Disunited Kingdom

The United Kingdom is a disunited kingdom.

The UK as a whole voted to leave the European Union but two of the four countries which comprise it did not.

England and Wales voted to go, Northern Ireland and Scotland voted to stay.

This could prompt another move for Scottish independence and possibly a push to reunite Ireland.

The decision already has its casualties.

Prime Minister David Cameron has announced he’ll stand down, saying he thought the ocuntry need fresh leadership and couldn’t captain the ship to its next destination,

Reports that Morgan Stanley would move 2000 jobs to Dublin of Frankfurt were later denied but both the pound and euro fell after the referendum result was announced.

The pound dropped below the crucial $1.40 mark amid fears that the UK would vote to leave the European Union. Sterling fell as much as 10% early on Friday, and is on track for its worst one-day fall in history. After trading at $1.3262, down nearly 9%, as of 5.27am BST, the currency recovered slightly to 1.3394 as of 6.05am BST.

The euro fell the most since it was introduced in 1999 while other currencies in Europe also took a hit, Bloomberg reported. . . 

The wheels of politics and bureaucracy grind very slowly so there will be no immediate changes but Beef + Lamb New Zealand CEO Sam McIvor sent an email to farmers saying:

  • The EU and UK are New Zealand’s most valuable sheepmeat markets and Brexit could have significant implications.
  • It is unclear right now exactly how this will play out as Prime Minister Cameron has not confirmed that he will act upon the results. There are three key issues we are focused on at present:
    • Ensuring that we maintain our overall quota access into the EU and UK as the UK renegotiates its access into the EU. This will take some time and we will be able to work with the NZ government and EU/UK governments to understand the process and ensure the best possible outcome for NZ sheep and beef farmers;
    • Understanding the impact of Brexit on the sheep and beef markets in the UK and EU. The EU currently takes 90 percent of the UK’s sheepmeat exports.
    • Other indirect impacts could be appreciation of the NZD against the EU and UK.

NZ quota access into the EU & UK

  • New Zealand currently has a quota of just under 228,000 tonnes of sheepmeat into the EU at zero duties. This represents over half of New Zealand’s total global sheepmeat exports. The UK currently takes half of our exports to the EU by value.
  • New Zealand also has a smaller quota of 1,300 tonnes of beef into the EU at an in-quota duty of 20%.
  • As the UK negotiates its exit from the EU over the next couple of years it will be negotiating how much of these quotas will be transferred solely to them and on what terms.
  • Under WTO rules, New Zealand’s overall levels of access to both the EU and UK will have to remain the same, but we will lose the flexibility to decide which of the two entities to send our exports to depending on demand from customers.

Potential impact on EU and UK Markets

  • There will also likely be disruption on UK and EU markets.
  • The UK exported 90 percent of its sheepmeat exports to the EU last year. It currently faces zero tariffs into the EU.
  • If it loses its preferential access into the EU then its domestic market will be oversupplied, further reducing demand for NZ product, but this could potentially improve our market into the EU. 

The process of Brexit as we understand it at present:

  • There will be no immediate change to any access conditions until the UK officially ‘exits’ the EU which will take around two years, if not longer.
  • The departing Member State must notify the European Council (the leaders of each Member State) that it has decided to leave, and after this the departing Member State and the remaining Member States must negotiate the terms of exit.
  • The terms of exit must be agreed between the departing Member State, and a qualified majority of the remaining Member States. A qualified majority means 55 percent of remaining Member States, representing 65 percent of the remaining EU population.
  • European Union membership will automatically cease two years after the departing Member State gave notice of withdrawal if no agreement is reached. However, if there is unanimous agreement from all Member States, the negotiation process can be extended.
  • Under the WTO rules, the UK and EU would be legally obliged to retain New Zealand preferential access conditions (quotas) for red meat, however how this would be achieved is a cause for concern for the sector.

Federated Farmers says New Zealand needs to milk Brexit for all it’s worth:

With Britain voting to exit the European Union today, Federated Farmers is urging diplomats and export companies to be quick off the block and first inline for meetings to push New Zealand’s agenda.

Federated Farmers President Dr William Rolleston said: “Britain leaving the EU will create a considerable degree of political and financial uncertainty but we must consider what new opportunities might be won. This could be a great opportunity to work with lamb producers in the UK to get better outcomes for both countries.

“We have a shared history with the UK and want to ensure this outcome works in both countries’ interests. We need to emphasis our common thinking and remind Britain we are an important ally.

“The key thing for farmers is assessing how this change will affect trade to Britain as well as Europe and what this means for our free trade negotiations.

“The vote suggests a significant threat against the trends of globalisation and trade liberalisation. New Zealand as a small open economy will be a loser if protectionism prevails.” Dr Rolleston said.

Currently New Zealand primary exports to Britain are at three percent and 11 percent to Europe. Farmers are in a very different position than we were when Britain entered the European Union 43 years ago; at that time 40 percent of our exports went to Britain. Before that in the 1950s over 80 percent of New Zealand exports went to Britain.

Charles Finny echoes the need to move quickly:

What has happened today is hugely significant for New Zealand.
The UK is still a major market for us the official stats of $1.651 billion is probably understated. Taking the UK numbers out of the EU total reduces our goods exports to the EU to $3.738 billion – $1 billion less than our exports to ASEAN.
Our FTA negotiation with the EU has just become hugely complicated.
And we have our quotas into the EU – hard fought for and then hard defended potentially up for re-negotiation.
I think markets are over reacting. Nothing will happen to trade flows overnight. Moreover we can do a FTA with the UK fast and help to negotiate access for the UK into Asia that will be superior to that the EU will. And I think the chances of a UK-US FTA is also higher than a TTIP being concluded.
I don’t think that the consequences for UK trade with the EU will be as negative as many have been suggesting. Even in a worst case scenario of no FTA type relationship there will be almost zero negative impact apart from in agriculture
I don’t think the negatives for NZ will be as big as some have suggested – so long as we move fast.

Dr Oliver Hartwich, writing before the result was known,  says we should keep calm and carry on:

. . .Such political uncertainties aside, there is no need to panic. Not even in case of Brexit. The slogan has to be ‘Keep calm and carry on’.

Even a Brexit vote would not mean that Britain is out of the EU straight away. It would only give the UK government the mandate to inform Brussels of their wish to withdraw. They would not have to do so immediately though. If Prime Minister Cameron had to go, he would most likely leave this task to his successor.

Negotiations would only begin once the EU is officially notified. Under Article 50 of the EU Treaty, these would take at least two years.

Over all this time, nothing would change. Britain would have access to European markets. And they could well retain it depending on the outcome of the negotiations.

So we will watch the count of the referendum with excitement. But let’s keep calm no matter what the result. There is no need to panic either way.

The referendum result will mean big changes for the UK and will almost certainly prompt change in the EU.

The UK’s entry to what was then called the European Common Market  caused a great deal of angst and difficulty for New Zealand because the UK bought so much of our produce.

Its exit shouldn’t be nearly so problematic because our trading eggs are in far more baskets.

Where there are big changes there are also opportunities.  New Zealand should make the most of them and continue to promote free trade and seek deals with individual countries and trading blocks.

 

 

3 Responses to Disunited Kingdom

  1. Angry Tory says:

    NZ’s access to the EU was negotiated (or rather insisted upon) by Britain. When Britain leaves, so does any preferential access to the EU: the quotas will become UK only, and the UK will face quotas and tariffs for their exports to Europe.

    The good news might be that Boris Johnson might just throw open the UK’s borders to NZ and NZ trade: except of course he won’t: he’s already promised to keep all the subsidies the UK farmers get from Europe, and there’s nothing in it for him for NZ lamb, beef, or butter & milk to be allowed back into the UK.

  2. Will says:

    You may be right Angry, but it’s impossible to predict where this will lead. My hope is we’re beginning a new era, one where the baleful influence of the protectionist, inefficient, increasingly tyrannical EU is weaker. The Pacific Rim and India are becoming the most dynamic economic region now, and as a food producing nation we are well placed for once. The last 30 years have been pretty awful really, you have to believe things can improve. As the squeeze comes on Britain, I wonder if public attitudes to subsidies may come to resemble our own. Boris isn’t even PM yet, I don’t think he is bound by any promises yet.

  3. Freddy says:

    Yep, the Asian middle class is growing by the total population of the UK annually.

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