Week in Review

India’s NZ dairy fears puts brakes on RCEP

The RCEP trade deal is a major agreement with major problems - and new obstacles continue to pop up, with Indian fears about a deluge of Kiwi dairy imports the latest issue delaying a conclusion.

With 27 rounds of negotiations and counting since 2012, the Regional Comprehensive Economic Partnership (RCEP) trade deal has been far from smooth sailing to say the least.

It’s little wonder that one trade expert described repeated delays to the proposed agreement between the 10 ASEAN members and Australia, New Zealand, China, India, Japan, and South Korea as “doing my head in”.

Talk of an agreement in substance by the end of 2018 proved overly optimistic, with the deadline instead kicked out until the end of 2019.

But with the end-of-year ASEAN Summit set to start next week, time is fast running out - and there is little to suggest the 16 countries will be any more successful this time around.

The main obstacle at the moment appears to be India: at the last ministerial meeting in Bangkok from October 11 to 12, the country laid out a number of proposed changes and carve-outs which didn’t find favour, while Indian Trade Minister Piyush Goyal has hinted at a withdrawal, saying that “every interest of the domestic industry and people of India has to be protected before we execute any free-trade agreement”.

One of the major concerns appears to be the threat posed by New Zealand, with Indian farmers staging protests against RCEP over a potential flood of dairy imports into the country.

"The farmers are the backbone of India, the union is very strong, so anything new coming into India that the government would want to bring will face opposition, especially in dairy.”

Sunil Kaushal, the head of strategic relations for the India New Zealand Business Council, says that Indian state elections in Haryana and Maharashtra have provided a megaphone for RCEP opponents to place pressure on the Indian government.

“As you know, the farmers are the backbone of India, the union is very strong, so anything new coming into India that the government would want to bring will face opposition, especially in dairy.”

If it were any other country, the outcry might not be so strong. But New Zealand is well-known in India for its prowess in dairy production, with the founder of the country’s first dairy cooperative learning the tricks of the trade from Kiwi farmers.

“The rural India really doesn't want to care about it, doesn’t understand, and any little sparks in the rural area the government is like, ‘We will not do it’,” Kaushal says.

That has led to reports that India will seek the exclusion of all dairy imports from RCEP - something which would sit uneasily with New Zealand exporters.

Damien O’Connor, who is overseeing the RCEP negotiations as Minister of State for Trade and Export Growth, says the Government’s negotiators are seeking “market access for all of New Zealand’s key export interests across all sectors',' noting that our annual dairy production is less than 13 percent of India’s and already supplies more than 120 other countries.

But O’Connor’s reference to the need for a “comprehensive” agreement may not be read in the same way by India, Kaushal says.

“The Indian idea of ‘comprehensive’ is quite different, which is: ‘What’s in it for me?’”

India's concerns about NZ dairy have become louder and louder - but that's not the only obstacle to RCEP being signed. Photo: Lynn Grieveson.

But former trade negotiator and Saunders Unsworth consultant Charles Finny says that India’s RCEP concerns extend beyond dairy, with wider worries about the competitiveness of the Indian industry if it were forced to deal with an increased number of Chinese manufacturing imports.

With China and Asean nations exasperated with India’s negotiating stance, there has been talk about cutting the country out of RCEP entirely - something which Finny says would not be in New Zealand’s interests, despite its resistance to meaningful market liberalisation.

“The real value of the agreement [to New Zealand] is India ... it’s the only way we will get an FTA with India any time soon, so we’re inclined to hang in there, but I don’t think we can agree to the absolute exclusion of dairy.”

The market access component of the deal is already a problem, with Finny describing RCEP as “the worst-quality FTA New Zealand has ever entered into” - removing dairy from the equation entirely would make signing on close to impossible, he says.

But if some form of access can be secured, New Zealand may have to “hold its nose” and sign on, he says: both for the principle of Asia-Pacific nations agreeing to joint rules and the potential long-term value.

“If you look at the original CER between Australia and New Zealand, it wasn’t that fantastic - it took four years to become a bold agreement.”

But New Zealand may need to make some difficult domestic concessions of its own if it is to get India on board.

It takes a village to sign a trade deal

In an interview with Indian media, New Zealand’s special envoy for Commonwealth trade integration Jeremy Clarke-Watson said “serious consideration” was being given to easier visa access for workers and professionals.

That may be unlikely to find favour with some in the Government, given Shane Jones’ comments to RNZ, regarding parental category visa changes, that the Indian community had “no legitimate expectations in my view to bring your whole village to New Zealand and if you don't like it and you're threatening to go home - catch the next flight home".

“Kaumātua [Jones] might need to be wiser, because there is a bigger prize for us to win,” Kaushal says.

So what are the odds of India staying on board - and of concluding negotiations before 2020?

Before the Bangkok meeting last month, Finny thought there was an 80 percent probability of reaching an agreement in time; now, he says that’s dropped to 50 percent, “but it’s still possible”.

Kaushal thinks it unlikely India will withdraw entirely, given geopolitical considerations at a time when it wants to build its influence with Asean nations and South Asia to counter China.

For the Government’s part, O’Connor believes a conclusion in 2019 is achievable, “but only if credible market access thresholds are reached” - a big if, given the current state of play.