Gerald McGhie: Exploring more trade possibilities with Russia

OPINION

The recent suspension of two New Zealand food factories from exporting to our largest seafood market, China, demonstrates the need to maintain and, in fact, increase other historical trade partnerships in addition to breaking into new and developing markets.

In the 1970s and 80s Russia was New Zealand’s seventh-largest market. While it remains important for a range of products, there are opportunities for expansion.

Broadly, the key would be the conclusion of a Free Trade Agreement (FTA) with Russia to provide improved access to markets with lower import tariffs to allow increased sales of primary products. A range of manufactured food and beverages in addition to agri-tech and food processing technology could also be included.

In the 2020 season, the New Zealand apple trade to the Russian Far Eastern port of Vladivostok doubled the volume of the previous year and is a good example of the market potential. Eighteen different New Zealand companies exported a total of 1.1 million cartons, representing around 6 per cent of New Zealand’s total export-grade crop.

New Zealand manufacturers are also active on the Russian market, including Fisher and Paykel Health Care, Waikato milking systems and a number of New Zealand software companies.

Importantly, Moscow offers incentives. In the Russian Far Eastern Advanced Special Economic Zones, the Russian state offers free land and services in special areas. These are conveniently located next to urban centres for the creation of manufacturing and organisational hubs.

A number are near the Chinese border, with road and rail access to China in addition to there being less than 48 hours shipping time to Japan, South Korea and South China ports.

Some New Zealand companies are active in these zones with the ownership of a dairy reprocessing factory, cold store and a grain elevator.

New Zealand was previously in negotiations for a Free Trade Agreement with the Russian Federation, Belarus, and Kazakhstan, known as the Customs Union. Negotiations came to a halt in 2014 as a result of the Crimea annexation.

Closer trade and investment re-engagement by a Western power such as Germany’s Nord Stream 2 underwater gas project with Russia may provide an indication for New Zealand to reconsider how it might consolidate trade with the Russian Federation.

There are competitors. Chile, another southern hemisphere country with a similar primary produce profile to New Zealand, has greatly benefited from increased trade with Russia, exporting NZ$1.15 billion to Russia in 2019 with trade including seafood, fruit, dairy and beverages. The increased trade has resulted in part due to the establishment of a Chile-Russia Intergovernmental Commission which meets regularly to increase bilateral cooperation.

Chile is now seeking to boost trade with the Eurasian Economic Union (EEU) the trading block made up of Russia, Belarus, Kazakhstan and Armenia, representing more than 175m consumers, and aims to sign a Free Trade Agreement (FTA) with the group in the medium term.

The question now is, does New Zealand have the strategic vision and resolve to return to the 2014 negotiations to conclude a mutually beneficial FTA with the world’s largest, in area, country which has significant unused agricultural land and resources?

My experience in 1990-93, at the time of the break-up of the Soviet Union and the emergence of the Russian Federation, was that the Dairy Board representatives and a number of other business people showed a great deal of imagination, flexibility of thought and practice in discharging their functions.

In the process, they determined practices that work effectively with the Russians. Their activities largely ignored the sort of managerialism and PR practices that had come into fashion in the late Soviet era, especially through some of the more prominent Soviet departments.

Since we are already selling our products and services in Russia, why bother with a formal agreement? First, the New Zealand companies currently active on the Russian market trade on an ad hoc basis which can be disrupted by political tensions. However, Russia has a long history of continuing to observe the terms of formal trade agreements between countries even through political tensions.

Secondly, our major southern hemisphere competitor finds official agreements provide a valuable underpinning to trade sales in Russia.

Thirdly, it would be in New Zealand’s long-term interests to develop a strategy to consolidate working practices with Russia in the agricultural sector – the sort of analysis and dedication that has gone into the development of the Chinese market.

The challenge is surely worth accepting.

• Gerald McGhie, QSO, was New Zealand Ambassador in Moscow from 1990 to 1993. He has written extensively on New Zealand-Russia relations.

Source: Read Full Article