O'Sullivan: Business says yes indeed to Nafta vision

By FRAN O'SULLIVAN*

Former Canadian Prime Minister Brian Mulroney has won open endorsement for his Nafta vision from New Zealand's influential business brokers seeking an economic circuit-breaker.

But while business is generally onside for the big-ticket measure - access to the world's richest free-trade pact - the politicians are playing a cautious game.

Joining the North American Free Trade Agreement (Nafta), which cements Canada, the United States and Mexico into a large trading area, has not been on the Government's agenda.

The Government has flagged a bilateral free trade deal with the United States but has yet to achieve the same momentum as our transtasman neighbour.

Prime Minister Helen Clark, still smarting over Australia's decision to drop New Zealand from a joint initiative for a free-trade agreement with the United States earlier this year, is justifiably concerned about the long-standing security standoff between New Zealand and the United States.

Trade Negotiations Minister Jim Sutton is fixated on North America's rampant dairy protectionism and the vocal protests from Labour's Coalition partner, the Alliance.

But both Clark and Sutton need to put the negatives in proportion: aim high and manage the consequences.

The security issue is manageable. But it will require Clark to make the opening call with President Bush. And pull together a strong lobbying team using political assets such as former Prime Ministers Mike Moore (now head of the World Trade Organisation), and Jim Bolger (New Zealand's US Ambassador) to do the Washington rounds.

In Sutton's case, he can take comfort from the reality that dairy protectionism is on the agenda. It is gradually being addressed within the WTO as Australia takes the lead in pushing for Northern Hemisphere agricultural subsidies to be reduced.

The major internal factor Labour must grapple with is its coalition partner. But while the Alliance is deeply protectionist, its concerns are a red herring. Free trade is strongly supported in Parliament and Labour can command a huge bipartisan majority through support from National and Act.

If this Government is to transform New Zealand, it needs to identify a national mission, which is where Mulroney's Nafta vision proves a useful example of how one smaller nation - Canada - was able to better itself through getting access to a huge market.

Management-speak is now commonplace in political, educational and bureaucratic circles: the key players seek to identify a few circuit-breaking initiatives, or "big, hairy, audacious goals" which will transform the economy.

The national conversation has edged along for more than a year, as various ginger groups discuss how New Zealand will become a Knowledge Society. These discussions will culminate next month at the Catching the Knowledge Wave conference in Auckland, co-hosted by the Government and Auckland University.

Contrast this with the mere three days that it took Mulroney to elevate the subject of a free-trade deal with the United States, Canada and Mexico to near-top billing among the few big-ticket measures which would truly transform the New Zealand economy.

His keynote address to last week's Year 2001 - Creating the Circuit-Breaker seminar focused on the transformational effects Canada has enjoyed through membership of Nafta.

The seminar was convened to identify some major challenges and transformational initiatives which would sharpen up the August conference.

The "Government cluster" lost no time in deciding that "Joining Nafta within two years" was a key initiative the Government should take.

Brian Mulroney's view that urgency is paramount if New Zealand is to achieve a free-trade agreement with the United States - either through Nafta or a bilateral deal - is mirrored in Australia, where Prime Minister John Howard's team is swiftly working to exploit the narrow time-frame Bush has available before the Congressional elections kick in next year.

The US President is expected to use Howard's Washington visit in September to announce that a free-trade agreement between the US and Australia is on his agenda.

Despite official denials, Australia played the security card with the US in its quest for a bilateral trade deal by cashing in on the 50th anniversary of the Anzus security pact this year. New Zealand's defence budget and the decision not to replace its Air Force strike capacity have all been ramped up across the Tasman.

New Zealand effectively left the three-power security deal in 1987 when it passed anti-nuclear laws. The US has since declared Anzus inoperative.

Mulroney - who spent time with the Bush Administration before coming to New Zealand last week - says he would not have advised this nation to try for a free-trade deal with Washington if he thought it would be greeted with a straight rebuff: "I would not have come to New Zealand and proposed this if I was told it was not on."

But grandstanding on controversial issues like the Kyoto Protocol, when Bush could not even command Senate support for developed countries to reduce greenhouse gas emissions by 2008-2012, or showboating on areas like Bush's present strategic defence initiatives, was "not sensible," he said.

Many of those in Bush's kitchen cabinet, such as former Secretary of State George Schultz, were around when former Labour Prime Minister David Lange launched the anti-nuclear policies which led to the defence standoff between the two nations.

But that was nearly a decade ago.

To many New Zealanders, the use of the acronym Nafta is confusing.

In August 1963, the New Zealand-Australia Free Trade Area Agreement was signed as the countries sought to reduce protectionism for a small range of commodities. In 1983, New Zealand and Australia put their relationship on a new footing through the Closer Economic Relations Trade Agreement, referred to simply as CER.

As Sutton reminds us, joining Nafta has difficulties, as it excludes dairy, an important sector for New Zealand. The complex legal and dispute settlement procedures were also thorny: "Simply adopting these is not a viable option. New Zealand would want to have our say in this type of mechanism."

In reality, agricultural protectionism is probably the biggest issue for New Zealand and also the biggest opportunity.

New Zealand already has zero subsidies for its agricultural sector - but other nations such as the US, Europe and Japan still maintain heavy subsidies (see table).

If a way can be found to bring New Zealand's largest exporting industry - dairy - into a broader Nafta arrangement, the benefit to the whole economy would be enormous.

It would also be good for the consumers of the United States, Canada and Mexico, who are the chief victims of protectionism.

Grappling with that challenge, instead of the Luddite fantasies of the Alliance, should be Sutton's priority.

* Disclosure: Fran O'Sullivan convened Year 2001 - Creating the Circuit-Breaker on behalf of the co-sponsors, the Herald and Auckland University.