Taxes is a ‘t’ word resented by some firms but the way Vangelis Vitalis tells it, the ‘t’ word that farming businesses and other export-oriented producers should worry about is tariffs.
“You’re the sector that faces the highest tariff barriers,” New Zealand’s chief trade negotiator told an opening day session at the 2020 Primary Industries NZ Summit in Wellington on November 23.
“If you’re in manufacturing, your tariffs are probably below 5%. In [agriculture and other primary sectors] the average is 20% and in some markets may exceed 100%.”
Vitalis, who that night was to get on-line and begin the ninth round of negotiations over a free trade agreement (FTA) with the European Union, said for trade with the EU and UK our producers are at a serious disadvantage compared to most of our trade competitors.
Practical examples: Kiwifruit from New Zealand into the EU faces an 8.4% tariff but for the last nine years Chile has exported kiwifruit to Europe with zero tariffs. For honey, New Zealand gets hit by a 17% tariff when the world’s 14 other top producers, with the exception of Australia, get zero tariff entry.
“For frozen fish, for every $100 worth we export, $22 needs to go to the Brussel’s customs authority when all nine of our top trade competitors trade in at zero.”
That’s not to mention non-tariff barriers, the additional certification and other requirements that nations dream up that generally have much more to do with protecting local industries than any scientific basis.
“We conservatively estimate we’re currently facing more than $6 billion worth of non-tariff barriers internationally. That’s just in the Asia-Pacific,” Vitalis said.
His plea was for exporters to not just access the regularly updated market intelligence reports on the Ministry for Foreign Affairs & Trade (MFAT) website’s COVID trade recovery section but also to report non-tariff barrier roadblocks.
“We’ll reply within 48 hours, and we’ll turn around a strategy on how to break it down.”
Savings go straight to producers’ and exporters’ bottom lines, and help New Zealand move forward.
Rising protectionism was one of five big “uncertainty” challenges looming for our international trade, Vitalis said.
“It’s not just a President Trump phenomenon; a number of countries are starting to install barriers against New Zealand produce. There’s been a 50% increase year on year over the last three years in tariff and non-tariff barriers.
The most obvious uncertainty was the size of the global economic shock from the pandemic – on the demand and supply side.
“That has very big consequences for prices, and so it has very big consequences for you,” he told farmers and other producers at the summit at Te Papa.
The World Trade Organisation (WTO) had predicted a 13-32% “collapse” in global trade. In fact, to date the decline has been 17-18%, and for New Zealand, 12%.
“[The primary sector] has lifted us, and helped smooth the worst of it…Some of our trade figures have been much better than expected, and in some cases better than last year.”
But will there be virus resurgences, and more lockdowns?
Prices have softened in the EU, UK and USA, but are holding in Asia, Indonesia, India and Japan and have been particularly good for us in the Middle East.
Going forward – and this was a message echoed by other experts at the summit – the demand was for food that is seen as safe, healthy, of high quality and with demonstrable environmental and animal welfare credentials.
Other bumps in the road are the breakdown of the WTO’s appellate system – the route through which small trading nations like us have been able to force much bigger nations to abide by internationally agreed trade rules – and also the uncertainty of the tense USA-China trade relationship, and whether President Biden’s tack will be different from Trump’s.
For farmers, as well as the tariff issue, Vitalis highlighted the threats of domestic subsidies and heightened global awareness of climate change and sustainability.
Legitimately under WTO rules, the USA was spending $18 billion a year in agriculture subsidies – that’s as much as $US40,000 a year for some US farmers.
“That lowers prices and distorts markets for our exporters.
“That’s one of the things trade agreements need to deal with, and frankly only the WTO can make progress on that, which is why that body really matters,” Vitalis said.
New Zealand has a great story to tell on product provenance and sustainability, “and we’ll need to front foot it”.
If we do manage to negotiate an FTA with the EU, it will need to be sanctioned by the European Parliament.
“Two weeks ago I was in the European Parliament and all the questions I was asked had to do with food miles, what we were doing about climate change, why weren’t we doing more on animal welfare….
“It’s the perception challenge we need to manage, not necessarily the reality.”
Vitalis was asked a question at the end of his presentation about over-reliance on China.
“China is a crucial market. In the EU and USA, even pre-COVID, the prices were pretty good but in China there was very good growth and strong prices.
“I’m an economist. I look at the numbers and it makes good sense to have a strong relationship with China but it needs to be a ‘China and’ strategy not a ‘China alone’ strategy,” he said.
“Anyone in your business doesn’t want to be too dependent on anybody, whether the UK or elsewhere…we know that from history.
“Like any good portfolio, you need some diversification.”
What about the impact of our attitude to the Five Eyes agreement and Hong Kong, Radio NZ asked him.
Vitalis said we’d need to be coherent and consistent in our messages about why we believe certain things. The China-NZ relationship was mature and robust enough to sustain the points of difference we might have, “which clearly are significant in relation to Hong Kong”.