EU struggles to secure another New Zealand-style trade deal

The EU-New Zealand Free Trade Agreement (FTA) officially entered into force on 1 May. The pact has put an end to a four-year trade drought, since Vietnam’s agreement in 2020, and the European Commission considers it a blueprint for future FTAs.

FTAs in the EU have never been a smooth ride. The first “new generation” trade agreement with Canada has had a long and troubled story and the one with Singapore required clarification from the EU Court before getting the green light.

The previous European Commission clinched provisional deals with heavyweights like Japan, Mexico, and the Mercosur bloc, formed by Argentina, Brazil, Uruguay, and Paraguay.  

But the EU’s pact with New Zealand is one of a kind, and it is considered a darling by the current Commission as it – more than all the others – embodies the idea of “sustainable trade”.

The agreement is the first to wield potential sanctions for breaches of environmental or labour commitments, a measure that also aims to address European farmers’ long-standing call for “reciprocity” in production standards.

Maybe this is because, despite its prominence as the top supplier of sheep and goat meat to the EU, New Zealand’s impact on the EU’s agri-food domain remains marginal, resulting in timid opposition from farmers and European governments.

Over the past few years, New Zealand has utilised just half of its post-Brexit duty-free sheep and goat meat quota – approximately 57,000 tonnes out of a maximum of 125,769 tonnes in 2022.

The trade agreement nudges this figure by an additional 38,000 tonnes of fresh and frozen lamb meat that can enter the EU without tariffs, totalling over 163,000 tonnes.

The benefits for other agricultural products are quite underwhelming, leaving New Zealand’s livestock producers disheartened.

Wellington is granted a mere 10,000 tonnes of beef, representing 0.15% the EU’s total consumption, at a preferential tariff rate seven years after the deal comes into force.

Quotas for cheese and milk powder don’t make a dent in the EU’s consumption, accounting for 0.71%, 0.27%, and 1.30%, respectively.

Replicating this model with other trading partners has proven challenging, especially in the current global turn towards protectionism.

For instance, the EU-Chile trade agreement, recently rubber-stamped by EU lawmakers, mirrors sustainability commitments of those with New Zealand. However, it lacks teeth in the form of sanctions for non-compliance.

The EU also failed to forge new trade pacts with other “like-minded” partners over agricultural hurdles.

Endgame talks with Australia collapsed in October 2023 in Japan, with Canberra pushing for greater market access for agricultural products.

Negotiations stalled after Australia’s trade minister, Don Farrell, unexpectedly demanded expanded quotas for beef, lamb and sugar exports, pushed by farming lobbies wary of a New Zealand-style deal.

The EU’s farmer protests have also pulled the break for the completion of the long-stalled EU-Mercosur trade deal after a window of opportunity arose following the election of Luiz Inácio “Lula” da Silva as president of Brazil in 2023.

National interests, fuelled by concerns over the Mercosur deal’s impact on the European agricultural sector, continued to stall progress on what could be the EU’s largest free trade deal to date, covering 10% of the world’s population and 20% of global GDP.

The opposition to the approval of a deal that has been 25 years in the making brings together NGOs, farmers’ associations and countries like France.

Despite the challenges, the window of opportunity is still open. With no Brazilian elections until 2026 and Argentina’s new leader Javier Milei potentially on board, the European Commission has one last shot at sealing the deal. 

To make the agreement acceptable, the Commission has tried to secure stronger sustainability commitments from the Latin American bloc. In other words, it aims to make it more “New-Zealand style”.

However, Mercosur was conceived in another trade era, in which sustainability was viewed with certain flexibility. Bridging the gap between the Mercosur and New Zealand models will be the EU’s biggest challenge yet in trade and agriculture.

Nibbles of the week

European Commission extends state aid emergency rules for farmers. The EU executive announced on Thursday (2 May) a six-month extension of the extraordinary framework allowing member states to grant support to farms and fishermen, set to expire in June, due to “persisting” market disruptions.

On the same day, the Commission launched a revision of the Agricultural “de minimis regulation“, which allows EU countries to grant companies certain amounts of state aid without formally notifying or obtaining the approval from the EU executive.

Uncertainty in EU agricultural markets still looming. In the coming months, inflation will stay the first reason of concern in the EU agricultural markets, according to the spring 2024 edition of the European Agricultural Market Outlook of the European Commission, published today (3 May).

The document confirms that agriculture “continues to be impacted by a number of events beyond farmers’ control,” in a time in which climatic crises and geopolitical tensions create the conditions for high production costs in energy, fertilisers and energy, and drives down  consumer demand.

EU executive mulls weakening peatland protection requirement for farmers. During a meeting of Agriculture and Fisheries (AGRIFISH) ministers on Monday, a group of EU countries including Latvia and Ireland called on the Commission to relax rules on mandatory practices to protect peatlands and wetlands under the EU’s Common Agricultural Policy (CAP), a measure that is currently being considered by the EU executive.

Some EU countries also call for derogations on rules on small by-catches in the Baltic Sea. Latvia and Lithuania proposed loosening some requirements of the fishing control rules, which only came into force on 9 January. While EU Agriculture Commissioner Janusz Wojciechowski – standing in for his colleague in charge of fisheries, Virginijus Sinkevicius – was reluctant to amend the text, the Danish, Italian and French delegations supported the Baltic states’ request.

Austria’s farming, economy ministers urge von der Leyen to delay the EU anti-deforestation law. According to a letter dated 27 April and seen by Euractiv, Austrian Agriculture Minister Norbert Totschnig and Economy Minister Martin Kocher are urging European Commission President Ursula von der Leyen to postpone the implementation of the EU’s new anti-deforestation regulation (EUDR), scheduled for January 2025.

France leads coalition of EU states to demand action over UK’s bottom fishing ban. After London imposed a ban on bottom fishing in 13 marine protected areas on 22 March, France said it will lead a coalition of member states to pressure the European Commission to impose sanctions on the UK for non-compliance with the 2020 Trade and Cooperation Agreement (TCA). A European Commission spokesperson confirmed to Euractiv that talks with France are taking place.

European Commission ‘prepared’ in the face of US bird flu outbreak. Following concerns over the spread of H5NI – known as high pathogenic bird flu – in cattle and mammals in the United States, the EU executive said the bloc was “well prepared” in the event of a pandemic. Commission spokesperson Stefan de Keersmaecker told Euractiv that vaccines are available and joint procurement contracts have been concluded.

Polish farmers lift blockades of all border crossings with Ukraine. Officials said on Monday that Polish farmers have ended the last border blockade of a two-month protest over what they said was unfair competition from Ukrainian agricultural products. The dispute over agri-food imports has strained relations between the neighbours, even as Poland has shown staunch support for Ukraine over Russia’s invasion.

[Edited by Angelo Di Mambro and Zoran Radosavljevic]

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