Official forums take back seat to behind-scenes deals

By SIR FRANK HOLMES*

Do not judge the importance of Apec meetings by the official communiques.

A game of golf in Brunei between President Clinton and Prime Minister Goh Chok Tong of Singapore led to discussions that could be very significant for New Zealand's future access to Asia-Pacific markets.

This had been preceded by discussion on geopolitical strategy between Senior Minister Lee Kwan Yew and the United States Trade Representative, in which the Senior Minister had emphasised the importance of pragmatic action to promote the continued reduction of trade barriers. Mr Clinton and Mr Goh decided that they could provide a catalyst for such action.

As a result of their discussions, the dynamic Singaporean Ambassador Tommy Koh is now in Washington for free trade discussions with the Americans. Mr Clinton has apparently indicated that he wants to see the outline of a deal before the end of the year.

Singapore and New Zealand have always seen the Closer Economic Partnership they negotiated recently as a stepping-stone towards more important free-trade arrangements with others. Mr Goh initially proposed the discussion with the Americans as a stepping-stone towards the so-called P5 arrangement, involving the United States, Singapore, Australia, New Zealand and Chile. This had surfaced at the previous Apec meeting in Auckland.

Jenny Shipley reported that Mr Clinton had shown some personal interest in this. However, no action followed his return home. It was mentioned again by the Americans to our Minister of Trade during his recent visit to Washington. But the Americans did not want any mention of this possibility to be made in the Singaporean announcement that talks between the two countries would take place.

Our other potential partners in P5 are also embarking on free-trade discussions with the Americans and Singaporeans. The Chileans apparently responded quickly to the news that the US was going to talk to Singapore. They had been waiting for years for promised negotiations on free trade following the Americans' arrangements with Canada and Mexico in Nafta. It was announced last week in Washington that discussions on a possible free-trade area with Chile would begin.

Prime Minister John Howard announced at Brunei that Australia and Singapore intended to talk about a Closer Economic Partnership similar to that between Singapore and New Zealand. He has subsequently expressed interest in the possibility of a deal with the US.

New Zealand, Singapore and Chile have also been exploring the possibilities together. In earlier discussions, Chilean representatives had indicated that it would be easier for them politically if the Australians as well as the New Zealanders were involved in any arrangement.

New Zealand's first preference for progress would be another successful round of multilateral negotiations through the World Trade Organisation. Its second preference would be for the members of Apec to take seriously the commitment they made to achieve full free trade by 2010 for developed members and 2020 for others. Progress on both these fronts has been disappointing.

It seems probable that the Brunei Apec will be seen in retrospect as a move away from previous approaches to breaking down barriers through coordinated unilateral action by individual members. There seems to be widespread acceptance now that more will be achieved through bilateral or smaller regional arrangements among groups of members. A key issue is whether New Zealand can become a member or associate of groupings vital to our interests.

The arrangements under discussion by New Zealand are by no means confined to the P5 grouping. New Zealand and Australia would like to see a merger of CER and Asean's free-trade area - Afta. But some of the Asean members - particularly Malaysia - are in no hurry to see any action on this prospect. Nor do they support the suggestion by Lee Kuan Yew that Australia and New Zealand should be associated with the increasingly important grouping of Asean and the three major Northeast Asian powers. Malaysia has, however, welcomed the recent news that China is prepared to investigate the possibility of a free-trade area with Asean.

New Zealand is in discussions on free trade with Hong Kong. It might be thought that agreement on that front would be as easy as it has been with Singapore, but it appears that that may not be the case.

Developing countries like Hong Kong are reluctant to see provisions for labour and environmental standards included in such arrangements, as the New Zealand labour movement would prefer.

A sticking point with countries like Canada, Chile and the US has been the inclusion of a commitment to remove trade barriers on the entry of dairy products - an objective of considerable importance to this country. Being an exporter of such products is a major obstacle to New Zealand achieving its objectives of opening up markets for our exporters generally, through the regional free-trade area approach.

Another cause for concern on this front is that the Singaporeans are engaged in discussions on a possible free-trade area with Japan. Along with Korea and Taiwan, Japan is one of the most reluctant countries in the world to see commitments for any rapid reduction in trade barriers on agricultural products included in either multilateral or regional arrangements. It is certainly not interested in any comprehensive free-trade arrangements with New Zealand and Australia.

As one of the most powerful and important markets in the world, Japan's bargaining strength is considerably stronger in bilateral arrangements with smaller Asian countries than it is in negotiations in WTO or bilaterally with the Americans and the Europeans.

The Singaporeans' long-term strategy is to see the various free-trade areas into which they are prepared to enter brought together in a full free-trade agreement. But it would not be surprising if they were tempted to make arrangements with a country like Japan, even if the latter insists that agricultural and forestry products be excluded.

New Zealand is ready to board practically any reasonably respectable free-trade bus. Unfortunately, some of the drivers are unwilling to let us board unless we leave some of our baggage behind or unless we are accompanied by a bigger partner. So far, there has been surprisingly little discussion in New Zealand of the issues involved, which are vital for our future trade and prosperity.

Developing a strategy to advance New Zealand's interests, in consultation with experts outside the public sector, should be a priority for the Government.

* Sir Frank Holmes is president of the Institute of International Affairs and an emeritus professor of economics at Victoria University.