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

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