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Trade deals: India exploring renewed negotiations with New Zealand, South Africa for new FTA deals

Mint | 26 June 2024

Trade deals: India exploring renewed negotiations with New Zealand, South Africa for new FTA deals

by Dhirendra Kumar

New Delhi: With a view to strengthen its economic ties and enhance its trade relationship with New Zealand and South Africa, India plans to soon start new free trade agreement (FTA) discussions with these nations, two officials aware of the matter told Mint.

The strategic move is part of India’s broader effort to diversify its trade partnerships and reduce its dependency on traditional markets.

The scope of India’s trade ties with New Zealand and South Africa, which is a key constituent of the South African Customs Union (SACU), is huge as India already shares robust trade relationships with both the countries.
Also Read: India and Russia-led Eurasian Economic Union to start FTA talks soon

A comprehensive FTA with these countries would further help India diversify its trade relationships and strengthen its position in the global economic order.

Ready for trade

“New Zealand has reached out to us for FTA talks. We are taking it with priority," said one of the officials cited above, requesting to remain anonymous.

“The geopolitical landscape has shifted, with most developed economies now keen on forging trade alliances with India, recognizing it as one of the fastest-growing major economies,” the official added.

India is the world’s fifth-largest economy in terms of nominal GDP and the third largest by purchasing power parity (PPP).

“We are [also] exploring the possibility of initiating trade negotiations with South Africa, a key member of the South African Customs Union (SACU), to broaden our trade portfolio," noted the official.

The commerce ministry also held a stakeholder consultation last week to discuss the way forward for holding discussions on new FTA deals.

New Zealand’s trade is primarily centered around agricultural products, education services, and technology.

The country exports dairy products, wool, and fruits to India, while India exports pharmaceuticals, textiles, and information technology services to New Zealand.

Meanwhile, the trade relationship between India and African nations has been growing steadily, with India serving as a major importer of raw materials and exporter of manufactured goods to the region.

Queries emailed to commerce secretary Sunil Barthwal, spokespersons of commerce ministry, New Zealand High Commission and South African government remained unanswered till press time.

A mix of options

“Until 2015, India was negotiating a comprehensive FTA with New Zealand, but the talks were paused. Both countries then shifted focus to negotiating the Regional Comprehensive Economic Partnership (RCEP) agreement. Now that India has exited RCEP, negotiations with New Zealand can potentially resume,” said Ajay Srivastava, founder of Global Trade Research Initiative (GTRI).

"Two issues that dampen India’s enthusiasm [for an FTA with New Zealand] are the modest trade volumes and New Zealand’s request for tariff cuts on agricultural and dairy products," Srivastava added.

India has already signed FTAs with several countries, such as Japan, South Korea, Australia, and the European Free Trade Association (EFTA) countries in the past few years. These deals have facilitated increased trade flows, investment, and economic cooperation between the signatory countries.

New Delhi is also negotiating FTAs with Oman, and economic blocs Asean and the European Union, among others.

“As negotiations are underway with countries like the UK, the US, the European Union, Peru, etc., it is expected that by the end of this year, India may be able to complete or be near to completing an FTA with major economies except China," GTRI’s Srivastava said.

Experts emphasize the importance of direct engagement with South Africa to facilitate effective bilateral trade discussions.

“As a crucial member of the Southern African Customs Union (SACU), direct negotiations with South Africa are essential for advancing towards a comprehensive trade agreement. Although initial talks with SACU began in 2005, progress has been inconsistent,” said Abhash Kumar, assistant professor-economics at University of Delhi.

Therefore, prioritizing direct engagement with South Africa is essential to overcoming historical challenges and achieving substantial advancements in trade relations, he added.

SACU comprises five member countries—Botswana, Lesotho, Namibia, South Africa, and Eswatini (formerly known as Swaziland).

Trade tally

According to data from the commerce ministry, India’s exports to New Zealand dipped by 1.73% to $538.33 million, while imports from New Zealand dropped by 29.89% to $335.14 million in FY2023-24. Consequently, the total bilateral trade between the two countries decreased by 14.82% from the previous fiscal to $873.47 million.

In contrast, exports to South Africa grew by a moderate 2.7% to $8.71 billion in FY2023-24 from the previous year, while imports saw an uptick of 8% to reach $10.54 billion.

The total trade volume between the two countries for the year amounted to $19.25 billion, reflecting a 2.3% increase from the previous fiscal year.

 source: Mint