Fran O'Sullivan: Waiting game for Russian FTA

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Free trade deal will take time but agri firms could invest in the country for domestic or export markets

Vladimir Putin is famously late.

He stood-up the Ukraine president for four hours while he stopped off for a catch-up with Russian bikers called the "night wolves".

He's even reported to have kept the Queen and the Pope waiting.

Last week he kept influential international investors - including a big Chinese delegation - cooling their heels at the Apec chief executives' summit. They forgave him when he then took part in a lengthy question and answer session. He also kept John Key waiting nearly two hours.

Don't read this as a direct snub to our Prime Minister. The Chilean president - whose meeting followed Key's - also found himself in the same boat.

Putin's inherent tardiness means anyone with meetings pencilled in should bring a book, warns one Moscow-based correspondent.

But Key and his Trade Minister Tim Groser will hope that Putin's trademark lateness is not a metaphor for the pace of future negotiations between New Zealand and the Russian Federation on the free trade agreement.

Before the Vladivostok Apec, the NZ team hoped that a breakthrough could be achieved to the stalled talks. Groser met his counterpart in Cambodia. He signalled he would go to Moscow "at the drop of a hat" if needed. The call never came. Neither was a timetable for completion of the talks announced.

Key had already prefaced the meeting by suggesting that it would take political will to get a breakthrough in the stalled talks. That breakthrough did not happen in Vladivostok. Key left empty-handed.

The breakthrough may come when Key goes to Moscow next year at Putin's invitation. Or it may not.

Groser publicly cut Putin's team some slack by saying that the Russians had been low on negotiating strength because their officials had been tied up managing Russia's debut into the World Trade Organisation. They were also having to deal with fears that Russia's farmers would be disadvantaged by New Zealand's industrialised agriculture sector when markets were opened and subsidies reduced.

Groser also cited the lengthy time it took to complete the China FTA (four years) and the Asean FTA (four years) suggesting it would have been unrealistic to expect Putin to emerge at Apec clutching Russia's first bilateral FTA just two years after talks were announced.

Except that was exactly what New Zealand's trade officials had hoped for at the beginning of the process.

It's also notable that Groser's caveats were applied post-Apec - not before.

But the decision to start talks on an agricultural co-operation agreement - revealed in the Business Herald today - is a valuable step on the road towards an FTA.

I asked Putin about his stance on the NZ negotiations when I managed to get the last question at the chief executives' summit.

He twice played up NZ's position as a traditional partner of Russia. He knew New Zealand supplied agricultural products to Russia's domestic market - "I hope that our co-operation in this field will expand".

But while negotiations were under way he wanted to stress that from Russia's perspective it was not a simple process because the negotiations were not just on Russians' behalf.

Here's the rest of his answer: "Instead, negotiations are being carried out by our Customs Union Commission and thus take into account the interests of three countries: Russia, Kazakhstan and Belarus.

"But I want to assure you that the Russian Federation and our partners in the Customs Union intend to bring this work to completion. I very much hope that this will be the case.

"I want to say once again that New Zealand is a traditional partner of Russia's, and we must resolve all problems that hinder the development of free trade. This is precisely what we intend to do together.

"I would repeat once again that this is a complex process that requires the ability to reach a compromise, but compromises can and must be found."

Key reflected that Putin's public stance mirrored his position at their private meeting: "It's very unrealistic we can get a deal in 2012 but the invitation for 2013 was an indication of the timetable he was working to ... It's never over till it's over but I thought it was very positive."

The big question in front of NZ's trade negotiators is exactly what compromises are needed to get this deal over the line. Key is adamant that New Zealand will not low ball any FTA simply to score a trophy - aka the first country to cement a bilateral FTA with Russia and its partners.

Thirty-four other nations are in Russia's trade negotiation queue, including Vietnam.

It is possible that, as with China where Chile slipped in ahead of NZ because its developing nation status and agricultural profile provided less concerns for the Chinese agriculture ministry, Russia might find Vietnam a simpler party to take through to completion first.

Realpolitik also comes into the equation.

New Zealand did play a pivotal role in assisting Moscow accede into the WTO (the traditional partnership that Putin alluded to). New Zealand should expect some payback.

Putin disclosed high ambitions for Russia's agriculture sector and said that there were no restrictions on investment of foreign capital in the Russian agriculture sector.

My takeout is where the bones of New Zealand's future economic relationship with Russia will be built. The real opportunity lies in investment by NZ agriculture companies directly into Russia to produce products there for either domestic consumption or exports to China and elsewhere in Asia. Marry that with Chinese investment capital and an exciting future could be forged.

But there are risks. International investors were apparently stunned when Putin's people asked for substantial sums of money - running into thousands of US dollars - to attend a private dinner with the Russian President. Business chiefs were also stung $1000 a night to stay in university dorm rooms on Russky Island.

The head of Russia's largest bank urged the chief executives to imagine they were back in their university days and use the event to re-energise themselves. But the lavish entertainment - everything from ballerinas, mounds of caviar, the best champagne and excursions (for some) to parties on oligarchs' yachts - more than made up for the low rent accommodation.

- NZ Herald

Fran O'Sullivan

A columnist for the NZ Herald

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