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2017-02-14 11:25:53
How New Zealand coped with the loss of preferential access to its biggest
market
THE future of British trade after Brexit is shrouded in uncertainty. It is an
unprecedented process, so it is hard to know where to look for clues as to how
it may work out. One possibility is a country whose trading patterns were
perhaps more disrupted than any other s by Britain s accession to the European
Economic Community (EEC) in 1973: New Zealand.
Just as Brexit is likely to mean the end of British access to the single
market, so Brentry ended New Zealand s preferential access to the mother
country . In 1961, when Britain first announced its intention to join the EEC,
it took about half of New Zealand s exports a similar proportion to the EU s
share of British exports today.
New Zealand s prime minister at the time, Keith Holyoake, warned his British
counterpart, Harold Macmillan, that, without safeguards for its exports, New
Zealand would be ruined . After years of negotiations, a transitional deal in
1971 agreed quotas for New Zealand butter, cheese and lamb over a five-year
period, which helped to ease the shift away from Britain. Similarly if in a
much shorter time-span Britain s prime minister, Theresa May, now hopes to
negotiate a transitional deal to smooth its departure from the EU.
New trading relationships can mitigate the loss of preferential access. New
Zealand signed a free-trade deal with Australia in 1965, which boosted exports
of manufactured goods. The share of trade with America and Japan also rose,
once access to their beef markets had been negotiated. By the time Britain
eventually joined the EEC in 1973, it took only 25% of New Zealand s goods
exports (and a paltry 3% now). More trade deals followed, including with China
and South Korea. Mrs May s government makes much of the prospects of concluding
trade deals with non-EU countries including, in fact, New Zealand.
Trade agreements, of course, entail compromises. In the 1960s, almost all of
New Zealand s exports of butter went to Britain. High levels of protectionism
in rich countries meant no market could replace it. As a result, points out
Brian Easton, of the Auckland University of Technology, New Zealand s trade
negotiators chose to maximise their EEC butter quota at the expense of access
for other goods. British negotiators too will face plenty of tricky choices. A
free-trade deal with New Zealand itself, for example, would enable access for
British exports, but competition from New Zealand would squeeze British lamb
producers. Similarly, countries such as India and Australia might seek a
relaxation in immigration rules in return for the free movement of goods and
services. Since it is believed concerns about immigration weighed heavily with
Brexit voters, that is unlikely to prove popular.
The British and New Zealand cases differ in some important ways. Britain s
economy in recent years has been one of Europe s fastest-growing. But the 1970s
were tough for the New Zealand economy. Brentry was just one of many blows to
buffet it. The oil shock, turbulence in commodity prices and a rise in
protectionism in rich countries led to bouts of recession. A spate of radical
liberalisation in the 1980s put the economy on a sounder footing.
Also, New Zealand built closer trading links with neighbours. China, Australia
and other members of the Asia-Pacific Economic Co-operation group, founded in
1992, now account for 72% of its exports (see chart). But ties with the
neighbours are the very ones Britain wants to loosen. It will need
relationships with countries that are farther away. And history shows that the
greater the distance between two countries, the less they trade with each
other. Technology may be weakening the link between trade and geography, but it
is unlikely to make up for Britain s reduced access to markets nearer by.
Less tangible factors may also make Britain s negotiating position more
awkward. New Zealand was able to play on British guilt over its abandonment of
the Commonwealth. Memories of the second world war were still fresh: New
Zealand s soldiers had fought alongside the British; its farmers had nourished
the home front. In contrast, few in the EU have much sympathy for the renegade
British. And when Mrs May s ministers do talk about the war, they usually make
matters worse.
This article appeared in the Finance and economics section of the print edition
under the headline "Not all black"