Column: Rahul Sen
New Zealand’s Prime Minister Chris Hipkins has said he will be taking up an offer from his Indian counterpart to visit the country and potentially talk about a free trade agreement. He made the announcement this week after meeting the Indian prime minister Shri Narendra Modi in Papua New Guinea, along with leaders from the Indo-Pacific and US Secretary of State.
India is now the sixth largest economy globally and poised to become the third largest by 2030 if it continues on the current trajectory. According to International Monetary Fund (IMF) projections, India will contribute to 15.4 per cent of global economic growth this year, second only to that of China.
This statistic points to the hard fact that Asia will be the global engine of economic growth by the end of 2023, and half of that will be contributed by these two economies. From New Zealand’s perspective, trade, and economic relationship with both these economies should be a priority.
However, a look at our recent bilateral economic relations statistics confirms that this is not the case for New Zealand’s relationship with India. As of December 2022, New Zealand’s bilateral trade with India was a little more than 1 per cent of its total. Bilateral exports from New Zealand to India of goods and services declined by NZ $1 billion over 2017-2022, with India ranking 15th among New Zealand’s trading partners. On the investment front, New Zealand’s share in India’s Foreign Direct Investment (FDI) over the same period is just 0.01 per cent of the total. Such statistics, in the face of the IMF projections, clearly demonstrate New Zealand needs to prioritise its economic relationship with India, with a clear strategy, and a view to making it one of our top five trading partners within a decade.
How can this be realistically achieved? For one, we need to understand that the notion of FTA that we perceive here in New Zealand is very different in the Indian context. FTAs are viewed in India mostly as an instrument to extract tariff concessions and provide market access for goods trade.
Valuable lessons can be learnt here from Australia. The word FTA does not feature in their agreement, rather it is an “Economic Cooperation and Trade Agreement (ECTA)” that lays down the foundation for its ongoing negotiations towards a Comprehensive Economic Cooperation Agreement (CECA).
Why this nomenclature matters from India’s perspective is that the agreement is no longer a trade deal about exchanging tariff concessions, but one that is broad based and focused on mutual economic gains. The words “comprehensive” and “economic cooperation” sends strong signals about an intent towards a long-term commitment to the bilateral economic relationship around investment, technology and skills.
As recognised by a recent report by India-New Zealand Business Council (INZBC), it is an approach towards developing and securing a comprehensive economic partnership across a number of sectors (that includes agri-business, fintech, edtech, healthcare, tourism among others) that will take this economic relationship to the next stage. We need to abandon the word FTA in our trade discussions with India and replace it with a CEP, involving an understanding and demonstrating concrete policy actions towards what India can do for New Zealand, and vice versa over the long term.
There are three key reasons for advocating this different approach in negotiating with India. First, New Zealand needs vital skills and technology for sustaining our long-term growth, and India’s demographic dividend and growing capabilities in digital technologies offer this opportunity to tap on. A win-win situation can result if our CEP approach involves a mobility, technology and skills partnership agreement involving mutual recognition of qualification and training and development across key service sectors, alongside an early harvest trade agreement that allows tariff concessions in key goods that are traded with India.
While doing so, we will also need to be mindful that Australia had a clear India Economic strategy 2035 envisioned well before the ECTA was negotiated. New Zealand does not yet have a strategy or a vision on how it views its economic relationship with India by 2030.
Second, New Zealand needs to recognise from its post-covid experience of supply chain disruptions and production delays that economic risk diversification is crucial for its long-term sustained economic future, taking a cue from the Australian approach.
Third, the investment opportunities for New Zealand businesses in India can be much better tapped through a CEP approach. As an example, India has now internationalised its education sector and Australian universities such as Deakin and Wollongong are already opening foreign campuses in the state of Gujarat to offer their programmes.
The choice for New Zealand policymakers is clear. We need a fresh CEP approach with India that provides mutual economic gains, with a view towards forging a long-term development partnership. A trade deal will naturally result from there.
See article in Kia Ora India Magazine: https://issuu.com/inzbc/docs/kiaora_india_jun2023_v5_low/26