This Assignment has been jointly developed with New Zealand’s Ministry of Foreign Affairs and Trade (MFAT), which is the Ministry responsible for trade policy.

Goal: The Government has identified strengthening NZ’s trade and economic relations with India as a priority under its trade strategy.  Ahead of becoming prime minister in last year's election, PM Christopher Luxon said that achieving an FTA (Free Trade Agreement) with India would be a major strategic priority for a National Party government.

"India provides a massive opportunity for New Zealand. There are reciprocal opportunities in a number of areas including foreign direct investment, employment opportunities, educational exchanges, and definitely for trade," Luxon said.

(Source: https://www.interest.co.nz/public-policy/127186/new-zealand-faces-potential- immigration-tradeoff-if-free-trade-agreement-india)

In this assignment, you are to evaluate the potential impacts of an NZ-India FTA, and comment more broadly on NZ’s FTA strategy.

Instructions: Please read thoroughly and carefully.

•   There are five questions in this assignment.  All five are mandatory.

•   Please keep your answers succinct and on-point.  Longer answers will not necessarily get higher marks and in fact, may be penalized. For a 5 mark question, your answer cannot exceed 250 words.

•   For maximum marks, you should refer to models/frameworks we have introduced in the course and draw upon data/graphs/charts where relevant.  You are encouraged to look for further sources on the NZ-India FTA and NZ’s FTAs in general.

•   Data sources and studies must be cited appropriately.   Citations  from  questionable websites will not be credited.  Please use valid sources including and not restricted to government publications,  reports from international organizations such as the World Bank or IMF, reputed journals and periodicals.

•   Diagrams should be neatly and clearly labeled.

•   If you are handwriting your assignment, please ensure that your writing is clear and legible.  Illegible writing that makes it hard for the marker to read is likely to result in lower marks.

•   This is an individual assignment.  Any two or more assignments that look suspiciously similar will result in all students concerned receiving a penalty, or forfeiting marks entirely.

1)  The dairy market in India is highly protected, with the average applied tariff ranging to about 33%.  In an FTA with NZ, NZ will push hard for India to eliminate (or at least substantially decrease) its tariff on dairy.  For simplicity, assume that NZ will push for zero tariffs on dairy.

a)  As a starting point, show the impact of India’s dairy import tariff on the world dairy market.   What  does India’s tariff do to the world price of dairy?   Use  appropriate diagrams where necessary.

b)  If India were to agree to remove its dairy tariff (set it to zero), assuming that it does so for all countries  (not just  NZ),  show the impacts on losses  and gains to various constituencies in India (consumers, government, dairy producers).   Use appropriate diagrams where necessary.

c)  Do you think the NZ-India FTA will encounter political opposition in India?  Explain. (6 marks)

2)  India is a large services exporter, with comparative advantage in IT services. The Indian government will want NZ to make it easier for NZ firms to outsource their IT services to India.

What are the trade offs facing NZ in encouraging outsourcing of IT services to India?

Your  answer  should  reflect  on  gains  and  losses  to  the  NZ  economy  from  such outsourcing, both in the aggregate and in distributional terms (identifying winners and losers).

Use appropriate diagrams where necessary. (3 marks)

3)  India is a high emigration country, with a growing number of Indians leaving India to work in other parts of the world.  The Indian government has indicated that it would like  to  promote  two-way  mobility  of  students,  graduates,  academic  researchers, businesspeople and workers.

Focus on

a)        Students

b)        Graduates

c)        Workers on an employment visa

Discuss the gains and losses to the NZ economy from higher immigration from India in these categories. You should comment on aggregate gains and distributional impacts.

Use appropriate diagrams where necessary. (6 marks)