Trade MinisterTodd McClay

Trade Minister Todd McClay flew off to India yesterday to pursue a free trade agreement.

He did so with advice from South Island sheep farmers to forget about negotiating any concessions for the dairy industry.

Alliance chair Murray Taggart said sheep farmers needed the free trade agreement urgently to counter low prices for their product in China.

If that meant gaining nothing for the dairy industry, McClay should still do the deal.

But in a significant report for the new government, the leading trade policy lobby group, the New Zealand International Business Forum, put forward a broader range of priorities for McClay.

The New Zealand International Business Forum, which includes Fonterra, Sealord, Zespri, Business New Zealand, as well as a number of primary sector organisations, yesterday published a briefing to the new government.

It said it welcomed the ambition the incoming government brought to enhance the trade and economic partnership with India.

“The NZIBF agrees that a binding and comprehensive FTA is the ultimate goal,” it said.

But it made it clear that the Free Trade Agreement would come after a series of other measures.

“NZIBF sees value in a range of medium-term engagements aimed at enhancing the economic relationship, creating a platform for further discussions and identifying the future contribution New Zealand can make to India’s ongoing development,” it said.

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This builds on the policies of the New Zealand India Business Council.

At last year’s India Business Summit, the then-chair of the New Zealand India Business Summit, Earl Rattray, warned that engagement with India needed to be diplomacy-led. Trade would follow that.

“Typically, diplomacy tends to flow where the trade opportunities are in New Zealand,” he said.

“Tip it upside down. 

“The one thing I’ve learned more than anything else about India is this concept of brotherhood. 

“Indians do business with their friends, and we can see that it’s an unspoken quid pro quo because there is a concept of mutual care for each other.

“So our task as a nation is to figure out in practice how we are going to always be seen as a friend, never as a threat. And I think we’ll make great progress.”

McClay said the relationship with India was a strategic priority for the coalition Government, and “we will look at how to strengthen this important connection across a range of areas.”

“Meeting in person with Minister Piyush Goyal will be essential for developing a strong partnership that enhances opportunities for both our countries.”

McClay will also deliver a speech on the government’s ambition for the relationship with India and participate in a moderated discussion with G20 Sherpa Amitabh Kant in front of an audience of national business and community leaders.

Perhaps to reinforce the political dimensions of the relationship, Foreign Minister Winston Peters tweeted yesterday that he had met the Indian High Commissioner.

His tweet said the pair discussed “lifting the relationship. High-level visits under the new govt incl by Todd McClay this week; enhanced strategic & economic cooperation and education-migration links.”

The education migration discussion would appear to have been about India’s long-standing hopes that visa restrictions on Indians coming here for education could be eased along with work rights while they study.

However, cautious diplomacy might not be enough for South Island sheep farmers.

The chair of the Invercargill-based farmer co-operative, Murray Taggart, said yesterday that his company could only supply high-end hotels and restaurants because there was a 30 per cent tariff on sheep meat, which made it uncompetitive in the mass market.

He said prices were falling in China, and the company needed an alternative market.

He said New Zealand should accept that a free trade agreement with India might not include dairy.

“Any trade agreement is going to have to recognise the political realities within India,” he said.

“At this point, that probably doesn’t include dairy.”

Southland sheep farmers form the backbone of the farmer protest group Groundswell.

But the big issue for New Zealand’s exporters remains the future of the relationship with China.

The International Business Forum briefing said: “NZIBF Members appreciate the careful way in which successive governments have managed the relationship with China, our largest export market.

NZIBF understands the incoming government will need from time to time to express views on some sensitive issues which reflect New Zealand values.

“This need not deter from the goal of a strong and vibrant economic relationship which has considerable room for further expansion.

“NZIBF has been concerned that calls for “diversification” away from China might be mis-interpreted: for many sectors the level of market demand available in China does not exist in other available and open markets.”

The reference to the incoming government expressing views “on some sensitive issues” is undoubtedly a reference to Winston Peters and his known preference for our traditional allies.

He has also been critical of Fonterra’s reliance on the China market with his claim that its trade policy is simply “one company, one product, one country.”

China is particularly sensitive to calls for diversification away from it because of the United States policy of “decoupling.”

Chinese speakers at the World Economic Forum in Tianjin earlier this year, which was attended by then-Prime Minister Chris Hipkins and Trade Minister Damien O’Connor, underlined the potential damage the policy could do to the Chinese economy.

Thus, it was no surprise last week to hear the Chinese Ambassador Wang Xialong present his own warning.

“I note that  there is a narrative to diversify New Zealand’s trade profile,” he said.

“While I can fathom and even respect the arguments behind it, given that all countries, including China, would like to tap into as many markets as possible  across the world, it is important to recognise that a country  follows a specific  trade pattern  for a reason, as a result of  selection  over time by businesses and consumers on the basis of  market principles.

“To delink through non-market behaviours from China, the second biggest economy and arguably the biggest consumer market in the world, or allowing non-economic factors or even groundless allegations to get in the way of normal economic relations will  not make an economy  its supply chains  more  secure or  resilient.  

“In fact, they will only become more fragile as a result, as such moves  themselves constitute major or even the biggest risks.”

It was, therefore, interesting to hear the Prime Minister yesterday subtly restate New Zealand’s strategic priorities after Peters’ speech to the diplomats last week, which emphasised the ties to our traditional allies.

“When you think about Australia, it’s a relationship we don’t want to take for granted,” he said.

“Likewise with the US, likewise with China, frankly. And so those are the big three that we need to focus on.”

That puts McClay’s trip in perspective.

It fits into the “nice to have” basket of trade policies at the same time as it may placate a noisy part of National’s traditional constituency, but the real deals are with the big three.