Wednesday, April 26, 2006

Fran O'Sullivan: Long road to free-trade deal

Phil Goff acquitted himself well in his first major outing in Washington with the dual trade and defence portfolios.

But there's a long way to go before the upbeat atmosphere around his visit translates into the sort of action that will finally get New Zealand into the United States' negotiating queue for free-trade deals.

His political opponents, like National Party foreign affairs spokesman Murray McCully who, with party leader Don Brash, was also along waving the flag in a rare display of bipartisanship abroad, say it will take a five-year project to restore NZ's standing to the level at which a free-trade deal becomes a certainty.

What is clear is that the Bush Administration still views its trading relationships through a bipolar prism.

Each bilateral or regional deal its trade negotiators have cemented or have in front of them has either a major economic aspect or a foreign policy or national security rider - frequently both.

That's what makes it hard for a small country like New Zealand to develop a compelling case when it does not have a large domestic economy and, from a US perspective, chose to be less relevant in security terms when it passed anti-nuclear legislation nearly two decades ago.

From an economic perspective, the US might be our second-largest trading partner - we are 43rd on their list.

But the politicians and diplomats are hanging in: If we can cement a bilateral deal that matches Australia's, there will be a considerable upside for agricultural exporters and service providers who would be able to bid for valuable US Government contracts.

It would also restore some trading imbalances which have arisen since Canberra bagged its deal.

Brash was right to say on his return that the nuclear issue remains an irritant. He believes there are few prospects of a free-trade deal and went so far as to say that some members of the Bush Administration have made it clear there will be no deal unless New Zealand's position changes.

Ryan Henry, of the US Defence Department, told Brash the nuclear policy was the elephant under the table.

Protocol dictated that Brash's own appointments were one step down from Goff's. Apart, that is, from Deputy Secretary of State Bob Zoellick, with whom Brash, and National MP Tim Groser, a former World Trade Organisation diplomat, talked global trade politics.

Zoellick, who was formerly US trade tsar, also raised the nuclear issue during his discussions with Goff.

Goff hit the issue head-on in a speech to the inaugural United States New Zealand Partnership Forum. But Brash, perhaps not wanting to be questioned on the issue, declined to go full frontal in his own speech.

Here's my view after taking the pulse of the relationship for a few days.

One, there are still big mismatches in perception over the nuclear issue which need substantial bridging. In New Zealand, we tend (rightly or - in my view - wrongly) to see the anti-nuclear legislation as a policy choice: The defining move by a small Western democracy to put a stake in the ground as part of the drive for a nuclear-free South Pacific.

Goff told the forum the bilateral relationship should not be defined by the disagreement on one particular issue. Rather, we should look at how we can add new value to our relationship in a way that meets both of our needs in the post-September 11 world.

The challenge ahead is to build a relationship based on our common values that looks forward and serves both our national interests in the 21st century.

From a US perspective, a focus on common values is not enough - it's the differences which still tend to define the two countries. Hence the nuclear issue is seen through another lens. The decision to pass legislation banning nuclear-propelled or armed ships from our shores is seen by some as a strike against the post-World War II security architecture which removed an essential strut from a three-way alliance which had served the parties well.

Building the new relationship Goff talks about involves discussions on what the security architecture should be - no easy matter when it was New Zealand which chose to be less relevant in the first place.

Two. The nuclear issue is not a deal-breaker when it comes to getting a US free-trade deal.

But it is the negative New Zealand does not need when it comes to getting in the United States' free-trade queue in the first place. Goff has made play of former US Secretary of State George Shultz's comment that retaliation for the nuclear legislation should not be economic - any sanctions should be security-related.

But that was then. The problem now is that even if support can be gained at Administration level to get New Zealand into the negotiating queue, it might be difficult mustering support on Capitol Hill to get the resulting legislation over the line.

Why would the President use his political capital up when there are bigger fish to fry?

Three. Despite the negatives, there are still opportunities for New Zealand to get into the free-trade queue.

We have some powerful allies, like the US Chamber of Commerce, who are arguing our case and a bevy of well-connected congressional allies. Goff has presented an option for the US to negotiate a quick demonstration deal with New Zealand if Washington runs into difficulties with South Korea and Malaysia, two bigger countries which it is negotiating with for economic reasons.

But some question this reality, suggesting any demonstration effect might be illusory, given the lack of substance in some of New Zealand's recent bilateral free-trade deals which are seen more as social or even fluff rather than models of comprehensiveness.

Four. New Zealand might come through the back door if the WTO fails to deliver a substantive result.

Proposals for an Asia-Pacific free-trade area are expected at this year's Apec meeting if the WTO round either fails or delivers a quick win for public relations efforts.

New Zealand is in the vanguard pushing for this Plan B, which has been given impetus by our Apec Business Council representatives.

It is not the most desirable result given the high priority attached to a multilateral win, but would ensure the US remains relevant in a Pacific where it has been left out of the recent Asian trade architecture.

Five. The new Partnership Forum will over time help to overcome differences in the way of a deal with the US. I can't say anything about the detailed discussions at the partnership forum I attended as a founding director of the NZ US Council. The forum was held under the Chatham House rule.

But my take is that it was an overwhelming positive and can only help to create renewed understandings which will ultimately benefit New Zealand business.

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