BY: NIGEL STIRLING
For more than four decades New Zealand lamb has enjoyed unrivalled access to the European market.
During that time our meat exporters have been able to sell up to 228,000 tonnes of sheep and goat meat to British and continental European markets without paying a cent in tariffs.
Australia comes a distant second with a mere 19,000 tonnes of tariff-free access allotted to its exporters annually.
NZ’s market share has sat about 84% of all sheep meat imported into the European Union for most of the past two decades.
Australia was second with 8% to 10% market share during that period.
NZ’s dominant position looked rock solid until the 2016 Brexit referendum.
The surprise vote by Britain to exit the EU meant both had to come up with a new set of rules for trading with each other and with the rest of the world.
Within months the EU and the United Kingdom had unilaterally decided upon a method for splitting between themselves more than 100 quotas for food imports from third countries.
In the case of imports of NZ sheep meat the quota would be split down the middle – up to 114,000 tonnes could be exported tariff-free to the UK and the same to the continent.
Meat exporters and industry lobbies were quick to dismiss the proposal as a legal outrage just begging to be knocked down by the NZ Government at the World Trade Organisation in Geneva.
TRADE LAWYER’S INSIGHT
One of the country’ top trade lawyers spoken to by CW Sheep in the middle of 2018 agreed NZ would have a strong case if it came to a legal show-down.
New trade agreements that diminish the quality of existing market access arrangements are illegal under WTO rules.
Splitting the quota violated that principle by curtailing the ability of NZ meat exporters to divert sheep meat from the EU to the UK or vice versa as market conditions dictate without copping eye-wateringly high tariffs.
The proposal also diminished smaller quotas for NZ beef and dairy exports.
However, while NZ’s position looked correct legally it failed to take account of the UK’s desperation to re-integrate itself into the global trading system.
A legal battle with NZ or any other quota-holder could stand in the way of certification of the UK’s tariff schedules at the World Trade Organisation and throw a procedural spanner in the works for the UK as it sought to establish its own trading terms with the rest of the world after four decades of operating under those set by Brussels.
Furthermore negotiations with the EU and the UK for separate free trade agreements gave yet more leverage over NZ to drop its objections.
“They are very clear about it. If [NZ] and a few others kick up a big stink in Geneva it is going to be impossible for the UK to finalise their schedules [and] they will not be able to become a full member of the WTO…they are basically saying back off and we will make it up to you in the context of the FTA,” the legal source said.
WTO IN LIMBO
The chance of a win at the WTO has only got tougher since then.
The global trade policeman’s appeals body, where any successful legal challenge by NZ would ultimately have ended up, has been in limbo since United States President Donald Trump blocked the judicial appointments needed to allow it to function.
Work to model the cost to sheep meat exporters in lost returns from the quota split that Beef + Lamb NZ had been ready to contract out to private sector economists last year in support of any WTO case has been quietly shelved.
CW Sheep’s trade lawyer said the EU and the UK would prefer to settle the dispute with NZ as part of a FTA negotiation where any number of trade-offs went into reaching an agreement.
That opacity was preferable to a precedent-setting formula for compensation in a stand-alone judgement at the WTO that other quota-holders could then use against the EU and the UK in their own disputes.
However the horse-trading involved in an FTA negotiation was dangerous territory for sheep farmers.
There were no guarantees previous access would be restored and not traded away for gains in other areas such as dairy and beef where existing market access was pitifully small in comparison to sheep meat.
“If all the concessions were for the dairy industry then the sheep meat industry is the real loser in all of this,” the trade lawyer said.
“The meat industry has to keep the pressure on the government not to roll over and not to accept concessions which don’t actually address the harm done.”
It is not hard to see how pressure could come on the meat industry to give up some of its generous allotment of quota.
China’s increasingly voracious appetite for NZ sheep meat means the EU quota of 228,000 tonnes has not been fully utilised for more than a decade, and last year a little over a half was used by exporters.
By comparison the UK is one of the world’s biggest importers of dairy products but quota restrictions meant last year it soaked up a mere 0.08% of NZ’s dairy exports.
Surely NZ negotiators would seize on quota not being used by the sheep meat industry as negotiating coin to improve access for other primary industries which have done without for so long?
WON’T SELL OUT SHEEP MATES
But one dairy trade negotiations veteran said his industry was not in the habit of selling out its primary industry colleagues even if there were benefits to its members in doing so.
The starting point for NZ negotiators in any trade talks was for no sector of the economy to go backwards.
He pointed to the early stages of negotiations for the Comprehensive and Progressive TransPacific Partnership when the American pharmaceutical industry heaped pressure on its negotiators to make the dismantling of drug-buying agency Pharmac a condition of any deal with NZ.
“You never play the game of saying how about we argue that Pharmac goes under the bus so we get something more for dairy.
“You would never do that. I would use the word disgusting to talk like that.
“I am a New Zealander first and a member of a certain sector of the economy second.
“I have never had to have an argument with anybody saying it is dairy first and screw everybody else.”
We shall see.
In February last year Trade Minister David Parker said NZ was continuing to object to the quota split at the WTO though he wouldn’t be drawn on the chances of a lawsuit.
But CW Sheep’s trade legal source said by the middle of 2018 the Ministry of Foreign Affairs and Trade was no longer opposing the split with the same vigour.
“Officials appreciate this is going to be difficult for them to win in Geneva.”