TCS Daily

A US-New Zealand FTA?

By Charles Finny - May 5, 2006 12:00 AM

I recently attended the first meeting of the United States-New Zealand Partnership Forum in Washington. The Forum brought together eighty business, Government, and academic leaders from both countries to talk about how to take the relationship forward. It was attended by two members of the New Zealand Cabinet and three opposition members of Parliament, including the Leader of the Opposition.

I have come away with the firm view that our second most important relationship (after that with Australia) is in a better state than it was before the Forum. I also see the way forward to building a new relationship, one that will be different to that which existed prior to 1985, but one which will be no less close.

While it is not possible to describe what actually happened during the forum (because of the Chatham House rule) I did have the opportunity to stay in Washington for a day or so after it concluded. I also spent a day on the West Coast of the US talking to some people with an interest in the health of the US-New Zealand relationship. These discussions have continued since my return to New Zealand and they support the conclusion that the Forum has moved us forward in this criticial relationship.

How did this Forum achieve this positive outcome? By allowing a free and frank airing of views, and by forcing a room full of influential Americans to do nothing else than think about the relationship with New Zealand for two days. These are busy people. And Washington nowadays has the feeling of being the new Rome, the heart of a vast empire. All roads lead to it. Our Forum was competing with the Chinese President, a meeting of the world's Finance Ministers, and an important Indian delegation. Many of the Americans I spoke with commented that something has clearly gone wrong with the manner in which New Zealand has been treated along the way, and that the current relationship with New Zealand just doesn't make sense. It doesn't make sense for New Zealand, it doesn't make sense for the United States, and it doesn't make sense for the global political and economic systems.

The conclusion that our relationship needs to be improved doesn't convert automatically into the immediate commencement of an FTA (free trade agreement) negotiation. But it does mean that the US will be reassessing the reasons why such an obvious candidate for an FTA hasn't made the priority list. This rethink has been quick. Two recently senior officials within the current administration Richard Armitage and Randy Shriver have already penned their views for the Wall Street Journal. Within officialdom, a more formalized re-think is in progress. Staff within relevant Government agencies are not talking "if" or "when" but "how" would an FTA be executed? How would dairy and sheep meat be handled? Which senators and congressmen would support the inclusion of "sensitive" products? Would the Democrats vote for an FTA with New Zealand because the AFL-CIO support the agreement (pretty much the only FTA that the influential US union movement does support) or would they mosly vote against as they had in the most recent vote on the Central American FTA (CAFTA)?

For the New Zealand side, the Forum was a useful reminder that the differences we have had with the United States are akin to differnces within a family. A higher standard was being applied to us than would normally be applied to other countries. We had been part of the inner circle. We had been one of the most trusted few really close allies. It was also useful to be reminded that ship visits and the New Zealand precedent are still a live concern with regard to North Asia. The conventionally powered aircraft carrier based in Japan will soon be replaced by a nuclear powered one. The US needs to maintain port access for this vessel in Japan.

For the United States it was useful to be reminded that it is politically impossible to make substantial changes to the policy settings which caused the rift. That given our nature we don't like being told to make changes to our policy. And, perhaps most importantly, the United States now realises that we are beginning to hurt economically because our goods and services don't have as good an access deal for the US market as do goods and services from our prinicpal competitors -- Chile and Australia. They both have FTAs with the US.

Even at the height of our differences, New Zealand's detractors in the US system made it clear that our differences were restricted to the political and strategic arena. They were not to impact on the economic side of the relationship. Now we have the perverse situation that political and security relations are much improved -- the range of military and intelligence contacts is much expanded upon the contacts that were allowed immediately after the original rift. But in the economic arena, New Zealand product was starting to lose marketshare in the US, investment links are far below what one would expect when comparing New Zealand -- US links with Australia-US links. And there is even talk by some observers of disinvestment by the US in New Zealand.

For the both sides there is also the irony in seeing New Zealand close to finalizing an FTA with the People's Republic of China before a negotiation with the US has begun. And if the US side doesn't move faster, New Zealand might be in negotiation with Japan and the EU before beginning talks with the US. This is all clearly the wrong way around.

Beyond the trade and economic, there is clearly joint interest in expanded links in areas such as alternative fuels technology, alternative energy sources, anti-terrorism, and collaborating on important topics such as the future of APEC, and indeed the future of the WTO. These are all incredibly important issues. And it is in everyones interests to see New Zealand and the United States working together in these areas.

The Forum in Washington showed that New Zealand and the United States can sit down and talk frankly about all items on the bilateral agenda. Both sides want to take the relationship forward, and there is no prerequisite for policy change before forward movement can be considered. I am confident that more intense work towards an FTA will be part of this development of the relationship -- but it will stretch across all areas -- including into the military arena. The fact that New Zealand is fighting along side the US, but is not allowed to train with the US, is clearly absurd, and is increasingly seen as such by both sides. Likewise, while we Kiwis may be small we do some things very well. The great work done in Afghanistan by our peacekeepers in winning hearts and minds has not been overlooked by the US. There are important lessons that we can teach, which the US military really needs to learn.

But the new relationship is going to take time to build. On the FTA front, it may well be that we have missed out on the chance to negotiate with the United States under the current negotiating authority. But there are things that can be done, that were part of the Australia-US FTA, which don't need to wait for an FTA negotiation for delivery. New Zealand can achieve the same access as Australia to the US Government Procurement market by joining the WTO Government Procurement Agreement. And the US could, if we ask nicely, grant our business people the improved visa arrangements that have been granted to Australia in the FTA with the US.

I would personally like to see some some runs on the board in the development of the "new relationship" with the United States by the time that the second Forum is held with the United States in 2007. I would be most pleased if those runs included an FTA, but lets not get our hopes up unduly high on this. It is not impossible, but it will be dependent on a whole range of factors -- WTO, other bilateral negotiations (by the US and New Zealand) and the vagaries of an increasingly complex political process in Washington. New Zealand is not a politically divisive issue in Washington. Indeed, one of the real strengths of the Forum was its bipartisan nature. But it may well be that the current administration is forced to focus increasingly inward with respect to trade. An FTA with New Zealand might not prove tactically useful. We shall just have to wait an see how US domestic politics develop.

Finally, I wish to state publicly that a real reason for my confidence in the future NZ-US relationship rests here in New Zealand. Phil Goff, Minister of the Defence, David Cunliffe, Minister of Communications, and opposition MPs Don Brash, Murray McCully and Tim Groser demonstrated in Washington that bipartisanship is the way forward for the relationship back here. There is just too much at stake here for the US relationship to fall victim to short-term political point scoring. Both sides could choose to score points with their core constituencies should they wish. The fact that they haven't yet is extremely positive.

One reason why the wound in US-NZ relationship has taken 20 years to heal is that both sides have frequently taken the view that progress is not possible without there being a change in administration in the other country. Even over the past year I have heard people here musing about whether we might need to wait until 2009 for a potentially more New Zealand-friendly administration to be in place in Washington. I have heard people on the US side ask similar questions about New Zealand. The beauty of bipartisanship is that such considerations can now be discarded. It doesn't matter who is in charge in Wellington or in Washington. There is an equally strong disposition to take the relationship forward. So lets take advantage of bipartisanship. Lets move quickly to get those runs on the board. And when it comes to 2008, let's not have the US relationship as an issue in New Zealand's next election campaign.

Charles Finny is CEO of the Wellington Regional Chamber of Commerce.


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