Politics

Roadblocks ahead for Russia FTA

The Labour-New Zealand First coalition agreement includes a controversial pledge to “work towards” a free trade deal with Russia and its custom union partners. What have officials said about its prospects and how likely is a deal? Sam Sachdeva reports.

Among the more curious provisions in the coalition deal between Labour and New Zealand First was the second-last of the incoming government’s “coalition priorities”, buried on the seventh of eight pages.

Under a section titled “Other” came a commitment to “work towards a free trade agreement with the Russia-Belarus-Kazakhstan Customs Union”.

With free trade talks with Russia and its partners put on hold since 2014, following the country’s annexation of Crimea, the push to resume talks appears to have raised eyebrows both at home and abroad.

So what is driving the push for a Russia FTA, what are the benefits and obstacles – and how likely is it to happen?

The previous National government started trade negotiations with Russia in 2010, before suspending talks when it annexed Crimea after Ukrainian president Viktor Yanukovych was ousted by a revolution.

Most Western countries imposed targeted financial and economic sanctions against Russia following the annexation.

An MFAT briefing on the Russia relationship, provided to ministers last November and released to Newsroom under the Official Information Act, notes that New Zealand was not among those as it was stymied by the lack of a UN Security Council mandate due to Russia’s veto power.

The country had instead “used other means to signal concern at Russian violation of international law” – primarily by calling a halt to the FTA negotiations.

However, Foreign Affairs Minister Winston Peters has consistently called for a free trade deal with Russia since the conflict, questioning in 2015 whether New Zealand was benefitting “politically or economically” from a lack of engagement with the country.

“Not actively trading with Russia hasn’t altered Russia’s foreign policy, so it really is a time to give trade a chance.”

“You’ll find for some politicians on the more populist side, the way that the Western liberal democracies have tended to respond to Russia might be seen as a bit too strong.”

– Robert Ayson

His affinity with Russian officials stretches back even further, to his first stint as Foreign Minister in Helen Clark’s Labour government; a 2006 cable from the US Embassy in Washington released by Wikileaks noted that Peters and Russian Foreign Minister Sergey Lavrov “reportedly hit it off” during a visit to Russia.

With personal relationships often as important as policy to Peters, the strong and enduring connection between the pair may be a key factor in his desire to see an FTA completed.

Robert Ayson, a professor of strategic studies at Victoria University, says while it’s difficult to pin down the reasons for Peters’ appreciation of Russia, he is joined in his views by similarly styled politicians such as Britain’s Nigel Farage and United States President Donald Trump.

“You’ll find for some politicians on the more populist side, the way that the Western liberal democracies have tended to respond to Russia might be seen as a bit too strong.”

Then there is Peters’ longstanding antipathy towards China. In the past, he has accused New Zealand of “swapping a 20th century imperial economic arrangement with Great Britain for one in the 21st century with China”.

While he has toned down the rhetoric in government – going so far as to accuse the West as being too tough on China over issues of freedom – he may see a free trade deal with Russia as guarding against an over-reliance on the Chinese market.

Obstacles for Kiwi exporters

Dairy and beef exporters are among those who could benefit most from a thawing of the FTA freeze.

According to the MFAT briefing, Russia is the third-largest importer of dairy products, behind China and the US, the largest importer of butter, and the seventh-largest importer of frozen beef.

Kimberley Crewther, executive director of the Dairy Companies Association of New Zealand, says the organisation is keen for the Government to pursue a deal with Russia as part of its wider free trade efforts.

“We support it as part of an ambitious trade agenda for New Zealand, which also seeks to negotiate other FTAs ... it’s good that it’s there [in the coalition agreement].”

With Russia placing tariffs of up to 15 percent on butter, cheese, and other dairy imports, Crewther says a free trade deal could make a significant difference for Kiwi exporters.

Then there are the country’s non-tariff barriers which present their own obstacles. Crewther says the biggest hurdle has been a requirement that dairy facilities be audited by Russian officials before exports can begin.

That’s backed up by the MFAT briefing, which says new entrants in the meat, dairy and fish industries have all suffered from a lack of access in recent years.

“Despite repeated invitations since 2013, Russian officials have not yet scheduled a visit to New Zealand to undertake such an audit [of industry controls].”

New Zealand beef and beef offal imports have been banned since February 2017 due to claims of banned substances, while the exports of apples and stonefruit are “effectively prevented” by regulations in place.

The briefing also mentions the tendency of Russian authorities to “apply sanitary and phytosanitary restrictions in excess of international norms”, which prove difficult to remove once they are in place.

Most Fonterra dairy products were barred from the country between 2013 and 2016, following “unfounded” concerns about botulism contamination of whey protein concentrate. While some restrictions were lifted in 2016, others still in place have stopped the export of Fonterra cheese.

In addition, the briefing notes that New Zealand beef and beef offal imports have been banned since February 2017 due to claims of banned substances, while the exports of apples and stonefruit are “effectively prevented” by regulations in place.

Stephen Jacobi, executive director of the New Zealand International Business Forum, says the problems with border checks are a reason for, rather than impediment to, a free trade deal.

“All of this is just part of the value proposition for doing so.”

Jacobi points to the FTA with China, which replaced onerous meat access protocols with more expedited arrangements.

“To get there requires a relationship. I see that as an opportunity – that’s why it’s [a Russia FTA] still a good idea.”

EU over Russia

However, there are a number of obstacles to any progress – most notably, the Government’s hopes for a free trade deal with the European Union, which still has sanctions in place against Russia.

The MFAT briefing says the EU will remain “a much more significant market for New Zealand” taking around 12 percent of our total exports, as opposed to 0.6 percent for Russia.

The inclusion of the Russia FTA in the coalition deal has already caused some European disquiet, with the NZ Herald reporting EU Ambassador Bernard Savage had told a private briefing any thaw would be seen in a “very negative” light.

National trade spokesman Todd McClay says he is concerned the coalition agreement may be behind a delay in the EU officially launching negotiations with New Zealand.

“I’d be extremely concerned if New Zealand First and Labour prioritising Russia is some of the reason why we didn’t see progress.”

The MFAT briefing provides some counterbalance to this argument, noting a “significant resumption of bilateral economic and trade discussions” between Russia and EU states in the last year, as well as between Russia and EU FTA partners, such as Vietnam and Singapore.

“I don’t think we could see this as a position that the Ardern Government as a whole is running with front and centre – it may be there in the coalition agreement but it’s not clear it’s a priority.”

– Robert Ayson

McClay suggests that may be officials being “diplomatic” with the new Government, while Jacobi says the views of Western partners such as Australia, the US and the EU will hold more weight.

Jacobi: “We have competitors who will watch what we are doing and be very happy to exploit anything we do: the European dairy industry will take note, the US dairy industry will do that.”

That may explain the approach of Peters’ Cabinet colleagues. Prime Minister Jacinda Ardern has publicly confirmed the EU FTA, and not Russia, is “top of our agenda”, while Trade and Export Growth Minister David Parker, who was unavailable for comment, has hardly signalled any meaningful interest to date in making progress.

Ayson believes the upsides of any FTA are far outweighed by the downsides, with the EU “pretty firm” in its position and Russia not showing any inclination to change.

“I don’t think we could see this as a position that the Ardern Government as a whole is running with front and centre – it may be there in the coalition agreement but it’s not clear it’s a priority for the current government or MFAT.”

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