The UK’s trade deal with New Zealand is a baby step. We need a giant leap.

Posted on March 15, 2022
Credit Nzw Inc Mahi Wines

After leaving the EU, the UK government set out an ambitious plan to agree trade deals with a large number of countries.

The deal with New Zealand, which was signed last month, is the second of the new agreements. As it happens, the deal was concluded on the same day that the IPCC released its most recent report, with further stark warnings about the negative impacts of climate change.

We know that we need all the tools in the box to prevent the worst of global warming, and trade rules have significant impacts in key areas like energy and agriculture, so how does this deal measure up to the climate test?

New Zealand isn’t an obvious first choice as a trade partner: it ranks 55th in the list of countries the UK does trade with, with a relatively small economy and low tariffs, and, frankly, it’s very far away. In fact, the economic benefit to the UK from the New Zealand deal will be negligible.

One scenario modelled in the impact assessment predicted the deal could in fact cause the UK’s economy to contract by 0.01%. The assessment released with the final text, in which the government decided to use a different ‘modelling specification’ to calculate the impact, predicts an increase of 0.03% to GDP over the next 10-15 years, and that’s based on what some commentators have called an “exaggerated economic forecast”. By comparison, the latest estimates from the Office for Budget Responsibility predict Brexit will reduce UK GDP by 4%.

So why did the UK pick New Zealand as a priority? This question would be far easier to answer if the UK had published a trade strategy, which it hasn't.

However, it is clear that the deal is driven in no small part by New Zealand’s membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), a trade agreement between 11 countries around the Pacific Rim. The UK applied to join the agreement last year, as part of its ‘Indo-Pacific tilt’, unveiled in the Foreign Office integrated review, ‘Global Britain in a Competitive Age’. The deal with New Zealand is therefore more important as a stepping stone towards these broader aims than it is as a source of trade benefits.

So what visible difference will the deal make to those living in the UK? One outcome of trade deals is a reduction in tariffs – which can lead to reduced prices for consumer goods. This is probably the most tangible effect the trade deal will have. A substantial proportion of UK imports from New Zealand come from the food and drink sector, so UK consumers could stand to benefit from cheaper Kiwi goods.

Data from 2020 shows that the single largest import from New Zealand is alcoholic beverages, namely wine. The UK’s own impact assessment shows that tariff reductions benefiting consumers are estimated to be largest on alcoholic beverages.

But at what cost this cheaper bottle of Marlborough Sauvignon Blanc? UK farmers are one potential loser. The trade deal agrees to increase the quotas (limits on the volume of imported product) on tariff-free imports from New Zealand on a number of agricultural products, including beef and lamb. The cost of beef production is proportionally higher in the UK than New Zealand, partly due to differing standards, which means there is a possibility of New Zealand meat undercutting that produced in the UK.

Indeed the UK’s own impact assessment admits, “Some sectors, such as the agriculture and semi-processed foods sector, are expected to see an increase in competition and are estimated to contract in domestic output relative to a baseline without the agreement.”

Greenhouse gas emissions

Even more worrying are the impacts on greenhouse gas emissions. The impact assessment predicts an increase in transport emissions of 50%. The government dismisses this as “small when compared to UK production emissions”, but not only does it make no attempt to mitigate this effect, there was never any question of shaping the deal to encourage a lowering of emissions. The United Nations Framework Convention on Climate Change (UNFCCC) says that cuts of 7.6% per year for at least eight years will be needed to avoid the worst of climate change.

It should be acknowledged that the deal with New Zealand introduces some welcome innovations. Although it does nothing to address the predicted increase in emissions as a result of the deal, the environment chapter makes explicit reference to the need to limit global warming to 1.5°C and both countries commit to implementing the Paris Agreement. It commits the parties to removing subsidies for fossil fuels and phasing out coal-fired electricity generation.

The chapter also departs from our inherited EU deals by making its provisions much more enforceable: it is subject to the agreement’s dispute resolution mechanism, putting it on a par with other chapters within the agreement. This means the UK could technically challenge New Zealand (and vice versa) if either fails to uphold the commitments in the chapter.

The deal also excludes Investor-State Dispute Settlement (ISDS), a mechanism that allows companies to sue countries for policies that undermine their profits. It is often used by investors to challenge progressive environmental policies, such as the phase-out of coal-fired power stations, and can lead to instances of ‘regulatory chill’, when governments are discouraged from introducing such policies if ISDS is in place.

Despite these positive steps, the deal leaves unwanted room for manoeuvre on the environment when decisive action is needed. Much of the language of the environment chapter stops short of making specific actions binding, and commits the UK and New Zealand only to ‘endeavour’ to progress on issues like deforestation, waste reduction and air pollution.

Whilst it is good to see fossil fuels and coal-fired electricity mentioned, the UK already claims that it does not subsidise the fossil fuel industry. It is able to do this because it uses the International Energy Agency definition of subsidies, which excludes tax breaks, included in both the World Trade Organization and International Monetary Fund (IMF) definitions. This led to the bizarre situation of the EU identifying the UK as the European country with the highest fossil fuel subsidies whilst the UK has simultaneously claimed to offer no subsidies to the industry. The bar for action under the dispute mechanism is also high: a disputing party must prove that a lowering of standards was done with the specific intention of gaining a trade advantage. This is difficult to do and has never yet been achieved.

Outside of the environment chapter, there are other areas where the deal is not as ambitious as it could have been. Provisions on intellectual property have been bolstered, with New Zealand agreeing to increase its patent term. This is likely to reduce technology transfer, in direct contradiction with the UNFCCC finding that this is a priority. The procurement chapter permits commissioning bodies to take environmental considerations into account. However, it bans local content requirements, provisions which would otherwise allow the government to ensure that the transition to a low-carbon economy doesn’t negatively impact on workers in carbon-intensive industries.

The UK still holds the presidency of COP26 and has made a number of ambitious commitments on climate change, including to achieve net zero emissions by 2050. Yet these commitments are not properly feeding through to its trade strategy: the UK is signing deals that will lead to increased emissions.

Whilst there are some positive innovations in the deal with New Zealand, if the UK were serious about tackling climate change, it would be ensuring its deals contributed to the reduction in emissions that is so urgently needed. Given that the UK and New Zealand share ambition in this area, the latest trade deal begs the question: if not now, then when?

This opinion piece by George Holt originally appeared in Open Democracy on 13 March 2022. George Holt is Senior Researcher at the Trade Justice Movement.

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Image: New Zealand vineyard, Credit.NZW.Inc.Mahi.Wines.jpg