Friday, February 23, 2024

McClay off to India with trade in mind

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‘Holistic but realistic’ the watchword as minister moves to restart stalled ties.
The Prime Minister, Shri Narendra Modi addressing at the joint SCO-CSTO Outreach Summit on Afghanistan, through video conferencing, in New Delhi on September 17, 2021.
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Next week looms as a critical moment for the coalition government’s ambitions of making significant progress towards a free trade agreement with India in its first term.  

At his weekly post-cabinet press conference on Monday, Prime Minister Christopher Luxon said Trade Minister Todd McClay will travel to India via Singapore before Christmas to meet his Indian counterpart.

Farmers Weekly understands that the meeting will take place next week.

McClay’s visit will be the first face-to-face, high-level contact between the coalition government and India’s administration.

The coalition government was buoyed after Indian Prime Minister Narendra Modi was the first foreign leader to phone Luxon to congratulate him on his election win.

“In my conversations with the Indian government … I think that we can build a deeper trading relationship with India,” Luxon told reporters.

Trade talks began under the last National-led government but stalled after India became concerned that lowering tariffs on New Zealand dairy products risked flooding India’s domestic market and threatening the incomes of millions of its own farmers.

The National Party has been critical of the last government for failing to put in the diplomatic effort required to reignite talks while other countries jumped ahead of NZ to either secure deals or make significant progress in negotiations.

During the election campaign both National and Labour talked about rebuilding relations with India rather than launching headlong back into negotiating rounds.

Speaking to Farmers Weekly last week, McClay confirmed his initial meetings would be focused on resetting the relationship between the two countries.

“I have sent a bit of a signal that rather than just get into a [negotiating] round again we should have a really good look at how opportunities might have changed.

“Everything should be on the table but I want to show them the respect they deserve and get over there and introduce myself and talk a little about the new government, and we will see how it unfolds from there.”

Much like the preliminary phases of other free trade negotiations where agricultural market access has been a touchy topic for the other side, there has been plenty of talk about sharing agricultural know-how with Indian agricultural firms as an incentive for lowering tariffs on NZ exports.  It is likely India will also demand a relaxation of immigration and student visa rules.

What NZ can expect in return is less clear.

NZ dairy leaders have been adamant that the relative economic importance of their sector means NZ cannot follow Australia and exclude dairy from talks.

That has frustrated other sectors, who are anxious that competitors will pull ahead of NZ exporters in gaining a foothold in a market of more than a billion consumers.

Former Fonterra director and India dairy investor Earl Rattray believes tariff reductions on niche products could be achieved relatively quickly but gains for major commodities such as butter and skim milk powder should be parked for now, given their greater importance to the livelihoods of Indian farmers.

McClay said it is too early to rule anything in or out.

“I will be listening to Earl and a few others to give me advice.

“The answer is that there are many ways we might look at this.

“If you look at other agreements we have signed, there have been a variety of ways we have dealt with commodities that have been sensitive on the other side.”

This would seem to be a nod to the groundbreaking China deal, which covered all major dairy products but with long phase-outs for safeguard tariffs designed to act as a brake on surges in imports. The China dairy safeguards are finally due to expire on January 1 next year – a decade and a half after the deal first entered into force. And while the revenue forgone has run into the hundreds of millions of dollars, those sums are minor measured against the overall gains for NZ dairy farmers from the closer trade ties delivered by the deal.

McClay said regaining NZ’s place in the queue for a free trade deal is vital.

How it gets back there is secondary.

“The point is India is starting to do trade deals now … if we don’t get any deal in the future they are going to buy from Europe and not buy from us.

“That is a reason to be a bit more holistic.

“But we also have to be realistic.

“Australia did a great job of building the relationship across the board before they even got close to talking about a deal.

“That is the approach I will be taking, because six years is a long time to be having no discussion.”

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