Given the Trans-Pacific Partnership (TPP) and several intra-Asian agreements, the EU is focused on large-sized free trade agreements (FTAs) to avoid trade diversion and to maintain Europe’s ability to set the trade policy agenda. The EU is now negotiating with all TPP countries except Australia, New Zealand and Brunei, a blind spot worth US$1.5 trillion in GDP.
The idea of an FTA with New Zealand already enjoys the support of key EU Member States. New Zealand is consistently ranked number one on economic and personal freedom indices, and despite accounting for only 0.2% of EU external trade, New Zealand’s economy is still on par with previous EU FTA partners like Peru and Vietnam. Measured in final consumption, New Zealand is larger than Chile, Malaysia and Singapore.
Agriculture is a sensitivity for some Member States in any trade negotiation. However, the EU has already liberalised New Zealand’s key export items such as sheep meat and wool. On other meats, New Zealand pays half the regular duties. Products with full duties have either strong seasonal complementarities or specialisation, notably on kiwifruit and dairy, and none of New Zealand exports are amongst European sensitivities, e.g. grains or sugar. The existing duty-free treatments and complementarities make a case for an agreement negotiated with relative ease: If an FTA cannot be done with New Zealand, it cannot be done at all.
This is why Brussels is likely to start with New Zealand before Australia, as it often starts with the smaller (and thereby less threatening), more flexible counterpart first. Yet, EU FTAs with Australia and New Zealand (tied to a common market by the Closer Economic Relations agreement with mutual recognition) would have an economic output equivalent to NAFTA. Australia and New Zealand have also concluded the most ambitious FTA with the ASEAN bloc – the AANZFTA. This agreement is a springboard for the EU, similar to how the P4 agreement led to the creation of the TPP for the United States.
But negotiating regulatory issues has proven to be difficult, even with likeminded countries. However, New Zealand already enjoys a high level of regulatory co-operation with the EU on TBT, SPS and data privacy, providing a starting point for negotiation that never existed with other FTA partners. Thanks to the existing level of cooperation, the EU-New Zealand could provide the new template for EU FTAs, including areas where the EU is defensive in other negotiations (e.g. cross-border data flows). Europe needs a third generation FTA model to ensure that Europe’s key offensive issues (including tariffs, GIs and technical standards) are not constrained by the TPP framework. The EU-New Zealand FTA would match the regulatory disciplines of the TPP, as well as open up the door towards Australia and ASEAN. And this door could very well be Europe’s last chance of overtaking TPP.
Introduction: The Unexpected Candidate?*
The Asia-Pacific region has emerged as the world’s new political and economic centre. The number of trade agreements and business transactions taking place within the region bear witness to this. The EU has seen the opening of several negotiations of big intra-Asian and Asia-Pacific economic integration agreements where the EU does not have a seat at the table, most notably the Trans-Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP). Meanwhile the Association of South-East Asian Nations (ASEAN) – en route to establish a common market – has successfully concluded FTAs with Asia-Pacific actors, but has not yet concluded with the EU.
This eastern shift in the world’s economic centre of gravity is undisputed, and so is the relative decline in importance of Europe’s domestic markets. Both axioms form the baseline scenario of EU’s external policies. Europe’s bilateral free trade agreements (FTAs), both those under the Global Europe strategy and the Trans-Atlantic Trade and Investment Partnership (TTIP) are Brussels’ response to these developments. However, given that Europe’s aggregate income fall from TPP will be equal to the gains the EU expects from TTIP, Europe is left with no option but to negotiate with each of the TPP and ASEAN countries to secure exports. The picture is especially worrisome for EU exporters of agricultural products.
While seeking to rebalance the shift to the Asia-Pacific, Brussels’ current fixation with scale and large-sized trade deals such as TTIP and Japan is unsurprising. For Europe, the world’s largest economic bloc, only a few (if any) trade agreements could actually revive Europe’s growth on the basis of exports alone. However, some EU Member States are one of the most export-dependent economies in the world, often fuelled by old-fashioned manufacturing trade.
Then why is New Zealand – only Europe’s 50th largest export market, recipient of 0.2% of its exports – now a likely candidate for a FTA? Senior political leadership in Germany and the United Kingdom, two important stakeholders of EU trade policy, have already spoken unreservedly in favour of opening trade negotiations with New Zealand. With the current impetus, the dominoes of assent from EU governments are likely to follow. Although the size of New Zealand’s economy is en par with previous EU FTA counterparts like Peru and Vietnam, the rationale for the EU-New Zealand FTA cannot be explained by export increases alone – one must also look to the possibilities that this FTA would open up for the EU trade agenda overall.
Firstly, any failure by Europe to act comprehensively and in the right order would not only have high material costs in the form of loss of agenda-setting powers. This loss will only grow over time, as more parties accede to TPP and more trade disciplines are developed and find their way into EU FTAs as fait accompli. Given the export orientation of the EU, it has no choice but to seek parallel negotiations with all current and prospective TPP members based on its own template. The EU has concluded negotiations with Canada and Singapore, and is seeking negotiations with a number of other TPP countries but does not currently have any agreed process with Australia, New Zealand or Brunei. This is a blind spot worth US$1.5 trillion in GDP that needs to be addressed simultaneously with the conclusion of TPP.
A EU-New Zealand FTA is the consequence of basic political imperatives essential for Europe in building its inroads into the Asia-Pacific region. New Zealand is not only the chief institutor and architect of the TPP agreement, but also the only country part of TPP, RCEP, and to have FTAs in place with ASEAN, Korea, China, Hong Kong and Taiwan.
Thirdly, New Zealand is consistently ranked number one in terms of market openness and rule of law in the world. There are a considerable number of prior bilateral agreements between the EU and New Zealand, promising a high-level result and a prompt conclusion for any comprehensive FTA negotiation. For the EU, plagued by domestic sensitivities and negotiation fatigue, the fact that very few factors militate against opening negotiations is not a lazy argument. New Zealand also has a longer experience in drafting provisions that actually liberalise markets overseas and has successfully concluded FTAs with partners beyond the comfort zone of EU Member States. The results of EU-New Zealand negotiations could be operationalised beyond Oceania by the EU.
 Bauer, Ferracane, Erixon, Lee-Makiyama, TPP: A Challenge to Europe, ECIPE Policy Brief, No 9/2014
 Messerlin, Patrick, The TPP and the EU policy in East Asia, ECIPE Policy Brief, No.11/2012
 European Commission, Joint declaration by President Van Rompuy, President Barroso and Prime Minister Key on deepening the partnership between New Zealand and the European Union, Statement/14/83, 25 March 2014; The German Federal Chancellor’s Office, Strengthening relations with New Zealand, November 14th, 2014; UK Foreign Secretary Philip Hammond’s speech at S. Rajaratnam School of International Studies, Singapore, January 30th, 2015
*The author thanks the ECIPE colleagues Hanna Deringer, Fredrik Erixon, Matthias Bauer and Michal Krol for their inputs and assistance.