New Zealand’s current tariff-free quota of 228,000 tonnes underpinned the EU’s status as the industry’s single most valuable market until last year when it was overtaken by China.
The quota is due to be split between the United Kingdom and the remaining 27 members of the EU, when the final stage of Brexit is completed on December 31.
A maximum of 114,000 tonnes of sheep meat would then be able to be exported to the UK each year before tariffs kick in. The same arrangement is to apply to exports to the EU-27.
Exporters say splitting the quota takes away the flexibility they currently enjoy to sell up to 228,000 tonnes to either the UK or continental Europe according to where they can get the best returns.
Utilisation of the EU quota by NZ exporters has slipped in recent years as China’s demand has grown, falling from 77% in 2015 to just half last year.
But the Meat Industry Association’s chief executive Sirma Karapeeva says the performance of export markets were not constant over time and what were underused arrangements now, might not remain so in the future.
She pointed to the industry’s latest export statistics for August showing a 13% decrease in sheep meat exports to China compared to the same month a year ago, while exports to the Netherlands were up 80% and to Germany by 30%.
“It illustrates the difficulty of predicting future trends based on historical trade data,” she said.
“We remain deeply concerned about the proposal for the EU and UK to split the World Trade Organisation (WTO) tariff rate quotas, which would reduce that flexibility and disadvantage NZ.”
The sheep meat quota, along with smaller beef and dairy quotas, were negotiated by NZ and the EU in the Uruguay round of global trade talks in the 1990s.
The splits proposed are based on exports to the UK and continental Europe during a three-year period between 2013 and 2015.
In September 2017, NZ, along with other quota-holders including the United States, sent a letter to the EU and UK representatives at the WTO complaining that splitting the quotas in such a way was illegal under Article 28 of the General Agreement on Tariffs and Trade, which prevents parties to trade agreements being left worse off by changes to them.
The EU and the UK were eventually forced to the table for consultations after initially trying to use a legal loophole known as “rectification” to avoid their obligations to consult quotaholders about the changes.
But with two years of talks behind them and just weeks to go till the quota is due to be split, the Government’s top trade negotiator Vangelis Vitalis said NZ was still at loggerheads with the EU and UK over the proposal.
“We are very mindful that the clock is ticking down on the transition period and we are ramping up our engagement and lobbying accordingly,” he said.
“The proposal on the table is not one we can work with.”
Vitalis says NZ could only agree to a deal which gave exporters access equivalent to what they had now.
The UK and the EU are understood to have rejected a solution put forward by Vitalis that would have seen NZ exporters retain their rights to sell up to the existing quota limit in the UK and continental European markets, but with the proviso the allocation be withdrawn once the 228,000 tonnes was reached cumulatively across both markets. The alternative was to double the current quota so NZ could continue to sell up to its 228,000 tonne limit in both markets.
The NZ Meat Board’s Dave Harrison says the “common ceiling” solution put forward by Vitalis could have helped the EU and UK cope with disruptions to supply that would result if they could not conclude their own trade deal before next year.
If the EU and the UK could not reach a deal and they were forced to trade with each other using WTO tariff rates, then British sheep farmers faced being shut out of the continental market completely by a 50% tariff on their lamb from January 1 next year.
The London School of Economics recently predicted a 90,000 tonne shortfall in sheep meat supplies in the EU next year under that scenario.
Harrison says were it able to retain the flexibility of its existing quota, the NZ meat industry would have been able to help make up the shortfall.
“Instead, they are going to have problems getting the right product in the right market and we are going to be limited in what we can do to help.”
At the same time as running short of EU quota, NZ exporters would be left with more quota than they needed for the UK, which would be swimming in a surplus of cheap domestic lamb.
