Why in the News?

After nearly 10 years, India and New Zealand have resumed talks on a free trade agreement (FTA) to strengthen economic relations.

Why did the India-New Zealand trade talks stall in 2015?

• Disagreements Over Dairy Market Access: New Zealand demanded greater access to India’s dairy market, but India resisted to protect its millions of dairy farmers. Example: India’s dairy imports from New Zealand were minimal (~$0.57 million), and India remained firm against allowing raw dairy imports.
• Tariff Reduction Challenges: New Zealand had a low average tariff of 2.3%, while India had a higher average tariff of 17.8%, making tariff reductions challenging. Example: India was reluctant to lower tariffs on New Zealand’s dairy, meat, and wine exports, fearing a negative impact on domestic industries.
• Limited Gains for India in Goods Trade: Since New Zealand already had low tariffs and duty-free access for many goods, India saw fewer advantages in an FTA. Example: Indian exports such as textiles, apparel, and pharmaceuticals already had significant access to the New Zealand market.
• Concerns Over Skilled Labor Mobility: India wanted easier movement of skilled professionals in IT and services, but New Zealand was hesitant. Example: India sought better visa provisions for IT and engineering professionals, which faced resistance.
• External Trade Pressures: India faced pressure from other countries like the U.S. to open its dairy and agricultural sectors, complicating negotiations. Example: Allowing New Zealand’s dairy products could have set a precedent for other trade partners demanding similar concessions.

How does the tariff disparity between India and New Zealand pose a challenge to the negotiations?

• Significant Difference in Average Tariff Rates: New Zealand’s average import tariff is only 2.3%, with over half of its tariff lines duty-free, while India’s average tariff stands at 17.8%. Example: Indian goods already have substantial access to the New Zealand market, making a traditional FTA less beneficial for India.
• Limited Market Access Gains for India: Since New Zealand already imposes low or no tariffs on many products, India’s exporters may not gain significant new access. Example: Sectors like textiles, pharmaceuticals, and auto components already enter New Zealand with minimal restrictions, reducing the FTA’s potential benefits for India.
• Pressure on India to Lower Tariffs on Sensitive Sectors: New Zealand is pushing for tariff reductions on dairy, meat, and wine exports, but India is reluctant to protect domestic farmers and industries. Example: India’s dairy sector supports millions of small farmers, making it difficult to allow imports that could undercut local production.
• Imbalance in Reciprocal Concessions: If India significantly lowers its tariffs, New Zealand would gain more than India, creating an imbalance in trade benefits. Example: India would have to make greater tariff cuts, while New Zealand’s market access would remain largely unchanged.
• Potential Precedent for Other Trade Partners: If India agrees to major tariff cuts for New Zealand, other countries in future FTAs may demand similar concessions, complicating trade policy. Example: Countries like Australia, the EU, and the U.S. could push India to open up its agriculture and dairy sectors, which India has traditionally protected.

Way forward: 

• Balanced Trade Concessions & Sectoral Safeguards: India and New Zealand should explore sector-specific agreements rather than blanket tariff reductions. Example: India can allow limited access to value-added dairy products while ensuring safeguards for domestic farmers. Similarly, New Zealand can offer better terms for India’s IT and services sector.
• Enhanced Collaboration in Non-Tariff Areas: Both nations should focus on investment facilitation, technology exchange, and regulatory cooperation to maximize mutual benefits beyond tariff cuts. Example: Joint ventures in agritech, renewable energy, and pharmaceuticals can create new trade opportunities without tariff-related conflicts.

Mains PYQ:

Q Critically analyse India’s evolving diplomatic, economic and strategic relations with the Central Asian Republics (CARs) highlighting their increasing significance in regional and global geopolitics. (2024)

Reason:  It highlights the importance of analyzing India’s evolving economic relations with other regions, which is similar to the context of resuming talks with New Zealand.

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