Fran O'Sullivan: Tango with Russia shows promise

New Zealand's role in bringing Russia into the formal world trading system could be the game-changer. Photo / Richard Robinson

Trade Minister Tim Groser has chalked up a victory in New Zealand's long quest for a free trade deal with the emerging economic powerhouse of Russia.

Let's just call it "China redux".

The smart geo-politicking by New Zealand's bevy of trade ministers and officials over nearly a decade has paved the way for this country to form a bilateral FTA with Russia in much the same fashion as it secured its earlier deal with China - by helping the bigger partner achieve its goals in the World Trade Organisation first, with the expectation that the bigger partner might return the favour by cementing a bilateral agreement with the smaller player ahead of larger contenders.

On Groser's watch, New Zealand has opened talks on a free trade agreement with South Korea, is also exploring moves with India - which is set to overtake China as the world's most populous nation this century - and is taking part in negotiations to broaden the Trans Pacific Strategic Economic Partnership.

But confirmation New Zealand and Russia will scope out the prospect for an FTA - with formal negotiations to take place after the ground rules are established - is a big fillip for the relationship at all levels.

A bilateral FTA has the ability to deliver major gains to New Zealand exporters as heralded in the wave of press statements from lobbyists in the past 36 hours.

Russia is the major importer of New Zealand butter and cheese. Russia imported food worth US$30 billion ($44 billion) in 2008 and is the world's fifth-largest food import market and among the world's largest importers of meat and dairy products - but the tariff levels are high, running to 50 per cent for some dairy lines.

But it's New Zealand's role in the broader goals of bringing Russia into the formal world trading system that could potentially be the game-changer.

The 1990s and 2000s provided a seemingly endless string of announcements and stories foreshadowing Russia's imminent accession to the World Trade Organisation. This never-ending saga has been played out since 1993 when Russia first sought to join what was the General Agreement on Tariffs and Trade (Gatt).

Groser has long had skin in this game himself. He was formerly New Zealand's ambassador to the Gatt.

And while New Zealand's Ambassador to the WTO in the mid-2000s, he linked up with former WTO boss Mike Moore on a behind-scenes mission to try to get Russia into the global trade organisation.

Moore was at that stage a roving trade ambassador for New Zealand. The pair conceived a strategy for New Zealand to be the first country to agree on an accession protocol with Russia.

Moore suggested New Zealand agree to Russia's accession terms to the World Trade Organisation.

As Moore put it this week, it was about "locking in - morally anyway - New Zealand's access for dairy products."

The former WTO Director-General, who will leave New Zealand next month to take up the post of Ambassador to the United States, believes the FTA study is worthwhile. Moore affirms Groser's stance that the move is highly strategic. And he notes that the European Union will be "fascinated and concerned".

Clearly if Russia lowers agriculture tariffs in its FTA with New Zealand, it will put pressure on the EU to start moving down that track.

But there is a chicken and egg issue here.

The big question is whether New Zealand and Russia will manage to cement an FTA ahead of Russia joining the WTO itself. A high-ranking aide to the Russian President recently suggested Russia could join the WTO next year.

Other former Soviet Republics, such as Georgia, Moldova, Kyrgyzstan and Armenia, are already WTO members. As is China, which joined in November 2001.

To get Russia over the line will take support from the United States and other players including the European Union.

Groser's strategy is also geared to ensuring Russia does stay pegged into the broader Asia Pacific regional trade framework.

Russia - like the US and China - is a member of Apec. But it sits outside the East Asian grouping that the Asean countries are driving.

At the 2004 Apec in Chile, Prime Minister Helen Clark raised the prospect of a bilateral trade relationship with then Russian President Vladimir Putin. New Zealand had been the first country to agree to accession terms with China to pave its way to joining the WTO: one of a series of "firsts" that ultimately resulted in this country becoming the first Western nation to score a bilateral free trade deal with China.

The Russian tango has been no less complex.

At the 2004 Apec, Russian Economic Development and Trade Minister Herman Gref and Trade Negotiations Minister Jim Sutton signed an accession protocol on services to assist Russia's bid for membership of the WTO and agreed to combine forces to fight against agricultural export subsidies.

Gref told this columnist then that Russia was looking to forge closer trade relations with New Zealand.

"We have already come to terms in order pursue a common joint action plan after Russia's accession to the WTO and we are grateful to counterparts for the actions here ... We have removed or set aside all the disputable questions we had and we have signed a protocol with New Zealand on services on the accession of Russia to the WTO.

"We can see that the approaches of Russia and New Zealand in trade and economic intercourse overlap quite seriously."

New Zealand was the first country to complete negotiations with Russia on its goods protocol for WTO accession.

Groser and Moore expect Russia to join the fight against agricultural subsidies once its WTO membership is confirmed.

If that occurs New Zealand will score: first by capturing its first-mover advantage with Russia on the bilateral front, then by having another ally in the fight against export subsidies.

A decade-long strategy will have paid off.