NZ-India FTA: Myth vs fact

Analysis: The text of the New Zealand-India Free Trade Agreement (FTA), tabled in the New Zealand Parliament last week, is currently with the Foreign Affairs, Defence and Trade Committee, which will accept public submissions until May 17, 2026.

Parliament must pass enabling legislation before the agreement enters into force.

But provisions around the investment target and immigration are proving divisive and polarising, with coalition partner New Zealand First withholding support, and the opposition Labour Party providing tentative backing, for the agreement.

Chapter 9 of the FTA obliges investors from New Zealand to promote foreign direct investment into India with the aim of scaling up that investment to NZD 33 billion within 15 years.

This raises the question (posed by Leader of the Opposition and Labour Party leader Chris Hipkins in a recent conversation with this columnist) as to where this capital will come from.

First and foremost, the FTA does not commit New Zealand taxpayers to new spending. It is crucial to note from the start that the deal does not envisage a spending commitment from the public purse.

Governments lack the mandate or authority to compel exporting companies to undertake foreign direct investment or allocate capital to foreign markets.

But governments can steer, influence and incentivise foreign investment. Private firms, unlike state-owned enterprises, operate on the basis of commercial viability.

Governments can leverage diplomatic influence to boost commercial ties. Ministers follow up by leading trade missions and facilitating market entry.

Trade Minister Todd McClay and his Indian counterpart Piyush Goyal laid the foundation for the NZ-India FTA by doing just that. Their ground work set the stage to meet the goals envisioned in Chapter 9 of the FTA.

The rhetoric around a unilateral clawback provision for any failure by New Zealand to meet the investment target of $33 billion is not matched by the text of the FTA.

As per Article 9.9 of Chapter 9 of the FTA, an Investment Committee reviews progress in achieving the investment commitment undertaken by New Zealand.

The first  review is held within five years after the agreement enters into force, and is accompanied by subsequent follow-up reviews. A final review takes place 15 years after that.

Any unforeseen circumstances materially impacting progress towards achieving the investment target are factored into the assessment by the Investment Committee. They include a “global pandemic, war, geopolitical disruptions, financial crisis or sustained economic underperformance, or other similar factors beyond New Zealand’s control.”

Should New Zealand fail to achieve the investment target, the FTA provides for an amendment of the terms of the trade deal by mutual agreement, and “where applicable, finding a mutually agreed solution between the parties.”

If the remedial process provided under the agreement yields no results, New Zealand has the option to seek a “grace period” of three years to achieve the investment objective.

If the grace period lapses, India is entitled under the FTA to “undertake proportionate remedial measures to rebalance the concessions provided to New Zealand by India.”

The remedial measures are reviewed every three years until those measures “have ceased to apply.”

In other words, the clawback provision contained in the FTA is an open-ended process devoid of teeth and designed  to contain potential damage to bilateral ties between the trading partners.

The hysteria over immigration

The FTA’s provisions on immigration have provoked racial animus, fostered discriminatory rhetoric and generated divisive debate.

The agreement provides for up to 1,667 temporary employment entry visas per year to fill specific skills shortages, a working holiday scheme for 1,000 youth from India annually, and allows international students from India to work while studying in New Zealand.

That has prompted New Zealand First’s Shane Jones to warn New Zealanders of an impending “butter chicken tsunami.”

There is also concern that increasing student numbers under the FTA will add to pressure on local infrastructure in housing and healthcare.

Further, the FTA has fueled the perception of an overlap with immigration policy, that it alters immigration settings by circumventing public consultation and policy debate.

But these are three-year visas capped at 5,000 at any one time.

Of the 1,667 temporary entry visas per year on offer, 1,466 are set aside to fill general skills shortages across the board. The remaining 200 places per year cater to culturally specific skillsets in yoga, cuisine, music and ayurveda.

These arrangements offer no automatic pathway to residence. The FTA does not let in immigrants through the back door. There is no disguised promise of residence or citizenship lurking in its provisions. The entry visas are non-renewable, and immigration rules apply for those students who want to stay on beyond their tenure of study.

Trade Minister McClay has confirmed the FTA aims to lift “incomes for Kiwis” and is not about “importing labour from India.”

Winston Peters says the 5,000 entry visas will swell to 25,000 when spouses and children are included.

The work visa applies to principal visa holders only. Immigration rules apply to family members. It’s up to the visa holders to support their dependents via existing visa regimes.

The alarm over the number of Indians entering New Zealand is of no consequence  when seen against current and past annual migration levels from other parts of the world.

More Indian students entering New Zealand under the FTA must be welcomed as a positive trade-off for the benefits accruing to Kiwi businesses gaining market access to an economic powerhouse, with a growing middle class consumer market, that India offers to its trading partners.