Free trade agreements

Like the first taste of a hot, spicy curry the New Zealand economy should get a shot of simulation from a successful FTA (Free Trade Agreement) with India. Our food exports have enormous potential in a country which is going through a period of dynamic economic growth. But don’t expect it to be easy. Getting agreement on FTAs is usually a long, winding and tedious road riddled with pot holes of self interest.

You just need to think about the reason we are pursuing FTAs with individual countries. It’s because trade talks for an agreement between all countries, the WTO or World Trade Organisation talks, have ground to a halt. They just can not get agreement. Countries like New Zealand want to see the US and Europe get rid of their subsidies and protection for their farm sectors. Sadly for us it just isn’t happening. Despite proclaiming its love of free markets, the US government has for years given vast hand outs to its farmers. For some reason the farmers are able to form a powerful lobby group which no US administration is prepared to stand up to. So their farmers get massive protection at the expense of our farmers and those of many poor developing countries. In Europe it is a similar situation where subsidies or tariff protection keep their farmers in business. And round after round of WTO talks has not been able to come up with a solution to this impasse.

India, like the US and Europe, also provides extensive protection to its farming sector. Believe it or not India has the largest dairy industry in the world. Admittedly it is a big country … one point one billion people. And India does have a lot of affection for cows. The great bulk of their dairy output is consumed locally so India is not a big threat to us as an exporter. But because there are probably  millions of small dairy “farms” in India, the government there will be reluctant to open its industry up to full on competition from our highly efficient industry. Hence some dairy products attract a tariff of sixty per cent. Because of this protection our dairy exports to India are relatively modest. Coal and timber are our largest exports. So just imagine the negotiations that we will have to go through to get that tariff protection down. If our butter, cheese, and milk powder is allowed to come in duty free, then a lot of small Indian farmers and co-ops will go out of business.

So expect the benefits of an FTA with India to be phased in over a long period of time. The big plus for us is that demand for good quality food is growing strongly as the Indian middle class expands its waist line. So our meat, fruit, wine as well as dairy should find a buoyant market in India for years to come.

When you look at our trade with China you can see how beneficial an FTA with India could be. Our dairy exports to China, have been rocketing as have those for meat, fish, kiwifruit, timber and the like. What has helped us though in regard to dairy, is that the Chinese industry is relatively small and fraught with quality issues (Think San Lu and melamine). It will not be so easy to get ready access to India’s dairy consumers.

But it will certainly be worth pursuing as our trade with India is still quite small. The potential is enormous. Tourism, film making, cricket, the love of a nice vindaloo…. we have so much in common. Now if we could just get Fonterra to sponsor an IPL cricket team which includes Sachin Tendulkar and Brendon McCallum, and is coached by Stephen Fleming. Getting agreement on an FTA would be a breeze.