The UK’s second ‘new’ trade agreement

On 28 February 2022, the UK signed a free trade agreement (FTA) with New Zealand. This is the second FTA the UK has negotiated from scratch since leaving the EU. It follows the agreement with Australia signed in December 2021. Parliament now has a period of at least three months to scrutinise the agreement before the ratification process.

The signed agreement with New Zealand follows an ‘Agreement in Principle’, summarised in a separate Commons Library briefing.

Link to CPTPP accession

The Government sees this agreement as a step towards the UK joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) – a free trade agreement between 11 Pacific Rim countries, including New Zealand and Australia.

What’s in the agreement?

All tariffs on UK exports to New Zealand will be removed when the agreement comes into force. Many tariffs on UK imports from New Zealand will also be abolished at the same time.

There will be some protection for sensitive agricultural products. Tariffs on imports of beef, sheep meat, cheese, butter and apples from New Zealand will be phased out over transitional periods ranging from 3 to 15 years. The agreement also contains a general bilateral safeguard mechanism – in effect, a safety net if UK industry is seriously harmed by increased imports as a result of the agreement.

The agreement covers a range of other areas including trade in services, government procurement, digital trade and intellectual property.

Controversial Investor-State Dispute Settlement (ISDS) provisions, which allow foreign investors to take legal action against governments, are not included in the agreement.

Very small economic effect

According to the Government’s Impact Assessment, the agreement is estimated to increase UK GDP by 0.03%. 21 out of 23 economic sectors are estimated to see an increase in output as a result of the deal, although in many cases the positive effect is very small. The largest increases are in manufacture of motor vehicles, machinery and equipment, other transport equipment and textiles. Output is estimated to fall in two sectors: agriculture, forestry and fishing; and semi-processed foods.

All countries and regions of the UK are estimated to see an increase in output. The Impact Assessment notes all these estimates are subject to considerable uncertainty.

Reaction to the deal

The British Chambers of Commerce welcomed the deal’s removal of tariffs, help for small businesses and opportunities for services providers. TechUK said that the agreement contains an advanced digital chapter and a comprehensive environment chapter.

The NFU said the deal had little benefit for UK farmers and that the cumulative effect of the UK’s trade deals is a risk to farmers and also those wanting to buy British food. The NFU pointed out that UK farmers face much higher costs than those in New Zealand and are already under pressure from energy bills and labour shortages.

The TUC commented that there was insufficient consultation with trade unions and that the agreement lacks important protections for workers.

Select Committee inquiries

The agreement will now be scrutinised by the International Trade Committee in the House of Commons. The House of Lords International Agreements Committee also has an ongoing inquiry into trade negotiations with New Zealand.

What happens next?

There will be a period of at least three months between the agreement being signed and it being formally laid before Parliament under the Constitutional Reform and Governance (CRAG) Act 2010. This Act provides for a minimum of a further 21 sitting days before the UK can ratify the agreement.

The new Trade and Agriculture Commission (TAC) has published a report assessing whether the agreement is consistent with UK levels of statutory protection in relation to animal and plant health, animal welfare and the environment. 

While there is no requirement for a vote or debate on the agreement, the Government has said it will seek to accommodate a request for a debate from the relevant select committees, subject to parliamentary time.

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