Continued negotiations mean it is still uncertain that Britain will exit the European Union on March 29 as scheduled but the body administering NZ’s meat export quotas is taking no chances.
The Meat Board’s Dave Harrison said the board is activating its contingency plans for negotiations ending without a deal and for the United Kingdom to leave the European Union on the scheduled date.
“We are making changes to the software we use to run the quota certification systems and have talked to the companies about changing the allocation mechanism.
“We hope it is wasted effort but we can’t rely on it.”
The EU parliament last week approved regulations for splitting quotas for third countries selling to the EU after the UK goes.
For NZ sheep meat exporters it means their existing right to sell up to 228,000 tonnes tariff-free to either the UK or continental markets goes out the window.
Under the new regulations NZ exporters can send to either the UK or the continent a new maximum of 114,000 tonnes each before tariffs kick in.
While the quota allocations for the EU and the UK add up to the same as before, their value will be severely diminished.
Harrison said exporters operating predominantly in either the EU or the UK will be disadvantaged by the new allocations.
“They end up with a certain amount of quota into a market which they do not operate in and not enough in the market they do.”
Furthermore, if exporters want to divert more of their products to the EU from the UK following a no-deal Brexit they will no longer have the same flexibility to do so under the new quota ceiling.
Instead they will be left with quota for the UK market just at the time the value of lamb in Britain will come under pressure from increased supplies of local lamb shut out of the EU by 50% tariffs.
“In the event that again if there is a no-deal and all of a sudden the UK has 70,000 tonnes of carcases that it can’t move to France any more then that is a real problem and it is going to create a market situation where flexibility is going to be really important.”
Dairy Companies Association chairman Malcolm Bailey said splits to NZ’s dairy quotas are based on a flawed methodology that handicaps exporters trying to service the UK and EU markets according to customer demand.
In the case of NZ’s 74,000 tonne butter quota, 63% had been allocated to remaining EU members, based on the proportion of NZ’s butter exports sent to continental ports between 2013 and 2015.
But that overstated the amount of NZ butter consumed in the EU because significant amounts landed in the Dutch port of Rotterdam were then shipped on to customers in the UK.
“There is a chance that the split will fluke and be appropriate for the next year but the odds are it won’t,” he said.
Following the vote by the EU parliament the National Party’s trade spokesman Todd McClay called on the Government to immediately start legal proceedings at the World Trade Organisation against the EU.
“This is now urgent.
“If there is no Brexit deal our rights could be restricted as soon as March 30 this year with some exporters facing higher tariffs into the UK and EU markets.”
Trade Minister David Parker said the Government has raised its objections at the WTO but has not yet taken the step of initiating a legal challenge to the quota splits, which will not take effect until the UK leaves the EU.
“We will cross that bridge when we come to it,” he said.
But whether the WTO’s courts will be able to help NZ out of its quota bind is in serious doubt.
United States President Donald Trump last year blocked judicial appointments to the body’s appellate court and it will cease to function later this year for lack of judges unless he relents.
Even if NZ wins its case it will be automatically appealed and remain in limbo until the appellate body is restored to a working complement of judges.
In the meantime NZ would be forced to pin its hopes on negotiations for free-trade deals with the EU and the UK.
