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Oldfriends,Newopportunities

NOVEMBER2018NewZealandInternationalBusinessForum

AdiscussionpaperonthepotentialforaUK-NZFTA

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ThisreportwaspreparedfortheNewZealand InternationalBusinessForumbyAssociateDirectorStephanieHoney. Nothing in this report shouldbe takenasnecessarilyrepresentingtheviewsofanyindividualNZIBFmember,norofanyofthosewhogenerouslyprovidedinterviewsorassistanceinthepreparationofthisreport.

©NewZealandInternationalBusinessForum2018

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EXECUTIVESUMMARYTheUnitedKingdom(UK)isoneofNewZealand’soldestandclosesttradeandinvestmentpartners, with flows of goods, services and capital dating back to NewZealand’s earliestcolonialhistory.AstheUKlookstoreorientitselfmoretowardsglobalmarketspost-Brexit,theNewZealand business communitywants to preserve aswell as to build on thiswell-establishedrelationship.NewZealandbusinessseesastrongcaseforthedevelopmentofnew architecture for the bilateral trade and investment relationship in the form of anambitious,comprehensiveandhigh-qualityfreetradeagreement(FTA).Thiswouldsatisfycommercial,economicandstrategicobjectives,andwouldbetterreflectthewaythattheUKandNewZealanddobusiness,tradeandliveinthe21stCentury.AbilateralFTAshouldachievebothambitioustradeliberalisationandexpandedcross-borderinvestmentinordertoenhanceproductivityandinnovation,generatedynamicgainsandhelptocreatejobsandraiselivingstandardsinbotheconomies.Reflectingthenatureofmodernbusiness,theFTAshouldincludenotjustcomprehensivenewmarketaccessforgoodsandservices(includingbyeliminatingnon-tariffbarriers)butshouldalsoseektofacilitatetradeandaddress‘nextgeneration’issuessuchasintellectualproperty,governmentprocurement,regulatorycoherenceandthedigitaleconomy.AnFTAwouldatthesametimehelptoensurethattheplayingfieldremainslevelonbothsidesinlightofnewthird-countrytradedeals.TheUK is alreadyNewZealand’s sixth-largest exportmarket, our eighth-largest sourceofimports and a substantial investor, but there is scope to expand both collaboration andopportunities in a number of sectors, including food and beverage, niche manufacturedproducts and specialised services aswell as in the digital economy and in responding toconsumerconcernsonsustainability.Thereisalsopotentialtodeepenexistingcommercialpartnerships and develop global value chains into thirdmarkets, especially in AsiawhereNewZealandhaswell-establishedFTAs.Thereisalsosignificantpotentialtogrowtwo-wayflowsofskilledprofessionalsformutualeconomicbenefit.Beyond immediate commercial considerations, the FTA would provide opportunities tostrengtheninclusionintrade–acoresocialandeconomicobjectiveforbothsides–includingforsmallbusinesses,womenentrepreneurs,regionalcommunitiesandMaori.

Strategically,anambitiousFTAwouldservetodemonstratetheUK’sglobaltrade-liberalisingcredentials, not leastwith a view to creating a building block for UKmembership of theComprehensiveandProgressiveAgreementforTrans-PacificPartnership(CPTPP),aswellasastepalongthepathtoaneventualCommonwealth-widetradearrangement.

It is clear that awareness of the potential impacts and risks of various Brexit scenarios,includinganuntidy ‘no-deal’ outcome, is lowamongNewZealandbusinesses. This couldusefullybeafocusforoutreachandawareness-raisingalongsideFTAconsultations.

AbouttheNewZealandInternationalBusinessForumNZIBFisacoalitionofseniorbusinessleadersworkingtogethertopromoteNewZealand’sengagementintheglobaleconomy.Formoredetail,seewww.tradeworks.org.nz.

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AprospectiveNewZealand-UnitedKingdomFTANewZealandandtheUKhavealonganddeephistory, leavened with shared language,culture,valuesandlegalsystems.Thishasbuiltasolidfoundationforthepresent-daybilateralrelationship, which is characterised byextensive people-to-people links, easybusinessrelationshipsandaprocessofregularpolicydialogue.NewZealandexportershavelong seen the UK as a springboard intoContinental Europe, particularly for primarysectorproducts,andlikewiseNewZealandhasbeen seen as an attractive destination forinvestment aswell as tourism, andamodestbutattractivenichemarketforBritishexports.There is however scope to transformwhat isalreadyaverygoodbilateralconnectionintoadynamic, modern and mutually-beneficialrelationship through an FTA that betterreflectstheevolutionofthewaythatweeachlive,dobusiness,andthriveassocieties.“GlobalBritain”:FTAsinprospectAs a result of the UK’s decision to leave theEuropeanUnion(EU),thepotentialnowexistsforabilateralFTAbetweenNewZealandandthe UK. In July, the British Governmentannounced that it wanted to prioritise FTAnegotiationswithNewZealand,AustraliaandtheUnitedStates,alongwithaccessiontotheComprehensive and Progressive Agreementfor Trans-Pacific Partnership, or CPTPP, andlaunched a consultation process (to whichNZIBF contributed).1 The UKwants tomovequickly to launch negotiations with newpartnersonceithasexitedtheEU.The UK is a sophisticatedmarket of over 66millionpeople,withthefifth-largesteconomyintheworldandthesecond-largestintheEU,worthUSD$2.94trillion.

1https://www.gov.uk/government/news/new-public-consultations-announced-for-future-trade-agreements.2https://www.weforum.org/agenda/2018/04/the-worlds-biggest-economies-in-2018/3https://www.export.gov/article?id=United-Kingdom-Infornation-Communication-Technology-ICT

TheUK is amember of both theG7 and theG20.2 It isaglobal leader in services trade,particularly financial services; it is also thelargest market for information andcommunications technology in Europe (andindeed one of the largest in the world), andthereisstrongpolicysupportforthecontinueddevelopment of the digital economy and avibrant British tech sector. 3 This globalleadership in services builds on the UK’straditional strengths in goods, particularly inagricultureandinsophisticatedmanufacturing,especially automobiles andmachinery. TheUKranks7thintheWorldBank’sEaseofDoingBusinessranking.AsforNewZealand,despiteitssmallsize,itisa strong economic performer offering usefulniche opportunities. British exports toNewZealand are growing at 16.8%, a fasterpace than the UK’s global average and faroutstripping export growth to the EU. 4NewZealandisrankedfirstintheWorldBank’seaseofdoingbusinessranking,andisforecasttoenjoygrowthof3percentforthenexttwoyears–bycomparisonGDPgrowthintheEuroarea is less than 2 percent and for theUK isonly1.2–1.3percentoverthesameperiod.5

4https://www.gov.uk/government/news/new-public-consultations-announced-for-future-trade-agreements5http://www.doingbusiness.org/content/dam/doingBusiness/media/Annual-Reports/English/DB2018-Full-Report.pdf;foreconomicoutlookseeOECD,http://www.oecd.org/newzealand/new-zealand-economic-forecast-summary.htm

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BrexitandNewZealandbusinessperceptionsInMarch2017,followingareferendumonwhetherto‘leave’or‘remain’intheEU,theUKtriggeredArticle50oftheTreatyontheEuropeanUnion,beginningaprocessofformalwithdrawal.TheUKisscheduledtoexittheEUon29March2019.TheUKandEUhavenegotiatedadraftwithdrawalagreement,alongwithapoliticaldeclarationthatmapsoutthebroadshapeofafuturetradearrangement.ThedealneedsapprovalbothfromtheBritishParliamentandtheEuropeanParliamentbeforethenecessaryimplementinglegislationcanbepassed.Deadlinesforachievingthisarerapidlyapproaching;securingParliamentaryapprovalsarefarfromagiven.MostcommentatorssuggestthatthelatestafinaldealcouldbestruckbetweenUKandEUnegotiatorsisDecember,orperhapsaslateasJanuary2019,inordertopassthelegislationandachieveanorderlydeparture.Shouldthedealbeagreedandimplementinglegislationpassed,theUKwillformallyleavetheEUon29Marchbutwithanagreed“transitionperiod”inplaceatleastuntiltheendof2020(ifnotlonger–thereisrecentspeculationthatthiscouldbeextendedto2022).Thistransitionperiodwillmeanthatcurrentarrangements,includingexistingtermsofaccessforNewZealand,stayinplacewhilethefutureUK-EUtradearrangementsarenegotiated.TheUKwillalsobefreetoundertakeFTAnegotiationswiththirdcountriesduringthetransitionbutnotimplementoutcomesuntiltheUKdefinitivelyleavestheEUCustomsUnion.However,shouldtherebea“nodeal”outcome,theUKwouldleavetheEUon29Marchwithoutanybilateraltraderulesinplace,noranytransitionperiod.Atthatpoint,theUKwouldbetreatedasathirdcountrybytheEUanditsaccesswouldbeundertheEU’sWTOSchedule(includingtariffsandtariffratequotas)andassociatedEUrules.Oneofthemostdifficult“withdrawal”issuesiswhethertherewillbea“hard”borderbetweenNorthernIrelandandtheRepublicofIreland,subjecttoCustomsandotherchecks.Thewithdrawalagreementincludesabinding“backstop”fortheUKtoremaininatemporarycustomsunionwiththeEUtoavoidthis.However,theUKcanonlyleavethebackstopwiththeEU’sagreement,andhascommittedto“leveltheplayingfield”byalsopledgingtoabidebyEUrulesonstateaid,competition,taxationandtheenvironmentwhileinacustomsunion–bothcontroversialelementsintheUK.Inaddition,thereisunhappinessoverthesignalsinthePoliticalDeclarationofapossiblefuturetradearrangementbetweentheUKandEU,whichimpliesclosealignmentwiththeEU.SomeintheUKarecallingforasecondreferendum.ImpactonthirdcountriesGiventhemultiplepotentialscenariosforBrexit,thesituationfacingthird-countryexportsisfarfromclear.MuchdependsonthenatureoffutureUK-EUarrangements.Ifaformalwithdrawalagreementcanbefinalisedbefore29March,thestatusquoantewillapplytothird-countrytradeuntiltheendofthetransitionperiodinDecember2020.Afterthat,anorderlymovetoanewUK-EUtradearrangementwouldhavelikelyminimalimpactonthirdcountries.However,shouldfutureUK-EUarrangementsnotbeconcludedinthetransitionperiod,thepost-2020situationwouldagainreverttooneofuncertainty.ShouldtheUKleavetheEUwith“nodeal”,thiswouldhaveasignificantimpactonthird-countrytrade.Ataminimum,therewouldbesignificantdisruptionattheborder(duetopressureoninfrastructure,capacityandregulatoryrequirements),andinthemarketasaresultofUK-EUtraderevertingtoWTO‘mostfavourednation’(MFN)terms.

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ThebilateraltradeandeconomicrelationshipThe UK is still New Zealand’s sixth-largestsingle export market for goods and services,despitethesubstantialdiversificationinexportdestinationsthathastakenplacefollowingtheUK’s entry into the European EconomicCommunity in 1973. The UK remains animportantdestinationforagricultureproducts,food and beverage, high-value consumergoods and specialised manufactured itemssuchasmedicaltechnologyandboats.TheUKis also our eighth-largest source of imports(and an important supplier of vehicles andmachinery) and a substantial investmentpartner. Overall there is a modest tradesurplusinNewZealand’sfavour.

TheNewZealandbusinesscommunitystronglysupports the strengthening of the existingtrading relationship. Businesses still see theUKasavaluablemarketandoneinwhichitiseasytodobusiness,withrelativelyfewtrade-relatedheadaches. Manycommentedthat itwould be a priority to see that mutuallybeneficialrelationshipcontinue.

BrexitandNewZealandbusinessperceptions–continuedInterviewswithNewZealandstakeholderssuggestthat:- NewZealandprimarysectorexportersarewatchingBrexitveryclosely.Manyhave

startedcontingencyplanningforapossibleno-dealoutcome,giventhelikelyextentofmarketdisruption,particularlyforthosewithcomplexsupplychainsandinvestmentsacrosstheUKandContinentalEurope.Ano-dealoutcomewouldpotentiallyhaveasignificantimpactonboththevalueandvolumeofexports,atleastintheshortterm;

- manyothersintheNewZealandbusinesscommunityareawareofBrexitbutnotsignificantlyacrossthedetailofthepotentialrisksofano-dealoutcome;

- althoughtodatetheimpactofBrexituncertaintyontheUKeconomyhasbeensurprisinglymodest,anumberofNewZealandbusinessesarealreadyreportingheadwinds–forexample,Britishcustomersscalingbackinvestment,andageneralslow-downineconomicactivity,withconsequentimpactsondemand,particularlyforhigh-valueconsumergoodsandeveningovernmentprocurement

- severalofthoseinterviewedcommentedonhowchallengingthe“massiveBrexituncertainty”wasforbusiness,regardlessoftheshapeofafinaloutcome.

ThedifficultissueofTRQsBrexit should not see existing WTO market access opportunities for agriculture productsdiminished or undermined in either quality or quantity, including through the splitting ofexistingUruguayRoundtariffratequotas(TRQs). Thiswouldtakeawayexporters’abilitytoadjustthedestinationofexports inordertorespondresponsiblytomarketconditions. It isimportantforUKandEUproducersaswellasthosefromNewZealandthatexportersareableto take account of dynamic markets, domestic production and consumer demand as theyevolve.TheTRQsformpartoftheEU’sandUK’slegally-bindingWTOcommitmentsandmustbe respected. As a separatematter, any access negotiatedunder an FTA should take as astartingpointandbuildontheexistingWTOcommitmentsandadministrativearrangements.

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In a recent Export New Zealand/DHL ExportBarometer, 30 percent of NewZealandexporterssaidthattheycurrentlyexportedtothe UK –with Britain even edging out Chinafromtherankings.However,only21percentof exporters in the survey said that the UKwouldbe their topexport destination in twoyears’ time.6This suggests that theUKcouldbecome relatively less important to NewZealand unless the current dynamic can beenergised, for example through activelypromoting new trade and investment linksthroughanFTA.TheUKinterestWhileNewZealandisarelativelymodesttradeand investment partner for the UK, Britisheconomic interest clearly lies in at leastmaintainingtradeandinvestmentflows–andideally, as the UK turns outward, to growingthem, particularly for niche high-valueproducts such as food and beverage. As aninvestment destination and potential valuechainpartnerfortheUK,too, it isalsoworthnoting that NewZealand enjoys strongsustained economic growth and consistentlyratesatthetopoftheleaguetablesforeaseofdoing business. The latter is an importantingredient for participation in global valuechains,reflectingthatGVCintermediateinputsare in effect “domestic”, such as businessservices, telecoms, or financial services, forwhich a favourable domestic environment iskey.Commercialopportunities:theimportanceofambitionTheUKcurrentlyfacessomeseminalchoicesinsetting its post-Brexit trade policy direction.

6https://www.exportnz.org.nz/__data/assets/pdf_file/0004/156622/2018-ExportNZ-DHL-Export-Barometer.pdf

Much remains to be resolved about howcloselytheUKmayinfuturebealignedtotheEU’s trade policy and regulatory approaches,andwhetherthatalignmentappliestoservicesaswellasgoods.Thereislikelytobetensionbetween,ontheonehand,adheringcloselytoEU approaches, and on the other, exploringflexibilitytopursuemaximallyambitiousFTAswiththirdcountries.CurrentlytheEUandUKpolicies and regulations, supply chains andmarketsaredeeplyintertwined,butaspartofits“GlobalBritain”approachtheUKislikelytocomeunderpressurefromtradingpartnerstomoveawayfromelementsofcurrentEUpolicy;at the same time, the ‘political declaration’signaledlikelyfutureclosealignmentbetweentheUKandEU,especiallyforgoodstrade.AsfortheNewZealand-UKrelationship,thereareclearcomplementaritiesacrosssectors,inproduction approaches, seasonality anddemand–intheprimarysector(includingforwineandotherbeverages,horticulture,meatandmeatproducts,dairy,fishandseafoodandprocessed food); in niche manufacturingincluding medical equipment and agri-tech,and in services such as ICT, tourism,professional and business services, financialservices, education, and more specialisedareas such as environmental services andagriculture-relatedservices.New Zealand businesswouldwant to see anambitious and commercially meaningfulmarketaccessoutcomeinaUKFTA,involvingthe rapid elimination of all tariffs, significantexpansionfollowedbyeliminationoftariffratequotas (including elimination of all in-quotatariffs) and the removal of other barriers totrade, including regulatory impediments togoodsandservicestradeandothernon-tariffbarriers.Equally important to liberalisation measureswill be trade-facilitating provisions such assimple, streamlined rules of origin andCustoms procedures and well-designedregulatory measures. Freeing up marketaccess would provide manufacturers with

“ThesedayspeopletalkaboutAsia–buttheUKstillreallymatters.”

NewZealandbusinessorganisation

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improved access to high-quality inputs,includingnotjustintermediategoodsbutalsoback-officeandtechnicalservices.Consumerswouldbenefitfromaccesstoagreatervarietyofhigh-quality,competitively-pricedproducts.New Zealand businesses would also want tosee included forward-looking provisions fordeeper economic cooperation, such asinvestment, regulatory cooperation andcoherence, competition policy, intellectualproperty, labour mobility and governmentprocurement.Thiswouldhelptosupportbothsides’ goal of more inclusive growth bycreating new opportunities for small andmedium-sizedbusinesses.Importantly,forbothsidesanFTAwouldhelpto preserve a relatively level playing field ineachother’smarkets;tradedoesnotstandstilland nor should trade agreements. NewZealandisintheprocessofnegotiatingand/orupgradingpreferentialtradeagreementswithother important trading partners (includingChina,Korea, Japan,CanadaandASEAN) inaway that could set UK exporters at acompetitivedisadvantageintheNewZealandandothermarkets in the absenceof an FTA.Similarly, potential future UK FTAs coulddisadvantage New Zealand in the UKmarketwithoutanFTA.

Globalvaluechains:awealthofpossibilitiesModernproductionmodelssuchasglobalvaluechains(GVCs)demandmoreopen,predictableandtransparenttradeandinvestmentregimesandrelativelylowtradecosts.Thecombinationofhightradecostsandthe‘tyrannyofdistance’betweentheUK,NewZealandandAsiahavemeantthatthepotentialinthisareahasnotbeenfullyexploited.An ambitious FTA would present both sideswith greater scope to participate in GVCs byleveraging areas of comparative advantageandlinkingintoAsia.7AccessingNewZealand’sFTA portfolio in the Asia-Pacific throughinvestment and value chains is likely to be ausefulshort-cutfortheUKwhileitnegotiatesits own suite of trade agreements in theregion.8 Theremayalsobe flow-onbenefitsfromenhancedvalue-chainactivityintheformof a more competitive services sector (giventhecentralityofservicestoGVCs)andamorereceptive environment for innovation ininformationandcommunicationstechnology

7OECDanalysissuggestsareasofNZstrengthinglobalvaluechainsincludeintermediategoodsinagricultureandservicesincludingbusinessservices,transport,logisticsandICT.http://www.oecd.org/sti/ind/GVCs%20-%20NEW%20ZEALAND.pdfSeealsoOECD,‘TradePolicyImplicationsofGlobalValueChains’,May2013

8 New Zealand has FTAs and/or is in the process ofupgrading or implementing FTAs with China, ASEAN,CPTPP economies, Korea, Hong Kong and Australia.NewZealandisnegotiatingwiththeEU,withthePacificAllianceincludingColombia,andwiththeparticipantsinthe Regional Comprehensive Economic PartnershipnegotiationsincludingIndia.

“TheUKisagreatmarket–it’srelativelyeasytodobusinessandleveragepartnershipsthere,andwehaveseamlessaccessaroundtheEU.Amajorgoalwouldbetoseethatcontinue”.

NewZealandmanufacturingfirm

Casestudy:globalvaluechains

OneNewZealandF&BbusinessundertakesmanufacturingactivityintheUK,usingNewZealandintellectualpropertyandsourcingingredientsfromaroundtheUK,theEUandthirdcountries,packagestheproductontheContinentusingEuropeanmaterials,anddistributestofoodservicecustomersthroughouttheEU.Shouldtherebeano-dealBrexitorlow-ambitionUK-EUdeal,newtariffsandnon-tariffbarrierscouldhaveasignificantnegativeimpactonthisprofitablebusinessmodel.

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Thebiggerpicture:broadereconomicbenefitsA bilateral FTA would potentially offereconomic benefits beyond immediatecommercial gains. An FTA which coversintellectualproperty,thedigitaleconomyandinvestment could foster greater cross-fertilisation of ideas, technology, people andcapital, with benefits in terms ofcompetitiveness, productivity and eventuallybetterlivingstandardsinbotheconomies.Theregulatory cooperation that an FTA wouldgenerate would contribute not just to anenablingbusinessenvironmentbutalsocouldaddressimportantsocietaloutcomesincludingfor the environment and human, animal andplanthealthandsafety.Thereisalsoscopetopresent a more powerful united voiceinternationally on issues of shared concernsuchassustainabilityandenvironmentalissues,animalwelfareandnon-tariffbarriersinthirdmarkets such as unscientific or onerousbiosecurityrequirements.TheFTAwouldalsoprovideanopportunityforbothsidestostrengtheninclusion,seekingtofoster more, and more successful,participation in trade by small businesses,women, regional communities and Maori.Likewise,theFTAshouldbeorientedtowardssustainable development, with a view toensuringthattradeandenvironmentalpoliciesarecompatibleandmutually-reinforcing.

ThestrategicopportunityAbilateralFTAwould fillan importantgap inNewZealand’stradearchitecture.Alongwiththe EU FTA currently under negotiation,modernising arrangements with the UK willcontribute to ensuring thatNewZealandhasdeep,future-proofedconnectionswithallofitsmostimportanteconomicpartners.(Itshouldbe noted that there are likely to be someinteresting questions around speed,sequencingandambitionarisingfromthefactthatNewZealandiscurrentlynegotiatingwiththe EU, hopes to negotiatewith theUK, andthattheEUandUKareinnegotiationwitheachother.)Morebroadly,anambitiousFTAcouldservetoburnish both sides’ credentials as forward-lookingand creativenegotiators. It couldbeseenasabuildingblocktowardsmembershipbytheUKofCPTPP–somethingthatarangeof CPTPP partners have indicated that theywould welcome – as well as an eventualCommonwealthtradearrangement.Thatsaid,there are likely to be some sequencingchallenges:inparticular,CPTPPmembersmayfirst want to know what relationship the UKwillhavewiththeEUbeforeproceeding.TheCPTPP approach on financial services, e-commerce, regulatory cooperation and SPSmeasures, for example, is rather different toexistingEUapproaches.

“TheFTAgivesusachancetoshowtheworldwhatcanbedone,especiallyonprogressivetradeissues–thisisanimportantstrategicopportunityforbothofus”

NewZealandbusinessorganisation

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Sectors:OpportunitiesandchallengesNewZealandexportedjustunderNZD$1.5billionofgoodsandjustoverNZD$1.5billionofservicestotheUKlastyear.MostNewZealandgoodsexportstotheUKareagricultureandfoodandbeverage,but other important exports include machinery and equipment, marine vessels and othermanufactureditems.NewZealandservicesexportsincludetourism,transport,businessservices,ICTand intellectual property-related charges, financial services and education. (See Annex I formoredetail.)TheUKsuppliedaroundNZ$1.7billionofimportstoNewZealandlastyear,includingvehiclesandpartsofallsorts,propellers,spirits,medicinesandbooks,machineryandarangeofservices.Giventhesecurrenttradeprofilesandareasofcomparativeadvantage,therewouldseemtobescopetogrowmutually-beneficialopportunitiesinthefollowingsectorsinparticular:

• agriculture,foodandbeverage;• digitalandICTincludingcybersecurityandcreativeeconomyexports;• agri-techandnichemanufacturing(forexample,marinevessels,medicalequipment);• professionalservices,specialisedservicesandeducation,andpartneringmodelsforservices

provisionthattakeadvantageofthetimedifferencetosupplythirdmarkets;• goodsandservicesthatincludeastrongelementof“sustainability”and“ethicalproduction”

Agriculture,foodandbeverageTheUKisNewZealand’sfifth-largestfoodandbeverage export market, reflecting the verylongsharedhistoryofNewZealandastheUK’s“foodbasket”.9MajorNewZealandagri-foodexports include sheepmeat, wine, apples,honey, shellfish, beef, offal, vegetables andfruit including onions and boysenberries,processed ingredients, prepared foods andbeverages.NewZealandproductshaveawell-deservedreputationforhighqualityandvalue.Whileonaverageacross theboardUK tariffsarerelativelylow,bycontrastintheagri-foodsector,tariffstendtobemuchhigher–despitethe welcome efforts that the UK and thebroaderEUmembershiphavemadetoreformdomestic policies. Products of significantexport interest to NewZealand continue toface high tariff barriers or access effectivelyonlythroughvolume-limitedtariffratequotas–someofthelatterwith in-quotatariffratesthat make even exports within the quotauneconomic.ThisisthecaseevenwheretheUK is itself be a significant internationally-competitive exporter and where consumer

9NZTE,TheUnitedKingdomMarketGuide,May2018

demand remains high, for example for dairyandmeat.Inthehorticulturesector,productsface seasonal tariffswhich distort prices andmarketing decisions. But even where tariffsare relatively low, competitors may enjoybettertermsofaccess.

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(Figuresintheboxabove,includingcalculationsof‘advalorem’tariffequivalents,fromvarioussources10)NewZealandisacounter-seasonalproducerinboth the livestock and horticulture sectors,and there is potential for British andNewZealand producers to work together tooffer year-round shelf-supply in a range ofmarkets, grow brands and consumption, andto develop innovative and complementaryapproaches that draw on the best expertise,ideas, resources and areas of comparativeadvantage in each economy. This partneringcouldsupplynotjusteachother’smarkets,butalso third countries, especially in the Asia-Pacific.NewZealandproductcanalsohelptoprovidesupplementarysuppliesintimesofUKmarket shortfalls, including for the foodserviceandfoodmanufacturingsectors.As noted earlier, a bilateral trade agreementprovidestheopportunitytodriveincreasedUKparticipation in global value chains, includingby leveraging off NewZealand’s FTAs andlinking with value chains in Asia. This isparticularlythecaseintheareaofagriculturaltrade, where the production of high-qualityandsafefoodbyboththeUKandNewZealandprovides significant opportunity for deeper

10SeeforexampleHuan-NiemiE,‘SensitiveAgriculturalProductsintheEUundertheDohaRound,12thCongressoftheEuropeanAssociationofAgriculturalEconomists,2008;https://www.adelaide.edu.au/press/titles/eu-trade/eu-trade-ebook.pdf,page179–180

commercial partnerships and collaboration,aimedatincreasingcompetitivenessinthird-country markets including in the Asia-Pacificregion. The removal of tariff barriers,supportedbytrade-facilitatingrulesoforigin,are critical to ensure such benefits are fullycapturedbyexporters.

Primarysectormarketaccess:scalingthepeaks

• NewZealandhoneyfacesatariffof17.3%;competitorsenterduty-free;• In-quotatariffsonbutterandcheeseandcomplexquotaadministration

requirementsconstrainregulartrade;MFNdutiesondairyproductscanrangetoover600%

• MFNtariffsonmeatrangeuptonearly300%;• Tariffsonfishandseafoodaverage12.5%,whilecompetitorsmaybeduty-free;• Applesenjoyatariff-freeentryperiodbutatothertimesfaceatariffof10.4%;

SouthernHemispherecompetitorsenjoypreferentialaccess;• Tariffsonwinearebetweenaround6%and20%• Theaveragetariffonprocessedfoodsis14.6%;• Non-tariffmeasuresandprivatestandardson“sustainability”andSPSmeasures

areabigfactorinmarketaccess.Oneestimateputstheimpactoftariffsandnon-tariffmeasuresonagri-foodimportsattheequivalentofaround54%

• AlthoughNewZealandisgenerallyveryopen,UKproducersmayhaveconcernsaroundsomenon-tariffmeasures,forexampleonspirits

TheremaybesensitivitiesontheBritishsideinrelation to a small number of agricultureproducts–butformanysuchproducts,theUKisanefficient,internationally-competitiveandhigh-quality producer; and New Zealandproduction – limited by our natural resourceendowment – in fact makes up only a smallfractionofBritishconsumption.The UK is also at a crossroads on the futuredirectionofitsagriculturepolicy,includingthenature of future government support foragriculture. The NewZealand agriculture

11WTO,WorldTradeReport2012,Tradeandpublicpolicies:Acloserlookatnon-tariffmeasuresinthe21stcentury,2012.SeealsoCentreforEconomicPolicyResearch,‘ReducingTransatlanticBarrierstoTradeand

sector is keen to share its own positiveexperiencesofmoremarket-orientedandlessproduction-distorting farm policies andmoreopenmarkets.Thepotentialforexpansionofthe UK farm sector outside of the EU alsocreates new scope for knowledge-sharing aswell as great commercial opportunities tosupplyhigh-qualityNewZealandagri-techandotherrelevantgoodsandservices.Non-tariffmeasuresandnon-tariffbarriersStudies show that non-tariff barriers cansignificantly impedetrade,evenwherecross-borderactivitiesmaynotbeatarget.Movingtowards more efficient, cost-effective andcompatible regulations can deliver significantgains for both profitability and innovation.11Agriculture,foodandbeverageisnoexceptiontothistrend.Thefullbenefitsofnewmarketaccesscanonlyberealisedthroughprovisionsthat seek tominimise or eliminate non-tariffbarriers. At the same time, non-tariffmeasuresshouldbedesignedtoenabletrade,including through the use of WTO-plusapproachestosanitaryandphytosanitary(SPS)measures,standardsandlabelling.NewZealandisrecognisedasaninternationalleaderforitshigh-qualityproductionandfood

Investment–anEconomicAssessment’,March2013,page97ff(hereafter“CEPR”).Thestudyconcludesthatasmuchat80percentoftotalpotentialgainsfromanEU-USFTAcomefromNTBs,liberalizingtradeinservicesandpublicprocurement.

Food&beveragepartnershipinaction

NZ-UKpartnershipscouldinclude:

• Year-roundshelf-supplyofapples,otherfruitandvegetables,includingintothirdmarkets, and relationships to developco-commercialisationofnewvarieties;

• “Best in season” lamb during eachmarket’soff-season;

• Dairy sector partnerships and jointventuresinmanufacturingandexportingdairy ingredients (such as wheyderivatives and components for infantformula) and finished consumer goodsinto Asia and elsewhere – reflecting inparticular both New Zealand and UKstrengths as dairy exporters; the UK istheworld’sfifth-largestdairyexporter;

• Investmentandpartnershipsintheagri-food sector in both directions, forexampleinthewine,dairy,horticulture,agriculture and plant genetic material,processedfoodandbeveragesectors;

• Scope to share technology andintellectual property in the agricultureand horticulture sectors, includingaroundplantbreeding,dairystandards,processingtechnologiesandagri-tech;

• Global leadership on quality, animalwelfare and sustainable productionacrosstheagri-foodsector

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safety standards in both its industry andregulatory systems in agriculture and food.NewZealand is also consistently ranked ashaving someof thehighestandbest-practiceregulatory standards in theworldonmatterssuch as animal welfare. For example, NewZealandwasrankedfirstequal (alongsidetheUK) in animal welfare by the World AnimalProtection’s 2014 Animal Protection IndexIncorporatedIndex. NewZealand’sapproachiswellunderstoodbytheUKandothersintheEU,asevidencedbythenowtwenty-year-oldEU-NewZealandVeterinaryAgreement.12TheNewZealandbusinesscommunitywouldwanttoseesuchaframeworkcontinuepost-Brexitin respect of the UK, as well as anacknowledgment of equivalence on animalwelfare and outcomes-focused regulatoryapproaches.There may also be scope to develop mutualrecognitionofotherstandardsinagri-food,forexampleinrelationtodelegatedauthorityforcompliance with recognised horticultureproduction standards, organic certification,wine-makingpracticesorsustainability.On the latter, British consumers and retailchainsplaceaverystrongemphasisonproductintegrity, provenance, quality andsustainability. Retailer requirements – forexample,foranimalwelfareor“environmentalfriendliness”–have insomecasesbecomeaneffective floor on standards in the market,even though they may not have beendeveloped or implemented in a transparent,robust, science-based or minimally trade-distorting manner, as would be the case forgovernmentrequirements.12TheVeterinaryAgreement,whichhasbeenofficiallyinforcesince2003,facilitatestradeinanimalproducts

Bytheirverynature,such“privatestandards”would fall outside the scope of an FTA.However, given the potential for addingsignificantcoststotrade,therewouldbemeritin establishing a regular dialogue amongbusiness, retailers and regulators on thedevelopment of private standards and theconceptof“equivalence”.Thiswouldnotjustbenefitexporters,butalsotheretailsectorandconsumers–andwouldalsoreflectthesharedinterests of both agri-food sectors aroundsustainabilityandtheenvironmentalfootprintofagriculturalproduction.

andliveanimalswhilesafeguardingpublicandanimalhealth.

Themousethatroared:NewZealand’stinyshareofworldproduction

• NewZealandproduceslessthan3%oftheworld’s milk, while global demand isexpanding. EU imports of NewZealandcheese and butter accounted for less than0.2% of total EU cheese consumption andlessthan1%ofEUbutterconsumption.TheUK, a highly efficient producer in its ownright,is intheworld’stop3dairyimportersby value, 2nd-largest net importer andworld’slargestcheeseimporter.• New Zealand accounts for only 6% ofworld sheepmeat production and less than1%ofglobalbeefproduction

• New Zealand is responsible for 0.6% ofglobalproductionofapples;theEU14%

• New Zealand produces 0.46% of globalwineproduction

“There’sabigshiftintheUKtowardssustainability.Thatcreatesrealopportunitiesacrossallsectors,butparticularlyinfoodandbeverage.”

NewZealandF&Bbusiness

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Nichemanufacturing In general tariffs are low on manufacturedgoods in both markets. However, theweighted average that UK exporters pay ontheirexportstoNewZealand isstill relativelyhigh and potentially disrupts trade especiallyfor high value-added goods.13 UK exportersmayfindthemselvesatatariffdisadvantageintheNewZealandmarketforkeymanufactureditems such as automobiles, auto parts andmachinery (whereNewZealand retains somemodest tariff peaks), pharmaceuticals andequipmentasaresultofotherNZFTAs.Moreimportantthantariffs,however,willbeframeworks designed to facilitate trade inmanufactured goods, including streamlinedCustoms procedures, simple and transparentRulesofOrigin,andevidence-basedtechnicalrequirements and standards consistent withWTOrulesandinternationalnorms.WTO-plusapproaches to technical measures couldincludesectoralannexes, forexampleCPTPP-style approaches to mutual recognition ofwinemakingpracticesormutualrecognitionofmedical technology standards, conformityassessmentandgoodmanufacturingpractices.Duplicatingandexpandingtheexisting(limited)EU-NZ Mutual Recognition Arrangementwouldalsobeuseful.Services,digitaltradeandinvestmentIt is not widely known, and runs counter toNewZealand’sgeneralexportprofile,thatNewZealand exports (slightly)more services thangoods to theUK. Important servicesexportsinclude tourism, transport, business services,telecoms and computer-related services aswell as intellectual property-related charges.While NewZealand and the UK both alreadyhaverelativelyopenandcompetitiveservicessectors,anFTAcouldoffergainsbylockingin13EuropeanCentreforInternationalPoliticalEconomy(ECIPE),‘NewZealand:theEU’sAsia-PacificPartnershipandtheCaseforaNextGenerationFTA’,July201514TheUKhasbelow-averagescoresforservicestraderestrictivenessinall23sectors,accordingtotheOECD’s

these current policy settings; trade costs arereduced by greater certainty and stability inservicesmarketaccess.Lookingatthepicture ingreaterdetail,whileUK services trade barriers are generally low,there are relatively higher restrictions inrespectofanumberofsectorsofcommercialinteresttoNewZealand,includingairservices,accounting, architecture and engineeringservices. For all of these sectors, there aresalientrestrictionsinrelationtothemovementof people. For accounting and auditingservices, therearealsobarriers in relation tothe validation of professional qualificationsandtheuseofprofessionaltitles.14TheUKalsomaintainsrestrictionswithregardto aspects of transport, logistics anddistribution services: these have adisproportionate importance given the largedistance between the UK and New Zealand,thepredominanceofbulky goods inbilateraltrade and rising global shipping costs due toconsolidationintheindustry.Other areas where some restrictions remainincludemotionpictures (wheresubsidiesandtax relief for theproductionof filmsareonlyavailableforBritishproductions),legalservices,broadcastingservices,andcomputerservices–the latter including barriers in regulatorytransparency and cross-border data flows, aswellasrestrictionsonpeoplemovement.15

ServicesTradeRestrictivenessIndexdatabase,2017;seehttp://www.oecd.org/tad/services-trade/STRI_GBR.pdf15TheUKhasbelow-averagescoresforservicestraderestrictivenessinall23sectors,accordingtotheOECD’sServicesTradeRestrictivenessIndexdatabase,2017;seehttp://www.oecd.org/tad/services-trade/STRI_GBR.pdf

15

Ideally the FTA would be based on anambitious negative-list approach withprovision for ongoing reviewandprogressiveliberalisation over time; it should alsoincorporate mechanisms to ensure that theFTA keeps pace with wider liberalisationefforts, including a ratchet clause and MFNprovisions. 16 Such efforts could use as astarting point progress in the Geneva-basedTrade in Services Agreement negotiations,whichgenerallyreflectbestFTAcommitments.Securing a more liberal trading environmentfor services would have benefits not justdirectly for services exporters but alsoreflecting the key role that services play insupportinggoodstrade,includinginGVCs,andembodied and embedded in manufactureditems including for example in agri-tech andmedical equipment. Enhancing theinternational competitiveness of core sectorssuch as transport, telecommunications,financialservicesandthedigitaleconomyalsounderpins overall competitiveness of andproductivity in both economies.NewZealand’s high-quality economicgovernance will contribute to substantialmutual benefits in regulation-intensive areasofservices.

For New Zealand exporters, there may bescopetoexpandtradeinanumberofsectorsincludingcomputerand ICT services; creativeeconomy exports including film, music anddesign; tourism; professional and business

16ForadiscussionofbarrierstoEU/UKservicesexporters,seeHosukLee-Makiyama,‘NewZealand:TheEU’sAsia-PacificPartnershipandtheCaseforaNext-GenerationFTA’,ECIPEJuly2015;theOECDSTRIreports

services including engineering andaccountancy, design and legal services;healthcare financial services; education, andmorespecialisedareassuchasenvironmentalservices and agriculture-related services aswellasNewZealand’sworld-leadingresearchanddevelopment.Examples of current innovative New Zealandofferings in the services sector includecollaboration around the use of cloud-baseddigital technologies inthetourismsectorandsharing of specialised knowledge in seismicandgeothermalengineeringIn the other direction, fintech and otherfinancial services, professional services andservices relating to infrastructure all havepotential to expand into the New Zealandmarket,formutualbenefit.Thepotentialforafintech bridge should also be explored andcouldhelpNewZealandfirmstobecomemoreagileandscaleup.Likewise,theimportanceoffinancial services for intermediation withregionalvaluechainsatbothendsshouldnotbeunderestimated.Ironically,manyofthoseinterviewedidentifiedtherigidbankingsystemasamajorbusinessheadache–sometimesonethatcouldlastformonths–intheUKmarket.Twoimportantelementsinfacilitatinggreatertrade in services are mutual recognition ofqualifications and licensing, and thestreamlining of visa processes for businessvisitors and otherMode 4 services providers(including intra-corporate transfers, contractservices suppliers and others). The UnitedKingdomapplies labourmarketteststointra-corporate transferees or independentsuppliers seeking to provide services in thecountry on a temporary basis. The UK hasrelativelyhigherbarriersonthemovementofpeople in respect of a number of sectors

thatthebiggestrelativebarriersintheNewZealandmarketincludeaspectsoftransport,logisticsanddistributionservices,airtransportandrecognitionofqualificationsforprofessionalservices.Seehttp://www.oecd.org/tad/services-trade/STRI_NZL.pdf

16

including accounting, legal, architecture andengineeringservices.17Manybusinessesemphasisedthevalue-addingcontributionof professionals and skilled staffmoving between the two markets –particularly in sectors with very specificsophisticated skill-sets, such as high-techmanufacturing,digitalservicesandtechstart-ups.ThefutureneedsofUKcompaniesinthisareamay increaseafterBrexit as the currenteasyaccessforyoungEuropeanprofessionalsbecomes more restricted; likewise, theattractiveness of New Zealand as anemployment destination for a few years forlifestyle reasons could also encourage skilledUKprofessionalstotransfer.OnestakeholderdescribedtheFTAasofferingthepotentialfora“richexchangeofhumancapital”.However current visa processes are widelyseen as expensive, time-consuming, overly-burdensome and unpredictable, andpotentially discouraging to cross-borderinvestment – particularly for smallerbusinesses, forwhich,ofcourse, theburdensofcostandtimefalldisproportionatelyheavily.Thisisthecaseevenforaccredited/registeredvisasponsors.One suggestion was for a new user-friendlyprovisional visa category for skilled workerswithguaranteedjoboffers,toenablethemtostart work quickly while waiting for morelonger-termvisaarrangementstobeapproved;others suggested multiple-entry visas forbusinesses where a lot of cross-borderpersonnelmovementistakingplace. Othersalso commented on the value of keepingborders open in both directions for genuine17http://www.oecd.org/tad/services-trade/STRI_GBR.pdf

visitors,forallthetourism-relatedandbroadereconomicbenefitsthatthiscouldgenerate.There is also scope to deepen partnershipsoutsideofphysicalpresence. ThedigitalandICTrevolutionmeansthatNewZealandandUKservicesfirmscouldcombineforcestoexploitwhathaslongbeenseenasthedisadvantageof geography. The time difference betweenthe two economies means that there ispotential to provide customers in thirdcountries with round-the-clock service,whether in software or computer services,legaloraccountingservices,orconsulting–forexample, supplying services to customers ontheEastCoastoftheUnitedStatesfromtheUK,and the West Coast from NewZealand; orsimilarly providing services customers indifferent parts of Asia. This is alreadyhappeninginasmallway.DigitaltradeNewZealandandtheUnitedKingdomhavetheopportunity to set new benchmarks for thedigital economy, an area where global rulesframeworksarelaggingfarbehindtechnologyandbusinessactivity,butwhichisincreasinglyreshapingtraditionalcommercialmodels.Whilemost currentbilateral trade is inmore‘traditional’services,thereisclearlysignificantpotentialtoexpandinthedigitalarena.AnFTAshould seek to include binding non-discriminatorydigitaltraderules–negotiatedwith an eye to progress in broader globalsettings such as theWTO as well as existingmodelssuchasthatintheCPTPP, inordertoavoidcontributingtoa“digitalnoodlebowl”offragmented regulatory approaches andmarkets.

“WeshouldtrytomakethisFTAthegoldstandardfordigitalservices.”

NewZealandfinancialservicessector

“TheFTAcouldineffectactasakeytalentacquisitionandretentionstrategy.”NewZealandfinancialservicessector

commentator

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Centraltothiswillberulesforthefreeflowofdataacrossborders,includingaprohibitiononforced data localisation, while also ensuringthat legitimate objectives including privacy,consumer protection and cyber security aremetintheleasttrade-restrictivemanner.ThisseemslikelytorequireadeparturefortheUKfromcurrentEUpolicysettingsinthisarea.UK business has a commercial interest insecuringEUrecognitionof“adequacy”ondataprotection (something which New Zealandalreadyenjoys). ThereareaccordinglystrongreasonsfortheUKtoremaincloselyalignedtothe EU’s Digital Single Market, which coversthe data flows, cybersecurity, privacy, ICTstandardsandintellectualproperty,andtotheEUGeneralDataProtectionRegulation(GDPR).Some NewZealand businesses noted highcompliancecostsforGDPR(andthepotentialforunforeseenconsequencesfromsomeofitsprovisions), and of data localisationrequirements–forexample,requiringmedicaldatatobestoredwithinamarket,potentiallyimpeding trade in healthcare services. Anumbercommentedonthecostsevenjusttosecure the legal advice to be confident thattheywerecompliant.One-commerce,theCPTPPapproachisagoodbasis– includingcommitmentsnottoimposeduties or other charges on digital products;provisionsone-authenticationandrecognitionof e-signatures; quick, transparent andpredictable e-border processes, a high deminimis Customs threshold; cooperation oninteroperability and conformity assessment;and consultation with stakeholders on newstandards.

There are also likely to be opportunities incloud computing, cybersecurity, IT services,artificial intelligence, augmented reality andvirtualrealityandtheInternetofThings.InvestmentOn investment, the bilateral relationship isalready strong. The UK is the fifth largestsingleinvestorinNewZealandandthelargestEuropean investor, while the UK isNewZealand’s fourth-largest outwardinvestment destination. New Zealandcurrently discriminates against UK (and EU)investorsintermsofitsinvestmentscreeningthreshold,whichisconsiderablyhigherforUKinvestorsthanformanyothertradingpartners.ThebusinesscommunityrecognisesthevalueofinflowsofforeigncapitalintoNewZealand,and similarly the importance of outwardinvestment in important markets, includingtheUK,toexpandthevalueoftrade.Businessalsorecognisesthattradeagreementsshouldprovide appropriate protection and certaintyfor foreign investors and investment (bothinward and outward), while preserving the

Moderneconomies,modernrules• Restrictingcross-borderdataflows

addscostsanddisincentivisescross-bordertradeindigitalservices,especiallyforSMEs

• Regulationofthedigitaleconomyandservicesshouldbeinnovation-friendly–regulatorysandboxescansupportthedevelopmentofnewmodelsofbusiness,andsystemsshouldbedesignedtobeinteroperable

• Quick,smoothandcost-effectivevisaprocessesarevitaltoenablebusinessestoofferafullrangeofservicestocustomers

• Mutualrecognitionofprofessionalqualificationsandlicensingisalsocriticaltosmooththewheelsofservicestradeandbroadereconomiccompetitiveness

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Government’s continuing right to regulate inthepublicinterest.Accordingly business would want to see anambitious investment element (includingservices-relatedinvestment) intheFTA. It isworthnotingthatUKinvestorsmayendupinan advantageous position vis-à-vis theirEuropeancounterparts,sincethisisanareaof‘mixedcompetence’fortheEUandaccordinglyaspects of investment (including portfolioinvestment, investment promotion andinvestment dispute settlement) will beexcludedfromtheEU-NZFTAnegotiations.

Other“NextGeneration”issuesTomaximisedynamicgains,theFTAshouldsetnew benchmarks on a range of “nextgeneration” issues, including governmentprocurement, intellectual property, andregulatorycoherence.Governmentprocurementisapotentiallyverylarge market and offers a significantopportunityforNewZealandexporters.Someof those interviewed already compete forgovernmentprocurementopportunitiesintheUK but have found that these can bechallenging, expensive and time-consumingprocesseswithaninherentbiastowardslocalsuppliers, even when the rules appearstraightforward. Access would also beenhanced if UK government procurementwebsites recognised company registration inNew Zealand for eligibility for governmentcontracts.Onintellectualproperty,approachesshouldbedesigned to be trade-enabling rather thantrade-restrictingandshouldfosterinnovation.Onfood-related“geographical indications”orGIs, the business community acknowledgesthatGIshavearoleininternationaltradelawto protect the intellectual property rights oftrulyspecialisedproductslikewinesandspirits

18Geographicalindications(GIs)areakindofintellectualpropertyprotection–acertified“GI”hasexclusiverightstousethegeographicalnamefrom

thatpossessauniqueandstrongtietoasinglegeographicallocation.However,NewZealandexporters could not accept an approach inwhich theuseof generic namesor terms forproducts widely in commercial use orproductionanddistributionwererestrictedinNewZealandorthirdmarkets.18IntheareaofR&Dandscienceandtechnology,New Zealand already has a bilateralcooperationagreementandahighproportionof New Zealand international researchcollaboration already takes place withEuropean (including British) entities; bydeepening links at the business-to-businesslevel,anFTAwouldgenerategreaterimpetusin those relationships and the potential fordynamiccommercialisationofresearchinkeyareas. A number of those interviewed talkedpositively about theR&D tax credits that theUKoffered,whichhelpedtogenerateamoreinnovativemindset.Finally,businessconsidersthatamodernFTAshouldincludeprovisionsaimedatregulatorycoherence, be it throughmutual recognition,equivalence, harmonisation or a process ofprogressive convergence. Business was onlytoo aware that regulatory divergence acrossmarkets could add significant costs and redtape to business. New Zealand and the UKcould establish consultative mechanisms todelivergreatertransparencyandengagementin the development of regulations, takingparticular account of the importance oftimeliness, the counter-seasonal nature ofNewZealand’s trade, our distance from themarketandoursmallbutskilledlabourforce.Some also called for greater coordination ontaxpolicy.While endorsing the concept of regulatorycoherencebetweentheUKandNewZealand,several stakeholders noted the risk of thecreation of a “noodle bowl” of divergentregulationsasbetweentheUKandEU,andtheimpact that this could have on New Zealandexporterstobothmarkets.

whichitoriginates,whereagivenquality,reputationorothercharacteristicofthegoodisessentiallyattributabletoitsgeographicalorigin.

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Conclusion

NewZealandbusinessseesastrongcaseforanambitious, comprehensive and high-qualityFTAwiththeUK.Therewouldbeimmediatecommercialpayoffsandscopetodeepentradeand partnerships in a range of sectors,including agri-food, niche manufactures andspecialised services as well as in the digitaleconomy;therewouldseemtobeparticularlygoodprospectsfordeeperglobalvaluechainsin the agri-food sector, including into Asia.Thereissignificantpotentialtogrowtwo-wayflows of skilled professionals for sharedeconomicbenefit,andtoexpandtradeinthedigitalarea. AnFTAwouldat the same timehelp to ensure that the playing field remainslevelonbothsidesinlightofothernewtradedealsthateachmaystrikewiththirdcountries.

Beyond those short-term gains, however, anFTA could contribute to broader economicobjectives – including more sustainable andinclusiveapproachestotrade–andtolonger-term strategic objectives. An ambitious FTAwould serve to demonstrate the UK’s globaltrade-liberalising credentials, not just forbilateral agreements but also with a view toacting as a building block towards UKmembership of the Comprehensive andProgressive Agreement for Trans-PacificPartnership(CPTPP),aswellasastepalongthepath to an eventual Commonwealth-widetrade arrangement. Overall, a bilateral FTAcould help enhance productivity andinnovation, generate dynamic gains and helptocreatejobsandraiselivingstandardsinbotheconomies

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AnnexI:Thecurrenttradeandinvestmentpicture19TheUKisalreadyasignificanttradeandinvestmentpartnerforNewZealand.Totaltwo-waytradewasNZD$5.55billion,withamodesttradesurplusinNewZealand’sfavour.Table1:Two-wayNewZealand-UnitedKingdomTrade,YearEndingDecember2017 ExportstotheUK(NZD$billion) ImportsfromtheUK(NZD$billion)

Value Rank20 %ofNZexportstoEU

Value Rank21 %NZimportsfromEU

Goods $1.45b 7th 28% $1.66b 12th 16%Services $1.52b 5th 43% $0.93b 5th 26%Total $2.97b 6th 34% $2.58b 9th 19%Lastyear,theUKwasNewZealand’sfifth-largestsingledestinationforgoodsandservicesexports–sixth-largestifyouincludetheEUasawholeinthetally–withatotalvalueofnearlyNZD$3billion.TheUKaccountedforjustoverone-thirdofallNewZealandgoodsandservicesexportstotheEU,contributingoverone-quarterofourgoodsexportsandover40percentofourservicesexportstotheEU.NewZealandexportedjustunderNZD$1.5billionofgoodstotheUKlastyear. MostNewZealandmerchandiseexports to theUKare foodandbeverage, includingsheepmeat,wine,apples,honey,edibleoffalsandshellfish,andassociatedagriculturesectorproducts(wool,non-edibleoffals,animalbloodproducts).Exportsofdairyproducts,onceNewZealand’smajorexportitemtotheUK,havedroppedmarkedlyinrecentyears,althoughdairystillmakesupasignificantshareofNewZealand’stop20exports to theEU,and indeed remainsNewZealand’s topglobalexport. Other importantexports include machinery and equipment (including medical equipment), plastic items, phones,motorvehicles,yachts,metals(ferrousscrap,aluminium)andpharmaceuticals.NewZealandexportedjustoverNZD$1.5billionofservicestotheUKlastyear.Importantservicesexportsincludetourismandothertravel(includingbusinesstravelandeducation),transport,businessandprofessional services (includingcomputerservicesand ICT, legal,architectureandengineeringservices), and intellectual property-related charges. Financial services, cultural and recreationalservices,Governmentservicesandeducationwerealsonotable.BothNewZealandandtheUKhavesimilarprofilesintermsofahighproportionofdomesticvalue-addedinservicesandmanufacturing,accordingtotheOECD’sTradeinValue-Addeddatabase(whichlooksatthevalueaddedbyeachcountryintheproductionofgoodsandservices,soreflectingthemodernglobalvaluechainbusinessmodel).Inotherwords,forbotheconomies,showingagreaterrelativeimportanceofservicesvalue-addedandmanufacturingvalue-addedthanagricultureinbothcases.22TheUKsuppliedaroundNZ$1.7billionofimportstoNewZealandlastyear.ImportantimportsfromtheUKincludevehiclesandparts(includingmotorvehicles,tractors,trucksandvans,bulldozersand

19Unlessotherwisespecified,statisticsinthissectioncomefromStatisticsNewZealand,GlobalNewZealandYearEndingDecember2017,https://www.stats.govt.nz/reports/global-new-zealand-year-ended-december-2017orInfosharetool,www.stats.govt.nz.20RankofNewZealandexportdestinations,IncludingtheEUasaseparatedestinationintherankings21Ranksofsourcesofimports,includingtheEUasaseparatesourceintherankings22OECD/WTOTiVADatabase,for2011,https://stats.oecd.org/index.aspx?queryid=75537

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excavatorsandpublic transportvehicles), turbo-jetsandpropellers, trailers, spirits,medicinesandbooks, machinery (including dishwashing, sorting and grinding machinery), medical instruments,plastics, valves, cosmetics and agricultural chemicals. Imports from the UK of services includedtourism,insurance,broadcastrightsandbusinessservices.TheUKisNewZealand’sfifth-largestexportdestinationforagriculturalproductsoverall;ourlargestmarketforapples;secondforsheepmeatandwine;third-largestexportdestinationformeatandmeatproductsandforwool;andeight-largestforfruitandvegetables.Fornon-agriculturalproducts,theUKisourninth-largestmarketfornon-agriculturalproductsoverall,fifth-largestmarketfortextiles,clothingandfootwear,andfifth-largestformachinery.TheUKisthefifthlargestsingleinvestorinNewZealandandthelargestEuropeaninvestor.Asat31December2017,theUKheldNZD$5.66billioninNewZealand,accountingforaround5.3percentofallforeigndirectinvestment.TheUKisNewZealand’sfourth-largestODIdestination.NewZealandhadNZD$1.32billioninvestedintheUnitedKingdomasat31December2017,around5.2percentofNewZealand’stotalinvestmentabroad.In the year to December 2017, there were over 28,000 British short-term visitor arrivals (13,000departures)andaround15,000permanentmigrants.Thiswasjustover11percentoftotalpermanentorlong-termarrivals.

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AnnexII:ConsultationInpreparing thispaper, interviewswereconductedwithover40 stakeholders, commentatorsandthinktanksaroundNewZealandandasmallnumberintheUnitedKingdom.Stakeholdersincludedrepresentatives from the agri-food sector (including meat, dairy, horticulture, fisheries, wine,processed food, beverages, agricultural equipment and technology), manufacturing, services anddigital trade, and business and member organisations. Interviews took place from August toNovember2018.Nospecificviewexpressedinthispaper,inwholeorinpart,shouldbetakenasnecessarilyrepresentingtheviewsofanyindividualororganisation.Asmallnumberofthoseinterviewedpreferrednottobenamedinthisreportordidnotconsiderthattheyhadasubstantivecommenttooffer.Interviewsincluded:ANZCOFoodsApples&PearsNewZealandBeef+LambBecaBritishNewZealandBusinessAssociationBusinessNewZealand/ExportNewZealandChambersofCommerceofNewZealandDairyCompanies’AssociationofNewZealandDouglasPharmaceuticalsEducationNewZealandFinTechNewZealandFonterraHelloDigitalHorticultureNewZealandKarmaCola/AllGoodOrganics

LICLICAutomationMagicMemoriesMeatIndustryAssociationMedicalTechnologyAssociationofNZMethodRecyclingLtdNewZealandHorticultureExportAuthorityNewZealandWinegrowersOrionHealthRussellMcVeaghSealordSnapperWaikatoMilkingSystemWeCreate

We warmly acknowledge the very useful background conversations we had in the process ofresearchingthisreportwitharangeofthinktanksandothercommentatorsinNewZealandandintheUK,includingtheNewZealandInstituteofEconomicResearch,theCentreforEuropeanReform,UKinaChangingEuropeandOpenEurope,aswellasreviewingdiscussionpapersfromawiderangeofcurrent UK commentators and other think tanks. Nothing in this report should be taken asrepresentinganyspecificviewexpressedinthoseconversations.WearemostgratefulfortheinformaldiscussionsandsupportprovidedbytheNewZealandMinistryof Foreign Affairs and Trade, New Zealand Trade and Enterprise, the British High Commission inNewZealandandtheUKDepartmentforInternationalTrade;again,noviewsinthisreportshouldbeattributedtoanyparty.ThekindassistanceofNZIBFinternElzanneBesterinpreparingthisreportiswarmlyappreciated.AboutNZIBFNZIBF is a coalition of senior New Zealand business leaders working together to promoteNewZealand’sengagementintheglobaleconomy.NZIBFreceivesnodirectgovernmentfundingforitsoperatingbudgetbutfromtimetotimereceivesfundingforjointly-fundedprojects. FundingisalsoprovidedinrespecttothepolicyadviceandsupportNZIBFprovidestotheNewZealandmembersoftheAPECBusinessAdvisoryCouncil(ABAC).TheviewsinthispaperarethoseoftheNewZealandInternationalBusinessForumasawhole. IndividualNZIBFmembersmayhavedifferentviewsonspecificissues.Forfurtherinformationpleaseseewww.tradeworks.org.nz.