It is often said by those who have a linear view of economic relations, that trade precedes investment. And some might extend this maxim to assert that free trade agreements (FTAs) precede both trade and investment.
However, in India’s case, we have often witnessed investment preceding trade. In fact, prior to the seminal reforms, commonly referred to as the economic ‘liberalization’ of 1991, this was pretty much the playbook of almost any foreign multinational that did business in the Indian market. Most famously, Suzuki Motor Corporation (SMC) took a courageous decision to invest in India (with the Government of India as a Joint Venture Partner) in the early 1980s, when India was very much a closed economy. Fast forward to the present day, and Suzuki’s Indian entities are privately owned, Maruti Suzuki (MSIL) is listed on the Indian stock market, and the brand still accounts for almost 50 percent of passenger car sales in the country.
In the words of Mr Osamu Suzuki, who was president of his company at the time, he took this bold decision as SMC was ranked twelfth among the twelve Japanese car makers at home, and the only way to grow was overseas — in a market like India.
The above example seeks to not only disavow well-meaning observers from seeing FTAs as a prerequisite to engaging with India, but also illustrate how smaller partners sometimes have the most to gain. And they do.
But regardless of what your personal belief might be, it is undeniable that dialogue precedes trade, investment — and certainly FTAs. Said dialogue, therefore, must not be tethered to FTA negotiations either, as this would reduce the spirit of an expansive exercise to perhaps transactional concessions on an array of tariff lines.
FTAs might be seen as the obvious and preeminent mode of international economic engagement for the Kiwi reader, however this is not necessarily true for the Indian reader of this article. While FTAs have delivered rewards to Kiwi industries and the economy alike, they have not quite delivered on their promise to either Indian exporters or traders. Understandably, this created an FTA hesitancy among a wide section of stakeholders in India. An unfortunate outcome of this has been that the FTA talks, in some ways, have held hostage the shared economic interests of New Zealand and India — with talks barely progressing outside of the FTA frame.
Having said this, India is firmly in the pro-trade camp, with new trade targets being set by PM Modi — and impressively surpassed by careful policy reform and government support — to set a new merchandise export record, exceeding USD 400 billion.
Thinking (and talking) outside the frame
A fact unbeknownst to (or forgotten by) some observers is that both countries had signed the New Zealand and India Trade Agreement (NZITA) back in 1986. The NZITA is sufficiently broad and forward-looking to enable a wide variety of conversations around bilateral trade and investment, while being specific enough to provide actionable pathways. Article VII of the NZITA, for instance, specifies a Joint Trade Committee (JTC) that is required to meet “once a year, or as often or as may be mutually agreed, alternatively in India and New Zealand”.
In recent years, the JTC was subsumed by the bilateral and regional FTA negotiations that failed to reach fruition.
Meanwhile, India has shrugged off its past hesitancy to trust friends in inking trade pacts: most recently, the CEPA (Comprehensive Economic Partnership Agreement) with the UAE and the ECTA (Economic Cooperation and Trade Agreement) with Australia.
Both exhibits above are not intended to make a case for an FTA-only engagement with India. Instead, they are evidence that convergence of Geo-strategic and Geo-economic elements in a relationship does create a compelling case for deeper bilateral ties for both partners.
Aligned with this holistic approach, India has articulated a desire for a more broad-based relationship with New Zealand that incorporates security, people-to-people ties and culture as well as economics. Within economics, the relationship has potential far broader than just trade in goods. A modern economic partnership can be built, based on mutual benefit, leveraging the Atmanirbhar Bharat programme, encompassing services and investment. The frame could, therefore, be expanded to include tourism, education, business facilitation and people-to-people relations at the centre. Everything that is needed to support these goals — including air services and visas — would logically inform the conversation.
Formalising the frame
To liberate the discussions from the confines of either FTA negotiations, or a purely multilateral (read WTO) framework, an “Economic Partnership Strategy Cycle” has been mooted. This programme would essentially amount to the resumption of the JTC’s annual dialogue under the 1986 NZITA, while including private-sector participants as well.
The planned annual programme would consist of three key intertwined components: an India Market Research Agenda; an annual Committee (that agrees to the “India-New Zealand Economic Dialogue” or INZED action plan); and an annual planning and budget cycle by public and private sectors.
The JTC would hold the INZED in March/April each year, and deliver an Action Plan in time for government agencies and companies to incorporate into their planned outcomes and budgets.
If this annual process is allowed to flourish with support from both sides, there’s every reason to believe it will deliver results similar to FTAs from a Kiwi perspective.
The time is ripe to reconvene the JTC, as a public-private vehicle within the next few months. India will remain focused on sustaining recent economic and trade records — and bettering them. This will require exploring new partnerships, and doing more with existing partners. New Zealand can be an important partner for India in achieving both.
India is assuming the position of Chair of G20 in December this year, an honour that will only add to the already energetic pace of India’s diplomatic engagements.
If this opportunity is allowed to lapse, it is uncertain when the next window will open. We do recall the NZITA was signed in 1986 — that’s close to four decades ago.
- Asia Media Centre