New Zealand and the European Union trade relationships towards a free trade agreement.

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.