Key Takeaways
- New Zealand has finalized a Free Trade Agreement (FTA) with India, with Luxon promising to complete the deal in his first term
- The agreement includes 100% duty-free imports from India, including textiles, apparel, and agricultural products
- New Zealand will provide market access to Indian providers in 118 services sectors, including telecommunications and finance
- India will provide market access to 70% of product lines, covering 95% of New Zealand’s existing exports to India
- New Zealand has agreed to establish Centres of Excellence in India to help Indian growers increase production and quality
- The improved trade access depends on the New Zealand private sector investing at least US$20 billion in India over the next 15 years
Introduction to the FTA
The recent announcement of a Free Trade Agreement (FTA) between New Zealand and India has come as a surprise to many, given the historical challenges in negotiating such a deal. When Luxon promised to finalize an FTA with India in his first term, it was met with skepticism by many, including his opponent Chris Hipkins. However, despite the doubts, Luxon’s determination and commitment to the deal have paid off, with the agreement being finalized in a relatively short period.
Historical Context
India’s independence movement under Mahatma Gandhi emphasized self-sufficiency, and successive governments after 1947 were highly protectionist. This made it challenging for New Zealand to negotiate a trade deal with India, particularly given India’s sensitivities around dairy and meat. Previous governments had decided to focus on limited, product-by-product engagement rather than a big, bold push for a comprehensive FTA. However, Luxon’s lack of knowledge of this historical baggage may have been a blessing in disguise, allowing him to approach the negotiations with a fresh perspective.
Negotiation Process
Luxon’s critics may argue that the work was mainly done by Trade Minister Todd McClay and the Ministry of Foreign Affairs and Trade (MFAT) trade negotiations team. However, without Luxon’s determination and commitment, India may not have been such a high priority, with McClay visiting seven times and Peters twice since the election. Luxon also took two planeloads of New Zealand business and Indian-community leaders to New Delhi and Mumbai in March, which helped to build momentum and goodwill.
Terms of the Agreement
The FTA includes several key provisions, including 100% duty-free imports from India, including textiles, apparel, and agricultural products. New Zealand will also provide market access to Indian providers in 118 services sectors, including telecommunications and finance. In return, India will provide market access to 70% of product lines, covering 95% of New Zealand’s existing exports to India. However, New Zealand exporters of dairy products, aluminum, and meat (except sheepmeat) will continue to pay tariffs.
Investment Commitments
One of the significant aspects of the agreement is the commitment by New Zealand to establish Centres of Excellence in India to help Indian growers increase production and quality. The improved trade access also depends on the New Zealand private sector investing at least US$20 billion in India over the next 15 years. This is a significant commitment, equivalent to about a third of New Zealand’s Superannuation Fund or a quarter of its KiwiSaver accounts.
Labor Market and Education Implications
The agreement also includes provisions for labor market and education cooperation, including the introduction of multi-entry working-holiday visas for 1000 young Indians annually and the maintenance of a quota of 5000 three-year temporary-employment visas. New Zealand will also introduce new student mobility and post-study work visas specifically for Indians, with no numerical cap on Indian students coming to New Zealand. These provisions are likely to have significant implications for New Zealand’s labor market and education system.
Political Implications
The agreement has significant political implications, with NZ First having already announced that it will vote against the deal. This means that Luxon’s triumph is dependent on Labour’s support, assuming the Greens are not an option. Labour strategists have expressed surprise that National did not consult them before announcing the deal, and it remains to be seen whether they will support the agreement. The lack of gains for dairy and the potential impact on the labor market and education system are likely to be key concerns for Labour.