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(Note: the unique message record number (MRN) has been modified. The original MRN was 08 PARTO 000008, which duplicates a previous PARTO telegram number.) 
 
E.O. 12958: DECL: 07/26/2028 
TAGS: OVIP RICE CONDOLEEZZA PREL ETRD PGOV ECON
PARM, EPET, NZ, XV, IN, IR, IZ, KN, AF, CH 
SUBJECT: (U) Secretary Rice's July 26, 2008, Meeting 
with New Zealand National Party Leader John Key 
 
¶1.  (U) Classified by:  Kenneth Merten, Deputy Executive 
Secretary, S/ES, Department of State.  Reason 1.4 (d). 
 
¶2.  (U) July 26, 2008; 3:30 p.m.; Auckland, New Zealand. 
 
¶3.  (U) Participants: 
 
U.S. 
The Secretary 
Ambassador McCormick 
A/S Sean McCormack, PA 
LTG William Fraser, JCS 
DAS Scot Marciel, EAP 
Consul General John Desrocher (notetaker) 
 
NEW ZEALAND 
National Party Leader John Key 
Murray McCully, MP and Foreign Affairs Spokesman, 
National Party Wayne Eagleson, National Party Leader's 
Chief of Staff Elizabeth Halliday, Deputy Director, 
Americas Desk, Ministry of Foreign Affairs and Trade 
(notetaker) 
 
¶4.  (S) SUMMARY:  The Secretary emphasized to New 
Zealand's opposition leader, John Key, that any New 
Zealand opposition to the U.S.-India nuclear agreement 
would be "serious."  On nonproliferation issues, she 
expressed satisfaction with the situation in North Korea 
and concern about Iran's activities.  She described a 
"clearly improving" situation in Iraq, while noting 
Afghanistan's deep poverty meant recovery there would be 
a "long struggle."  U.S. relations with China were the 
best they had ever been, though that country's "wholly 
mercantilist" approach to the developing world was 
worrisome.  Key pledged to continue a bipartisan 
approach to New Zealand's relationship with the United 
States and pressed for a bilateral Free Trade Agreement. 
END SUMMARY. 
 
U.S.-India Civil Nuclear Cooperation 
------------------------------------ 
 
¶5.  (S) The Secretary explained the importance of the 
U.S.-India nuclear agreement and briefly described how it 
would be considered by the IAEA and the Nuclear Suppliers 
Group.  She stressed that the agreement must be approved 
"without conditions."  It was key to the U.S.-India 
relationship, she said, adding that the Indian leadership 
had taken a determined stand in favor of it in the face 
of considerable domestic opposition, and it was important 
for the global nonproliferation regime.  Any vote against 
it by New Zealand, the Secretary warned, would be 
"serious."  Key was unaware of the details of the issue 
and did not express a view on the agreement.  He did 
note, however, that it would be hypocritical of the 
developed world to demand carbon emission reductions from 
countries like India while simultaneously denying them 
the capacity to develop peaceful, civilian nuclear power. 
 
North Korea 
----------- 
 
¶6.  (S) In answer to a question from Key, the Secretary 
said she was "satisfied" rather than "optimistic" about 
the situation in North Korea.  She was gratified to see 
how China had progressed to become an active participant 
in the Six Party Talks, a development she described as 
China's "coming-out party."  The bigger aim, she 
stressed, was a new security mechanism for all of 
northeast Asia, which then might be expanded further 
throughout the region.  Noting that "North Korea will 
sell anything to anyone," the Secretary said the United 
States was satisfied that the DPRK was out of the 
plutonium production business, and now must reveal what 
it had done with the plutonium it had already 
manufactured. 
 
Iran 
---- 
 
¶7.  (S) By contrast, the Secretary continued, Iran had 
not backed off from its uranium enrichment activities. 
Noting recent Iranian missile tests, she said that Iran 
was also improving its delivery capabilities.  Asked to 
explain Ahmedinejad's motivations, the Secretary noted 
Iran's desire to be a player in the region, as evidenced 
by its increased meddling in Lebanon and Palestine. 
 
Iraq 
---- 
 
¶8.  (S) The Secretary described the situation in Iraq as 
"clearly improving":  the Iraqis were taking charge and 
violence was down.  The biggest challenges were 
improving relations between the provinces and Baghdad 
and capacity-building, particularly that of the police. 
She warned against tying the withdrawal of foreign 
troops to a fixed timetable.  Troops should be withdrawn 
as the situation on the ground warranted, rather than 
according to an arbitrary schedule. 
 
Afghanistan 
----------- 
 
¶9.  (S) The situation in Afghanistan, the Secretary 
said, is "not worse, but different."  The Taliban had 
gained some strength, fed by the country's deep poverty 
and Pakistan's inability to control its border. 
Afghanistan would be a "long struggle."  Corruption and 
the drug trade were enormous problems to tackle.  The 
Secretary had high praise for New Zealand's Provisional 
Reconstruction Team in Bamyan, which she described as a 
model. 
 
China 
----- 
 
¶10.  (S) Key asked if the Secretary was concerned by 
China's growing influence and, particularly, its 
checkbook diplomacy.  The Secretary replied that the 
United States had "never had a better relationship with 
China" than it had today.  The Chinese were particularly 
grateful that the President had so firmly resisted 
protectionist responses to China's growth and 
appreciative of U.S. efforts to tamp down separatism in 
Taiwan.  The Secretary said that, as long as the U.S. 
kept its military capabilities up, it needn't worry 
about a security threat from China. 
 
¶11.  (S) What was worrisome, she said, was China's 
"wholly mercantilist" approach to foreign policy, as 
demonstrated in Sudan, Zimbabwe, and Latin America. 
China, she said, "could not care less" about good 
governance in the developing world.  She also expressed 
uncertainty about the Chinese political system's ability 
to deal with growing income disparities and increasing 
tensions between urban and rural China. 
 
¶12.  (S) Key, a former investment banker, shared his 
concern about the Chinese banking sector, noting its 
efforts to control inflation and arguing that a "hiccup" 
in the sector would have a harsh impact on New Zealand 
and the global economy.  He suggested that China would 
increasingly use its vast foreign currency reserves to 
buy into commodity companies, for example, mining firms 
like BHP and Rio Tinto.  This could be prevented by 
foreign investment regulations.  In the case of New 
Zealand, Key noted that, while the Canadian national 
pension scheme's attempted purchase of Auckland's 
airport had caused a public uproar and had ultimately 
been blocked, China's purchase of the electricity 
transmission company in Auckland had gone forward almost 
unnoticed. 
 
Free Trade Agreements 
--------------------- 
 
¶13. (S) Key noted that the NZ-China FTA had been 
negatively received by many in New Zealand, a foolish 
reaction given that New Zealand's economy was nearly 
completely open to China even before the FTA and that 
the FTA gave New Zealand, essentially an agricultural 
economy, better access to one of the largest consumers 
of agricultural products in the world. 
 
¶14.  (S) Key stressed how important an FTA with the 
United States was for New Zealand, particularly in light 
of the U.S.-Australia FTA.  New Zealand's Closer 
Economic Relationship (CER) with Australia meant that, 
over time, New Zealand firms would relocate to Australia 
to take advantage of that country's FTA with the United 
States.  The Secretary assured Key that, while USTR 
Schwab was completely occupied with the Doha Round at 
the moment, the President was determined to be active on 
the trade agenda right up to the conclusion of his 
presidency. 
 
Bilateral U.S.-NZ Relations 
--------------------------- 
 
¶15.  (S) The Secretary expressed appreciation for strong 
bilateral cooperation in areas like the Proliferation 
Security Initiative, maritime security, and the Pacific. 
Key said that, under his leadership, the National Party 
would continue to take a non-partisan approach to the 
U.S. relationship.  He noted how the relationship had 
improved in recent years and expressed hope that it 
would continue to do so. 
 
¶16.  (S) Key noted that the New Zealand economy was 
weakening, as was much of the developed world's.  While 
New Zealand did not have sub-prime mortgages, it did 
have non-bank finance companies that were beginning to 
suffer "in a big way."  The New Zealand economy had 
shrunk in the previous quarter and would do so for at 
least the next two quarters.  New Zealand's domestic 
debt had doubled in eight years, and the situation was 
aggravated by increasing food and fuel prices. 
 
Petroleum and Carbon Emissions 
------------------------------ 
 
¶17.  (S) The Secretary noted that the United States was 
suffering from high fuel prices as well.  The United 
States is working actively on alternative fuels, partly 
because dependence on petroleum benefits troublesome 
countries like Venezuela and Russia.  Signing up to the 
Kyoto Protocol had been a non-starter for the United 
States, the Secretary noted, because it would have 
chopped 1-3 percent off U.S. GDP.  The United States 
would insist that big developing-country polluters like 
China and India be part of any future climate change 
agreement. 
RICE