Rules on investment screening and how British financial services firms can operate in the NZ market are rated as a top negotiating priority for the UK.
A source close to the NZ negotiating team said NZ would not back down until it had received an acceptable offer on its corresponding number one priority of improved access to the British market for agricultural exports.
“We will not lift a finger to liberalise anything that is difficult for us if the Brits have not done the same on agriculture,” the source said.
The hardball tactics emerged as Trade Minister Damien O’Connor prepared to leave for London and Brussels to advance trade talks with the UK and the European Union over the weekend.
Before he left O’Connor said he was unsure of the exact status of the offer from his negotiators on services and investment, but he was certain NZ would not roll over to British demands if it could not achieve its own objectives.
“We understand that this is a traditional area of interest for the UK and we have to respect that, but it is a negotiation,” O’Connor said.
While the UK had not publicly declared its objectives, experts said it was likely to include raising the threshold above which British purchases of NZ businesses would be subject to approval from the Overseas Investment Office.
Furthermore, it would want commitments that British firms operating here not be subject to stricter regulations than NZ competitors, while recognition of British professional qualifications would also be sure to be high on its list of demands.
The UK is a financial services powerhouse, populated with globally-dominant banks, insurance companies and fund managers.
However, Brexit has hit the sector hard, as it is still yet to secure a comprehensive trade deal with the EU covering financial services exports after formally leaving the customs union on January 1 this year.
It was recently calculated to have cost the UK financial services sector £113 billion in lost export income as firms decamped to European financial centres such as Frankfurt and Dublin so they could continue to trade seamlessly with EU clients after Brexit.
A source close to NZ’s negotiators said they were betting the UK would be desperate enough for a financial services deal that it would eventually give in on better market access for NZ’s agricultural exporters.
“They will want to say that we have opened up these opportunities for you in Australia and NZ,” the source said.
Perhaps more importantly, a deal with NZ also paves the way for improved access for UK financial services firms in Asia through the Comprehensive and Progressive TransPacific Partnership (CPTPP), which the UK applied to join earlier this month.
However,NZ may only have a limited window to flush out a better deal from the Brits.
British media have reported the UK could agree to scrap tariffs on Australian agricultural imports as early as this weekend’s G7 meeting in the UK, to be attended by Australian Prime Minister Scott Morrison.
There is scepticism on this side of the Tasman that a deal can be achieved in such a short space of time and whether it will be as good as is being reported.
Nevertheless, if the UK and Australia are able to agree some sort of deal, it does raise the prospect of at least a short-term tariff advantage for Australian exporters in the British market should NZ’s negotiations with the UK drag on.
Australian beef exporters were able to get the jump on NZ rivals this way when Australia headed off NZ in trade talks with South Korea and Japan in the middle of the last decade.
One senior dairy company executive, who did not wish to be named, said the industry had urged the Government to remain staunch in its demands of the UK, but admitted the clock was ticking on the negotiations.
“We would rather them hold out and negotiate for the highest-quality deal they can possibly get,” they said.
“But if the Australians do manage to secure a high-quality deal with the UK, which delivers substantially for dairy or the other sectors, then I am sure the NZ government will be putting maximum pressure on the UK to deliver exactly the same outcomes for NZ and quickly.”
