Polity by Rob Salmond


Four cents on Brexit, Fonterra, and New Zealand

 As readers know, there’s all manner of turmoil sloshing around the UK this week following the Brexit vote. The PM’s gone, the campaign to replace him is on already, Labour’s blown up, and Scotland could either scupper the Brexit or Scexit itself. Many of the promises from Team Leave have either been quickly disavowed as “mistakes” (aka lies) emblazoned across the Leave bus, or laughably big-upped by Boris Johnson, who now reckons he can negotiate to keep all the good bits of the European common market without paying a cent for the privilege. 

As I’ve argued here on another trade negotiation topic, Johnson’s position is non-credible because it fails the “or you’ll do what” test. Once the UK triggers Article 50 of the Treaty of Lisbon, it loses basically all leverage with the EU, because within feasible bounds Brussels **knows** the UK has to take whatever deal is on offer. If the UK ever says: “well if that’s your bottom line, there’s no deal,” it is left with pre-1973 nothing. That won’t play well in Blighty, meaning Britain's leaders have painted themselves into a very tight corner.

There’s plenty of food for thought in New Zealand, too. Our currency took a hit along with the pound, and some of Europe’s economic uncertainty will undoubtedly rebound on us, as the EU (outside the UK) and the UK are in our top six trading partners. How much of that is short term panic, and how much is structural change remains to be seen.

One thing I think we should be concerned about is trade access, especially for Fonterra. I had initially thought Brexit could have a silver lining for New Zealand in terms of preferential access for Fonterra to the UK. There is some prospect of that, although it will be a few years off, because the UK has quite a trade policy mess to clean up before it turns its attention to us.

But there’s a big flipside to this, which a very smart trade professional talked me through the other day. A good proportion of Fonterra’s current access to EU markets was granted as a continental concession in the 1973 negotiations for the UK’s EEC membership. And this 1973 agreement is one of the most important things Brexit will pick apart.

Absent the pro-New Zealand voice of the UK, will France, Denmark, Italy, and the other dairy-heavy European countries be looking to preserve Fonterra’s access even though its current vehicle is being scrapped? I could easily see a strong domestic lobby in these places looking opportunistically to rid themselves of some competition. And while the UK and EU are negotiating their divorce, will anyone really have the time to placate one of the UK’s faraway younger cousins?

I think there’s a real chance that Fonterra, and potentially other major agricultural exporters, will find themselves losing some of their EU access well before they gain any countervailing access to the UK. That could cause big problems for us, and we should be hedging ourselves against that possibility with haste.

There also may, or may not, also be political lessons to be learned from Brexit.

For example, some in New Zealand think the no confidence motion in UK Labour’s Jeremy Corbyn shows how out of touch [the Labour caucus OR Jeremy Corbyn] is with the real needs of [UK Labour AND/OR the UK public]. They believe this regrettable trait is shared by New Zealand Labour’s [MPs OR activists], and that the relevant New Zealand folk should follow Corbyn’s lead by [standing tough OR sodding off] in advance of the next election.

Without passing overall judgement on either argument, I think it is far too early to come to these kinds of conclusions. That's partly because it’s a bit tough to see all the ins and outs of supporting cast in the Brexit campaign from here, and partly because the situation facing UK parties in this historically unusual circumstance isn’t directly analogous to the comparatively run-of-the-mill politics going on here. Yes, that's boring punditry, but sometimes boring is the right thing to do.

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