NEW ZEALAND SEEKS FREE TRADE AGREEMENTS WITH JAPAN, SOUTH

UNCLAS SECTION 01 OF 03 WELLINGTON 000180

SENSITIVE
SIPDIS

STATE FOR EAP/ANP, EB, INR, STATE PASS TO USTR, PACOM FOR
J01E/J2/J233/J5/SJFHQ, STATE PASS TO USTR

E.O. 12958: N/A
TAGS: ECON ETRD PGOV PREL NZ
SUBJECT: NEW ZEALAND SEEKS FREE TRADE AGREEMENTS WITH JAPAN, SOUTH
KOREA AND INDIA

Ref A) WELLINGTON 121

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1. (SBU) Summary. In what has been predicted to be her last
official overseas trade mission as Prime Minister ahead of the
upcoming general election, Helen Clark traveled last month to Japan
and South Korea to discuss securing free trade agreements (FTAs)
with both countries. The timing of Clark's visit - just weeks after
signing the NZ-China FTA (Reftel) in Beijing and just one week after
President Hu Jintao's first official visit to Tokyo - was intended
to strengthen New Zealand's hand in broadening its trade relations
with other major Asian economies in advance of the East Asian Summit
and to reinforce the Labour Party's trade credentials. Shortly
after the PM's return, Trade Minister Phil Goff announced that
"strong progress" is also being made towards a free trade agreement
with India after talks held with Indian Commerce Minister Kamal Nath
at the end of May. End summary.

Trade Mission to Japan
--------------


2. (U) PM Clark met Japanese Prime Minister Yasuo Fukuda and senior
members of the Japanese Cabinet on May 14 in Tokyo with the goal of
advancing closer bilateral and regional co-operation. Clark secured
a commitment from the Japanese Government to undertake a study of
the benefits of a free-trade agreement between both countries. The
commitment by Japanese PM Fukuda comes in stark contrast to fears
that protectionist Japan would never consider such a prospect. It
is understood by commentators that the Japanese Government was
persuaded by Clark's suggestions that a deal with New Zealand could
help secure supplies of quality food to Japan as a world food crisis
looms. Prior to leaving, Helen Clark said Japan remained the
world's second largest economy - taking almost twice as many New
Zealand exports as China - and a deal would provide huge benefits to
New Zealand's economy. "No one is saying the road forward is quick
and simple, but we've never been able to get that started before and
in trade policy terms it is very exciting," exclaimed Clark.


3. (U) Today New Zealand goods enjoy a somewhat higher profile in
Japan than they have in the past. Japan is New Zealand's
third-largest export market and two-way trade now amounts to NZ$7.3
billion which has grown from around NZ$2.6 billion back in 1984 and
New Zealand sends 15 per cent of its exports to Japan, almost three
times the amount currently sent to China. Aside from key
agricultural goods, other exports from New Zealand include aluminum,
forestry products and meat. Japan's main exports to New Zealand are
cars, precision machinery and electronics. Despite this growth, the
prospects for greater trade access to the Japanese market remain
somewhat difficult with contentious issues on remaining on both
sides. New Zealanders are apt to have concerns over Japan's whaling
policies while Japanese farmers are not likely to welcome increased
competition from New Zealand's agricultural exports.


4. (U) Anticipating possible negative reaction by domestic press in
NZ that closer economic links with Japan would come with political
costs, Clark preemptively raised the whaling issue with Mr. Fukuda,
stating New Zealand's opposition to Japan's "scientific whaling
program" in the Southern Ocean remains. She had a more detailed
private discussion on the issue with Japan's chief Cabinet Secretary
Nobutaka Machimura - the equivalent of New Zealand's Deputy Prime
Minister. Mr. Machimura reportedly said the Japanese Government
would be bringing together all the ministers with some input into
whaling before June's International Whaling Commission meeting in
Chile to assess its position.


5. (SBU) Japanese protectionist sentiment may prove more difficult
for New Zealand trade negotiators to overcome. The current state of
FTA negotiations between Australia and Japan have come to a
standstill in the fourth round on such key products as wheat, beef,
dairy, sugar and rice concessions. In the hope of softening similar
Japanese resistance to increased NZ imports, New Zealand business
leaders are exploring mechanisms to better strengthen their
relationship with top Japanese business people, politicians and
officials through the newly created Japan-New Zealand Partnership
Forum whose motto is "New Thinking - New Partnership." Furthermore,
New Zealand Business and Industry Federation (NZBIF) chairman Graeme

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Harrison, who also chairs Anzco Foods, confronted the claimed New
Zealand threat to Japan's agriculture at celebrations to mark the
50th anniversary of a Treaty of Commerce signed between the two
countries. Said Harrison, "I know that some in Japan perceive NZ's
agriculture as a threat but in reality our production systems are
complementary and NZ plays a key role in ensuring food security and
sustainable supply for Japanese consumers all year round." (Note:
The NZBIF's brief is to maximize New Zealand's global competitive
position and ensure NZ enterprises are fully integrated in the
global economy. End note.)

Trade Mission to South Korea
--------------


6. (U) PM Clark's delegation continued on to South Korea, where she
met with newly-elected President Lee Myung-bak and senior Cabinet
ministers on May 16. Ahead of her talks with President Lee, Clark
spoke to a joint Korea, New Zealand, and Australia business function
and met Korea's Minister for Tourism and Culture. Two-way trade
between New Zealand and Korea is worth more than NZ$2.4 billion a
year. Korea is New Zealand's sixth-largest export market; importing
NZ$1.33 billion of goods and services from NZ in 2007. However,
Korea has trade barriers hampering NZ exports with an average
agriculture tariff rate of 52 percent. A study into the benefits of
a possible FTA between the two countries found such an agreement
would be worth NZ$4.5 billion to New Zealand over 20 years. New
Zealand and Korea have already completed a trade study and Clark
said, "negotiations were now a question of not if but when."


7. (U) Clark would not give a likely start date for negotiations,
but said going by Korea's successful track record with Chile and the
United States, once negotiations started they could move quickly.
Trade Minister Phil Goff, who accompanied Clark on the Japan leg of
the trip, said "free trade negotiations with Korea were now looking
likely in the near future - we are moving in a very positive
direction with Korea and I think it's now a matter of timing rather
than if we have a free trade agreement." Goff did proffer that the
timing would not be dealt with until later in the year, after the
Korean parliament had ratified its free trade deal with the United
States. In their closing declaration, Clark and Lee said they had
also discussed ways to expand investment between the two countries,
as well as greater co-operation in education, science and
technology, agriculture and the film industry.

Possible NZ-India FTA
--------------


8. (U) Briefing a group of Indian business representatives in
Auckland on his recent visit to New Zealand, India's Commerce and
Industry Minister Kamal Nath said that both countries are completing
a feasibility study and developing a time frame to begin
negotiations on an India-New Zealand free trade agreement by the end
of 2008. He said there was scope for greater cooperation in a
number of areas, including education, telecommunications,
biotechnology and information technology. Commenting on the
progress towards a bilateral FTA, New Zealand Trade Minister Phil
Goff said, "with food shortages in key commodity areas like dairy
around the world, including in India, now is a good time to address
how we can cooperate more in trade in these areas." The present
bilateral trade is NZ$630 million between New Zealand and India, but
"there is a large untapped potential for increasing it," said Goff.
He further declared, "there were still tariff and technical barriers
for New Zealand agriculture products in India including sanitary and
phyto-sanitary restrictions, besides the customs/tariff barriers."

New Zealand Fears Regional Exclusion
--------------


9. (U) The unspoken behind-the-scene story to Clark's Japan and
Korea trip is a growing concern that New Zealand is being left out
of a historic regional integration process. The number of FTAs in
the East Asia region has dramatically increased over the last four
years. According to some estimates, there are now 20 major trade
agreements in action in the East Asian area and at least another 35
under negotiation. Talk of superseding these bilateral agreements

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with a massive multilateral trade pact covering the entire East
Asian area has been mentioned. Japan is proposing at the
nongovernmental level that Australia, New Zealand, and India be
included in any such zone but some other Asian nations are reported
to oppose the idea. Clark has stated her support for the Japanese
position in the past and reiterated it when she met her Japanese and
Korean counterparts.


10. (SBU) There is a risk that New Zealand (along with Australia
and India) will not be invited to join the proposed major Asian
trading pact irrespective of Japan's initiatives to widen it to
include the trio of nations. To combat the threat of exclusion, New
Zealand has focused mainly on advancing trade liberalization issues
with the East Asian Summit (ASEAN plus Three) while quietly sending
think-tank policy experts to consult with likeminded Japanese and
Korean counterparts. The focus in both Japan and Korea talks has
been on how to work together to get good results from the East Asian
Summit (EAS) in December. To this end, Helen Clark has also
reiterated New Zealand's desire for bilateral FTAs with Japan and
Korea and for an Asia-wide pact based around the 16 member countries
(ASEAN plus Three (China, Japan, S. Korea) plus New Zealand,
Australia, India)of the EAS.

Trade and Domestic Politics
--------------


11. (SBU) Trade policy is unlikely to be contentious as elections
near, since the two dominant parties have publicly stated that New
Zealand must pursue every available negotiating avenue, multilateral
or bilateral, to open up greater opportunities for NZ exports. Both
the Labour and National Parties supported the NZ-China FTA. If
National unseats Labour, it is more likely to continue where Labour
left off in trying to advance free trade agreements with Japan,
South Korea and India. National MO Tim Groser has told us that his
party supports free trade agreements with New Zealand's major
trading partners, so there is little daylight between National and
Labour on trade policy objectives.


12. (U) Other NZ political parties have yet to articulate positions
on potential deals with Japan, South Korea and India, but there is
likely to be some resistance from the minor parties. If Foreign
Minister Winston Peters' New Zealand First Party, which opposed the
NZ-China FTA on the grounds that trade deals with low wage economies
threaten NZ businesses, follows similar logic then it is likely to
oppose any deal with India (see Reftel). The Green Party is also
likely to resist any deal with Japan as long its controversial
whaling policy continues. Meanwhile the onus will be with the
business consulting groups charged with preliminary feasibility
studies to keep the FTA prospects alive until after the general
election.


13. (SBU) Comment. With growing food shortages intensifying
internationally and following the successful signing of the NZ-China
FTA, New Zealand now sees itself as poised to enhance its
business/trading relationship with Asia's dominate economies. A new
found sense of optimism is running through both business and
government circles, that formerly intractable trade barriers are now
open to discussion and possible resolution. While the GNZ slips
into caretaker mode as the general election approaches, it seems
assured that whichever political party forms the next government,
Labour or National, will take up the challenge of securing FTAs with
Japan, South Korea and India following the election. End comment.

MCCORMICK