New Zealand’s sheepmeat exporters are having to make commercial decisions now, effectively in a vacuum, for their shipments for Europe’s Easter season, next April, the sector’s new Brexit representative says.
Speaking at a briefing for the Guild of Agricultural Journalists & Communicators in early October, Jeff Grant explained his role – funded by the Meat Industry Association and Beef + Lamb NZ, with support from AGMARDT – is around opportunities in the two potential free trade agreements with both the EU and New Zealand.
Both the UK and EU are cornerstone markets for New Zealand red meat. In the 2017-2018 meat export season, while dropping to the number two position under China, the EU region still accounted for around half of the value earned from New Zealand’s sheepmeat exports ($1.5 billion). The UK accounted for a half of that. Europe is still the largest market for exports of high-value New Zealand chilled lamb and also for smaller quantities of high-quality beef products.
Access for New Zealand meat to the EU is via legally-bound World Trade Organisation (WTO) tariff-rate quotas: for sheepmeat, this is 228,245 tonnes and for just 1,300 tonnes for high-quality beef.
Early negotiations for the UK’s withdrawal from the EU, saw an agreement reached by the two parties to simply split the quotas when the UK officially leaves the trade bloc. Under this proposal, 114,000 tonnes of sheepmeat would be destined for the UK and 114,000 tonnes to the remainder of the EU countries. For beef, the proposal would mean the quota would be split into commercially unviable parcels of 454 tonnes to the UK and 846 tonnes to the EU27.
New Zealand is among many other third countries to have made its strong protestations known about the “totally unacceptable” proposal. The red meat sector argues the proposal erodes its legally binding WTO rights, Grant explained. The EU has lodged an Article 28 process in the WTO to amend its goods schedule to reflect this proposal. New Zealand and other countries with similar interests are objecting to this and have raised concerns that the proposal does not reflect commercial realities and will result in loss of market access.
In the meantime, the UK has applied to the WTO to establish its own good schedule, including its ‘share’ of various quotas, but will not physically be able to negotiate trade deals with a third country until it exits the EU on 29 March next year.
Under New Zealand’s current WTO rights, companies can export to either the UK or the EU up to the full quota amount to reflect market dynamics and manage market stability.
New Zealand needs to have this flexibility in the market, Grant is arguing.
“Our ability to be able trade and shift product between Europe and the UK has to operate as it does currently – the ability [to trade] with no constraints.”
Contrary to assumptions made in Europe, New Zealand is not seeking additional access under the current WTO quota. New Zealand’s position is the status quo and that WTO rights and obligations are the foundations of market access, said Grant.
Any additional access will have to be negotiated in the two independent free trade agreement (FTA) negotiations with the UK and the EU.
New Zealand has already commenced the EU-NZ FTA negotiations – in fact EU officials are in this country this week – but the UK will be unable to start negotiations with New Zealand until after 29 March next year, when they officially leave the EU.
Grant explained the complexity ahead of the Brexit negotiators, which he believes is now in a worse position than when negotiations started.
“The political rhetoric has got harsher and tougher,” he said, but he doesn’t think that means there is no possibility of getting agreement up and running.
The three scenarios are for, firstly, soft Brexit – part Chequers with a frictionless border and a 21-month transition period after exit on 29 March, but means British exporters are still subject to EU rules and regulations. Second is a ‘hard Brexit’, which would mean a toughening of the border and negotiating some form of trade deal – there is certainly no appetite in the EU for “going soft” on the UK, according to Grant. This would mean that the 65 percent of Irish goods going to Europe and transiting the UK by road will be subject to border control and potentially increased tariffs.
“If you stop every truck coming off the ferry at Dover to inspect for six minutes, in 12 hours you’ll have a back-up around the M25 around London,” he said.
The third option is a no deal under which, Grant said, “everything is off the table,” and the UK becomes a third country, like other countries without a preferential trade deal, will have to trade into the EU under the EU’s WTO schedule.
He painted a picture of what could happen at that point. “All of the English and Welsh lamb will face a 60 percent tariff, which will make it uneconomic for British meat processors to export the meat, so they will stop exporting,” he explained. In addition, while the abattoirs meet EU plant standards, they are not able to negotiate equivalence for the US and China, which again cannot be triggered until 29 March 2019.
He gave the example of British chicken production, 65 percent of which is exported. Of that that, there is perhaps 5,000 tonnes of chicken wings. On the day of a no deal unless the exporters have clearance they won’t be able to export them. In addition, rendering plants have been banned since the BSE outbreak, so the only other option left for their disposal is “to dig holes”, said Grant.
With the UK market potentially getting tighter, more New Zealand volume would go to Europe up to the quota cap.
When Grant first got to the UK in July, there was talk of a hard Brexit and a soft Brexit and about a 10 percent chance of a no deal.
“In my view, a no deal up to last week was a 50 percent chance and the likelihood of a more hard Brexit, rather than the soft option was going to be the outcome,” he said.
“Like other businesses, New Zealand’s meat companies are going to be making decisions soon about what they will be doing next season, particularly in the Easter trading period which peaks on 19 April 2019, but they will have to make these in a vacuum.”
The biggest sticking point remains around the Northern Ireland border, which is fundamental to the outcome, according to Grant. After decades of ‘The Troubles’ in the province, a hard border was removed in the Good Friday Agreement, which brought peace to the province and cessation of activity by the IRA. The Democratic Unionist Party (DUP) will not accept a return to the hard border, the Irish Republic is not keen on it either and Teresa May has said that no British Prime Minister will ever give away sovereignty.
“A solution has to be found to that and then everything will fall in behind,” said Grant, who says he’s an optimist and believes that everything will come together at the eleventh hour.
“My sense is they’ve got time to get it right, but the damage is already done,” he said.
In the meantime, with 147 days to go at the time Grant was speaking the clock was ticking. Brexit is costing the UK in the region of £500 million a week and all of the commercial decisions are being made in the background, in a vacuum.
- 17-18 October – The EU Council meets to discuss UK proposals
- November – If no resolution found on 17-18 October the EU Council will meet for a second time
- 13 December – Final EU Council meeting
- pre-Christmas – The resolution must pass through the UK Parliament in Westminster by Christmas
- 29 March 2019 – If a soft or hard Brexit is approved, the UK will exit the EU and the 21-month transition period starts. The UK can officially begin free trade agreement negotiations with New Zealand and apply for WTO quota. If no, deal all is off the table and the UK becomes a third country.
- 21 April 2017 – Easter Day.
- End December 2020 – The UK is untethered from the EU.
Jeff Grant was speaking at the NZ Guild of Agricultural Journalists and Communicator’s 60th anniversary briefing day in Wellington on 5 October 2018.