By Tim Groser

Trade Minister Tim Groser today announced New Zealand and Russia have agreed to begin laying the groundwork for formal commencement of Free Trade Agreement (FTA) negotiations.

The announcement followed a meeting between Mr Groser and his Russian counterpart, Elvira Nabiullina, Russian Minister of Economic Development, in Moscow and discussions last year between Foreign Ministers McCully and Lavrov.

“Russia has agreed to proceed towards a formal trade agreement with New Zealand, subject to a satisfactory outcome of scoping discussions.

“This is a significant step which in the long term could have significant potential for New Zealand businesses looking to expand into the broader European market,” Mr Groser said.

With food imports totalling US$30 billion in 2008, Russia is the world’s fifth-largest food import market and is among the world’s largest importers of meat and dairy products.

Opportunities also exist in the wider agritech sector and in services where tourism and education are growing areas of interest.

“While there is much water to go under the bridge yet, an FTA with Russia and its Customs Union partners of Belarus and Kazakhstan could present a unique opportunity for New Zealand to future-proof its relationship with an emerging economic powerhouse.

“New Zealand’s current exports to Russia totalled NZ$187 million in 2009, which is relatively modest, but there is high potential and the trajectory is positive.”

New Zealand’s exports to Russia grew 267% from NZ$51.0 million in 2000 to NZ$187 million in 2009.

“An FTA could provide a boost to the trade relationship, and provide New Zealand with a significant ‘first-mover’ advantage, which would improve our position in the market relative to our trading competitors,” Mr Groser said.

Officials will now take forward the scoping phase and report back to Ministers within the coming months.

A Joint Statement by Ministers Groser and Nabiullina will be available on the Ministry of Foreign Affairs and Trade website (www.mfat.govt.nz) from tomorrow morning (Tuesday 1 June).

Q&A 

Why is New Zealand interested in an FTA with Russia?

Russia has a population of 142 million and Moscow is Europe’s largest city. Russia offers a wealth of opportunities for New Zealand exporters.  Its food imports exceeded US$30 billion in 2008, making Russia the world’s fifth-largest food import market. There is little question that there is a sizeable potential market for New Zealand’s high-quality products in Russia.

Russia is the 12th largest economy in the world, and has the highest per capita income of the BRIC economies.  From 1999 until the onset of the world financial and economic crisis, Russia’s growth was similar to India and China.

An FTA with Russia could present a unique opportunity for New Zealand to future-proof its relationship with an emerging economic powerhouse. While New Zealand’s current trade with Russia is relatively modest, the relationship is one which has a strong potential, given time.

An FTA could provide a boost to the trade relationship, and improve New Zealand’s position relative to our competitors.

Why is Russia interested in an FTA with New Zealand?

Russia is increasingly looking to the dynamic Asia-Pacific region as a driver for future economic growth.  New Zealand is strategically well placed in the Asia-Pacific region, and as an experienced participant with a history of high quality and comprehensive FTAs, New Zealand is an attractive partner for Russia.

New Zealand and Russia also have essentially complementary economies. As a high quality and reliable source of food production, New Zealand offers real value to the developing Russian market.

What is the status of New Zealand’s trade with Russia? 

New Zealand’s exports to Russia grew 267% from NZ$51.0 million in 2000 to NZ$187.1 million in 2009.  The average annual growth rate over this period was 23.1%.

Does Russia currently impose high tariffs on products of interest to New Zealand?

In 2008, between 10.9% and 27.3% of Russia’s imports from New Zealand are estimated to have entered duty free.  The remaining trade is estimated to have paid duty of between NZ$28.45 million and NZ$39.66 million.

What are the particular areas of opportunity for New Zealand firms in the Russian market?

New Zealand’s exports to Russia, while increasing over the last decade, have not kept pace with the rapid increase in overall Russian imports, particularly of agricultural products (up around 500% since 2000).  With a huge population and a growing sector of wealthy consumers, demand for luxury goods, and in particular high-quality food and beverage products, is high.  This presents an excellent opportunity for New Zealand firms.

Russia’s position as a significant food importer has clear benefits to New Zealand.  Russia is looking to further develop its agriculture sector.  This presents opportunities for New Zealand through exports of our agriculture systems, and through exports of agricultural, forestry and construction equipment.

There are many sectors where significant opportunity in Russia is well matched by capability in New Zealand.  This includes food and beverage, agritech, clothing and specialised manufacturing. A number of services areas, including ICT, education and tourism also offer potential for New Zealand.

Why is New Zealand interested in an FTA with Kazakhstan and Belarus?

Russia, Kazakhstan and Belarus are in the process of forming a Customs Union, with a unified tariff and customs territory.  By 2012, the countries aim to create a single economic space.  The three countries therefore take joint decisions on matters such as free trade agreements.

Kazakhstan and Belarus have a combined population of 25 million and GDP of just under US$200 billion in 2008. Both enjoyed average growth approaching 10% in recent years.  An FTA would present scope to grow New Zealand’s exports from their current low levels (NZ$1.5 million combined in 2008).

What has been the process that has led to this stage in the relationship with Russia?

Positive indications of interest were received from Russia following informal contacts between Minister of Trade Tim Groser and Russian officials late last year, followed by discussions between Foreign Ministers McCully and Lavrov.

Further political-level discussions were then held between Russia and its Customs Union partners Kazakhstan and Belarus on the idea of a trade agreement with New Zealand. Following these positive discussions, the parties decided to start scoping discussions towards a formal commencement of FTA negotiations.

What is likely to happen during these scoping discussions?

The decision by Russia and its Customs Union partners to commence these discussions is a very significant step.  It clearly indicates a political readiness to proceed towards a formal trade agreement with New Zealand, subject to a satisfactory outcome of the scoping phase.

During this phase, the Customs Union countries and New Zealand will look to set out the overall scope and ambition for an FTA and, subject to agreement, the steps for initiating formal negotiations.

Government officials will, in the near future, call for public submissions on a potential FTA.

Original: http://www.national.org.nz/Article.aspx?articleId=33033