Story: International economic relations

Page 4. Britain, New Zealand and Europe after 1940

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Sterling area

On the outbreak 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 this 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. Anxious about its access to the UK market, it did not take up this option. The net benefit of this for Britain in the early 1960s has been estimated at $650 million to $750 million per year (in 2020 values).

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. However, NAC convinced the government that three B737s could do the job of four BAC 1-11s, 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 1972. In 1973, on entering the EEC, 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 about 3% of New Zealand’s imports and exports in 2017. But people-to-people contact boomed. More than 230,000 visitors arrived from the UK in 2019, making Britons the fourth largest group of foreign visitors. The UK also remained the largest source of immigrants – the UK-born population in 2006 was 242,000, up from 217,000 in 2001.


New Zealand, the UK and Europe after 1973

The EEC intended the arrangements made under the Luxembourg agreement to last for five years, but they continued until the 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 (as it now was) 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 EU countries 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. Taking into account investment of all kinds, the UK share was 16%.

How to cite this page:

Malcolm McKinnon, 'International economic relations - Britain, New Zealand and Europe after 1940', Te Ara - the Encyclopedia of New Zealand, (accessed 24 July 2024)

Story by Malcolm McKinnon, published 11 Mar 2010