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New Zealand and the European Union Trade Relationships Towards a Free Trade Agreement

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New Zealand and the European Union Trade Relationships Towards a Free Trade Agreement NEW ZEALAND AND THE EUROPEAN UNION TRADE RELATIONSHIPS TOWARDS A FREE TRADE AGREEMENT A thesis submitted in partial fulfilment of the requirements for the Degree of Doctor of Philosophy in European Union study in the University of Canterbury by Irena Obadovic University of Canterbury 2018 Abstract Early in 2017, officials from the European Union (EU) and New Zealand met to review bilateral relations. They stated that both parties should agree to sign a comprehensive free trade agreement (FTA) and that the negotiations could be launched in 2018. This was seen as a bold step that may significantly boost trade and investment between the two parties. This research examines the possible economic impacts of a FTA between New Zealand and the EU, including detailed consideration of the agricultural sector. A partial equilibrium model called the Lincoln Trade and Environment Model (LTEM) is employed to capture the effects of the FTA on the agricultural sector. Relevant scenarios were developed assuming different liberalisation levels of bilateral trade in agricultural commodities. They assumed various changes to tariffs and quotas. The results from this research draw attention to the fact that the effects of the FTA will be more significant for New Zealand as the proportion of total trade from New Zealand to the EU is much higher than for the EU and because trade barriers on agricultural goods are higher in the EU. In New Zealand, the most significant increases in producer returns and exports to the EU are expected in the apple and wine industries. For the EU, there would be slight negative results in bilateral trade. The EU would import more agricultural products from New Zealand than before. In all scenarios, though New Zealand would export more of these products to the EU, the EU would remain a net exporter of the same. However, the results should not be interpreted as indicating that the FTA would not be desirable for the EU. Keywords: European Union, New Zealand, free trade agreement, agriculture, partial equilibrium model, trade liberalisation i ii Acknowledgements I would like to thank my parents for all their unconditional love, kindness, care, sacrifices and support. Thank you for dedicating your lives and every atom of energy to me, my sister and our education. Without your generous support and encouragement, I would not be embarked on this journey. Хвала вам од срца. Special thanks to my beloved fiancé for the wholehearted support, patience and love. Thank you for being there for me through all the good and bad times and for reminding me that there is a life beyond the PhD and for making this journey the most wonderful and amazing one. Thanks to my sister, grandparents and aunts for always being there for me and providing unconditional love, care and support. A huge thank you to my supervisors Professor Martin Holland and Professor Caroline Saunders for their unlimited guidance, expertise, support and constructive criticism during this research, completion of this dissertation would not have been possible without their generous help. Thanks to you, John Saunders for sharing your knowledge and expertise about the model and generous patients and technical support during the model simulations. Special thanks to Tanja and Dejan who generously opened their hearts and house and treated me like a daughter. Thank you for your enormous faith, trust, support and for being my New Zealand family. Са љубављу, вером и надом. Хвала и слава Христу Богу за све. Амин. iii Contents List of figures ................................................................................................................................ vii List of tables ................................................................................................................................. viii List of abbreviations ....................................................................................................................... x Chapter 1 Introduction ............................................................................................................... 1 1.1 Background ...................................................................................................................... 1 1.2 An overview of the studies of European Union-New Zealand trade relationships .......... 2 1.3 Research aim and objectives ............................................................................................ 7 1.4 Organisation of the thesis ................................................................................................. 7 Chapter 2 Background ............................................................................................................. 10 2.1 Introduction .................................................................................................................... 10 2.2 Trade profiles of the European Union and New Zealand............................................... 10 2.2.1 The trade profile of the European Union ................................................................ 10 2.2.2 The trade profile of New Zealand ........................................................................... 13 2.3 New Zealand and European Union trade: A historical perspective ............................... 16 2.4 Current trade between New Zealand and the European Union ...................................... 22 2.5 The European Union and New Zealand arrangements and agreements ......................... 32 2.6 Trade policies of New Zealand and the European Union .............................................. 35 2.6.1 The European Union’s trade policy ........................................................................ 35 2.6.2 The Common Agricultural Policy and its most recent reform ................................ 40 2.6.3 New Zealand free trade policy ................................................................................ 44 2.7 Existing barriers to trade between the European Union and New Zealand ................... 46 2.7.1 Tariffs ...................................................................................................................... 47 2.7.2 Tariff quotas ............................................................................................................ 50 2.7.3 Regulatory norms .................................................................................................... 53 2.8 Conclusions .................................................................................................................... 55 Chapter 3 European Union and New Zealand recent FTA strategies and their potential application to future bilateral negotiations ................................................................................... 58 3.1 Introduction .................................................................................................................... 58 3.2 New Zealand’s negotiation strategy in its concluded FTAs .......................................... 59 3.2.1 New Zealand-Australia Closer Economic Relations (ANZCER) ........................... 60 3.2.2 New Zealand-Singapore Closer Economic Partnership (NZSCEP) ....................... 60 3.2.3 New Zealand-Thailand Closer Economic Partnership (NZTCEP) ......................... 60 iv 3.2.4 New Zealand-China Free Trade Agreement (NZCFTA) ........................................ 61 3.2.5 New Zealand-Malaysia Free Trade Agreement (NZMFTA) .................................. 64 3.2.6 The New Zealand-Hong Kong, China Closer Economic Partnership (NZHKCCEP) ....................................................................................................................... 65 3.2.7 New Zealand-South Korea Free Trade Agreement (NZKFTA) ............................. 66 3.3 The European Union’s negotiation strategy in its concluded FTAs .............................. 70 3.3.1 Analysis of the European Union’s FTAs with South Africa, Mexico and Chile concluded under Global Europe ............................................................................................ 71 3.3.2 Analysis of Trade, Growth and World Affairs FTAs ............................................. 76 3.4 The potential application of European Union and New Zealand recent FTA strategies to bilateral negotiations ................................................................................................................. 81 3.5 Conclusion ...................................................................................................................... 89 Chapter 4 Theoretical background .......................................................................................... 91 4.1 Introduction .................................................................................................................... 91 4.2 An overview of international trade theories ................................................................... 91 4.2.1 Mercantilism ........................................................................................................... 92 4.2.2 The classical theories .............................................................................................. 93 4.2.3 The neoclassical theories of international trade ...................................................... 97 4.2.4 New theories of international trade ......................................................................... 99 4.3 Gains from free trade and trade under trade barriers ................................................... 104 4.4 Tariffs and non-tariff barriers,
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