India and New Zealand have resolved to fast-track their free trade agreement talks, which hit a roadblock a decade ago. Trade and security discussions were high on the agenda during the recent visit of New Zealand Prime Minister Christopher Luxon. Talks around Indian Ocean security do not really come as a surprise; they appear to have been prompted by China’s recent show of military might in the Tasman Sea. But the timing behind the pursuit of a bilateral FTA is perplexing. It coincides with the US roiling the world with its tariff announcements.
India faces the prospect of higher US levies on its exports from next month, and its current priority is surely to minimise damage vis-a-vis the US. At this stage, it seems slightly odd to prioritise FTA talks with a partner with whom India’s trade is not significant in the overall scheme of things. This should not lead to a diversion of energies from more crucial ongoing negotiations. Goods and services trade between India and New Zealand was just $1.5 billion in 2024 ($39 million trade deficit for India) which is a drop in the ocean for both economies. While India’s goods and services exports are in the region of $770 billion, New Zealand’s exports of goods and services are about $100 billion; an estimated 75 per cent of the goods exports of about $70 billion is driven by dairy, farm and forestry produce. As a leading dairy powerhouse and an economy struggling to overcome a recession in 2024, New Zealand is trying to secure a foothold in India’s large market.
Talks, a decade ago, collapsed because of India’s refusal to throw open its dairy and farm sector — and for good reasons, as millions of small and marginal farmers are dependent on animal husbandry and dairying. Under WTO’s Agreement on Agriculture, livelihood protection is permitted. It is hard to conceive of a shift in India’s position on the farm sector now. The scope for bilateral give and take does not seem clear. But the bigger issue here is the potential impact of FTA talks with one country or trade bloc on another. The US, as a major agriculture and dairy products exporter, has been trying to pry open Indian markets. Any suggestion of a change in stance here could prompt the EU, New Zealand and Australia to take notice and modify their wish-list. Therefore, Indian negotiators should be mindful of this aspect. They have, for instance, arguably erred in giving concessions to the UAE on government procurement.
There also needs to be a greater clarity about India’s tariff structure. Of the 12,000 tariff lines, it is possible to reduce MFN tariffs on the less consequential ones to bring down the simple average tariff level from 17 per cent to say 10-12 per cent. Protectionist enclaves with respect to raw materials and intermediates need to be dismantled to make exports competitive. Rationalisation of MFN rates would clear the decks for more clarity and negotiating strength in FTA talks as well — besides, quietly dropping FTAs which don’t seem worth it. Lower MFN rates would also bring down customs revenue foregone from trade pacts.
