Trade deal with New Zealand is much needed

Context & The Gist

The India-New Zealand Free Trade Agreement (FTA) is in the news following the conclusion of negotiations, signaling a continued push by the Indian government towards greater global trade integration. This agreement, alongside recent deals with the UK, Oman, EFTA, UAE, and Australia, represents a strategic shift in India’s trade policy, aiming to enhance market access for Indian exports and attract foreign investment. The core of the agreement lies in providing duty-free access for all Indian exports to New Zealand, alongside commitments in key service sectors and pathways for skilled employment.

Key Arguments & Nuances

• Shift in Trade Policy: India is actively pursuing FTAs after a period of relative hesitancy, demonstrated by its exit from RCEP in 2019.
• Duty-Free Access: The agreement grants duty-free access to all Indian exports, a significant benefit for Indian businesses.
• Service Sector Gains: India has secured commitments in crucial service sectors like IT, education, and financial services.
• Mobility Clause: A new visa facility allows for temporary employment of skilled Indian professionals in New Zealand.
• Political Sensitivities: Market access for dairy products has been excluded due to political considerations, mirroring concerns in other trade negotiations (e.g., with the US).
• Non-Tariff Barriers: The agreement addresses non-tariff barriers through regulatory cooperation and streamlined customs procedures, crucial for meaningful market access.
• Investment Commitments: New Zealand has pledged to facilitate $20 billion in investments into India over the next decade and a half.
• Limited Gains: The gains from smaller FTAs may be limited, necessitating focus on larger markets like the US and EU.

UPSC Syllabus Relevance

• GS Paper II: International Relations – Bilateral, regional and global groupings and agreements involving India and/or affecting India's interests.
• GS Paper III: Economy – Indian Economy and Planning, Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
• GS Paper III: Economy – Infrastructure: Energy, Ports, Roads, Airports, Railways. (Trade facilitation through infrastructure development)

Prelims Data Bank

• RCEP (Regional Comprehensive Economic Partnership): India withdrew from RCEP negotiations in 2019.
• India-EFTA FTA: Signed in March 2024, effective from October 2024. Includes Iceland, Liechtenstein, Norway, and Switzerland.
• AI-ECTA (Australia-India Economic Cooperation and Trade Agreement): Previous FTA signed with Australia.
• Trade Volume (India-New Zealand): Approximately $2 billion in FY25, with a target to double within five years.
• Temporary Employment Entry Visas: New facility for 5,000 Indian professionals.

Mains Critical Analysis

The India-New Zealand FTA represents a positive step towards India’s broader trade liberalization strategy. However, a nuanced analysis reveals both opportunities and challenges.

Political, Economic, Social, Technological, Legal, and Environmental (PESTLE) Analysis

• Political: The exclusion of dairy products highlights the domestic political sensitivities surrounding agricultural trade liberalization.
• Economic: The agreement is expected to boost bilateral trade and investment, but the overall economic impact may be limited given the relatively small size of the New Zealand economy.
• Social: The mobility clause for skilled workers could lead to brain drain concerns, although it also provides opportunities for Indian professionals.
• Technological: Enhanced regulatory cooperation and streamlined customs procedures can facilitate trade in technology-intensive goods and services.
• Legal: The agreement requires ratification by both countries and adherence to WTO rules.
• Environmental: The agreement does not explicitly address environmental concerns, which are increasingly important in modern trade agreements.

Critical Gap: While the agreement addresses tariff and non-tariff barriers, it lacks a comprehensive framework for addressing emerging trade challenges such as digital trade and climate change. The focus on traditional trade measures may not be sufficient to fully capitalize on the opportunities presented by the evolving global trade landscape.

Value Addition

• Committee: The Board of Trade, under the Ministry of Commerce and Industry, advises the government on trade policy matters.
• SC Judgments: While no direct SC judgments relate specifically to this FTA, rulings on the interpretation of trade agreements under Article 21 of the Constitution (right to livelihood) can be relevant.
• Best Practice: The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) provides a model for comprehensive trade agreements that address a wide range of issues, including digital trade and environmental sustainability.

Context & Linkages

This past article provides further detail on the specifics of the FTA, including the mobility clause for skilled workers and the investment commitments made by New Zealand. It highlights the agreement as a “good template” for future trade negotiations, emphasizing the importance of strategic and cautious negotiations. It builds upon the current article by providing concrete figures and details regarding the expected benefits of the agreement.

This article provides a broader context for India’s recent FTA push, noting that India has entered into 20 regional or free trade agreements. It also points out the challenges associated with existing FTAs, such as trade imbalances with ASEAN and Japan, and the need for robust negotiation of non-tariff barriers. This context is crucial for understanding the strategic rationale behind the India-New Zealand FTA and the importance of learning from past experiences.

The Way Forward

• Focus on Larger Markets: Prioritize concluding trade agreements with the US and EU to maximize economic gains.
• Address Non-Tariff Barriers: Invest in infrastructure and regulatory reforms to reduce non-tariff barriers and facilitate trade.
• Diversify FTA Scope: Expand the scope of FTAs to include emerging issues such as digital trade, climate change, and intellectual property rights.
• Strengthen Trade Infrastructure: Improve port infrastructure, logistics, and customs procedures to reduce trade costs.
• Promote Awareness: Increase awareness among businesses about the benefits of FTAs and provide support for export promotion.