CODEL SHELBY TALKS TRADE AND SECURITY WITH NZ

UNCLAS SECTION 01 OF 02 WELLINGTON 000729

SIPDIS

SENSITIVE

DEPT FOR EAP/ANP - TRAMSEY
STATE PASS USTR FOR BARBARA WEISEL

E.O. 12958: N/A
TAGS: OVIP ETRD ENRG PREL AS NZ CODEL
SUBJECT: CODEL SHELBY TALKS TRADE AND SECURITY WITH NZ
OFFICIALS

REF: STATE 163811


1. (SBU) Summary: Codel Shelby met with New Zealand
officials August 8-9. Discussions focused on lessons learned
from New Zealand's successful effort to eliminate domestic
agricultural subsidies, current state of the NZ economy,
potential for a U.S.-New Zealand FTA and the need to promote
foreign investment, New Zealand's contribution to regional
security, and the country's increasing concerns over
infrastructure gaps in energy and transportation. Economic
Development Minister Jim Anderton hosted dinner for the CODEL
in Christchurch on August 8. In Wellington on August 9, the
CODEL met with Opposition leader Don Brash (and shadow
Foreign Minister Lockwood Smith),Acting Prime Minister
Michael Cullen, officials from the Reserve Bank, Defense
Minister Mark Burton and Trade Minister Jim Sutton. They
also had lunch with the top civil servants in the Foreign
Affairs and Trade, Defense and Justice Ministries and the
External Assessments Bureau (NSC equivalent). End Summary.


2. (SBU) Economic Development Minister Jim Anderton hosted
Senator Richard C. Shelby, Dr. Annette Shelby, Representative
Robert E. "Bud" Cramer and Senate Banking staffer Kathy Casey
for an August 8 dinner in Christchurch with CEOs of local
firms representing U.S. high tech companies. Senator Shelby
commented on how he had seen New Zealand evolving during
previous official and private visits, as a result of the
tough economic reforms introduced by the Lange Government in
the mid-1980s. Anderton concurred that the reforms had
helped shield New Zealand from the results of the Asian
economic downturn and the recent slowdown in the U.S.
economy. However, he said the current government felt that
some of the reforms might have gone too far. Anderton cited
as an example the consolidation of New Zealand banking under
a handful of Australia-owned banks. The Minister said he had
pushed to set up "Kiwibank," a postal banking alternative
intended to ensure that banking services were available in
every community in New Zealand. Kiwibank was now turning a
small profit and was, in his view, forcing the other banks to
offer a greater range of services. Anderton also said the
Clark Government was looking at whether labor laws had tipped
the balance of economic benefits too much toward employers.


3. (SBU) The Minister made a pitch for a U.S.-New Zealand
Free Trade Agreement, noting concern that the U.S.-Australia
FTA would divert investment from New Zealand to Australia.
Senator Shelby said the Congress was well disposed toward New
Zealand and still generally favored bilateral free trade
agreements. The "unfinished business" (i.e., NZ's ban of
nuclear-propelled or armed vessels calling at its ports) was
a complicating factor, but the Senator said he expected
negotiations with New Zealand to happen "eventually." Charge
suggested that in the meantime, there was a great deal New
Zealand could do to promote foreign investment. Anderton
agreed, explaining that the GoNZ was working to streamline
the Resource Management Act and other investment approval
legislation to make them more "friendly" to both foreign and
domestic investors. Anderton's spouse, a Christchurch City
Councilwoman had a good side exchange with Rep. Cramer,
comparing community development in the Canterbury region with
the growth of Huntsville, Alabama, in the Congressman's
district.


4. (SBU) Opposition Leader Don Brash and National Party
spokesman for Foreign Affairs Lockwood Smith told CODEL that
the current government's economic policies and defense
priorities were resulting in New Zealand falling farther and
farther behind the standard of living of Australia and many
other OECD countries. They raised the negative impact of the
anti-nuclear legislation on New Zealand's Defense Forces, but
offered little hope that the New Zealand public would be
willing to see the legislation scrapped. Senator Shelby
noted the importance the United States attaches to efforts by
Australia and New Zealand to maintain peace and stability in
the South Pacific.


5. (SBU) CODEL's meeting with Finance Minister and acting
PM Michael Cullen centered on the history of the Lange
Government's economic reforms, in particular the scrapping of
agricultural subsidies. Cullen explained the necessity of
the reforms and agreed with Minister Anderton's assessment
that they might have gone too far in some areas. With
respect to agricultural subsidies, Cullen said he had been
heartened by the progress made on agriculture at the recent
WTO Council meeting in Geneva. Senator Shelby agreed that
progress on ag subsidies was essential to a successful Doha
Round, but said he hoped the U.S. would not be required to
get rid of its subsidies "cold turkey" as New Zealand had
done. Minister Cullen opined that it would be a lot easier
politically to hide behind the WTO in ratcheting down
domestic agricultural support.


6. (SBU) Cullen also gave a brief overview of the current
state of New Zealand's economy, stressing the important role
of domestic investment, especially in residential
construction. He cited energy security and upgrading
transport infrastructure as the major questions that could
impede future growth. The Minister also outlined how New
Zealand's superannuation fund, a social security supplement,
would work to address the increased fiscal demands posed by
an aging population. Senator Shelby said social security
reform would be a tough issue, but one that would require
rapid action by the incoming Congress after the U.S.
elections. Senator Shelby and Rep. Cramer had an instructive
exchange with Cullen (who is often Labour's floor manager)
contrasting party discipline in the New Zealand parliament
with the freedom and power accorded individual members of the
U.S. Congress, and of the Congress in general relative to the
Executive Branch.


6. (SBU) The CODEL met for nearly an hour with NZ Reserve
Bank Deputy Governor Adrian Orr and Special Advisor Bruce
White. Orr and White reviewed the Reserve Bank's bank
supervision role, and discussed how the Bank maintained price
stability despite a fairly overheated domestic economy. Orr
also went over the results of New Zealand's privatization
program, a key element of the mid-1980's economic reforms.
He explained that a few sectors were still state-owned,
including most education, health, electricity production and
distribution, rail lines and the national air carrier, Air
New Zealand.


7. (SBU) Over lunch with senior civil servants, the CODEL
discussed New Zealand's regional security concerns and
contributions. Defense CEO Graham Fortune outlined defense
spending priorities and discussed the 2003 reorganization of
the New Zealand Defense Forces. MFAT CEO Simon Murdoch and
External Assessments Bureau Advisor Hessel Baas identified
regional security concerns in the South Pacific, focusing
particular attention on governance issues in some of the
Pacific Island States. Justice CEO Belinda Clark reviewed
her Ministry's efforts at capacity building in the island
states.


8. (SBU) At the Defense Ministry, Senator Shelby thanked
Defense Minister Burton for New Zealand's contribution to the
war on terror, noting in particular the efforts of Kiwi
troops in Afghanistan and the combat engineering contingent
in Iraq. Burton reviewed New Zealand's upgrade planes for
its navy and its P-3 Orion ocean surveillance fleet. The
Minister said a major component of the latter project would
be done by a firm in Birmingham, Alabama. The Senator
congratulated Burton, who is also Tourism Minister, on the
successful tourism promotion campaign linked to the movie
series "Lord of the Rings." The Minister said he had been
very pleased by the increase in tourism sparked by the movies
and subsequent ad campaign.


9. (SBU) Trade Minister Sutton outlined for the CODEL what
had transpired at the WTO General Council Meeting in Geneva
at the end of July. The Minister said he was greatly
encouraged by the negotiating framework that had been agreed.
He complimented Tim Grosser, NZ's Ambassador to the WTO and
Chair of the Agriculture Negotiating Group for the leadership
he had exercised. Sutton also expressed his admiration for
Ambassador Zoellick's contribution to moving the framework
forward. Senator Shelby said he was delighted to see a
framework that would allow the Doha Round to proceed. He and
Rep. Cramer expressed their strong support for continued
trade liberalization, though both noted how hard it was to
convince some industries that they could compete globally.


10. (SBU) Comment: The visit left the CODEL's
interlocutors with a clearer understanding of the role of the
Congress in American politics and of the hurdles NZ might
face in trying to get a free trade agreement, a very helpful
outcome from the Embassy's perspective.
Swindells