INSUBCONTINENT EXCLUSIVE:
Image copyrightGetty ImagesImage caption
New Zealand's economy was forced to diversify after the UK joined the
European Economic Community
Brexit is, to put it mildly, an unusual event.But there are precedents for some aspects of it
New Zealand provides one example
The country faced a sudden, adverse change in access to a key export market when the UK joined the European Economic Community (EEC), as it
When countries have changed their trade arrangements through negotiation in recent decades it has usually been to reduce barriers to
We don't know exactly what Brexit will bring, but it certainly could - or perhaps we should say probably will - mean more barriers to trade
And it could all happen very quickly, especially if the UK does leave the EU without a Withdrawal Agreement in March next year
There aren't many precedents for that
What happened to New Zealand in 1973New Zealand is a case that does have some relevance
Image copyrightReg Speller, Getty ImagesImage caption
The UK was the major destination for New Zealand's main exports,
such as lamb and butter, before 1973
In the aftermath of British accession to the EEC it lost preferential access to the UK
market, something which was a legacy of its history in the British Empire and then the Commonwealth
The Bank of England took a close look at the example when it tried to judge the likely economic consequences of various Brexit scenarios
Before the UK joined the EEC in January 1973, it was the destination for 30% of New Zealand exports, amounting to 8% of the country's
economic activity or GDP.But from that point, New Zealand exporters faced the EEC's common external tariff
Agricultural exports are very important to New Zealand - most famously lamb, although dairy produce is now the country's biggest export
Food sales also had to contend with competition from subsidised European farmers
Total export earnings fell in the first two years, investment grew more slowly and then declined from 1975
The economy went into recession in 1974.Image copyrightGetty ImagesImage caption
After its exports to the UK faced
higher tariffs, New Zealand focused on boosting tourism
Of course New Zealand was not the only economy to have a torrid time
There was a global recession linked to a rapid in rise in oil prices and disruptions to the international currency system
So was anything different about New Zealand The Bank of England compared New Zealand with Norway and Austria
They had similar energy import needs (this was before Norway became a major oil producer) but they were not exposed to the fallout from the
UK's accession to the EEC
The Bank says GDP growth did not fall as far in either country and nor did inflation rise so sharply
The Bank concludes that the evidence, "could therefore suggest the UK's accession to the EEC itself had a significant impact on the New
How did the country respond to the turbulenceEventually New Zealand did find new markets
But overall economic growth did not return to pre-1973 rate until the 1980s
Image copyrightEPAImage caption
New Zealand was the first Western economy to sign a free-trade deal with China
Today, the UK remains an important export destination for New Zealand
But it now comes behind Australia, China, the US and Japan
The most recent figures show the UK accounting for 4.4% of New Zealand's exports of goods and services
Germany is also an important market for New Zealand, but for the most part its exports now go to countries in Asia or on the Pacific rim,
countries that are relatively close (certainly closer than the UK)
What are the lessons for the UKNew Zealand is just one case, so it needs to be viewed with some caution
But it certainly does suggest that the sudden loss of preferential access to an important market can have very significant economic costs.Of
course there are differences between the situations faced by the UK after Brexit and New Zealand in the 1970s
The share of exports facing possible challenges is greater for the UK (47% of goods exports last year) than for New Zealand in 1973 (30%)
Including services brings the UK figure down to 43%Image copyrightHuw Evans picture agencyImage caption
The "gravity
effect" is the economic theory that countries trade more with their closest neighbours
The markets that New Zealand turned
to after 1973 are closer geographically than the UK, where businesses faced new restrictions
In the case of Brexit the opposite will be true
Any markets that might offset any setback in commerce with the EU will be further away
That may make it more challenging
The evidence does suggest that countries tend to trade more with economies that are closer or larger
It is known in economics as the gravity model and it has been described as "one of the most robust empirical findings in economics".That
said, there are economies outside the EU that are currently growing faster and are large, including the US, which is already an important
China and India are large and growing strongly although they are currently much less significant as British export markets.And trade
barriers now are generally lower than they were in 1973.Does distance still matter for economic growthThere are also some economists,
notably Prof Patrick Minford of Cardiff University, who argue that the gravity model "does not fit the UK's trade history at all well"
That, however, is a minority view.Image copyrightGetty ImagesImage caption
The City of London is the major hub of the
UK's financial services exports
The UK is also more of a services exporter than New Zealand
In 1972, services accounted for less than 15% of New Zealand exports
The figure for the UK now is 45%.Some argue that selling services is less affected by distance - that the "gravity effect" is not so strong
To the extent that is true, it could mean the fact that new markets for Britain will be more distant might not be quite so critical
That said, there is plenty of support for the idea that "gravity" does matter for services.The UK today is obviously a substantially
different economy compared with New Zealand's more than 40 years ago
The experience nonetheless provides some pointers about one of the issues the UK could face outside the EU
