WikiLeaks cable: GNZ aims to cool expectations for U.S. FTA

Photo / Mark Mitchell

March 24, 2006
GNZ aims to cool expectations for U.S. FTA

date:2006-03-24T04:51:00
source:Embassy Wellington
origin:06WELLINGTON230
destination:VZCZCXYZ0000 RR RUEHWEB DE RUEHWL #0230/01 0830451 ZNY
CCCCC ZZH R 240451Z MAR 06 FM AMEMBASSY WELLINGTON TO RUEHC/SECSTATE
WASHDC 2568 INFO RUEHBY/AMEMBASSY CANBERRA 4350 RUCPDOC/USDOC WASHDC
0041 RUEATRS/DEPT OF TREASURY WASHDC
classification:CONFIDENTIAL
reference:06WELLINGTON40
?C O N F I D E N T I A L WELLINGTON 000230

SIPDIS

SIPDIS

STATE PASS USTR-BWEISEL
STATE FOR EB/TPP/MTA-MBGOODMAN AND EAP/ANP-DRICCI
C...
?C O N F I D E N T I A L WELLINGTON 000230

SIPDIS

SIPDIS

STATE PASS USTR-BWEISEL
STATE FOR EB/TPP/MTA-MBGOODMAN AND EAP/ANP-DRICCI
COMMERCE FOR ABENAISSA/4530/ITA/MAC/AP/OSAO

E.O. 12958: DECL: 03/23/2016
TAGS: ETRD, PGOV, PREL, NZ
SUBJECT: GNZ AIMS TO COOL EXPECTATIONS FOR U.S. FTA

REF: A. WELLINGTON 40

B. 04 WELLINGTON 217

(U) Classified by Deputy Chief of Mission David R. Burnett.
Reasons: 1.4 (b) and (d).

1. (C) Summary: The New Zealand government is preparing the
public for the likelihood it will not attain free trade
negotiations with the United States any time soon. After six
years of pressing its case for such a deal, the Labour-led
government has turned its attention to agreements in Asia.
The government can be expected to attempt to immunize itself
against domestic political criticism that its failure to
secure an FTA is the result of Labour,s icy relations with
Washington. If pushed, Labour will likely trot out any and
all rationales for why an FTA is not in the cards to deflect
any accusations that it is at fault. End summary.

Into the future
---------------
2. (C) Trade Minister Goff in a March 15 statement implied
that, although New Zealand still desired a free trade
agreement (FTA) with the United States, it probably would not
get one. Goff pointed to the U.S. &strategy of negotiating
with larger economies8 and the limited time before Trade
Promotion Authority expires. It is perhaps the first time
that the government has shared with the public a realistic
appraisal of its chance for FTA talks with Washington. An
aide to Goff said the statement reflects the government,s
recognition that it needs to lower the public,s expectations
) expectations that the government itself had fed until
recently.

3. (C) An FTA with the United States had topped the Labour
government,s foreign policy objectives since it came to
power in 1999. But officials from the Ministry of Foreign
Affairs and Trade have told post recently that they had
accepted the fact that an FTA was not in the works.

Why New Zealand wants a deal
----------------------------
4. (U) Studies predict that, under an FTA, New Zealand,s
merchandise exports to the United States ) already New
Zealand,s second-largest export market ) would increase 51
percent. The New Zealand government,s competitive envy at
seeing Australia sign an FTA with the United States in May
2004 only fueled its desire for a similar pact. Its chief
concern was that the U.S.-Australia FTA could draw down New
Zealand exports to the United States, as well as draw off
U.S. investment in New Zealand.

5. (C) New Zealand,s hopes for improved trade still ride on
the success of the Doha Round. (The Uruguay Round pumped an
estimated $6 billion into the New Zealand economy through
additional export revenue and tariff savings.) But New
Zealand is pursuing a &Plan B8 ) bilateral and regional
trade agreements ) should the WTO talks fall apart. It has
completed free trade deals with Australia, Singapore and
Thailand. It has agreed to a four-way partnership with
Brunei, Chile and Singapore, and it is negotiating FTAs with
China, Malaysia and the ASEAN countries. New Zealand
officials had hoped their pursuit of an FTA with China would
stimulate U.S. concern and interest in starting talks with
New Zealand on a trade deal (ref B).

6. (C) But the Labour government,s desire for an FTA with
the United States is now less a matter of economics and more
a matter of domestic politics. The lack of an FTA with the
United States makes the New Zealand government politically
vulnerable to accusations by opposition parties that it has
weakened ties with both Australia and the United States. An
FTA would show New Zealanders that Americans are not
disaffected by the Labour-led government, which is aware that
it &soiled the waters8 since President Bush took office,
said an international lawyer and former trade negotiator.
Ironically, reaching an FTA with China could call the
public,s attention to the government,s failure to achieve a
U.S. agreement, as well as raise questions on whether New
Zealand's economy would become dangerously dependent on a
much larger, undemocratic PRC.

7. (C) Over the last six years, the New Zealand government
has diligently recruited allies to its quest for an FTA. It
rounded up backing in Congress, with 65 members signing up as
"Friends of New Zealand8 supporting free trade talks.
(Goff's March 15 statement was in response to a letter
written by Senators John McCain and John Sununu encouraging
the President to launch FTA negotiations with New Zealand.)
It lobbied for and won U.S. business endorsement, partly
through the United States-New Zealand Council. John Wood,
who recently ended his term as New Zealand ambassador to the
United States, even made the FTA the defining goal that would
mark his success in Washington (and misled his Prime Minister
over the likely odds the United States would agree to
negotiations). Many New Zealanders consider the
government,s contribution of troops in Afghanistan and
engineers in Iraq as part of the outreach aimed at bringing
the United States into FTA negotiations.

But it has mixed feelings
-------------------------
8. (C) Insiders say that Prime Minister Clark has appeared
sometimes testy in private, expressing exasperation over
Washington,s failure to agree to FTA talks. The government
is sensitive to being perceived as &begging8 and is aware
that it has worn out its welcome with U.S. government
officials on this issue, according to Goff,s aide.

9. (C) But there may be another reason for that testiness,
said a trade economist who has advised the government on its
trade policy. Lurking just under the surface is a
"schizophrenia8 that comes from Clark,s innate discomfort
with free trade and her preference, as a Labour idealist, for
a government-interventionist approach to the economy.

10. (C) Moreover, PM Clark and others in her government worry
about the concessions New Zealand might need to make to seal
a free-trade deal. Among their concerns is a desire to
preserve the government-run system for purchasing
pharmaceuticals, according to the economist. Because of that
desire, Heather Simpson ) the Prime Minister,s chief of
staff, close confidante and a former health economist )
opposes the FTA talks. The New Zealand government would be
hard-pressed to meet likely U.S. demands that it open the
drug-purchasing system to greater competition and choice.
That would be costly, and health care expenses already are
the largest component of the New Zealand budget (ref A).

11. (C) The government also knows that U.S. dairy interests
would defend their turf against New Zealand,s efficient
competitors. New Zealand officials acknowledge that they
stand to gain more from an FTA than the United States. With
very few tariffs, the New Zealand market already is
relatively open. Aside from increased access to the drug and
telecommunications sectors and possibly a wider ban on
parallel imports, the United States has little to gain.

The public,s response
---------------------
12. (C) The New Zealand public accepts as an article of
faith that a deal would boost the New Zealand economy.
However, after so much talk over so many years, many New
Zealanders have become jaded to the prospect, a university
business professor said. Most of the domestic pressure for a
U.S. FTA comes from a small section of New Zealand business
) notably, the dairy cooperative Fonterra. Most of the
country,s businesses are small and rely little on exports.
In addition, both the horticulture and meat industries are
more frightened by the concessions that New Zealand might
make than attracted by the benefits they might reap, an
industry leader said. Only a muted public response, if any,
is expected to the government,s scuttled hopes for an FTA.

13. (C) And, even if there were political repercussions, the
Labour government can always shift the blame to the United
States, the international lawyer said. Goff in his March 15
statement said, &The decision to negotiate an FTA however
rests with the US Administration.8 The Labour government
can blame its anti-nuclear policy and its opposition to the
war in Iraq as reasons why the United States will not engage
in talks. Such explanations are likely to wash with New
Zealand voters, many of whom hold strong anti-nuclear and
anti-Iraq war views. (For this reason, EAP A/S Hill's public
remarks that the United States will make its FTA decision on
economic factors alone were well-timed and very useful.) In
any event, the public largely holds the New Zealand
government blameless for the lack of FTA negotiations,
according to the lawyer. Labour's political opponents also
need to tread carefully. The National Party is mindful that
it may fare no better in securing an FTA should it win the
2008 election, a former diplomat said.

14. (SBU) However, if Australia reaps large gains from its
FTA with the United States, public attitudes could change in
New Zealand.

Comment
-------
15. (C) In the near term, New Zealand government officials
will continue to press us in private meetings for an FTA, but
in a more low-key way. They also will continue to publicly
call for FTA negotiations with the United States while at the
same time lowering the public,s expectations. Post believes
we should stick with our current response, saying that the
possibility of negotiations is not foreclosed. Keeping the
option open gives us flexibility should circumstances change
and make an FTA in our interest ) and deniability should the
New Zealand government pin the blame on the United States.
McCormick