New Zealand agreed 26 March to take steps to deepen their relationship with the European Union. One aspect of this strengthening could include a free-trade agreement with the EU, the first of its kind between the South Pacific nation and the supranational bloc.
For its part, New Zealand hopes to benefit from the partnership by reducing its trade deficit with Europe while boosting its exports.
Given the historical ties between the two markets, targeting each other’s economies with a free-trade agreement is a logical move. Both “share common history, values, and interests”, said New Zealand Prime Minister John Key. The EU is New Zealand’s third largest trading partner according to a press release outlining the possible new trade agreement.
However, as with other free-trade agreements currently under negotiation in the EU, not all member nations of the bloc are expected to profit equally which might divide the terms of agreement should it proceed.
In this sense, a deal could be an uphill struggle as the nations inside the EU, all with very different economic priorities, try to find an elusive common ground. Yet the fact that the EU is warm to talking about a deal indicates that they understand the potential benefits.
Since tariff barriers between the EU and New Zealand are already low, the majority of the negotiations will likely be around decreasing the non-tariff barriers by unifying regulation and streamlining services, trade, and public procurement. However, as so often happens in talks like these, decreasing non tariff barriers is often more difficult.
New Zealand is one of the smaller trading partners for the EU, so the benefits may be felt more heavily in New Zealand. Which is not to say that certain agricultural exports destined for the EU might grace the kitchens and restaurants of Europeans at a cheaper cost and in greater amounts. That is bound to make everyone involved equally happy.
More significantly, given the financial history of recent years, such a suggested deal points to a growing EU requirement to diversify its commercial linkages to help lift its economy out of the financial doldrums.
Europe’s declining population and festering economic crisis have forced EU leaders to promote struggling domestic growth by exporting to non-EU markets.
After all, domestic demand is stagnating due to rising debt levels and high unemployment. Foreign markets, such as New Zealand are a good way to soak up surplus expensive EU products.
However, the Europeans face a dilemma. Agreements like this do run the risk of increasing competition in some European sectors which already struggle to compete in the EU marketplace.
Struggling nations, especially in Europe’s south, are exactly the countries Brussels is trying to help with such a deal, but it could backfire by weakening them further and strengthening the more robust countries such as France, Germany, and the Netherlands.
Another example of a theoretically mutually beneficial free-trade agreement with the EU, is the currently gridlocked - but still optimistic - Transatlantic Trade and Investment Partnership (TTIP). For the EU, the deal with New Zealand pales in comparison to the TTIP, which aims to increase free-trade ties between the United States and the Europe.
But that trade deal is also facing some problems. Although two of the world’s largest economies organising something as complex as a free-trade deal was never going to be simple.
Just as it potentially could affect a NZ-EU deal, the competing national interests of the EU trading bloc have made it difficult to form a united stance in the TTIP.
So it might be a bit ambitious to assume any NZ-EU deal can succeed without a hitch. New Zealand has shown itself to be competent in negotiating for such deals, the highly encouraging agreement with China an astounding example.
The benefits for both are certainly attractive, but the fact remains that New Zealand will not be negotiating with a single unified country in the EU.
Europe is a functioning bloc - most of the time - but if it cannot find a common ground between its nations when discussing heavier deals with the United States, a similar and far smaller deal with New Zealand may be out of its reach. Then again, perhaps New Zealand will be the long-awaited country which finally manages to corral the squabbling EU states and forge a lasting free-trade agreement.