Agile deal-making: New Zealand FTA done, time to consider joining CPTPP

It is important now to reconsider whether it makes sense to officially apply for candidacy to CPTPP, a gold-standard trade deal that would significantly increase comfort levels for investors, traders

The recalibration of India’s foreign-trade policy continues, with a free-trade agreement (FTA) signed this week with New Zealand. While all Indian goods will receive duty-free access to the New Zealand market, a large proportion of India’s imports from there will also be opened up, with certain categories of goods receiving significant tariff cuts or expanded quotas. These include agricultural commodities of importance to New Zealand such as lamb and kiwi fruit. Indian messaging on the tariff-reduction side of the deal emphasises that certain sectors have been ring-fenced, but the only real area of exclusion is dairy, in which New Zealand is extremely competitive, and which in India is politically sensitive, given the millions of livelihoods involved in the sector and, therefore, is rightly protected in all the recent trade agreements India has concluded.

 

As a smaller and more agile trading entity than, say, the European Union (EU), New Zealand was also able to make the sort of bargains that render an FTA more attractive to New Delhi. For example, it is committed to investing $20 billion in the Indian economy over the next 15 years. Whether this will be doable is an open question. A similar promise was made by the countries of the European Free Trade Area, composed of Norway, Switzerland, Iceland, and Liechtenstein — except that the commitment there was for $100 billion. New Delhi has often seen investment as the flip side of trade openness, and thus it has conditioned market access on such promises. For such large sums to materialise, however, India must continue to take forward business- and investor-friendly reform. Judicial and arbitration reform, to ensure that concerns about dispute settlement do not hinder promised capital inflows, must, therefore, be a major priority.

 

The agreement also includes some provisions on the movement of individuals, which is relatively rare at a time when many countries are growing more closed to immigration. Up to 5,000 Indian professionals will be granted three-year work permits in New Zealand, in specific in-demand sectors such as health care and information technology. New Delhi has long asked for migration agreements to be part of broader trade agreements, but in more recent deals, it has had to shelve that requirement, given the political climate in those geographies. Clearly, it is not yet an issue of the same magnitude in New Zealand, but it needs to be carefully watched since domestic politics on such issues can change swiftly in just a few years.

 

New Zealand is a full member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP. Of the 12 members of this alliance — Australia, New Zealand, Brunei, Japan, Malaysia, Singapore, Vietnam, Canada, Mexico, Chile, Peru, and the UK — India now has FTAs with eight. Earlier this month, alongside Canadian Prime Minister Mark Carney’s official visit, negotiations with Canada were relaunched. It is important now to reconsider whether it makes sense to officially apply for candidacy to the CPTPP, a gold-standard trade deal that would significantly increase comfort levels for investors and traders. It would also be the appropriate geopolitical and geo-economic response to the current disruption to global governance. India has shown considerable openness in signing FTAs with a range of countries and trading blocs, including the EU, and it is important that this momentum is maintained. It should also consider reducing its average tariffs, which are out of sync with those of other large economies.