Trade Minister Todd McClay meets with his Indian counterpart Piyush Goyal in India.
The Government has agreed a comprehensive free trade deal which eliminates or reduces tariffs on 95% of New Zealand’s exports to India.
Labour has indicated it may support the deal when it eventually comes to Parliament. Labour’s support may have salvaged the deal which was in trouble after NZ First announced it would vote against it, robbing the coalition of its majority and forcing National and Act to look for votes.
NZ First cited concerns with concessions the deal grants on visa access to Indians and the poor dairy access New Zealand exporters got in return.
“When Cabinet approval for the India deal was sought last week, New Zealand First exercised the agree to disagree provision of its coalition arrangements – while making clear that it would vote against enabling legislation if and when it is introduced to Parliament," NZ First leader Winston Peters said in a statement.
Peters said the deal was “neither free nor fair”.
Luckily for National and Act, Labour’s Trade Spokesman Damien O’Connor said that while he had some reservations, he is inclined to support the deal.
“From what I’ve seen this is an agreement worth supporting, while it may not be anything we anted” he said. O’Connor reiterated Peters’ concerns about dairy, but said a deal with the world’s most populous nation was significant, even without dairy access.
Labour’s caucus will examine the deal and decide the party’s position when it meets in the new year.
It is not the first time Peters has deployed this tactic. During the Clark Government, in which Peters also served as foreign minister, Peters opposed Trade Minister Phil Goff’s trade deal with China. He told the Herald earlier this year he stands by that criticism.
The deal will be signed some time next year and examined by Parliament, implementation legislation would likely not be passed until after the election, meaning the deal could become a campaign issue.
The rest of the Government says the deal gives the best access of any Indian free trade deal (FTA), with recent Australian and United Kingdom deals including lower access.
The deal was finalised earlier this month but had to wait for Indian Prime Minister Narendra Modi to return to the country last week to hold a special Cabinet meeting to agree the deal.
Trade Minister Todd McClay said the deal was “historic” and puts New Zealand exporters on an equal or better footing to competitors across a range of sectors, and opens the door to India’s rapidly expanding middle class.
Almost 57% of exports are duty-free from day one of the deal coming into force, increasing to 82% once it is fully implemented. The remaining 13% are “subject to sharp tariff cuts”, the Government says.
However, there are questions with how well the deal will land with the dairy sector. India is notoriously protective of its domestic dairy sector and the deal has not managed to significantly increase access to New Zealand dairy exports.
This deal liberalises access in some areas: dairy that is imported in order to be re-exported gets in tariff free under this deal; infant formula will see the current 33% tariff eliminated over seven years.
Some of New Zealand’s higher value dairy exports, worth about US$15,000-$16,000 ($26,000–$28,000) a tonne would see tariffs reduced.
However, there is no change to some of the cheaper milk powder exports that New Zealand excels at, which tends to be priced at US$3000-$4000 ($5200–$6900) a tonne, which faces such high tariffs that it makes New Zealand milk products uncompetitive in India.
The deal includes a provision that means if India concludes a deal that offers better dairy access to a comparable economy, New Zealand can ask for the dairy access to be renegotiated.
The Government has conceded greater visa access to India, something to which NZ First had been resistant.
New Zealand will offer three-year visas to occupations on tiers one and two of the green list of skill shortages.
The Government will offer 1667 visas a year, which will be non-renewable and not offer a right to remain.
The Government will also expand the post-study work rights of some visas.
O’Connor told the Herald that while he was sceptical the deal could be called “comprehensive” because of what it excluded, “a trade agreement with the world’s most populous country is certainly a step forward in a world of turmoil”.
“A reduction in tariffs will hopefully allow us to catch-up with Australia, which has got ahead of us in some key sectors,” he said.
Like Peters, O’Connor said the absence of significant dairy concessions was a “disappointing”.
He said India’s commitment to its domestic dairy sector was “resolute” and the Government and the sector needed to find a way to make this deal work for them.
Act’s trade spokeswoman Parmjeet Parmar said her party backed the deal.
“India is the world’s most populous country and a major growing economy, strengthening our economic ties is long overdue. This agreement signals that New Zealand is serious about engaging with one of our most important economic partners.
“Two-way trade between New Zealand and India already totals more than $3 billion each year. This agreement has the potential to grow this figure significantly, freeing trade and reducing barriers making it easier for businesses on both sides to sell and invest,” she said.
Infometrics chief executive and principal economist Brad Olsen said the deal was a “solid start”.
He did not think the deal’s shortcomings were such that the Government should walk away from the deal.
‘I find it hard to believe that no deal at all is better than whats on the table," he said.
It does seem to deliver material benefits to other sectors, and in an areas where New Zealand could get some extra trade out of," he said.
Olsen noted the size of the Indian economy and the potential for growth in the future. He hoped the deal would lay “the groundwork for better achievements”.
Getting a trade deal with India over the line this Parliamentary term was a key commitment of Prime Minister Christopher Luxon on the campaign trail in 2023.
He’d accused the then Labour Government of neglecting India.
The last National Government had begun trade talks with India, but they fell apart. India is among the most protectionist economies in the world and New Zealand’s is among the most liberal – the two sides had very little on which they could agree.
Labour never restarted those talks, believing that a trade deal that had so little on offer for the dairy sector was not really worth it for a country whose exports were as heavily weighted towards dairy as New Zealand’s.
Announcing the deal, Luxon paid tribute to his trade minister.
“Since the election, Todd McClay has visited India seven times.
“The Foreign Minister has visited India twice. Earlier this year, I led New Zealand’s largest-ever trade mission to India. And New Zealand has hosted India’s President and two ministerial visits from India.
“The result is a high-quality trade agreement with a trusted partner that will deliver deep and lasting benefits for New Zealand.”
Trade deal highlights: