There has been much talk recently about the UK’s trade deals in a post-Brexit world. Particularly far flung territories such as New Zealand.
Are there lessons that can be learned from each other’s economies, and do they have more in common than just a shared language?
A recent study by the LSE has compared the UK’s trading position now with the situation New Zealand found itself in 1973. Both of these positions directly result from the UK’s relationship with the rest of Europe. In 1973, New Zealand’s economy was negatively impacted by the UK joining the EEC; in 2023, New Zealand is set to benefit from the UK’s departure.
At the time, roughly half of New Zealand’s exports were going to the UK tariff-free. The LSE report concluded that New Zealand was almost 20% poorer a decade after losing access to the UK’s market. While the UK is considerably less geographically isolated than New Zealand, roughly 50% of its exports were to the EU pre-Brexit. Many who campaigned to remain in the EU argued that the economic cost of leaving would be too high, but this was always dismissed as ‘Project Fear’. The LSE’s report suggests that Brexit will likely be harmful for the foreseeable future.
It has often been said that the UK abandoned New Zealand in 1973, and the country had to find new markets and rebuild its economy. New Zealand did not have a choice in the matter, and while the UK turned its face to markets closer to home, it was still an important export market for New Zealand. In February 2022, a new FTA was signed between New Zealand and the UK, which came into force in May 2023.
The deal aims to increase the flow of goods between the two countries by 30% and sees the eradication of tariffs on 97% of goods, including wine, kiwis, and a range of dairy products. Wine growers in New Zealand said it was an incredibly positive deal. New Zealand exported wine to a value of $ 296.1 million to the UK in 2022. If this does increase by 30%, the winegrowers will see an impressive uplift in sales.
The UK will be hoping that industries that thrive here will be exported to New Zealand. However, as the country has a population less than a twelfth of the UK’s and not even as large as Scotland’s, it is hard not to envisage that the flow of goods might be inbound to the UK rather than outbound. There appears to be a singular lack of Brexit benefits to the UK in recent deals. Earlier this week, Australia’s news hosts were left in hysterics discussing the topic.
However, the UK’s success in service-based and digital industries is an area that New Zealand can learn from. It’s unlikely that New Zealand will replicate London’s reputation as a financial services powerhouse. However, the UK has been at the forefront of emerging service industries, such regulated gambling. The idea is that by having a fully regulated industry, gamblers can make their bets safe in the knowledge that the establishment is licensed and secure. Gambling and betting are worth $14.7 billion to the UK economy, and British brands like Bet365 and Entain are massively successful around the world.
New Zealand does not currently have any plans to allow online casinos to be based within its territory; it is probable that UK companies will find a receptive audience and customer base in this part of the Southern Hemisphere. Kiwis spend over $600 million a year on gambling. In fact, Bet365 has already made inroads into the New Zealand marked and already boasts that it offers the best casino bonus in New Zealand. Other UK operators are sure to follow them into this market.
However, in other sectors, Farming groups in the UK have raised concerns about the effect of the FTA on the agricultural sector. New Zealand remains a competitive exporter of farm products, and the National Farmers Union is concerned UK farmers and producers will be undercut due to production disadvantages. The UK Government’s Impact Assessment shows there will be a negative effect on agriculture and semi-processed foods, so the concerns are well-founded. In an attempt to safeguard UK agriculture, the Government has agreed to limit imports of specific products for up to 15 years.
According to papers held at The Commons Library, the economic effect of the agreement is not going to be very big. As a result of the deal, UK GDP will be 0.03% higher in 2035, and that is subject to uncertainty. Given the relatively small amount of trade the UK does with New Zealand and the fact that trade barriers were already low, this is not surprising.
In summary, it seems as though the UK might have more to learn from New Zealand than vice-versa. New Zealand discovered the hard way that losing access to 50% of your export market damages the economy. In addition, even when you have created new products and markets, when the opportunity arises to trade more favourably with your old partners, it is unwise to turn down the chance. The UK is looking for alternative markets to the one on its doorstep. However, as the LSE study about the New Zealand economy shows, replacing lost deals with 50% of your export market can take decades.
However, currently, the UK Government is not receptive to learning any lessons. Unfortunately, they have had enough of experts.