Fran O'Sullivan: Free trade and naval-gazing

Prime Minister Helen Clark faces a tough challenge in putting New Zealand's case for a free-trade agreement with the United States.

It is a challenge which will inevitably cause this country to reopen debate on a range of thorny issues, including New Zealand's defence stance, its anti-nuclear policy - currently seen as non-negotiable - and its relationship with Australia.

It will be a marathon campaign for politicians and business people alike if this country is to gain greater access to the world's biggest consumer market.

That fact is clear from the raft of in-depth discussions that Clark has held with Washington's power elite, and other discussions which the New Zealand business delegation held with influential insiders during the Prime Minister's US visit.

Clark's forthright nature, intelligence and readiness to commit to the war on terror, at least as far as the Afghanistan campaign, have impressed everyone from President George W. Bush and his cabinet through to policy wonks, influential American business organisations such as the Chamber of Commerce and Washington lobbyists.

A new platform from which to re-establish a mutually beneficial relationship between the two countries has been built. It is now time for the heavy lifting to get New Zealand's case to the next stage - a meeting between US Trade Representative Bob Zoellick and Trade Negotiations Minister Jim Sutton next month.

Before the terrorist onslaught against the US, Sutton and his advisers had believed there was a real chance that New Zealand's case for a free-trade agreement could be disengaged from the ill-will caused by the long standoff over this country's anti-nuclear policies.

This belief had to some degree been reinforced by the diplomatic stance taken by the US Embassy in Wellington in particular; a free-trade pact with New Zealand was seen as a useful backup stratagem to get renewed focus on global free trade, if last year's moves to launch the new round at the World Trade Organisation meeting in Doha had ultimately proved unsuccessful.

The WTO's new round was given approval to proceed, and New Zealand lost its first bargaining chip for a free-trade pact.

New Zealand gained another chip when it sent special forces soldiers to work alongside the US in Afghanistan. But the war on terror had already tipped the balance on the political negotiating board.

As Clark now knows first hand, realpolitik dominates the Washington agenda in this post-September 11 climate.

With the US firmly back in the role of global policeman, there is little room for equivocation over the nuclear issue.

Despite New Zealand's military commitment to Afghanistan, it remains firmly in the "friend" category, rather than being classed as a trusted ally of the US.

The US position is that it cannot afford to be seen as tacitly approving New Zealand's anti-nuclear stance when it might need to put its aircraft carriers (some of which are nuclear-propelled) to port anywhere in the world in the event of terrorism.

That position was affirmed in discussions which Clark held with Pentagon chiefs, Secretary of State Colin Powell, and National Security Adviser Condoleeza Rice.

Although the nuclear issue is a major caveat to negotiations on a free-trade pact, Clark was able to get discussions moved to the next stake - the Sutton talks.

Her ministers must convince Zoellick and his officials that there is an overwhelming strategic and economic case for New Zealand's suit to proceed that far outweighs US domestic political factors such as the nuclear position and opposition from powerful agricultural interests.

Unfortunately for Sutton, who has the job of moving New Zealand's case along, many other countries are chasing the same free-trade pact prize.

New Zealand is yet to officially join a queue which Zoellick is forming for talks on free trade. Australia is already in line, but still prefers to go it alone rather than pursue a joint agreement with its partner in the Closer Economic Relations (CER) agreement. Inevitably, Australia's stance will cause problems.

Rules of origin which try to pinpoint the country where goods originate would be difficult to police if Australia cemented a separate deal with the US, because both CER partners have, to some degree, merged their economies through their own free-trade pact.

Officials also see a risk that New Zealand could lose out to Australia in the competition for foreign direct investment.

For any free-trade agreement to proceed unencumbered, the President still needs to gain trade promotion authority, the ability to forge agreements which Congress can approve or decline, but not amend.

Congress narrowly approved this measure by one vote late last year. But the Democrat-dominated Senate has yet to give its approval to the legislation.

In the past few weeks, Bush has made a number of protectionist moves, including the Farm Bill which increases rural subsidies, limits on softwood lumber imports from its Nafta partner, Canada, and the controversial steel-tariff decision.

In the US, these moves are seen as necessary bargaining chips which Bush has to play to get trade promotion authority through the Senate, as well as moves on labour and environmental measures to offset the effect of liberalising particular domestic markets.

The President is still expected to gain trade promotion authority.

Opinion is mixed on whether this will go through this month or next month or much later in the year, nearer Congressional elections.

New Zealand has been given a message to press ahead regardless, but the reality is that any worthwhile trade talks are probably still geared to the passage of Bush's trade promotion authority.

* Fran O'Sullivan joined the business delegation to the US. She is a vice-president of the NZ-US Council.