Wishing, hoping and lobbying

In a perfect world, Fonterra trade strategy manager James McVitty would see Kiwi cheese lining India’s supermarket shelves and our high-grade lactose put to work in its pharmaceutical factories. Kiwi-made infant formula would be widely available, and our milk fat would go to India to back up its lean dairy season.

The extent to which the gap between hope and reality can be bridged depends on what the India-New Zealand free trade agreement (FTA) eventually delivers for agricultural exporters.

Talks started in April 2010; the third round took place over four days in late October 2010 in Wellington, with the fourth scheduled for New Delhi in early 2011.

High on the Kiwi agenda is the protectionist tariff regime that sees little of our agricultural produce going to India.

McVitty says that India’s tariffs on dairy products, which range from 20 to 60 percent, mean that Fonterra “can’t create a sustainable export business” to India.

Despite the fears of Indian farmer lobbies, he adds, New Zealand dairy exports would complement India’s dairy market, which is growing at 5-6 percent a year. “A major challenge for India is to supply that demand, and we’d like to see New Zealand as a partner to the Indian government and industry in meeting that demand.  We pose no threat. We are a small percentage of the whole dairy market.”

McVitty says a FTA providing investors in India with a level playing field, security and transparency will allow Fonterra to help grow the Indian dairy market. The co-operative has just agreed to investigate large-scale dairying in India with two local partners, but the provisions of the FTA will have a profound impact on what eventuates.

There’s no doubt that a good-quality FTA is full of opportunity: the New Zealand-India trade relationship is distinctly underdeveloped, with bilateral imports accounting for less than 1 percent of each country’s total imports.

Senior Lecturer in Economics at AUT Rahul Sen says that New Zealand stands to gain substantially from tariff reductions (India imposes an average tariff of 13 percent, and New Zealand 2 percent). Vociferous opposition from India’s producer lobbies make tariffs a sensitive issue, says Sen. But this could be overcome if the FTA focuses beyond goods to partnerships and technical cooperation in farming.

Also attractive to India is the promise of partnerships in other areas like IT services, research and development, and education; India, with a 250 million-strong and growing middle class, can’t meet demand for tertiary places.

And here’s another opportunity: India made education for Indian children aged 6 to 14 compulsory in 2010. Implementation will be slow, but Dr Raghupati Singhania, an Asia:NZ honorary adviser, told members of the India New Zealand Business Council in November 2010 that New Zealand was well-placed to provide teacher training.

India is also keen to see its tourists, students and business people getting easier access to New Zealand. And easier passage for the textiles for which it is famous – the tariff on clothing, cotton and textiles at our border is 12.5 percent. Both parties are keen to attract cross-border investors and seek mechanisms to protect intellectual property. 

A sensitive area on the New Zealand side is India’s onerous food import health rules – viewed as out of step with international practice – that stop sheep, goat and beef imports.  India’s sanitary and phytosanitary regulations (SPS) effectively ban meat imports from countries with animal diseases that New Zealand and all of its current export markets consider endemic and low-risk; Bill Falconer, Meat Industry Association chairman, is keen to see the issue resolved.

He’d like to see an FTA deliver “unrestricted access in terms of tariff and non-tariff barriers and a platform for dealing with SPS on a science basis”.

A FTA, he adds, “isn’t just about conditions of access; it’s equally important to have a framework to deal with on-going issues that will encourage companies to start trading together”.
Our negotiators are saying little about what happened during the third round, citing sensitivities. The official Ministry of Foreign Affairs and Trade update issued in November 2010 said “good progress was made”, with continued discussions on all core chapters.

Each side also ran through their takes on competition policy, intellectual property, government procurement, trade and environment, and trade and labour. While discussions on all subjects are still at a relatively early stage, MFAT sees a “good measure of convergence at the level of principle” in various areas.

New Zealand’s lead negotiator, Julian Ludbrook, describes the talks as “constructive”, but is still seeking insight from businesses that have encountered problems with getting into India. “It’s essential we know what the difficulties are ... to help put the flesh on what we seek,” he says.

- by Julie Middleton

Some figures

India’s tariffs
Milk powder 60%
Apples 50%
Kiwifruit 30%
Logs 5%
Average tariff: 13%

New Zealand’s tariffs
Adult shoes 12.5%
Cotton textiles and clothing 10%
Some steel products 5%
Some passenger vehicles 5%
Average tariff: 2%
Source: www.wto.org

Images
1. Prabhat dairy factory
2. Rajasthani dairy farmer
3. Terrace farming in Uttarkhand, northern India