Story: International economic relations

Page 4. Britain, New Zealand and the EU after 1940

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Sterling area

At the outset of the Second World War countries allied to Britain agreed to share the proceeds of their earnings from exports and hold them in pounds sterling – the British currency. This was the beginning of the ‘sterling area’. After the war it became a means for the UK to encourage its associates to buy British goods in pounds, rather than non-sterling goods. It was a delicate balancing act, because many countries – New Zealand amongst them – had built up ‘sterling balances’ which they would like to have converted into US dollars.

Access to UK markets, 1955 to 1973

Peacetime concerns had resumed by the mid-1950s. In 1958 New Zealand negotiated an agreement that gave it the option to reduce the preferential treatment given to British imports. But anxious about its access to the UK market, it continued to give preferential treatment to British imports. The net benefit of this for Britain in the early 1960s has been estimated at $540 to $617 million per year (in 2008 terms).

Battle of the skies

In 1966, fearful that New Zealand’s state-owned National Airways Corporation (NAC) airline would buy US Boeing 737s, the British Aircraft Corporation (BAC) lobbied vigorously, invoking not just the merits of its own BAC 1-11, but the close links between the two countries, and New Zealand’s dependence on the UK market. But NAC convinced the government that three B737s could do the job of four BAC 1-11s, the government agreed, and Boeing got the contract.

In 1961 the UK applied to join the European Economic Community (now the European Union, or EU). Negotiations – on and off – lasted until 1971. The UK obtained a special arrangement – the Luxembourg agreement, later ‘protocol 18’ of Britain’s accession treaty – which guaranteed access and prices for defined quantities of New Zealand butter and cheese for a five-year transition period.

End of the sterling area

Through the 1960s Britain exercised moral pressure on sterling holders not to withdraw or convert their balances suddenly. But the sterling area came to an end when Britain imposed exchange controls on other sterling countries in mid-1972. In 1973, on entering the EU, almost all UK trade agreements with New Zealand save the Luxembourg agreement came to an end.

Britannia’s roles

The UK, once New Zealand’s principal supplier and market, accounted for less than 4% of New Zealand’s imports and less than 5% of exports in 2008/9. But people-to-people contact boomed. Visitor numbers from the UK tripled between 1991 and 2006 to 300,000, making Britons the second largest group of foreign visitors after Australians. The UK also remained the largest source of immigrants – the UK-born population was 242,000 in 2006, up from 217,000 in 2001.

New Zealand, the UK and the EU after 1973

The EU intended the arrangements made under the Luxembourg agreement to last for five years, but they continued through the 1980s and early 1990s. Negotiations were on occasion acerbic. However in 1994 the conclusion of the Uruguay round of international trade negotiations included provision for bilateral agreements, and New Zealand and the EU concluded an agreement on long-term access for set quantities of cheese and lamb, as well as butter.

In 2009 the UK, France, Germany and Belgium all took significant quantities of meat exports, and horticultural products were sold throughout the EU. Germany and Italy were both sources of machinery. Cars were also imported from Germany, although on a far smaller scale than either Japan or Australia. In 2009 the EU in total supplied around 22.5% of New Zealand’s imports, and took 18% of its exports.

The EU took about 10% of New Zealand’s outward direct investment, nearly half of which went to the UK. The EU accounted for about 12% of inward direct investment, mostly from the Netherlands and the UK – Dutch investment was particularly in banking. If investment of all kinds was taken into account, the UK share rose to 16%.

How to cite this page:

Malcolm McKinnon, 'International economic relations - Britain, New Zealand and the EU after 1940', Te Ara - the Encyclopedia of New Zealand, (accessed 7 December 2019)

Story by Malcolm McKinnon, published 11 Mar 2010