NZ, Singapore spring surprise on partners

By Brian Fallow

New Zealand and Singapore have agreed to negotiate a free trade deal in a move which puts both countries' closest trading partners on the back foot.

News of the agreement leaked out yesterday, stealing the thunder of Prime Minister Jenny Shipley and her Singaporean counterpart, Goh Chok Tong, who intended to announce it tomorrow.

For New Zealand, the question is how such a deal fits with the closer economic relations pact with Australia.

Similar questions arise about Singapore's relations with its Southeast Asian neighbours, who are developing their own free trade area, AFTA.

Association of Southeast Asian Nations members have asked their secretariat to investigate how the agreement will fit with Singapore's obligations to Asean.

The deal with Singapore will give New Zealand only limited commercial benefits. The city state took 1.6 per cent of our exports in the year to July 31, and provided 2.3 per cent of our imports.

But it is an important strategic move by New Zealand to develop free trade beyond CER.

Australia has offered only lukewarm support for New Zealand's "P5" proposal for a free trade area linking CER with Chile, the United States and Singapore, and the US has also shown little interest.

So New Zealand has decided to make its own move with Singapore.

While tomorrow's announcement is only to start negotiations, both countries are confident agreement will be reached quickly, as the two states have little in the way of tariffs between them.

Malaysia's International Trade and Industry Minister, Rafidah Aziz, is believed to have told Malaysian media yesterday that she was told by Singapore that the agreement was being worked on.

She did not express unhappiness, but felt that Asean - which includes Malaysia, Singapore, Indonesia and Thailand - might have to look into whether Singapore's move was inconsistent with AFTA.

"The sentiment expressed was they don't know what Singapore is doing and are puzzled by the choice of New Zealand," a Malaysian source said.

Singapore's Government has not briefed local media about the agreement, a source said.

Fred Bergsten, director of Washington-based Institute of International Economics, suggested in the latest issue of the Far Eastern Economic Review, that such an event might happen.

In his column, he said Apec could be kickstarted if it endorsed bilateral and sub-regional free trade agreements.

Mrs Shipley said New Zealand had been seeking to negotiate a free trade agreement with a range of partners over several years, and with the Singapore Government for some weeks.

She said the issue would be considered further during the Apec meetings.