EU must use New Zealand as a testing ground for new model of FTA, says trade minister

Tim Groser, New Zealand Minster of Trade, Minister of Climate Change, Associate Minister of Foreign Affairs [Daniela Vincenti]

EXCLUSIVE / The EU and New Zealand can accelerate negotiations for an FTA if they move beyond the historical sensitivities, which are far from real, and try to implement some of the innovations in the Commission’s Trade for All strategy.

“New Zealand is a policy-taker not policy-maker,” said the country’s trade minister in an exclusive interview with EURACTIV.

Tim Groser is New Zealand’s Minster of Trade and Minister of Climate Change, and also serves as Associate Minister of Foreign Affairs.

He spoke to EURACTIV’s Editor-in-Chief, Daniela Vincenti

The Trans-Pacific Partnership (TPP) deal was signed in October. New Zealand is part of it. I hear you were instrumental in pushing for this deal. Now the EU has turned to some TPP countries, especially Australia and New Zealand, to negotiate FTAs. What’s the feeling in New Zealand on this FTA with the EU?

Firstly, we are very pleased that President Juncker and our prime minister launched this on 29 October, and we have a rather elaborate scoping exercise ahead of us, because that’s the way the EU seeks a mandate from its 28 member states.

But New Zealand is a policy-taker here, not a policy maker.

We could move ahead immediately, but we accept that the EU is a vastly more complicated piece of machinery, and we are very confident that we will be starting a negotiation in early 2017. If it was possible to accelerate that, it would be great, but we are not betting on it. In the meantime, we will continue to have a dialogue on many levels.

While the formal process goes on, we can accelerate informal understandings, because what is clear to us is that there is an overwhelming desire on the part of the Commission to do this efficiently, and we very much respect that. This should be very straightforward.

What do you mean by straightforward? There are a number of sensitivities …

There are some historical sensitivities and we can talk about them later. But there are very few countries in the world that are so aligned to European thinking on questions like labour rights, environmental standards, sustainable development, making regulation with SMEs in mind… that’s the agenda in the Commission’s trade policy strategy Trade For All.

Trade for all innovations can be implemented with New Zealand

And if they want to create some new directions going beyond just a strategy document, New Zealand is the perfect partner.

We would have no problem at all implementing some of the innovations in that strategy. It is hard to imagine a country better suited to developing some new thinking than New Zealand.

It comes down to a very simple proposition, which is this: most large countries do FTAs with New Zealand for strategic, not commercial reasons.

New Zealand was chosen by China as the first ever country to do an FTA with. And the utter paradox of recent events in Ukraine is that Russia also chose New Zealand as the first OECD country with which it would negotiate an FTA, between Russia, Belarus and Kazakhstan. 

Politically, that negotiation was done, and just waiting to be brought into effect. It has now been called off of course. But my point is that large countries often look to New Zeland as a strategic partner with whom to sign FTAs.

What is the reasoning behind this?

The Commissioner has put out this document that creates new directions for European trade synergies, trying also to take into account the public disquiet about ISDS and the question of transparency.

We don’t negotiate on templates

The beauty of New Zealand is that it is a small and open economy. We don’t negotiate on templates, so for any country that wants to develop these ideas, New Zealand is a good strategic choice.

You said you don’t negotiate on templates. That means that the historical sensitivities that exist can be managed?

On our side, the sensitivities were historically around geographical indications (GIs). But we have changed our policy on this in advance of these negotiations.

We have set up a register to move in the direction of European concepts of GIs. That was the only really strong sensitivity here.

The sensitivities on the European side are all about perceptions of history. The reality is that the agricultural world has totally changed. Reform of the CAP has been deep and important. It is no longer hiding behind the same massive protectionist barriers.

True, the EU still receives substantial subsidies, but we will not touch them in this negotiation. We understand that you can never deal with agricultural subsidies in an FTA. This can only be dealt with at a multilateral level, so this takes a huge European sensitivity off the table.

In terms pf horticultural products, frankly there is no problem whatsoever. There are some tariffs in Europe, typically about 10%, but the beauty of it is that when it is summer here, it is winter in New Zealand, and vice-versa, so the seasonality takes a huge amount of the tension out of the system.

We must go beyond the sensitivities of the past, agriculture is a win-win sector

Secondly, we are now getting a two-way-investment in these sorts of products. We have very significant French investment in our wine sector, which is helping New Zealand enormously. New Zealad is still a tiny producer of wine.But we are now the eighth largest exporter in the world, and there is a lot of European interest in that.

Then in horticulture, more and more of our companies are working with each other. Tthere’s joint investment going on. New Zealand licences kiwi fruit juices in France and Italy, to produce high quality products off-season.

Similarly with apples, our scientists have produced very high quality strains of the fruit which we have licenced for production in Northern Europe during our off season. So we don’t produce rice, grains or sugar, and we have a very narrow suite of products.

Then we come to the sensitive issues, which are dairy, sheep, meat and beef. With sheep meat, as far as I’m concerned, and I’m sure my negotiators would not like me to say this, there is nothing to negotiate. I negotiated it myself 20 years ago: 227,000 tonnes of sheep meat, at zero duty, bound legally under the WTO, and we can’t fill it.

We don’t have enough meat to fill it, because China is now our largest sheep meat market, so I’ll be scratching my head if there’s anything to negotiate there. With cheese, we will want some increased access, as we have very little at the moment. It’s a 4 million tonne market. It’s massive. We can find a tiny little piece of the market.

Butter, again we negotiated nearly 80,000 tonnes of access into the European markets, and we sell very little. Most of these sensitive products were dealt with in the Uruguay round. We are not starting from scratch.

New Zealand has substantial access into Europe for the most sensitive products, and we don’t use it, because of China and the emerging economies. We are a significant beef exporter, and we all know that we will end up with a quota of X thousand tonnes. Obviously, we will be hoping for a large X and some will be hoping for a small X, but that is the point of the negotiation process.

And then we come to the other side of the shop. New Zealand is becoming, and I understand the same is true for Australia as well, a more than marginal market for European agricultural exports.

Over the last 5 years, the compound annual growth rate of EU exports to New Zealand has been an average of 20%. That is phenomenal. New Zealanders like these sophisticated European agricultural products.

This market now totals just under €500 million. Half a billion euros may not be huge, but it is not a trivial sum of money.

My understanding is that the figure from Australia is several times that size. The traditional perception is that agriculture is all a problem for Europe. But the reality is very different. Europe is the world’s largest agricultural exporter, and it is making great inroads into the Australia and New Zealand market for agricultural products, because they are the most sophisticated and highest quality products in the world. And the consumers love them! They love all these strange Italian pastas and French cheeses.

You are saying, even in agriculture, it is a win-win?

It is a win-win. But we will have to manage historical memories, like farmers’ unions that have still got the wrong image. For example, I wonder how many dairy farmers in Europe realise that we certainly export dairy products to Europe, but because of Fontera’s investments in dairy companies in Europe, we export from Europe 50% of the amount we export to Europe.

In the industrial trades, it is no longer “made in France” or “made in China”, it is “made in the world”. The Uruguay round, concluded 20 years ago, was the first step towards stabilising this process with respect to agriculture.

In the wake of that, and subsequent free trade agreements, we have seen exactly the same phenomena and value chains in agri-business, and it is at an early stage. This will be accompanied by investment, so Danone, for example, is investing in New Zealand dairy, partly because of our access into China, and we are investing in European dairy.

This much more complex pattern of international trade is at the very early stage in the value chain. Historical and political attitudes are miles behind this.

Farmers around New Zealand and Europe will not take on board what we are saying, because they are still locked in battles that took place long ago. So we have political problems dealing with the perceptions, but we will be able to deal with this.

Beyond agriculture, how do you see the framing of this deal? What chapters are off limits? Regulatory cooperation has been a major contentious element in TTIP. Would that be the case with New Zealand?

We do want to work towards regulatory cooperation, but we are great fans not of harmonisation, but of mutual recognition, based on the principle of equivalence. The very first country that Europe negotiated an equivalence regime with was New Zealand, on meat.

What this means is that our European consumers need to be assured that the food they eat is safe. In those days, animal welfare wouldn’t have been an issue, but it is these days, and we recognised that the way you do it in Europe is not quite the way we do things in New Zealand. But it reaches equivalent standards.

So it is an outcome-focused, not a process-focused way of looking at these issues. There is a very long history of mutual recognition between Europe and New Zealand, and we would like to expand on that in the FTA into areas beyond agri-business, so it is a question of how ambitious Europe wants to be.

It depends on whether they want to convert the ideas from their Trade For All strategy into concrete models.

A practical example of this will be on the highly sensitive issue of ISDS. We are realistic people. In TPP, we had to conform to the US template. We did negotiate and we didn’t have to push the Americans very hard on this, because they were quite reasonable.

We made sure we had freedom to regulate for the environment, for public health, we had a complete carve-out from ISDS for tobacco control measures, which for the moment focus on plain paper packaging. And we achieved this.

But when we look at the Commission’s trade strategy, there are some very interesting concepts there.

I would say: They should make up their own minds whether they want to develop these ideas into a concrete agreement, because we are up for it.

We could do this. If you want to develop these in a new form that is fashioned to take into account EU public opinion on ISDS, we can do it.

So you are for a reformed ISDS?

No, we are saying something much more open than that: if you, Europe, want to move down a more open, transparent process, we can follow you.

But we are not putting proposals on the table for Europe. We are saying, we can do whatever you like. If you want to develop these ideas we can do that, if you want to develop a more traditional ISDS we can do that too. This is based on a small country’s perspective.

Are you saying you are not hung up on ISDS? But do you want an ISDS?

I would be perfectly happy to do it without an ISDS. When we got to ISDS in the TPP talks, for example, I and the Australian minister reached a private agreement right at the start that we would not use it between ourselves.

Happy to ditch ISDS

We don’t need ISDS between Australia and New Zealand. This is how pragmatic we are. We can do an agreement with ISDS, or without ISDS. We can do an agreement with traditional ISDS, or with a non-traditional ISDS, developing some of the ideas the Commission has put on the table. It’s an appropriate position of flexibility for a country of 4.5 million people versus 500 million Europeans. It’s only realistic.

So what do you like best in Cecilia Malmström’s ISDS proposal?

I like the idea of moving towards greater safeguards, that this is going to be looked at in a consistent and neutral way, with the idea long-term of perhaps paving the way for something closer to the WTO Dispute Settlement Body system, where you have a fully independent, professional set of people, a court or a tribunal, making determinations. I am personally attracted to that idea.

Let me blunt: Australia and New Zealand are being considered as a whole. Do you have the feeling that you are the little sister of Australia in this deal, and that Australia will negotiate and you will have to agree? Or do you feel like you are two separate entities?

You must have seen rugby on television, and you will have noticed that most rugby players are very big men. But there is a player called the scrum half, who can be quite small, who is very fast and who can run right between the legs of the other players and score tries. That is New Zealand.

Like in rugby, New Zealand is the very fast scrum half

Of course we are the smaller player. We are always the smaller player. But we have a unique relationship with Australia; the bulk of the populations of both countries came from the same European towns and villages, with similar aspirations and ideas and political cultures in their minds, and created two countries that could have been one.

Over the last 30 years, we have put in place the single economic market , so while the Chinese talk about their relationship with Taiwan as “one country with two systems”, I like to think of us and Australia as “two countries with one system”.

We are so integrated with Australia that it is absolutely natural that we negotiate in parallel with Australia, but in a different way. We started TPP by initiating an FTA with Singapore, with the explicit idea of forming what has become TPP. Australia then negotiated a separate but parallel FTA with Singapore. We negotiated first an FTA with China, 7 years later or so, Australia has now followed with a parallel FTA with the Chinese.

So basically we are totally aligned as countries, we are completely coordinated. 95% of New Zealand banking assets are owned by Australian banks, which are among the best in the world. The only banks not to suffer problems in the financial crisis were Canadian and Australian banks, so we benefitted from the Australia ownership of our financial system. In trade, we tend to follow this same strategy of aiming for the same targets, and sometimes we arrive more or less in the same spot t the same time, sometimes a little later, only time will tell.

We are in a good position now with the EU. We have launched the process within days of the Australians, and presuming that the EU gets a mandate to negotiate with Australia and New Zealand, we will start off on our separate but parallel tracks.

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