India and New Zealand aim to boost ties through FTA

Commerce Minister Anand Sharma concluded a successful visit to New Zealand on May 10, 2011. A 30-member team of business leaders from FICCI accompanied the minister with a view to explore business opportunities and the means to maximise the potentialities for trade between the two countries. From both countries’ perspectives, the visit was a part of the broader objective to deepen economic integration in the region. FTA was high on the agenda.

As a multicultural society with sizeable Asian population engaged in many fields of economic activities, New Zealand is aware of their contribution to its economy. This realisation has led New Zealand to engage with Asia and develop institutional mechanisms through which their mutual interests can be furthered. Viewed from this perspective, the importance of a FTA/CEPA between India and New Zealand needs to be assessed.

As part of its Asia economic engagement and integration strategy, New Zealand has already concluded FTAs with Singapore, Brunei and Thailand. Now it is looking to have a preferential trade agreement with India as well and hopes that India will open its market for New Zealand’s agricultural products. Because a FTA with India would raise issues like market access, elimination of tariffs, quantitative restrictions etc., negotiations are likely to drag on for several rounds before agreement is reached. New Zealand is aware of this as much as India is. These initiatives by New Zealand demonstrate that it is committed to the region and the institutionalisation of economic and trade frameworks.

At present the India-New Zealand bilateral trade is small, totalling around $1 billion. While talking to the Indian minister, the New Zealand prime minister John Key was optimistic that if the FTA was signed by 2012 (seems unrealistic at present), bilateral commerce would treble to $3 billion by 2014.

Four rounds of negotiations have already been completed. The core chapters of the proposed FTA, namely goods, rules of origin, customs procedures and cooperation, trade remedies, cross border trade in services, movement of natural persons, investment, sanitary and phytosanitary measures, and technical barriers to trade are now on the table. Discussions also covered government procurement, competition policy, intellectual property, trade and environment, and trade and labour. The target set for completion of negotiations is early 2012.

New Zealand has taken note of the fact that India’s economy is registering an average growth rate of 8 per cent and its GDP is projected at $1.6 trillion for 2010-11. New Zealand, therefore, is seizing the opportunity to increase its bilateral trade with India.

The gains from the deal will, however, be uneven as New Zealand’s tariff rates are substantially lower than India’s. While the average tariff imposed by New Zealand on a most favoured nation basis is 2.2 per cent overall (1.4 per cent for agricultural products and 2.3 per cent for non-agricultural products), the corresponding overall tariff rate for India is around 13 per cent (32 per cent for agricultural products). New Zealand, therefore, would like to negotiate hard for a more even handed agreement that is broader based involving goods and services, investments, movement of natural persons and technology. New Zealand would insist on the same terms and conditions that it successfully negotiated with China, after which their bilateral trade increased to $10 billion. But that is not going to be easy in the case of India.

The reasons for broadening the scope of the agreement are many. First, as per the WTO country trade profile, two-thirds of India’s goods exports in 2009 were manufactured goods, while agricultural goods accounted for only a tenth of the total. In contrast, about three-fourths of New Zealand’s total exports were agricultural products while only one-fourth was manufactured goods. While New Zealand’s exports are dominated by coal, unprocessed logs, wool and sheepskin leather, India’s export basket comprises of diamonds, jewellery and bed linen. This needs to be diversified.

Import of agricultural goods is a sensitive issue in India and therefore tariff reduction could be a touchy issue. New Zealand could stress its technological expertise in these industries and look for promoting partnerships and technological collaborations between the two countries. New Zealand could export high end dairy products and also share technology. The Indian Farmers Fertilizer Cooperative (IFFCO) and New Zealand’s Fonterra are already exploring joint ventures for dairy farming operations in India. If successful, this could set a precedent for more such joint ventures in the future.

Trade in services is another area where both countries could find complementarities. While India is strong in Information and Communication Technology (ICT)-enabled and professional services (76 per cent in 2009), New Zealand’s service exports are concentrated in the areas of tourism, education and recreation. A broader FTA could facilitate partnership between Indian companies and New Zealand organisations, involving liberalisation of ICT-enabled services. Similarly, New Zealand’s potential in the education sector can help overcome the major constraints in India’s progress towards a knowledge-based economy. New Zealand already has been attracting a large number of Indian students (about 9,000) and they in turn contribute around $72 million to its economy.

Tourism is also looking up. As the economy grows and incomes rise, more and more Indians are travelling abroad. For example, in 2009, 26,000 Indians visited New Zealand, constituting the ninth largest group. Agreements on issues such as visa on arrival, multiple entry longer-term business visas, and greater cultural exchange can be useful for expanding engagement. The 100,000 strong Indian diaspora in New Zealand can play a catalytic role in facilitating and expanding bilateral investment flows between the two countries which at present it is miniscule.

According to New Zealand’s trade minister Tim Groser, New Zealand is ready to open its doors for Indian professionals and service providers as a part of the planned FTA. Professionals would include teachers, health care providers, technicians, IT experts, architects and hospitality providers. India and New Zealand have started discussing the reciprocal recognition of some professional degrees outside the FTA.

They are also discussing a ‘working holiday scheme’ for young Indians, preferably graduates, that will allow Indians to stay in New Zealand for a short period of about six months and work to pay for their holiday. Since New Zealand has offered this scheme to 34 countries already, it should not be difficult for New Zealand to accord the same to India.

But first, a direct connection between New Delhi and Wellington is a must. At present, flights go either via Singapore or Sydney to reach Wellington via Auckland, with a long and tedious waiting time. A direct flight would cut travel time, and boost tourism as well.