Todd McClay on India trade deal: ‘If it doesn’t happen, that’s my fault’

Sunday, 9 June 2024

With India’s election over, the NZ Government can push on with its intention to get a trade deal over the line. And as Trade Minister Todd McClay says, the responsibility falls squarely with him.

“The prime minister has been very clear, he’s given the direction - if it doesn’t happen, it’s my fault.”

It’s Trade Minister Todd McClay’s final response to a question during a wide-ranging interview with the Sunday Star-Times, about how confident he is that the Government can really get a free trade agreement (FTA) across the line with a country that’s notoriously protective over its dairy and agriculture sectors.

As McClay says himself, any deal with India has to be commercially meaningful for New Zealand, and dairy is a very important part of NZ’s trade profile. But, as experts and commentators dismiss any notion of NZ getting dairy into any trade agreement, he says lessons can be learned from the recent Australia-India Economic Cooperation and Trade Agreement (ECTA), which, on close inspection, includes formula with lower tariffs, he says.

“Sometimes we get quite fixated on dairy as about selling milk powder from NZ, which we do very, very well … but actually, there are many ways that we trade around the dairy space. The NZ dairy product and sales are important of course, that’s part of the negotiation, but did you know, I think it was last year, NZ through exports made more money selling machines to the US that sort and pack apples, than we sold them apples, and so … there’s lots of things you can do in the wider ag-tech space.

“The Indian market, they’re not far away from not being able to produce enough dairy to feed their growing population, which doesn’t mean they don’t have an important dairy industry, [but] there are opportunities for countries like NZ to form those partnerships,” he says.

“One of the things I think we’ve seen is an increase in interest from NZ business who are involved in dairy to go over there and talk about processing and other things, not to go over and sell them things, but to go and look for ways to cooperate. So I think that’s a very interesting area that we look at, but we do need to recognise that it is a very challenging issue for India - but guess what? It’s never easy for NZ to negotiate with anybody, anywhere.”

McClay’s pointing at agri-tech cooperation doesn’t sound like hogwash to University of Auckland honorary academic in politics and international relations, Stephen Hoadley.

“No, that sounds promising,” says Hoadley. “These are incremental measures to bring NZ inside their tariff barriers and create NZ as a domestic player in the Indian market. NZ has done something similar with China, for example, and the US as well, so this is logical. If it can be pulled off, it can be a very effective way of getting half the loaf. The whole loaf is a proper, high-quality FTA; if that’s not possible it’s possible to work around the edges, the nooks and crannies, and partly open doors.”

Hoadley is “pessimistic”, though, about that whole loaf.

“Previous governments have tried … but were unable to move India. India has very specific requirements, it has a growing dairy industry and producers there, and [it’s] keen to avoid too much competition.”

Hoadley describes it as a “false perception”, since NZ's supply would be very small compared to the domestic output of India, “but nevertheless, politically, it's a sensitive issue and even a small amount of competition from what is perceived abroad as a huge dairy producer… It's a kind of compliment that we look bigger than we are, but it's also a liability.

“NZ has been trying [unsuccessfully] to get a FTA for four or five decades… Nevertheless, they are our third-best trade partner. If you work around the edges … digital trade, onshoring special agreements, carve-outs, exceptions and so forth, this takes a huge amount of effort.”

On Friday, McClay and Climate Change Minister Simon Watts signed three Indo Pacific Economic Framework agreements they say will boost investment, grow New Zealand’s digital and green economies and increase trade between New Zealand and the 14 partners, accounting of 40% of the world’s GDP, including India. The agreement focuses on anti-corruption efforts and streamlining labour and tax standards.

Also this week, in India, prime minister Narendra Modi was confirmed for a third term in government with his BJP party, following a seven-stage, weeks-long election exercise involving nearly a billion eligible people. The results saw a slump in popularity for Modi, whose Hindu nationalist policy is seen as divisive.

The election only held up relationship-building insofar as tools were temporarily downed, says McClay, but he didn’t anticipate the results to impact the work they were doing. It appears Piyush Goyal, McClay’s India contemporary in trade, is likely to stick around, but even if he were promoted within Modi’s circles, McClay downplayed any suggestion the relationship would have to start from scratch. His office was working on getting his next visit under way, with the hope of returning “not long after the government is formed”.

McClay is also not keen to put the boot into the previous government for letting the relationship with India founder, after years of earlier efforts by National to improve trade relations. The pandemic had understandably pivoted Labour, and in some ways, the intervening period between National governments had allowed for some changes.

“The lesson is, if you put effort in, there is an opportunity to do a trade deal with India. When I was minister previously, it was harder I think, because they hadn’t done deals with anybody else. Now they have done a number of trade deals and equally they … look at the world and actually want to trade more and also know it needs certainty for its own citizens and business community.

“ [Australia] put a lot of effort in and decided they wanted to get the deal done rather than drifting. Was the Australian agreement perfect? It certainly isn’t. It’s not as broad and liberal as some other agreements Australia has negotiated and signed, but in as far as tariff liberalisation they’ve achieved, particularly in agriculture, food and wine exports, their exporters have a significant advantage over NZ exporters which is why, for instance, you are seeing a lot of Australian lamb in that market now, and a very small amount of NZ lamb, and a 30% tariff at the border.”

Australia’s subsequent championing of being able to secure better trade conditions for its winemakers, is a point not lost on McClay.

“If you wanted to go out and buy the least good bottle of NZ wine, which is still better than any other bottle of Australian wine, you’d face 150% tariff there in that market, 150% more cost when it arrives at their port of entry, than it would elsewhere.

“Australia has that rate coming down quite quickly, we are at a disadvantage. Of course our wine is better than theirs, but it doesn’t matter, even if it is our best bottle of wine… We have to work very very hard and look for a deal that’s good for both sides. And it’s possible.”

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