The Potential for the European Union- New Zealand Free Trade Agreement on New Zealand Exporters to Germany
German-New Zealand Chamber of Commerce Inc. (GNZCC)
Advice I Support I Represent - Specialists in trade between Germany & New Zealand
Introduction
On the 30th of June 2022, the European Union and the New Zealand government concluded a four-year round of negotiating a comprehensive free trade agreement (FTA). The deal will bridge New Zealand to its fourth-largest trading partner and a prosperous economic area, creating opportunities on both sides of the world. This position paper, written and published by the German-New Zealand Chamber of Commerce (GNZCC), analyses the opportunities the FTA presents for New Zealanders wanting to grow their business in Germany and the EU.
Context
The EU- New Zealand Relationship
The EU’s economic and political relationship with New Zealand has grown steadily during the last decades, with increasing imports from the EU-27 countries, especially Germany. In October 2015, the EU Commission, Parliament, and New Zealand’s Government began an exploratory “scooping” exercise to lay the foundations for a trade deal that would cement this valuable relationship. The exploratory phase was completed in March 2017.
In the years since, the EU and New Zealand took measures to strengthen the bilateral relationship through a Partnership Agreement on Relations and Cooperation (PARC), which spans beyond economic bounds and includes closer work on global issues, counterterrorism, science, education, and innovation. The upcoming EU-NZ FTA cements these economic and political ties.
Increasing ties with Germany
Increased cooperation between the EU and NZ has had a causative factor in the increasing economic engagement between Germany and New Zealand, as seen with closer ties in solving everyday problems, increasing trade, and innovation. The GNZCC has directly seen this with increased cooperation on climate change, energy efficiency, and transport solutions.
The relationship has grown to over NZD$4.7 billion (about $940 per person in NZ) in two-way trade per annum, with New Zealand exporting NZD$1.09 billion (about $218 per person in NZ) to Germany in 2022. This makes Germany New Zealand’s 9th most important trading partner, the largest EU importer to New Zealand, and the second largest export market in Europe after the United Kingdom.??
The FTA’s Effects on New Zealand Exporters to Germany: Breaking Down Barriers
The FTA will have a tangible effect on New Zealand exporters aiming to take their products and services abroad through a range of tariff reductions. Simultaneously, the FTA maintains protection against unfair disadvantages caused by the FTA through geographic indicators, which protect certain wines produced in the EU.
Eliminating Tariffs on Certain Goods
Eliminating tariffs on agricultural goods will positively impact future trade, especially since most of New Zealand’s trade with the world is based on meat, dairy, and agricultural products – the backbone of the economy.
The FTA removes tariffs on key agricultural products, including:
? Kiwifruit, onions, apples, and other horticulture products.
? Natural honey over three years, with immediate effect on the manuka honey.
? Manufactured products, including optical and measuring technology; however, the largest proportion of products are already tariff-free.
The tariff savings on agricultural exports, shown in Figure 1, will be approximately NZD$12.8 million on exports to Germany alone. Throughout the EU, the immediate removal of tariffs will save New Zealand exporters NZD$100 million.
Balancing Environmental Interests
The FTA is one of the first instituted under the EU’s Green Deal. Due to this, environmental and sustainability concerns are at the heart of the negotiations. Chapter 19 promotes cooperation on climate change objectives by reducing trade barriers on environmentally friendly technology. It also enforces removal of subsidies on high-emissions industries, like fossil fuels, or meat and offal.
For these reasons, the EU has maintained quotas and some tariffs on exports from the emissions-intensive meat and offal sector, which currently constitutes the largest export to Germany and the EU. In doing so, it also lays a framework for deeper cooperation on sustainable food systems and security.
Increasing Quotas & Reducing Tariffs for Meats and Other Agricultural Goods
One tangible impact of the FTA on New Zealand exporters to Germany and the EU, is increasing quotas for agricultural products. These quotas enable an increased volume of exports and revenue on the New Zealand side. The New Zealand Ministry of Foreign Affairs and Trade estimates that increasing quotas will generate an additional NZD$635 million per year on all exports to the EU in additional revenue for New Zealand (if all quotas are filled).
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Example: New Zealand Meat in Germany
New Zealand is the third largest lamb producer in the EU, and in 2022 exported NZD$279.2 million in lamb to Germany – approximately 25% of all exports to Germany. This has been attributed to world-class quality and a strong emphasis on the international market. The current tariffs limit New Zealand exporters’ market access to Germany and reduce New Zealand’s competitiveness in the European market. The tariff on lamb is 12.8%, which currently costs New Zealand exporters to Germany NZD$35.7 million per year. In addition to high taxes, the EU charges NZD$3 per kilogram of lamb.
The FTA eliminates tariffs on lamb exports that fall within the 38,000-tonne quota for the EU. However, tariffs will continue to apply tariffs if the lamb exceeds the quota, which could end up being costly to the New Zealand exporter.
Investment Opportunities
The FTA strengthens investment opportunities in both New Zealand and Germany. Germany’s total investment in New Zealand was NZD$2.5 billion in March 2022, an increase of NZD$264 million from March 2021. * On the other side, New Zealand had a total investment of $6.3 billion in Germany. *
In addition to strengthening the current investment position, the FTA has enabled the following:
? New Zealand’s existing investment screening regime will continue to apply under Section 13 of the Overseas Investment Act 2005.
? EU investors will benefit from a higher screening threshold, extending from NZD$100 million to $200 million, as agreed with New Zealand’s other main FTA partners.
Technical Barriers to Trade
Technical barriers to trade remain a large issue in the German-New Zealand trade relationship, with many products primarily in the automotive and construction sectors needing extra certification before entering the respective markets. Related to technical barriers to trade, the FTA allows for uniformity in product testing and regulations, which will reduce costs and time in entering the market.
Removing some technical barriers to trade does not completely liberalise trade with Germany and the EU. On the New Zealand end, there are still disparities between domestic consumer standards and those in the EU. Before exporting, manufacturers will need to comply with the strict food and safety regulations set by the EU, as was the case before the FTA.
Growth for Small-to-Medium Enterprises
SMEs are featured at the heart of the negotiations, forming the pillars of New Zealand’s and Germany’s economies. Chapter 21 of the FTA considers that SMEs employ 29.3% of New Zealand’s workforce.
To grow SMEs and ensure that benefits from the FTA are distributed, there are special provisions for the transparency of the FTA’s schedules and tariffs, market entry information, and so-called contact points are established for any SMEs wanting to expand into the respective markets.
Mechanisms Against Anti-Competitive Conduct and Unfair Disadvantages
To ensure the FTA’s efficacy in the two markets, the negotiations instituted a range of mechanisms to protect smaller industries and make the market competitive. This included:
? Banning subsidies that distort the market and have a negative effect on trade e.g., agricultural subsidies.
? Effective competition laws and non-discrimination in business set up, including state-owned enterprises being prohibited from favouring domestic suppliers.
? Geographic Indications have been implemented to protect around 2,000 wines and spirits from imitation or false branding.
? Rules of Origin ensure that products and services are manufactured and based in the EU and New Zealand and do not apply to things manufactured outside these jurisdictions. E.g., a “German” car produced in an area outside the EU would be exempt from the FTA. This protects local industry and ensures the benefits stay within the respective markets.
? Creating business opportunities for Māori in the EU.
* Directional basis stock of total investment by country (Annual-Mar), Statistics New Zealand