Most Favoured Nation: AIP, It’s As Easy As One, Two, Three
New Zealand, Australia and other things too
Overnight (well, actually yesterday morning, but announced last night) the UK and New Zealand agreed to agree a free trade agreement, subject to ironing out the terms and conditions. This agreement in principle has been a long time coming, so congrats to everyone involved.
Anyway, taking into account the fact we do not yet have the full detail, here are some of the things that I found interesting about the NZUK [pronounced: en-ZUK … like N-Dubz] deal:
1. New Zealand > Australia. On the face of it, it looks like New Zealand has got an extremely marginally, only really makes a difference on paper, better deal than Australia. At least when it comes to trade in goods.
While we still don’t know what is happening with some products in the Australia deal (see more below), New Zealand will, eventually, have full duty-and-quota free access to the UK market. Unlike the Australians, they also appear to have fended off the lobbying might of my pretend nemesis, Big Rice. Whereas Australian exporters of long-grain milled rice will have to navigate a 1000 tonne per year tariff-rate quota, the New Zealanders will not. Some might argue that this is irrelevant because New Zealand does not produce any long-grain milled rice. But let’s not let the real world get in the way of a fun narrative.
2. Generous rules of origin. The UK has a bit of a problem when it comes to free trade agreements and motor vehicles. Normally for a vehicle to qualify for a free trade agreement, around 50 per cent of the value of the vehicle needs to be created in one (or both) of the countries party to the deal. This is an issue for the UK because its auto manufacturers struggle to hit such a high local content threshold. The solution: cut the threshold in half, of course! According to the AIP, motor vehicles traded between the UK and NZ will only need to demonstrate that 25 per cent of their value was locally derived. Nice.
(Note: I don’t think the UK actually exports many cars to New Zealand, and those we do are subject to a 0% tariff anyway, but I’ve been informed by Anna Isaac that we do sell them busses (10% tariff).)
3. Brand new mobility provisions. The movement of people invariably causes a couple of problems in trade negotiations. I’ve previously written about the fact that for a reason I don’t fully understand New Zealand doesn’t normally include commitments covering the temporary movement of contractual services suppliers (CSS; when a person working for a foreign company contracted to deliver a service comes in person to your country for like 12 months to deliver that service) in its trade deals. Well … it does now! In what can only be described as a UK negotiating success, CSS will be included. However these commitments will be subject to mysterious “safeguards”. Once I find out what these safeguards are, I will be sure to write about them.
4. Environmentalists rejoice! The AIP includes commitments to take steps to eliminate fossil fuel subsidies (with limited exceptions). This is something the UK hasn’t, to my knowledge, committed to do in an FTA before. The commitment here also potentially paves the way for the UK to join the ACCTS negotiations in future, which the UK has been umming and ahhing about due to some of the requirements to scrap tariffs on environmental goods and phase out fossil fuel subsidies giving it the jitters (see the recent report I wrote with George Riddell of EY for more).
5. Environmentalists despair! [CORRECTION: DO NOT DESPAIR!!! I HAVE BEEN INFORMED THAT MY INTERPRETATION HERE WAS INDEED INCORRECT. THE LABOUR AND ENVIRONMENT COMMITMENTS WILL BE SUBJECT TO DISPUTE SETTLEMENT, WITH BREACHES POTENTIALLY PENALISED BY WITHDRAWAL OF TARIFF PREFERENCES OR SANCTIONS, AS PER CPTPP] I may have interpreted this incorrectly, but this language in relation to the agreement’s environment and labour commitments makes me think they have watered down the CPTPP approach, which would have seen breaches potentially subject to the withdrawal of tariff preferences or fines:
“Include CPTPP consultation and enforcement provisions with amendments to ensure a comprehensive and collaborative approach to dispute resolution in a bilateral context.”
Naughty.
6. Preferential investment screening threshold. As is the case for other New Zealand trade partners, UK firms investing in New Zealand will only be subject to screening if their investment is over NZ$200 million, rather than the usual NZ$100 million. Ka-ching.
7. Cracking down on crime. There’s some interesting stuff on whiskey lot codes, that only Martin Bell of the SWA really understands but also this:
“In addition, New Zealand will recognise in a side-letter that per New Zealand’s Fair Trading Act, representations that are found to constitute misleading or deceptive use of Scottish Whisky localities to label or advertise whisky/whiskey are not permitted.”
That sound you can hear is Martin dancing around his living room with joy.
8. No ISDS. Not only will the FTA not include the much maligned investor-state dispute settlement, both parties have also agreed to carve it out again (in respect of application to each other) in the future CPTPP negotiations.
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Yesterday’s news
With all the excitement about New Zealand, it’s easy to forget that the UK agreed to agree a trade deal with Australia just before the summer, but for some reason, despite both the UK and Australia agreeing to agree, the trade deal has not yet been agreed.
So here’s what I reckon has happened: in order to get a political win, Boris Johnson went into a room with Scott Morrison and said yes to pretty much everything the Australians asked for. However, a lot of the detail was left outstanding, and there was still some negotiating to do on issues such as chicken, pork and eggs.
Now, in an effort to save some face with domestic constituents (see: farmers), the UK is probably quibbling over every little outstanding detail, and the Australians, for their part, are probably quibbling back. I imagine we are talking about the most petty of issues. The placement of commas, that kind of thing.
But the thing is, none of this really matters. The deal will get done. And we know this because there is absolutely no way the Australians will walk away from the table because it is such a good deal for them. And there’s absolutely no way the UK will walk away from the table both because the PM already thinks it is done but also because walking away would be super embarrassing.
Consultation station
If you have strong opinions on how the EU and US’s Trade and Technology Council could be more useful, you’re in luck. Because the EU has created what appears to be some sort of message board, or rather “an online community of ideas and proposals” for you to contribute to. Kinda like reddit. Maybe.
Ten ‘Quick Wins’ for More Equitable Trade”
The Trade Experettes network published a report identifying ten things that could be done at the WTO to progress discussions on trade and gender. Check it out.
Congratulations!
To MFN fan-favourite Lorand Bartels, who will be chairing the latest iteration of the UK’s Trade and Agriculture Commission. May the gods of trade and agriculture shine warmly on your head.
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As ever, do let me know if you have any questions or comments.
Best,
Sam