Pwyllgor yr Economi, Masnach a Materion Gwledig
Economy, Trade, and Rural Affairs Committee13/07/2022
Aelodau'r Pwyllgor a oedd yn bresennol
Committee Members in Attendance
|Hefin David MS|
|Luke Fletcher MS|
|Paul Davies MS||Cadeirydd y Pwyllgor|
|Samuel Kurtz MS|
|Vikki Howells MS|
Y rhai eraill a oedd yn bresennol
Others in Attendance
|Emily Rees||Y Ganolfan Ewropeaidd ar gyfer Economi Wleidyddol Ryngwladol|
|European Centre for International Political Economy|
|Sam Lowe||Flint Global|
Swyddogion y Senedd a oedd yn bresennol
Senedd Officials in Attendance
|Lara Date||Ail Glerc|
|Robert Lloyd-Williams||Dirprwy Glerc|
Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.
The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.
Cyfarfu’r pwyllgor drwy gynhadledd fideo.
Dechreuodd y cyfarfod am 09:30.
The committee met by video-conference.
The meeting began at 09:30.
Croeso, bawb, i gyfarfod ffurfiol olaf Pwyllgor yr Economi, Masnach a Materion Gwledig cyn y toriad. Mae'r pwyllgor yn cynnal digwyddiad rhanddeiliad trwy wahoddiad yn unig yn Sioe Frenhinol Cymru ddydd Iau nesaf, 21 Gorffennaf, a bydd ein cyfarfod ffurfiol nesaf yn cael ei gynnal nawr ym mis Medi. Dwi wedi derbyn ymddiheuriadau gan Sarah Murphy am ei bod hi'n sâl. Dwi ddim wedi derbyn unrhyw ymddiheuriadau eraill. Oes yna unrhyw fuddiannau yr hoffai Aelodau eu datgan o gwbl? Sam Kurtz.
Welcome, everyone, to this final formal meeting of the Senedd's Economy, Trade and Rural Affairs Committee before the recess. The committee is holding an invitation-only stakeholder event at the Royal Welsh Show next Thursday, 21 July, and our next formal meeting will now be held in September. I have received apologies from Sarah Murphy as she is unwell. I haven't received any other apologies. Are there any interests that Members wish to declare at all? Sam Kurtz.
Diolch, Gadeirydd. I'm a member of Pembrokeshire YFC and director of the Wales Federation of Young Farmers Clubs.
Diolch yn fawr iawn. Unrhyw un arall? Nac oes.
Thank you very much. Anyone else? No.
Symudwn ni, felly, i eitem 2 ar yr agenda, sef papurau i'w nodi. Mae yna nifer o bapurau i'w nodi. Dwi ddim yn mynd i fynd trwyddyn nhw i gyd, ond oes rhywbeth yr hoffai Aelodau ei godi o'r papurau yma o gwbl? Nac oes.
We move on, therefore, to item 2 on our agenda, which is papers to note. There are a number of papers to note. I'm not going to go through them all, but are there any issues that Members wish to raise arising from these papers at all? I see that there are none.
Symudwn ni ymlaen, felly, i eitem 3 ar ein hagenda, sef edrych ar y cytundeb masnach rhydd rhwng y Deyrnas Unedig a Seland Newydd. Cafodd y sesiwn hon i drafod effaith cytundeb masnach y Deyrnas Unedig a Seland Newydd ar Gymru gydag arbenigwyr masnach ei gohirio o gyfarfod 26 Mai, gan nad oedd y tystion ar gael. Mae'r pwyllgor eisoes wedi clywed tystiolaeth ar 15 Mehefin gan NFU Cymru, Undeb Amaethwyr Cymru a'r Gweinidogion materion gwledig a'r economi.
Gaf i, felly, groesawu'r tystion i'r sesiwn hon heddiw? Gaf i ofyn iddyn nhw gyflwyno eu hunain ar gyfer y Record ac wedyn gallwn ni symud yn syth ymlaen i gwestiynau? Efallai y gallaf i ddechrau gyda Sam Lowe. Na, dwi wedi colli Sam Lowe, yn anffodus. Fe ddof i at Emily Rees.
So, we'll move on to item 3 on our agenda, which is considering the free trade agreement between the UK and New Zealand. This session to discuss the impact of the UK and New Zealand trade agreement on Wales with trade experts was postponed from the 26 May meeting, due to the witnesses not being available. The committee has already taken evidence, on 15 June, from NFU Cymru, the Farmers Union of Wales and the Ministers for rural affairs and the economy.
So, may I welcome the witnesses to this session today? May I ask them to introduce themselves for the Record and then we can go straight to questions from Members? Perhaps I could start with Sam Lowe. No, we've lost Sam Lowe, unfortunately. So, we'll go to Emily Rees.
Good morning. I'm Emily Rees, senior fellow for the European Centre for International Political Economy and founder-managing director of Trade Strategies in Brussels.
Dwi'n gobeithio y gallwn ni ailgysylltu gyda Sam Lowe. Oes gyda ni broblemau technegol ar hyn o bryd? Os oes, efallai fydd rhaid i ni ohirio pethau hyd nes ein bod ni'n cael Sam yn ôl. Na, dwi ddim yn gweld Sam ar ein sgrin, felly bydd rhaid i ni jest ohirio ein trafodion hyd nes i ni gael Sam yn ôl.
I hope that we can reconnect with Sam Lowe. Do we have technical issues at the moment? If so, perhaps we'll have to postpone proceedings until Sam can reconnect. No, I don't see Sam on my screen, so we will have to take a short break in proceedings until Sam can rejoin.
I therefore suspend proceedings until we get Sam Lowe back.
Gohiriwyd y cyfarfod rhwng 09:33 a 09:36.
The meeting adjourned between 09:33 and 09:36.
Croeso nôl. Mae'r problemau technegol wedi eu sortio. A gaf i unwaith eto ofyn i'n tystion gyflwyno'u hunain ar gyfer y record? Wedyn gallwn ni symud yn syth i gwestiynau. Fe ddechreuaf i gydag Emily Rees.
Welcome back. The technical issues have now been resolved. May I once again ask our witnesses to introduce themselves for the record? Then we can move straight to questions from Members. We'll start with Emily Rees.
Good morning, Chair, committee, and everyone following us. My name is Emily Rees. I'm a senior fellow with the European Centre for International Political Economy, and managing director of Trade Strategies in Brussels.
Diolch yn fawr iawn. A Sam Lowe.
Thank you very much. And Sam Lowe.
Good morning, everyone. Apologies for the technical problems. My name is Sam Lowe. I'm the director of trade policy at Flint Global, which is a business advisory firm.
Thank you for those introductions. Perhaps I can just kick off this session with a general question first of all. Maybe you could just outline the impact of and opportunities presented by this agreement on businesses in Wales related to trade in goods, including how the UK and Welsh Governments can actually support businesses to maximise opportunities and indeed mitigate the impacts. Perhaps I can start with Sam Lowe.
Yes, of course. The fundamental offer of this trade agreement for companies trading manufactured goods is the removal of tariffs. In the industrial goods space, that will happen on day one; for agri-foods and other products, that will also happen on day one in terms of exports into New Zealand, in terms of imports into the UK, so that will be phased in over time for a number of products. In terms of where this agreement goes further than others, perhaps, for exporters, is making it easier to make use of the agreement and qualify for tariff-free trade. It does include quite accommodating rules-of-origin provisions, so these are the provisions that determine whether your product is local enough to the United Kingdom or New Zealand to qualify for the benefits of the agreement. For example, for buses, if you were to export buses to New Zealand, you would only need to demonstrate that 25 per cent of the value was originating in either the UK or New Zealand. But also for confectionery—so, biscuits and the like—there are quite accommodating provisions that would allow for non-UK sugar to be used in the production and in manufacturing.
In terms of how the Welsh Government and also the UK Government could help companies best make use of this agreement, I think one of the largest problems facing smaller producers in particular is a lack of awareness around the existence of these agreements and of opportunities perhaps to sell their product, in this case to the New Zealand market. It's far away; I think British people have a sort of stronger affinity with New Zealand and also Australia than some other countries that are of equal distances, due to a shared history, in some ways, but even then, you might be told that you have access to tariff-free trade, but you still don't actually know what the market conditions are in New Zealand and whether people actually want to buy your products. Who would you be competing with? Is there a domestic producer of something similar, or not? And being able to fill in those gaps for companies is a role I think Government can actually play quite an active and useful role in.
Thanks. And Emily Rees.
Considering Wales's current trade figures, and the geographical gravity that Sam just mentioned—the fact that these are distant lands—essentially, opportunities for Welsh companies will lie mostly in exporting products that are already traded with non-EU countries. What we imagine here looking at this deal is that, thanks to the historical positioning that Wales has had in certain industries, and particularly steel and iron—. Wales has become very specialised in specific products that come to engineering and innovation, and that derive from that primary industry—so, segments such as power-generating materials, which is especially interesting in terms of the renewable energy market that's growing worldwide, road safety, aeronautics, electric machinery and parts. Those are, I would say, the added-value products that we could imagine seeing as an expanded market here. When we add medical and pharmaceutical products also, Wales can position itself as an innovation hub, so really suppling the high tech, high added-value products to the wider Asia-Pacific market, using New Zealand, I would say, as a launch pad into the wider Asia-Pacific region.
I think it was very well mentioned there by Sam that there are several means to support businesses to maximise these opportunities, particularly the small and medium enterprises. Those are typically the companies that benefit most from free trade agreements, but they do need an extra hand in knowing how to use them. And so, in this sense, it's often recommended that one tiers the different companies, based on their prior exporting experience, to meet those differentiated needs, because a small company and a medium exporting company will not have the same needs, as mentioned. Is there a market? Are you already exporting in that market? It won't require the same Government support in this field.
Also, what we find is the need, again, to provide the sectoral information on the standards of the importing country, in this case New Zealand. So, understanding New Zealand's regulatory regime is going to be so important to support businesses, but also their participation in trade fairs. It's a long way away, it's quite an investment for companies to go to New Zealand to show off their products, and, in that sense, you want to go there well prepared—so, support on the ground, with contacts, with prospect companies, buyers, and also looking at offering export finance solutions for the more mature exporting companies. Those would be, I would say, the general recommendations. Obviously there's a lot more granularity to it if we wish to go into expanding that topic.
Can I ask you both about the impact of and the opportunities presented by the agreement's provisions on trade in services, investment and procurement for businesses in Wales? How do you believe these actually differ from those provided for in the UK-Australia free trade agreement? Perhaps I can start with Sam on that.
Sure. I think, as a starting position, we should understand that the benefits conferred by free trade agreements for services providers differ quite fundamentally from those granted for companies trading manufactured goods. Exporters and importers of manufactured goods would largely expect a free trade agreement to lead to tangible day-one benefits in the reduction or removal of tariffs. It's quite easy to therefore say that it benefits sector X or sector Y. When it comes to provisions on services, free trade agreements tend not to unlock new day-one market access. Rather, they usually see both parties commit to continue treating each other's services providers on the same terms as now. And the benefit there is greater certainty for those companies that the facts on the ground that currently exist are not going to be changed negatively in future. So, the benefit, in a way, is less tangible, but it still can be quite important.
In terms of practical outcomes of the New Zealand agreement for services providers, one of the areas where it has moved a bit further than it normally does is in the area of contractual services suppliers—so, in respect of, in this case, lawyers and accountants and people working in legal services more generally. It includes provisions—and it's the first time that New Zealand has ever included these provisions in one of its free trade agreement, it also doesn't exist in its World Trade Organization commitments—that, at least on paper, would allow for a UK lawyer to go to New Zealand to deliver a contract that has been won by its firm for a fixed period of time. I say 'on paper' because it does come heavily caveated, so I'm actually not sure if that will translate to benefits in practice, because it is subject to an economic needs test.
In terms of other areas on services, it's true that, on procurement, New Zealand has clarified to a greater extent than its WTO commitment areas where British firms will be able to bid for a procurement contract; they were not necessarily unable to do so before, it just wasn't necessarily clear. And, on digital services, for example, there are some nice provisions about both parties refraining from applying duties to cross-border data flows and forced data localisation. I should say that this was the position of both countries anyway; it's not necessarily new, and again, it comes heavily caveated.
One area of difference from the Australia agreement—much of what I've described is actually quite similar to UK-Australia—is that New Zealand hasn't made commitments in respect of source code, by which I mean that in UK-Australia, there is a commitment by both parties not to force companies to hand over source code as a condition of market access. New Zealand hasn't made that commitment because of some issues it has domestically in respect of the Māori population and something called the treaty of Waitangi. I should say that that hole will be filled if and when the UK joins the comprehensive and progressive agreement for trans-Pacific partnership, because those provisions do exist there.
Okay. Thanks for that. And Emily.
I think Sam, whose speciality is exactly these elements—services, investment and public procurement—has very well encapsulated the opportunities. I would simply just reinforce the importance of legal certainty for exporters in the market that they are seeking to either enter or reinforce or maintain.
Okay. Thanks very much indeed for that. I'll now bring in Vikki Howells.
Thank you, Chair. Good morning, Emily and good morning, Sam. With regard to removing regulatory barriers to trade in goods, do you think that the agreement goes far enough in that respect? I'm thinking also of the rules of origin requirements and the conformity assessment requirements with regard to that. Also, your thoughts on how these compare to similar provisions in the UK-Australia free trade agreement too. I'm not sure who wants to start there.
I'm happy to start on that. Thank you very much for the question. If you'll allow me to start with the rules of origin part and then perhaps expand my assessment from there. The UK-New Zealand deal, as was said, does go further than that of the deal with Australia, so the tolerance level for non-originated materials is higher than the Australia deal, although it remains relatively low if we look at other deals, and we have to consider in this context the fact that New Zealand does have privileged access to Asian imports. So, in a way, that needs to be considered in terms of the imports into the UK. But also, this higher threshold does play also to the UK's favour in the sense that it allows for non-EU content in the agreement and British companies will still be able to qualify for tariff-free entry into New Zealand.
Now, obviously we need to take into consideration that there are a number of other negotiations ongoing and include what we look at as cumulation of origin, right? So, this is when two countries have an FTA with the same country, third country, and so today, for instance, the UK has signed an agreement with New Zealand; we also have the EU that's just concluded its negotiations with New Zealand. That should also allow for a cumulation of origin between these three agreements, which will be quite interesting. There's also, of course, the question of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership when New Zealand is also a party, and the potential cumulation of origin that can happen in that, I would say, bi-regional integration of supply chains.
What's also interesting in terms of these causes is the potential to use the agreement also to accelerate the inclusion of some of the world's least developed economies into global value chains. The New Zealand and the UK will, as part of this agreement, come up with a list of common eligible countries—goods, materials and their applicable conditions—and that can continuously be updated. And that really is to foster, I would say, a development spur in some of the world's least or most vulnerable regions of the world. So, that's also a very interesting element that was included.
I would say that the Australia deal does contain similar provisions, but we find that it tends to be a bit more on best endeavours rather than having so much concrete action to move forward, as we find in this agreement. We can talk, obviously, about the sanitary and phytosanitary provisions as part of also the measures that are put into place in this agreement, keeping in mind that both the UK and New Zealand have very strong regulatory frameworks in that respect, to facilitate trade. And so we'll see, for instance, the rollover of the UK-New Zealand veterinary agreement, and we can look at what that means also for this agreement. Thank you.
Thanks, Emily. Sam.
So, just to add a couple of things: on the rules of origin provisions, as we've covered, they are quite accommodating and pro-liberalisation, I would describe them, in that they prioritise the ability of companies to qualify for the tariff-free trade for the benefits over concerns around circumvention—so of, for example, Chinese inputs making their way into New Zealand products and then qualifying for tariff-free trade, via the New Zealand agreement, into the UK, and I think there are some fairly sensible reasons for why both countries pursued that route.
I'd also note that there are no restrictions on something called 'minimum transformation'. So, lots of free trade agreements have a list of types of production that do not allow products to qualify for, via the rules of origin criteria, tariff-free trade. So, for example, in the UK-EU, there's a list of things that don't count, for example, if you were to import a T-shirt from India and just repackage it into some cellophane or something, that wouldn't count as a substantial transformation, that wouldn't count towards making the T-shirt British rather than Indian. That list isn't there in this, which actually makes it easier again for products to qualify.
In terms of your question around the regulatory barriers: as a baseline, free trade agreements very rarely do anything to bring down regulatory barriers, despite the discourse that goes around it. And the proof in the pudding here is, if you actually look at the implementation of the recent free trade agreements in the UK, in the context of the rollovers, but also while we were EU members, how many of them actually require the UK to change its rules on anything, and the answer is pretty much 'none'. And if you don't actually have to change any regulatory approaches or procedures, then you can infer that, actually, the free trade agreement hasn't removed regulatory barriers to the extent you might hope.
In the context, though, of this agreement, we should say—and I already mentioned it—that it doesn't exist in isolation. The UK already has a veterinary agreement with New Zealand that facilitates trade in products of animal origin. In practice, what does this do? It reduces the frequency of physical inspections of some New Zealand food products entering the United Kingdom, it simplifies some of the documentation. So, the free trade agreement hasn't unlocked this, because it already exists, but we should take that into account.
The UK also already has an agreement with New Zealand on conformity assessments, so this means that we recognise, for certain product categories, that a certification body in New Zealand can assure us that a product created in New Zealand to the relevant UK standards is good for the UK market. This reduces duplication costs for companies. So, that already exists.
In terms of what this agreement does, it does potentially push that discussion forward, and it might unlock new approaches. In particular, it includes text that said if and when the UK joins CPTPP, we need to have a discussion around the general national treatment of these certification bodies, by which I mean, because this is part of the CPTPP rule book, the UK would be pushed into treating all conformity assessment bodies in New Zealand on the same basis as it treats ones based in the United Kingdom and giving them the same rights and allowing them to go through the same sort of processes to be able to confer these certificates.
So, the agreement itself doesn't necessarily move the discussion on as of now, but it lays the foundation for this area to be further developed in future, and potentially would confer some benefits around reduced duplication, which is important when you think about how far New Zealand is away. Because if you're having a product certified in New Zealand and you also need to get it certified for the UK market, shipping it over here and going through the certification process over here is actually quite expensive. If you can do all of that in New Zealand, that is helpful, and also vice versa.
Thank you, Sam. If I can ask you both the same question again, but this time in relation to the removal of regulatory barriers for trading services, so thinking particularly about mobility and digital trades, so your views on both of those. Shall I start with you again, Emily?
I'll be very quick, because digital services and mobility are not my speciality. I focus more on trade, agriculture, climate and market access. So, I will leave the answer to that question to the expert here and to Sam.
In the previous answer, I discussed some of the new provisions around mobility and some potential new opportunities for service providers trying to enter the New Zealand market there. At a more general level, there's very little on the regulatory side when it comes to delivering new opportunities for companies in both directions. That's not to say there's nothing at all, particularly if we expand our remit slightly into intellectual property, whereby, for example, New Zealand has agreed to extend its copyright term from 50 years to 70 years, and that would cover visual artists and sound recordings and the like. So, clearly, there has been a regulatory change there on the New Zealand side, or there will be—they've got 15 years to make this change, so it's not going to happen particularly soon. So, you can identify some specific areas like that, but if you just take a step back more generally, it's what I said, it's largely both parties saying, 'We will continue to treat companies in this way and we promise not to become more restrictive in future.'
Thank you, that's really useful. So, one final question from me: it's to ask for your views on the agreement's impact assessment and whether you think it provides sufficient detail regarding the potential impact of the agreement. Emily.
Impact assessments are always the tricky question, because I think it's always important to remind ourselves that they are not forecasts. Impact assessments seek to analyse over 15 years of implementation what would happen, ceteris paribus, if all other things remain equal. But we've seen it with the pandemic, we've seen it now with the Russian invasion of Ukraine, external shocks cannot be factored in advance into these analyses, and they do make a difference when it comes to international trade. We also can't foresee major changes to regulatory regimes, although as Sam said, the agreement can lock in, I would say, a number of provisions in that respect.
In this case, the impact assessment does show Wales, Scotland and Northern Ireland combined see an increase of gross value added of around £52 million. So, the impact is rather marginal, but by way of comparison, the Cardiff-based Admiral group reported a turnover of £1.35 billion in 2020. So, just to give you an idea of the impact—it's quite low, but what it does is that it brings us closer together, but not always with the economic benefits that are touted.
So, here, this part on the impact assessments and the uncertainty around the impact assessments has been largely recognised by the Department of International Trade, which does recognise that there is a high-degree of uncertainty, to use their own words, relating to sub-national impacts. So, what is the specific impact on Wales? And to appraise regional impacts, in the detail that would be required to give you a consolidated answer, you would need to look at running sectorial modelling. So, separating out industry or separating out agriculture in Wales in this particular deal, and then you could run the figures that would give you something slightly more precise, slightly more granular, and that would be able to show you which sub-sectors would gain and which ones wouldn't. But, effectively, the economic modelling in this case does show that Wales lags behind other regions and nations when it comes to the tariff benefits of the agreement, but that also reflects, I would say, the economy of Wales and the particular interest, I would say, of the economy of New Zealand in this particular deal. It's still positive, but not largely. So, what we need to keep in mind is that Wales currently is a net-positive exporter to New Zealand, exporting more value than it imports, regionally, and so one would imagine the trade deal would amplify this further. But, again, without sectorial modelling—very difficult to look into the granularity of the winners and losers of the trade deal.
I would just add to that by saying that the Department of International Trade's approach to producing this impact assessment is good. It's not unusual. They have taken an industry standard approach to going about these things and they have refined it over time when they've been subject to criticism that led to some changes, and they've tweaked it. But when you look at the tweaks they've made, I think they're all quite justifiable.
But saying that, I still think that—. Emily discussed how small the numbers are. In reality, they could be even smaller, because one of the assumptions they have made is that in the goods space, for example, there will be a reduction in non-tariff barriers, so there will be the removal of regulatory restrictions to trade. And as we've discussed, it's actually not clear to me exactly where those are. When you actually read the text of the agreement and take into account the status quo with the existing conformity assessment agreement, and then also in the agri-food space, the sanitary and phytosanitary agreement, it doesn't obviously go further than that to me. So, I think, actually, if you remove that assumption, the number becomes even smaller, but it is an estimate and it's a relative estimate against a future in which it doesn't exists. And as Emily rightfully said, it doesn't take into account potential shocks in the real world. So, to give an example, if China were to close off its market to New Zealand entirely, then you would expect their exporters to seek out new markets and for the UK to be one of those. And that would fundamentally change some of the assumptions being made here and potentially the levels.
In terms of the regional modelling more generally, I think everything Emily said would be a welcome addition, but in terms of—. The only actual nation of the UK that actually have a problem with this modelling is actually Northern Ireland, where it doesn't take into account at all the realities on the ground that results out of the Northern Ireland protocol, so that's where my actual strong objection lies, rather than with how they've necessarily approached Wales and Scotland.
Thank you, both. Thank you, Chair.
Thank you, Vikki. I now bring in Luke Fletcher to ask a few questions. Luke.
Diolch, Cadeirydd. I think we touched on my first question in some of the answers to Vikki around the potential impact and opportunities provided by the agreement for specific sectors of the Welsh economy. But I was just wondering if the panel would have any additional things they’d like to add around specific sectors of the Welsh economy. I’m happy to start either with Emily or with Sam.
Yes, of course. In the Welsh framework, it’s obviously worth keeping in mind that the food and drinks sector are currently the nation’s first employer, and so, if you’ll allow me, maybe I can dig further into that. The trade deal will impact two sub-segments that are important, which are cattle and sheep, and that today represent respectively 26 per cent and 18 per cent, if I’m not mistaken, of Welsh agricultural production.
If the Chair will allow me to be quite precise, the agreement sees the full tariff liberalisation of New Zealand beef over 11 years. Unlike the agreement with Australia, there is no subsequent safeguard mechanism that is put into place exactly for the kinds of surges that could occur in the scenario that Sam just mentioned, or for instance China shutting down its market to New Zealand exports, or other large, significant importers in the Asia-Pacific region that are relevant to New Zealand as an exporter. From year 1 of the entry into force, the quotas slowly rise in instalments from 12,000 tonnes in year 1 to reach 38,820 tonnes in year 11. So, that’s about one third of what’s being offered to Australia, by way of comparison. The liberalisation also, as was the case in Australia, does not include any specific conditionality, including for instance the welfare of cattle, although on the whole we’re in a very, I would say, dissimilar situation because New Zealand does respect very high welfare standards in its production methods.
Moving to New Zealand sheep meat, it’s also afforded full liberalisation over a 16-year period in this deal. So, from year 1 of the entry into force, the quotas slowly rise again in instalments from 35,000 tonnes in year 1 to reach 50,000 tonnes in year 5, which is the level at which they are maintained until year 11, which then sees a full liberalisation offered. Again, 15 years from now, if external shocks are changing the geopolitical environment in the Asia-Pacific region, that is obviously what many of the farmers will be looking at. Interestingly enough, the preferential quota here only applies to New Zealand once it has used up 90 per cent of its quota as it’s already offered under its WTO quota. So, it really kicks off from there, which is something that we need to keep in mind when we’re crunching the figures. Obviously, within this quota there’s the question of the split between the UK and the EU subsequent to the UK’s exit from the EU. I will not get into the nitty-gritty of that, but the negotiations still are very long in Geneva, in the WTO, to see the full quota split. I believe we’re near to having a final agreement on that; I saw some news on that yesterday. But it’s still a very long process. And under that process it’s foreseen that the UK would retain, if I’m not mistaken, the New Zealand quota at a level of 114,000 tonnes for New Zealand sheep meat—lamb and plus. So, this quota kicks in at 90 per cent of that level. So, again, unlike the deal with Australia, there’s no surveyance and safeguard measures that are put into place on these particular animal market access quotas, which obviously puts a specific risk in the case of a large geopolitical change in the Asia-Pacific region over the next 15 years. That was a pretty granular response, but hopefully that gives a bit of sectorial impact.
Thank you for that, Emily. Sam, anything additional to add on that point?
Just in terms of potential future opportunities, I'm going to be far less granular here, but I think it's maybe worth reframing the question slightly and thinking about, 'Well, what's Wales good at and what could it become really good at in the future?' So, if you think now, Wales is pretty good in terms of high-end steel, you've got some pharmaceuticals, you've got aerospace and you've got an insurance base, you've got some actors—you have companies such as Wealthify, for example, in the more fintech-y space. So, thinking about, 'Okay, so we're good at this, what are the opportunities in New Zealand for us to expand into that market, taking that into account?' But then if you think about future opportunities—. I'm from south Wales, Llanelli, so I'm quite intrigued by the possibilities around floating offshore wind, for example, and Wales has a big opportunity to become a big player in this new space. In the context of New Zealand, do I think that we're going to be exporting turbines across the world? No. However, if we think about the ecosystem that could be created around this new industry, including on the advisory side, so consultants of a different stripe to me, but on the technical side, on the delivery side, is that something that could then be exported globally, including to places like New Zealand, where they do have quite large wind potential of their own? Yes. But it's not as simple as saying that the free trade agreement unlocks this. However, having a free trade agreement, having some Government focus in that space, having it in the news, even, perhaps creates an environment in which people on both sides of this relationship are more willing to explore these opportunities than if it did not exist and no-one was talking about New Zealand at all.
Thanks for that, Sam. That was really interesting. I think, looking at the agri-food sector, if I could move on to my next question, they've raised concerns around the potential impact of the agreement on the removal of tariffs, for example, on imports of New Zealand agricultural goods. They've also raised concerns around the cumulative impact of this agreement alongside the UK-Australia free trade agreement and the limited opportunities as well provided by the agreement for the Welsh agricultural sector. Is that something, in terms of those concerns, that you as a panel would share? I'll start with Emily, to give her expertise in this area, and then Sam, if you have anything additional to add, by all means—.
Thank you very much. Great question. Maybe I'm going to be quite short in my answer. One of the things that's quite interesting is that both New Zealand and Wales specialise in the same areas when it comes to agri-food, and in that, what I'm saying is high-end, high-quality, world-class products. So, in a way, that depends on consumers having the purchasing power for these products.
If we look at the agreement in the short, medium run and then the long run, I think we're going to have very different optics. In the short run, the UK is being hit by quite substantial inflation; New Zealand as well. The whole world is seeing this inflationary spiral occur. There are obviously a number of factors to this, but the cost of logistics is one of them—trading products far away adds a lot of costs. And what we see in such circumstances is that consumers will deviate away from the top of the range towards more affordable options. It seems pretty basic in terms of the logic, but then when you are specialising in these top-notch ranges, you really do need to find markets for them. And so what we see in situations of shrinkflation, as I said, is that, basically, middle-income consumers, be they in the UK or in New Zealand, who will be feeling the pinch of inflation will basically purchase smaller amounts of the specialty proteins, which are exactly what New Zealand and Wales specialise in. They'll also—here's the interesting part—tend to prefer frozen over fresh and canned over fresh, generics over brands, or bulk over quality. It really is something that we see over time. This will bring us then into a question of the speciality here because, obviously, New Zealand isn't exporting fresh beef or sheep meat to the UK, but the frozen segments. We can delve into where that goes and whether they compete in a second, but I just wanted to make clear that that is going to be the biggest challenge, which is a challenge, in a way, that doesn't affect the benefits of this agreement—quite to the contrary; if anything, the agreement helps—but it's a common challenge for both New Zealand and Wales, the fact that, yes, you are producing top-of-the-range quality products and those need to have a market.
Thanks, Emily. Sam, did you have anything you'd like to add on that?
So, in terms of fears from domestic producers, I think we just have to acknowledge that they will be subject to some increased competition, and that could potentially have an impact on some of them. It will not just be domestic producers who are exposed to this; it will also be exporters to the UK and Wales from other countries—in particular, Ireland and Irish producers who are competing in the same market segment as Welsh and New Zealand producers.
In terms of aggregate impact, my working assumption is that it would be marginal, and that is to do with New Zealand's ability to pivot at scale to the UK market vis-à-vis markets it already serves, and also distance and the like. But, I think we also have to take into account now that New Zealand will have a trade agreement with the European Union. I should say that in terms of market access for these products, the EU's agreement is far less generous than the UK's, but it will exist. So, New Zealand exporters will have new opportunities to export there as well, which could actually reduce some of the pressures on producers within the United Kingdom.
But, I'm speaking in caveated terms quite deliberately, in that answering this question requires me to make assumptions, and I'm trying to be honest about what those assumptions are, but they could turn out to be incorrect. And then, we also have to take into account what Emily's just said around inflation, the cost of transportation. Energy costs play through into this as well in terms of what is actually viable for trade at distance. All of these things matter.
So, do I understand why domestic producers do have some concerns here? Yes, of course I understand why they have these. Do I think that they will be felt as acutely as has been mentioned in the press? No. I could be wrong about that, and I might not be. And I can also understand—just to go back to the EU side—why some producers might look at the EU agreement and be slightly envious. Just to give an example, the EU over seven years is going to introduce a tariff rate quota for 10,000 tonnes of beef, and that tariff rate quota isn't going to be tariff free—it's going to be at 7 per cent. If you compare that to the UK's equivalent where year 1 is 12,000 tonnes at 0 per cent, and you consider the differing size of the EU versus the UK, New Zealand got next to nothing from the European Union relatively. We can go into different negotiating dynamics and why different decisions were made maybe another time. So, I can understand why producers in the UK looking at that might be slightly envious, but my view is that there is going to be some competition, but I think their concerns have been over-egged slightly, with the caveat that I could be wrong.
Thank you, Sam. Looking at the time, Chair, I'll hand back to you. I'm happy for the other questions that I have to be sent for later responses, given that we have a number of questions to go through, but thanks, Emily and Sam; I found it incredibly interesting.
Thank you, Luke, and I'll now bring in Sam Kurtz to ask a few questions. Sam.
Diolch, Cadeirydd. Thank you, both. It's been incredibly interesting to hear the dynamics around this trade agreement in comparison to Australia and, Sam, you touched on the new New Zealand-EU trade deal there as well. I'm looking at your thoughts and views on the agreement's safeguard measures, and whether you believe that they'll provide sufficient protection for industries in Wales. I know we've talked agriculture specifically at the moment, but anything slightly more broad, given the comparisons between New Zealand and Wales. Emily.
So, I've looked at the agricultural safeguards, so if we're going to stay clear of that element then I will hand over to Sam.
I'm quite happy to start with agriculture, it's just I'm conscious that this is economy, trade and rural affairs, so I want to be a bit more broad than just agriculture specifically, but you're welcome to take that.
Of course. I'll be very brief. The agreement includes the global safeguards as defined under article 19 of the general agreement on tariffs and trade and the safeguards agreement in the WTO. So, in this sense, there's no inclusion of further safeguards as part of the bilateral agreement. When it comes to agricultural tariff rate quotas, there is a specific safeguard for beef, and there are no such safeguards for sheep meat.
Excellent, thank you. Sam.
Nothing to add. It includes the general safeguards you get elsewhere. Actually, in the UK context, you've probably most likely heard of them in the context of article 16 of the Northern Ireland protocol, where there are safeguards included and everyone focuses on them as being quite unique, and they are slightly odd and drafted very poorly, which has led to lots of problems. So, this agreement does include safeguards to guard against big surges in imports and disruption to life and the like, but these are very common, they're not unusual, they're just there to give Government flexibility in extremis. I think where the specific discussion lies is to do with agriculture, and Emily's covered that.
Okay, excellent, thank you. Moving on, the RSPCA have said that, quote,
'unlike Australia...the UK has similar legal animal welfare standards to New Zealand, which means that the New Zealand FTA is, aside from the Trade and Cooperation Agreement...with the EU, the only FTA the UK is negotiating where animal welfare standards are broadly equivalent, but with some...discrepancy.'
I was just wondering if that would be an assessment that you would both agree with. Emily.
I'll be brief. Just to give you an overview of New Zealand's regulatory environment on this, New Zealand's main animal welfare legislation is the Animal Welfare Act 1999, and that Act has been supplemented by 19 different codes of welfare. So, it's supplementing the basic obligations laid down by law—very different situation from Australia, where we do have regional differences within Australia. We also find just generally a commonality of values. There's been a lot of co-operation on animal welfare through co-operation of civil society generally between Brits and New Zealanders. Both care quite deeply about animal welfare. What we'll find is that some of the discrepancies that are mentioned with Australia are New Zealand's ban on the export of cattle, sheep, deer and goats for slaughter unless it's approved at the highest level of Government, and that really is quite a strong stance. I believe that it probably goes further than British legislation today. Obviously, the UK has a very different geographical standing and neighbourhood that needs to be assessed when we're looking at such provisions. They also have a ban on animal testing for cosmetic products and their ingredients. Confining pigs in farrowing crates, unfortunately, is still legal, but it really does happen in such reduced numbers these days that there's very little risk of such product being traded, which is why I believe that the RSPCA is making that evaluation. One note would be that the code for dairy cattle is still being updated, so there is some progress still to be made there. So, on the whole, we have very similar standards on both sides, and I believe that that assessment is absolutely correct.
Thank you. Sam.
Nothing to add. Emily is the foremost expert I think in the UK on this. So, nothing more.
Great. A final one from me, Chair: we've discussed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership on this, but with the UK Government negotiating an Australia deal and a New Zealand deal—potentially CANZUK, as it's sort of known—is that something that could potentially come from what's happening here? Is this all manoeuvres to install the foundations to develop what people call CANZUK? Just a thought of mine. Emily.
Someone will have to explain to me what CANZUK is, but it's certainly a step towards CPTPP accession, and I believe that's how the Department of International Trade entered and concluded these negotiations.
Ok, cool. I think it's Canada, UK, Australia, New Zealand, the four working collectively. But what that entails, I think, I'm deferring to you, but—
It seems to be a bit like AUKUS. So, to what extent these are actually specifically affecting trade rules amongst those countries remains limited in my understanding.
So, CANZUK isn't a real thing. It has been proposed by some political parties in Canada I've seen, and there is a very small contingent of people in the UK who are pushing something similar. And my view is, as described by some of the people I've spoken to who really like this idea, you would have, essentially, a pure free trade area between Canada and New Zealand, UK, Australia, and you could incorporate freedom of movement into that and the like, and, of course, I'd say, 'Well, this sounds great'; it just isn't very high or even known about at all at Government level. And then there's also the question as to whether these other countries actually would want it. When we talk about things like freedom of movement for people, I'm very pro freedom of movement; I'll have it with whoever would take it. I think that that discussion isn't as easy as some make out even when you're talking about countries such as Canada, Australia and New Zealand, who all have their own issues around immigration and their own discussions there. And on the economic side, we already have the bilateral agreements now, and we're already about to enter into CPTPP, which incorporates all of those countries. So, it perhaps could be viewed as a little bit unnecessary. I don't ever like to shoot down ideas entirely, but I do think that this is, at the moment, quite left field.
That's incredibly helpful analysis; thank you both. Chair, I'm happy to revert back to you.
Thank you, Sam. And I now bring in Hefin David. Hefin.
I'd just like to wrap up on the panel's views and request the panel's views on the non-regression provisions included in the agreement's animal welfare chapter, and whether they believe the provisions are an important factor in the UK-Australia TA and if the provisions go far enough.
I could be brief on that subject. Again, there is a recognition on regression, meaning that nobody—well, neither the UK or New Zealand—is going to weaken its animal welfare standards as part of this agreement, in a way to either increase investment or to gain a competitive edge on trade.
I do not believe that either side has any interest in weakening its animal welfare standards to gain a small competitive angle. In that regard, I see no question here. The chapter on animal welfare is not submitted to dispute settlement from a governance perspective. That's interesting considering that both countries do have high standards, and, in that sense, the language on non-regression is very similar to the agreement with Australia.
And why are the governance arrangements varying from chapter to chapter with regards to dispute settlement?
Well, it has actually been standard practice, I would say, to not place all chapters under specific state-to-state or Government to Government dispute settlement. What is generally the consensus, and this is—. It's not a—. It's a complex issue and it is disputed, and, again, I think, it's a working assumption here, that in areas such as fighting against anti-microbial resistance or improving animal welfare conditions, if you restrain some of the provisions to a dispute settlement, you basically cap where you can go. Whereas if you are on a co-operation basis, it basically encourages both countries to go a lot further and not cap; the agreement doesn't act as a ceiling, but as a launch pad, if I can put it that way.
Okay. That's all right, Chair, thank you.
Thank you, Hefin. And our session has now come to an end. So, on behalf of the committee, can I thank you both for you time this morning? It's been very, very useful for us as a committee to hear your views; it will be useful for us in scrutinising this free trade agreement. So, once again, thank you very much indeed for being with us. A transcript of today's proceedings will be sent to you in due course. So, if there are any issues with that, then please let us know. But, once again, thank you for being with us this morning.
Thank you very much.
Thank you very much.
bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(ix).
that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(ix).
Cynigiwyd y cynnig.
Symudwn ni ymlaen felly i eitem 4 ar ein hagenda, a dwi'n cynnig, o dan Reol Sefydlog 17.42, i wahardd y cyhoedd o weddill y cyfarfod. A yw'r Aelodau'n fodlon? Ydw, dwi'n gweld bod Aelodau yn fodlon. Felly, derbyniwyd y cynnig, ac fe symudwn ni nawr i'n sesiwn breifat.
We'll move on therefore to item 4 on our agenda this morning, and I propose, in accordance with Standing Order 17.42, that the committee resolves to exclude the public from the remainder of the meeting. Are Members content? I see that Members are indeed content. So, the motion was agreed, and we'll move into private session.
Derbyniwyd y cynnig.
Daeth rhan gyhoeddus y cyfarfod i ben am 10:30.
The public part of the meeting ended at 10:30.