Free trade deal offers export benefits to US

By FRAN O'SULLIVAN assistant editor

The United States would gain a 25 per cent increase in its merchandise exports to New Zealand if a free trade deal is struck.

If a three-way deal is struck among the US, Australia and New Zealand, the US could expect to increase its merchandise exports to this part of the world by US$3 billion ($6.9 billion).

These forecasts are outlined in a report released in Washington yesterday by Fred Bergsten, director of the influential Institute for International Economics.

The report, titled The Case for a Model Free Trade Agreement between the United States and New Zealand, says a "compelling case" exists for an early start to negotiations for a free trade agreement between New Zealand and the US.

The benefit to New Zealand of getting access to the world's richest consumer market has long been recognised.

But the Bergsten report is the first credible US study to examine and quantify the benefits to the Americans of such an arrangement.

New Zealand's merchandise exports to the US are expected to rise by US$732 million ($1.7 billion) or 51 per cent under a bilateral deal, or US$703 million (49 per cent) under a trilateral arrangement.

Even the impact of open access for New Zealand's dairy exports to the US market - long held up by critics as a reason the US would resist getting into bed with this country - is not seen as a problem by the report's author.

Production effects in the US will be minimal, even for milk products, and will not exceed 0.6 per cent for any sector, says the report.

New Zealand is regarded as a highly competitive exporter of dairy products, but its output is less than 2 per cent of global dairy production and only one-sixth of US production.

To put this figure in perspective, Bergsten notes that earlier institute studies concluded that the larger drop in US dairy production (2.5 per cent) that would follow the global elimination of US dairy quotas would hit fewer than 3000 jobs.

The Bergsten report predicts that a free trade deal would lead to a 63 per cent increase in US exports of milk products to New Zealand.

Bergsten's analysis relies on an assessment of the economic effects of a bilateral free trade deal by Utah State University academic John Gilbert, using a computer simulation model.

The simulation indicates that the proposed agreement would have big benefits for both countries' trade.

The analysis does not cover trade in services or bilateral investments, both of which are expected to increase if a closer economic partnership is concluded.

The United States generally gains much more from the liberalisation of trade in services than from trade in goods.