Zealand’s farmers with what was negotiated for meat and dairy access into the European Union, Vangelis Vitalis says it would have been a mistake for us to walk away without signing the deal.
Speaking to the Primary Industries NZ Summit barely 48 hours from his return from Brussels, our trade negotiator said breaking away from what had been hammered out over four years and trying to return in a year or two would have seen us “at the back of the queue” with nothing different to offer.
“When we’re negotiating with the EU, we’re confronted with the brutal reality we’re worth nothing to them,” Vangelis said. “They see 5 million consumers and an already open market.”
It does want to deal with Australia – a big economy with high tariffs. So it’s worth a lot to the EU to get a better deal there.
“It was said to me many, many times last week, ‘we care about Australia, we don’t care about you’.”
Moreover, the two big things the EU did want from us, we point blank refused. They’d sought patent term extensions on medicines, meaning NZ would not be able to bring in cheaper generics quite so quickly. That would have raised the cost of medicines for New Zealanders by hundreds of millions of dollars per year.
“We are the only OECD country that refused to agree to that in a free trade agreement [with the EU],” Vangelis said.
The EU also sought patent extensions on agricultural chemicals, which would have cost our farmers and growers hundreds of millions of dollars. We refused.
Vangelis said the EU is the most protectionist agricultural bloc in the world. It has its own reasons and justifications for that based on the Second World War and food shortages.
“The reality is, these guys operate in a completely different paradigm. It beggars belief when you’re talking to a counterpart who states that [granting access worth] 0.1 percent of their market risks destablising it.”
Much better terms for New Zealand were negotiated on seafood, kiwifruit, onions, apples, honey, wine and other goods. There will be duty free access on 91% of our current trade with that 450 million people/27 nation market from day one of ratification of the new agreement, and 97% after seven years. That’s estimated to be $110 million in tariff savings per year from ratification, and the value of our exports to the EU will increase by up to $1.8 billion per year by 2035.
Vangelis argues what was negotiated for NZ was commercially meaningful and “does shift the dial for us”, moving coverage by the rules of the various free trade agreements we have to just under 75% of our trade, up from 52% in 2017.
He said what Europe did over meat and dairy in the negotiations was “shameful”. Nevertheless, from the current “negligible to nil” access for our livestock produce, we’ve gained a little.
We’d had preferential access for 1102 tonnes of beef, but at a 20% tariff (i.e. for every $100 of sales, the EU took $20). When/if the agreement is ratified, we’ll have access for 10,000 tonnes of beef at a 7.5% tariff.
Apart from the UK, NZ is the only country with preferential access to the EU for butter (47,000 tonnes). But because of a high in quota rate of 700 Euros per tonne, it had never been economic to use that access. With the new agreement, the tariff will be cut by 86% over seven years to 95 Euros a tonne, meaning we’ll be able to use 21,000 tonnes of butter access. It’s estimated that is worth $260 million to us.
For the last five years we have not been able to use our 6031 tonnes access for cheese negotiated at the end of the Uruguay Round in 1995 because of high tariffs. If the new FTA is ratified, we get access for 31,000 tonnes, with immediate elimination of tariffs.
“We estimate that’s worth $187 million to the sector but I know there has been debate about that.”
As someone of Greek extraction, it was painful for Vangelis that as part of hard-fought negotiations over geographic indicators (GIs), NZ loses the right to use the name feta – but with a nine year transition period from when the agreement enters into force. Almost all other nations have only been able to secure a 5-year transition.
Those NZ cheese makers who currently sell parmesan and gruyere cheeses will still be able to use those names.
Another plus is that the NZ team won insertion in the agreement of the right to annual talks between us and the EU at Minister level, at which Vangelis said we can continue to press our case over meat and dairy, and on other topics.
Another mechanism in the FTA allows us to directly raise concerns about non-tariff barriers, such as subsidies to EU producers, in a “legally binding way” under international treaty.
“In other words, there’s an obligation on them to respond to our concerns about a non-tariff barrier, and about how we then need to tackle it,” Vangelis said.
All of this is not a done deal. It still needs to be ratified.
New Zealand “learned a sharp lesson” from Canada’s experience. Canada had to pursue ratification of its FTA by each of the parliaments in the EU’s 27 nations. NZ focused very tightly on ensuring that ratification would be by way of achieving a majority in the 750-plus member European Parliament.
Our opponents are already starting to “muster their forces”. Europe’s equivalent of Federated Farmers, Copa Cogeca, have claimed their livestock farmers are the “sacrificial lambs” in the FTA with New Zealand. As our team was leaving the northern hemisphere, those who will fight ratification were “holding a, quote, ‘crisis’ meeting.
“There will need to be a huge diplomatic process to push this across the line,” Vangelis said.
If things go at pace – “and at pace is a relative term in Brussels” – ratification could be achieved by the end of 2023.
Sustainability ‘extremely important’ for ratification
Kiwi farmers are regularly told by politicians and others that strong environmental credentials are crucial to market access on better terms. At the PINZ Summit, trade negotiator Vangelis Vitalis was asked if our GE-free status and low emissions meat and dairy held any sway during the EU FTA negotiations.
“There’s no question that at a political level, registering those points about sustainability and New Zealand’s status on a whole range of things [on that front] was really valuable,” Vangelis replied.
“I’ve got to say, though, that in the hand to hand combat of that last week, when you’re just negotiating tonne by tonne, that disconnect between the lovely rhetoric that the EU has, and what it’s actually willing to give you….well, it was surreal.”
However, Vangelis believed environmental credentials will be “extremely important” as we try to get the FTA ratified by the European Parliament.