US trade deal to benefit NZ

By GREG ANSLEY in Canberra

New Zealand could win some gains from Australia's free-trade agreement with the United States despite the sidelining of Wellington's bid to open negotiations on a similar pact with Washington.

A new study of the impact of the yet-to-be-signed agreement suggests New Zealand could benefit from its significant holdings in the Australian dairy industry and indirectly through the diversion of Australian exports from other markets to the US.

Companies in the Fonterra fold were specifically identified as likely beneficiaries of the pact in the analysis produced for the Australian Government by the Centre for International Economics in Canberra.

The study, which predicts a A$6 billion ($6.9 billion) boost to Australia's gross domestic product in the first decade of the agreement, was released as signs appeared in Washington of strengthening congressional support for a deal that has been labouring under an election cloud in the US.

Although the deal faces strong opposition on several fronts in Australia - a sceptical Labor Opposition describes the forecast gains as "modest" - the political ground seems to be shifting away from moves to block key elements in Parliament.

The National Farmers Federation, previously furious at the treatment of agriculture in the final agreement, now supports its ratification, and a serious threat to sabotage it could backfire as Australia also heads towards an election.

The agreement is the subject of two parliamentary inquiries, with enabling legislation expected to reach Parliament in August.

In broad terms, the CIE study predicted a total GDP boost for the Australian economy of A$60 billion in present dollar terms over 20 years, with the most significant gains coming from liberalisation of investment.

Australia's A$3 billion-a-year dairy industry, in which New Zealand holds a major stake, is expected to reap significant gains despite failing to come close to the access it sought, and with no prospect of transition to free trade.

At present, US tariffs keep Australia's share of the American market to almost invisible levels, running at about A$130-160 million a year and comprising less than 5 per cent of total dairy trade.

Under the free-trade agreement, bilateral access to US tariff quota markets will expand by 27,350 tonnes of dairy products from the present 11,908 tonnes, including 9750 tonnes of cheese, 4100 tonnes of milk powder and 1500 tonnes of butter.

"The benefits of expanding trade to a high-value, stable market will be spread among a number of dairy companies and across several dairying regions," the study says.

Among the firms cited as potential beneficiaries are Bonlac Foods, 50 per cent controlled by Fonterra, and New South Wales' Bega Cheese and Western Australia's Peters & Brownes, both part of Australasian Food Holdings, in which Fonterra is a major shareholder.

Bonlac general manager Bruce Donnison told CIE researchers the free-trade agreement would provide opportunities for all dairy companies. His company had the capacity to increase sales of milk powders, butter and cheese.

Bega Cheese said the pact was a breakthrough for bulk suppliers of commodity cheeses, and it would look at developing a branded product for US supermarkets.

The CIE study also says Australian exporters will steer away from markets such as north Asia and the European Union to focus on the lucrative American market.

Australia's exports to the US were estimated to rise by about A$3.35 billion, but total exports would increase by a smaller A$2.77 billion - suggesting a A$582 million diversion to the US.