Given the Johnson administration’s seeming near-euphoria over its New Zealand trade deal, many may not have realised it has gone from pursuing agreements it calculates will bring tiny gains to the country’s economic output to signing one it has estimated offers a “0.00%” boost.
It is surely a quite remarkable state of affairs.
The UK Government has, all the way along, looked desperate as it has apparently tried to offset the huge losses arising from the ending of frictionless trade with the European Union in the wake of Brexit by finding new free trade deals.
It has so far been unsuccessful in its drive to secure a free trade deal with the US.
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The Johnson administration has meanwhile made a great deal of noise about replicating free trade arrangements the UK previously had with a raft of countries as part of the EU. Many people might think from the way these have been portrayed that they offer new benefits, when in fact what they represent is mere damage-mitigation.
A new free trade deal has been struck with Australia. However, the terms of this agreement have understandably alarmed the UK’s farming sector.
Not surprisingly, the deal with New Zealand unveiled last week has done the same. It has, in this regard, felt like Groundhog Day. It seems the UK Government has, as it did in the run-up to and in the aftermath of the announcement of the Australia deal, ignored the concerns of the farming community in negotiating the New Zealand agreement.
In terms of the overall picture on the New Zealand deal, the cold numbers speak volumes. And what they tell us contrasts starkly with the ebullience over the agreement from the Johnson administration.
We should have become used by now to bold statements about how great the new or rollover trade deals are. Sometimes these statements feature bullet points about what benefits they will bring to the four nations of the UK, something which underlines their heavy political tone.
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Prime Minister Boris Johnson declared last week: “This is a great trade deal for the United Kingdom, cementing our long friendship with New Zealand and furthering our ties with the Indo-Pacific.”
The degree to which the UK continues to prioritise the “Indo-Pacific” over the EU, which is the world’s largest free trade bloc and right on our doorstep, remains staggering.
A press release from Secretary of State for Scotland Alister Jack proclaimed: “Scotland to benefit from UK trade deal with New Zealand.”
It declared that Scotland’s financial services sector, and whisky and food producers were set for a boost.
The last one of these is particularly interesting, given the reaction from farmers to news of the New Zealand deal.
The reference to the financial services sector was somewhat broad-brush and lacking in numbers.
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This press release, and a joint announcement from Secretary of State for International Trade Anne-Marie Trevelyan and Mr Johnson both declared: “Edinburgh’s financial and insurance services companies will benefit from greater access to New Zealand’s market and easier digital trade and business travel.”
And, when you are also getting to the point of flagging ease of business travel in an announcement of a free trade deal, might this give an impression that the benefits are not that huge?
In any case, as mentioned previously, we know the overall benefit to UK gross domestic product is expected to be zero, to two decimal places.
There is quite a preamble to this in a document published by the Johnson administration last year entitled “UK-New Zealand Free Trade Agreement/ The UK’s Strategic Approach”.
This analysed in detail the impact of the deal which the UK Government was pursuing. It also set out views of individuals and business organisations on such a deal, which interestingly highlighted concerns about the effect on the farming sector in a way that you would think surely could not have been missed by those making the decisions.
The preamble included the following: “Where barriers to trade and investment have increased in response to the coronavirus pandemic, the economic benefits from reducing barriers via an FTA (free trade agreement) could also increase, if those increases in trade and investment barriers were to be sustained into the long term.
“And similarly, where barriers are reduced in response to the coronavirus pandemic, such as a reduction in tariffs on imports of medical goods, an FTA provides an opportunity to sustain those reductions and the equivalent benefits.”
And then we get to the key point: “A trade agreement with New Zealand is estimated to have limited effects on headline gross domestic product (GDP) in the long run, with the estimated impact on GDP being 0.00% under both scenarios.”
The UK Government had also published an in-depth assessment showing that a free trade deal with Australia would at most, over the “long run” (a timescale of about 15 years), provide a 0.02% boost to annual UK GDP. That is greater than 0.00% of course but tiny nonetheless.
Of course, forecasts from the Theresa May government enable these tiny or non-existent overall gains to be put in context, relative to what has been and will be lost as a result of Brexit.
The Johnson administration refused to provide an assessment of the impact of its narrow free trade deal with the EU – its hard Brexit – relative to what would have been the case had the UK remained a member of the bloc.
However, the May government forecasts, published in November 2018, showed Brexit would, with an average free trade deal with the EU, result in UK GDP in 15 years’ time being 4.9% lower than if the country had stayed in the bloc if there were no change to migration arrangements. Or 6.7% worse on the basis of zero net inflow of workers from European Economic Area countries. The Tories have, lamentably, since clamped down on immigration.
It is also worth noting in this context the Conservative Government’s assessment of the free trade deal it has been trying to do with the US is that such an agreement would boost UK GDP by around 0.07% or 0.16% on a 15-year horizon, under two different scenarios.
The UK Government appears delighted though with its New Zealand deal, even though it has a 0.00% benefit to GDP and in spite of the concerns of farmers, of which it must have been aware.
The “strategic approach” document published last year by the UK Government said of feedback from individuals regarding tariffs: “Other concerns flagged pointed to the potential negative impacts to the UK farming industry from tariff reductions for agricultural products imported from New Zealand.”
In the context of “competition”, the document noted: “Ten individual respondents stated that UK agriculture and farming should be protected, noting agriculture as being a key sector which could be impacted. Four respondents had specific concerns around the import of New Zealand meat, particularly lamb. Some respondents were concerned that liberalising markets might lead to increased international competition, resulting in job losses in certain industries.”
In terms of responses from business associations, the document flagged “an expectation that UK farming might need to be protected by Government from any damage due to increased imports from New Zealand”.
Environmental concerns are also flagged in the document, and these have also been highlighted in the context of increased meat imports from New Zealand in the wake of the deal being announced.
Under the terms of the deal struck by the Johnson administration, the UK will remove duties on beef imports from New Zealand after 10 years. During the first 10 years, a duty-free transitional quota will be made available for New Zealand beef imports.
The UK will meanwhile “fully liberalise” imports of sheep meat from New Zealand after 15 years. Again, until this occurs, a duty-free transitional quota will be made available.
NFU Scotland reacted with “anger and dismay” to the announcement of the agreement with New Zealand.
The Scottish farmers’ union described it as “a further free trade deal that grants a major exporting nation unfettered access to the UK and offers virtually nothing to Scottish farmers, growers and crofters in return”.
NFU Scotland added: “The UK Government announcement of a free trade agreement with New Zealand, coupled with the Australian deal signed in June, will see the UK potentially open up its borders to huge volumes of imported food, a significant proportion of which may not have been produced on farming systems permitted here.”
Other numbers are worth flagging.
Total UK exports to New Zealand amounted to £1.3 billion in the 12 months to the end of the first quarter of this year.
This represents a decrease of 17.7% or £273 million compared with the four quarters to the end of March 2020. This is understandable amid coronavirus-related disruption, but the key is to compare what the UK sells to New Zealand with exports to the EU.
The UK’s exports to the EU totalled more than £250 billion in 2020, a year affected greatly by the coronavirus pandemic.
And, for all the hype over last week’s trade deal, New Zealand was only the UK’s 54th-largest trading partner over the year to March.
The tiny numbers mentioned in the context of the New Zealand trade deal by the UK Government, notably the benefits cited for Wales and Northern Ireland, also surely signal a degree of desperation to claim post-Brexit advantages.
The UK Government release proclaims: “Welsh auto companies that exported £3.4m of road vehicles to New Zealand last year will now benefit from the removal of tariffs of up to 10%. Northern Ireland’s Wrightbus, from Ballymena, will benefit from the removal of a 10% tariff on buses, helping to boost £2.4m of road vehicle exports to New Zealand last year.”
While important to the companies concerned, these figures are absolutely minuscule in the context of global trade.
It really does look as if the Johnson administration is clutching at straws as it attempts to big up the UK’s post-Brexit presence. But it is the numbers which speak volumes about the reality.
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