New Zealand secures free trade agreement with United Kingdom

Export tax on nearly all products will be wiped on day one of an historic free trade agreement (FTA) between New Zealand and the United Kingdom. 

New Zealand is the second country after Australia to secure an FTA with the UK post-Brexit. It's been described as "among the very best New Zealand has secured in any trade deal" to date, according to one negotiator. 

It's only an 'agreement in principle' at this stage, meaning negotiators will work to finalise the full legal text. But that's just hashing out the details, and once it comes into force in 2022, the benefits will start to take effect. 

Tariffs, or export tax, will be eliminated from day one on 97 percent of products, including New Zealand's largest exports such as wine valued at $463.1 million, honey worth $74.9 million and onions worth $8 million. 

At full implementation, modelling shows New Zealand exports to the UK will increase by up to 40 percent and increase GDP by up to $970 million, saving exporters an estimated $37.8 million per year. 

It won't be immediate for dairy products, which New Zealand and the UK both successfully produce. It will be a transition  period, meaning tariffs on sheep meat valued at $366.1 million and beef valued at $4 million, will be wiped after 15 years. 

But during that 15-year period, the tariff-free quota for sheep meat will be up to 164,205 tonnes annually.

It's just as significant for dairy products like butter valued at $1.6 million and cheese valued at $500,000 - products traditionally shut out of the UK. Cheese, for example, will be granted a tariff-free quota of up to 48,000 tonnes annually, until tariffs are completely wiped after five years. 

And like Australia's deal with the UK, New Zealand has secured improvements to working holiday visas. This is separate from the FTA. 

Prime Minister Jacinda Ardern pictured with her British counterpart Boris Johnson.
Prime Minister Jacinda Ardern pictured with her British counterpart Boris Johnson. Photo credit: Getty Images

The exact details are subject to final discussions, but are expected to be similar to what's been announced between Australia and the UK. Under that agreement, the age limit for working holiday visas was increased from 30 to 35 and the time limit extended from two years to three. 

The FTA also includes environmental aspects, such as a prohibition on subsidies for fishing of overfished stocks, and steps to eliminate subsidies on fossil fuels. 

"This new trade deal is the cherry on the top of a long and lasting partnership between the United Kingdom and New Zealand," British Prime Minister Boris Johnson said of the FTA. 

"It is good for both our economies, boosting jobs and growth as we build back better from the pandemic. We already share deep ties of history, culture and values, and I look forward to the next chapter in our friendship."

Prime Minister Jacinda Ardern hailed the FTA as historic. 

"Prime Minister Boris Johnson and I spoke yesterday evening to mark this historic moment and its importance in forging a stronger and more dynamic future relationship between two close friends and partners," Ardern said. 

"This deal serves New Zealand's economy and exporters well as we reconnect, rebuild and recover from COVID-19, and look forward into the future."

Could it hurt UK farmers?

Farmers in the UK have expressed concern that allowing tariff-free imports from countries like New Zealand and Australia could have devastating effects for local food producers.

In an opinion piece published in the Mail on Sunday earlier this year, the president of the UK's National Farmers' Union, Minette Batters, said FTAs would "make life unbearable for small British farms".

But Sirma Karapeeva, chief executive of New Zealand's Meat Industry Association (MIA) told Newshub at the time the Farmers' Union had "nothing to fear" from an FTA. 

"Grass-fed red meat is seasonal, meaning New Zealand is an ideal trade partner for the UK as trade ensures there is a year-round supply of high-quality meat on supermarket shelves, especially during the busy Christmas period where British production is low."

It might surprise some Kiwis that New Zealand didn't already have free trade with the UK, given our deep ties of history and culture, and the fact that Queen Elizabeth II is our head of state. 

But in aligning itself with Europe in 1973, a commitment that later transitioned into joining the European Union, the UK created trade barriers between itself and New Zealand, including tariffs and quotas, that prevented Kiwi exporters from trading freely with the UK. 

In 2016, the UK voted to leave the European Union, in what was dubbed 'Brexit', which freed up the UK to make its own trade agreements. In 2019, Johnson told Ardern that a trade deal with New Zealand was a "high priority". 

Prior to COVID-19, the UK was New Zealand's seventh largest trading partner, with two-way trade worth nearly $6 billion. With the new FTA, that is expected to increase by 40 percent. 

New Zealand's current largest trading partner is China, with two-way trade worth more than $30 billion, bolstered by the 2008 FTA. Foreign Affairs Minister Nanaia Mahuta urged exporters in May to diversify, fearing a "storm" of anger from China would make us vulnerable