TCS Daily

New Zealand Has a Government, But the Rest is Uncertain

By Charles Finny - October 28, 2005 12:00 AM

New Zealand now has a new Government. Prime Minister Helen Clark remains Prime Minister, but what a strange Ministry she is now leading. Probably her best performing Minister, someone who consistently delivered the goods for New Zealand, Trade Minister Jim Sutton is to stand down at the end of the year; and the key Foreign Minister job has gone to the populist anti-Asian Winston Peters. Moreover, the Government contends that it is possible for the Foreign Minister to sit outside Cabinet.

Many observers are confused and uncertain about what the future holds. Many people see the New Zealand Government -- propped up by a formal coalition agreement with a one person Party, two confidence and supply agreements with two other parties, and an agreement to abstain on confidence and supply from the Green Party -- as inherently unstable. And set against the backdrop of an increasing current account deficit, a dollar that is unsustainably high, the certainty of interest rate rises, and a slowing economy, it is little wonder that today the country's most respected business confidence survey has shown the biggest drop in confidence in 17 years.

News is not all bad for business. The negotiations that have brought this strange Government together have seen agreements to review the proposed carbon tax and a promise to review corporate tax rates. The Prime Minister listened to business opinion and has ensured that many of the most economically damaging policies being promoted by the Green Party have not been adopted. These are all developments which have strong business support. If the carbon tax is dumped and if corporate tax rates are reduced, then business confidence is likely to be restored.

Business will also need to be satisfied quickly that Jim Sutton's removal from Cabinet at the end of the year does not signal a change in New Zealand's trade policy direction. When he first assumed the trade portfolio in late 1999, Sutton was facing a difficult time convincing his colleagues that the anti-globalisation movement was wrong. He succeeded in this work. He oversaw the completion of an FTA with Singapore, the launch and negotiation of two other free trade agreements - with Thailand, and with Chile, Brunei and Singapore (The Trans-Pacific Strategic Economic Partnership). He also launched an FTA negotiation with China, with Malaysia, and with ASEAN.

Prior to becoming Foreign Minister, Winston Peters and his Party voted against the FTA with Thailand, and their official election position was one of opposition to the FTA with China. Since becoming Foreign Minister, Peters has sounded a little confused about the issue, but appears to be saying that he can still vote against the FTA with China because his portfolio is restricted to foreign policy -- not trade Policy. This is a concern.

Peters is more upbeat on the importance of the relationship with the US. His comments on a desire to improve relations with the US are encouraging, and a necessary pre-requisite to New Zealand making it onto the US FTA priority list. Unfortunately, the anti-Americanism that was on display by some in the New Zealand Labour Party during the recent election campaign suggests that Peters will be kept on a short leash by the Prime Minister on dealings with the United States.

Some of the positions New Zealand is taking in the WTO and in its FTA negotiations have been troubling. The New Zealand-Thailand Closer Economic Partnership is by many measures sub-standard. But some of this "sub-standardness" was inherited from the Australia-Thailand FTA. The Trans-Pacific Strategic Economic Partnership (negotiated by the very capable David Walker) is much better, but it has yet to survive passage through the New Zealand Parliament.

In the WTO New Zealand used to be known for taking ambitious positions -- and not just in agriculture. But looking at the proposals currently on the table the ambition seems to have gone. As a result New Zealand is now rarely found as a key player in the small groups that in reality drive the WTO process. Crawford Falconer on Agriculture, Bruce Cullen on Rules, and Vangelis Vitalis on Environmental Goods (and to a lesser extent Environmental Services) would be the only three New Zealand Government representatives still punching above their weight in the WTO.

This all means a big challenge for New Zealand's new Trade Minister Phil Goff. And to make things more difficult it is possible that Goff will take over from Jim Sutton at a time of potential crisis in the WTO system (unless such a crisis is averted at the WTO Ministerial Meeting in Hong Kong at the end of the year). Goff is very capable. He has it in him to be a future Prime Minister and he was a very good Foreign Minister. It would be great to write in three years time that New Zealand has completed high quality comprehensive FTAs with China, Malaysia, ASEAN and Hong Kong, that negotiations have been launched with the US, Japan and Korea, and that New Zealand was again seen as being at the cutting edge of the global trade policy process. To achieve all this, Goff is going to have to shake things up and conduct an early reassessment of where New Zealand is heading with its current policy settings. Good luck Phil Goff and good luck New Zealand.

The author is CEO, Wellington Regional Chamber of Commerce.


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