Fran O'Sullivan: Race on to seal Russia trade deal

The New Zealand export lobby has given "big ups" to Trade Minister Tim Groser - who has chalked up another victory in New Zealand's quest for free trade deals with emerging economic powerhouses by getting Russia to the negotiating point.

It's inevitable that Groser - and New Zealand's talented team of trade negotiators - will want to knock the bones of the Russian FTA into shape in time for Prime Minister John Key and the Russian President Dimitri Medvedev to announce its conclusion in 2012 (when the next Russian presidential elections are scheduled) and certainly before Russia plays host to Apec in Vladivostok later that year.

Both political leaders have a vested interest in getting the bilateral FTA over the line in quick smart fashion.

Key - because it will reinforce New Zealand's cachet as a "first mover" partner with the emerging powerhouses, and Medvedev, as providing further demonstration of why Russia's campaign for admittance as a member of the World Trade Organisation should not be blocked.

In the bigger game that is competitive liberalisation, notching up FTAs ahead of other players counts.

At first blush, Russia's attractions as an FTA partner for New Zealand are not obvious. New Zealand's exports to Russia were only $187 million in 2009 - the overall annual trading relationship was valued at US$300 million ($389 million) by officials earlier this year which means NZ is a net importer. It is just number 35 on our list of trade partners.

The NZ Institute of Economic Research puts the immediate gains of an FTA with Russia (and two of its former Soviet states) at just $27 million. This is small bikkies.

But it is Russia's position - as one of the increasingly powerful and increasingly wealthy Bric nations (Brazil, Russia, India and China) that will shape much of the 21st century - that holds the long-term attraction.

Our foreign affairs officials talk up the FTA's potential to "future-proof" the relationship. Right now it's the world's 12th-largest economy.

The metrics are promising: The world's largest food importer in 2008 (US$30 billion). Goldman Sachs estimates if Russia met its productivity potential, it could have the 6th largest GDP in the world in 2050 - larger than any single European country, Japan, or Canada.

Real wages have doubled since 2002. Household debt is low, and disposable income high. So, there is indeed little question that Russia could be a sizeable growth market for New Zealand's high-quality products - as Key has noted.

But when it gets down to realising the prospective FTA's potential it is important to bear in mind the maxim - "companies trade, countries don't."

On this score New Zealand has a lot more work to do to ensure that our companies do in fact go through the doors our trade negotiators open.

A subject which is rightfully exercising the best minds at NZ Trade and Enterprise, which, with other Government agencies such as the Ministry of Foreign Affairs and Trade (MFAT), has been working on an NZ Inc strategy to try to improve NZ businesses' penetration of key offshore markets.

On Monday, MFAT called for submissions on the proposed bilateral FTA. In essence MFAT is seeking input on the trade in goods negotiation which will cover market access, rules of origin, customs procedures, sanitary and phytosanitary measures, and technical barriers to trade.

There will also be a chapter dealing with trade in services and another on investment.

Plus the usual items that form part and parcel of modern FTAs: intellectual property, government procurement, electronic commerce, trade and environment and a disputes settlement procedure.

From the Russian perspective, a negotiation that results in that country ultimately phasing out its high tariff barriers to our agriculture exports (they run to 50 per cent for some dairy lines) will have a demonstration effect.

A Russian-EU deal is not on the agenda at this stage (Russia will want to complete its accession to the WTO first). But it will inevitably happen at some stage. And if the Russia has already negotiated the phase-out of agricultural tariffs with New Zealand it will add some critical pressure to the EU to finally go down the same route.

Since Apec, Medvedev has ordered his government to speed up Russia's WTO bid. In has been negotiating membership for 17 years now (the average accession period is five to seven years).

It won't have escaped notice elsewhere that the smart geo-politicking by NZ's 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 way as it secured its earlier deal with China - by helping the bigger partner achieve its goals in the WTO (through being the first nation to negotiate WTO accession protocols with each country) with the unspoken expectation that the bigger partner might return the favour by cementing a bilateral FTA with the smaller player ahead of larger contenders.

In the meantime, NZ's trade negotiators, with those representing the nine countries in the Trans Pacific Partnership negotiation, will converge on Auckland (December 6-10) for the next round of talks.

MFAT is promising a relatively open process where stakeholders can engage.

The big issue - from an NZ perspective - is just how wedded the US is to a high quality deal now that President Barack Obama is back in Washington. It will be a deciding week.