Is the EU our next ‘best mate’?

This piece by Stephen Jacobi was originally published in Newsroom. Stephen is an Honorary Senior Fellow at the Helen Clark Foundation.

Various luminaries lay claim to the old adage that there are no permanent friends, only permanent interests. In today’s complex and conflicted world, where permanence seems elusive, it is in everyone’s interest to have as many friends as possible. Last October virtually all of the 27 member states of the European Union were represented at the NZ/EU Business Summit in Auckland – an extravaganza of togetherness, superbly organised by Ambassador Meredith and the EU Delegation in Wellington and featuring the EU Trade Commissioner Maroš Šefčovič, along with a bevy of New Zealand ministers and 500 business and civil society representatives.

This friendship has been long in the making. We have hardly been strangers to each other, with 30,000 Kiwi dead lying in Flanders’ fields and across the Continent. Since those dark days, post-war European integration has evolved dramatically, both in composition and ambition. New Zealand received a decisive shock when Britain finally joined the (then) European Economic Community in 1973, only to see Britain change course 47 years later. Today the EU includes states in Central and Eastern Europe and the Baltic, offering new opportunities for engagement. More recently the relationship has been significantly advanced by the free trade agreement signed in July 2023 and then, after a remarkably strong vote in favour in the European Parliament, entering into force ahead of schedule on May 1 2024.

The free trade agreement too was no overnight thing. It took over a decade of diplomacy to get to the finish line, starting with the negotiation of a “Partnership Agreement on Relations and Co-operation” signed in 2016. Formal negotiations started in 2018 and took four years and 12 rounds to conclude. What started as a marathon ended in a sprint as both parties seized a window of opportunity amid the disruption of the pandemic and heightened political alignment brought about by the escalating conflict in Ukraine.

In many respects the conclusion of the agreement defied expectations. For the longest time New Zealand and the EU had been competitors. The Uruguay Round of multilateral trade negotiations had secured New Zealand’s market access especially for sheep meat, and a subsequent agreement in the World Trade Organisation had addressed a long-standing problem of EU export subsidies for dairy. It was (valiantly) hoped that the agreement may materially improve access to the EU’s 450 million consumers. This is certainly the case for apples, kiwifruit, other horticulture, honey, fish and wine, as well as services and manufactured products. But dairy and beef, despite best efforts, gained access to less than 1 percent of EU consumption, a marginal improvement at best.

It has been surprising therefore to see the recent growth in exports – an additional $2 billion since the FTA came into force. This reflects wider market dynamics more than a reduction in tariffs, but is very welcome nonetheless. Some irritants remain: the now delayed (once again) introduction of an EU Deforestation Regulation could cause additional costs for our beef sector, which further detracts from the value of the access. There is concern also from some producers about how the future implementation of EU climate policy may affect trade.

The FTA has some other commendable features, including a chapter on Māori economic co-operation, provisions on sustainability and labour as well as the digital economy, including paperless trade. The undertaking of both parties to be held accountable for meeting Paris Climate Change commitments is a world-first, although how such a broad undertaking could be made actionable in a trade agreement is unclear. Certainly recent changes in climate policy in New Zealand will have been noted in Brussels. The EU gets its share of goodies – European exporters now enjoy tariff-free access to the New Zealand market, better conditions for investment, including a higher investment screening threshold, better access to government procurement and restrictions on the use of terms including feta and prosecco.

This was the background against which the NZ/EU Business Summit took place. It explored a wide range of opportunities from trade to investment to innovation and climate co-operation and was notable for the enthusiasm shown by Trade Commissioner Šefčovič and senior European business people.

The message from the summit was that both sides are ready to do business. New Zealand’s location in the Asia Pacific was cited as an attractive proposition for investment. Major European companies are prepared to expand their involvement in the Government’s infrastructure programme, often through their Australian subsidiaries. The EU’s Horizon Fund, for which New Zealand is the first non-EU partner, enables Kiwi research organisations to bid for Horizon Europe funding on the same terms as their European counterparts, opening up access to the €95 billion available up to 2027. The fund is already rolling out 21 co-operative projects between EU and New Zealand institutes to enhance research and innovation – this could be a game-changer for health, food production and climate adaptation.

It would be a mistake to think the relationship is all about the economy. The political dimension and especially New Zealand’s commitment to defending Ukrainian sovereignty is very much to the fore. The Prime Minister also spoke about working together to uphold multilateral trade rules, including through dialogue with the members of the Comprehensive and Progressive Trans Pacific Partnership. In a world where might is increasingly right, these principles matter: they are especially valued by the EU, in the light of wavering, if not outright collapse, of US commitment to European security and what we once knew as the “international rules based order”.

To those who may think that all this means a step back from our engagement with Asia, there is little doubt that a major part of the value the EU sees in New Zealand is as a strategic partner in the Asia Pacific at a time of geo-political uncertainty. We are moving beyond the old dynamics in the relationship to release some new potential, meaning that this long-term, expanding friendship may well have a fresh air of permanence about it.

* The views expressed in this piece are the author’s own, and not those of the NZ/EU FTA Domestic Advisory Group.