Trade blocs set traps for NZ

By KARYN SCHERER

Trade officials have warned the Government that the economy could be seriously damaged if New Zealand is excluded from two emerging trade blocs in the Pacific.

Officials say the giant Free Trade Area of the Americas, due to be set up by 2005, and a rival grouping of East Asian nations could wipe out gains made with other countries.

New Zealand is considered unlikely to be included in either bloc, and studies have gone as far as to suggest that the two groupings could have as profound an effect on the economy as Britain's entry into the European Union.

The warnings come as officials negotiate a bilateral trade deal with Hong Kong, the third after Australia and Singapore.

The fourth formal round of talks with Hong Kong took place late last month. More talks, dealing with contentious issues such as rules of origin and services commitments, are due in February.

New Zealand is also eyeing the United States, Chile, Japan, Korea and Thailand as potential partners, and preliminary talks have been held with Mexico.

Most countries will be distracted for the next few years by the commitments they made at Doha, but some see regional deals as a pragmatic solution to the snail's pace progress of the World Trade Organisation.

The proliferation of such deals in the past few years has also sparked debate about the future of Asia Pacific Economic Cooperation (Apec) and the global free trade agenda.

Although there is some doubt that the Free Trade Area of the Americas will succeed, New Zealand and Australia regard a deal with the US as an insurance policy in case it goes ahead.

But some believe the economic worth of such a deal will be questionable if it does not include dairy products.

A deal with East Asia, on the other hand, could be lucrative for New Zealand's dairy products, non-grain crops and other food products, but would hit manufacturers already struggling to compete with cheaper Asian rivals.

Robert Scollay, director of the Apec study centre at Auckland University, says New Zealand faces "major adjustments" whatever happens.

"There are major opportunities no doubt for New Zealand, but there are also some potential threats to our well-being if we are excluded," said Mr Scollay.

When New Zealand was solely focused on Apec's goal of free trade by 2020, its trade agenda was "a walk in the park", he said.

"We knew that whatever happened, we would benefit either way. Now it is more like a trek in the jungle - there are snakepits and crocodile swamps we may not be able to avoid."

Mr Scollay said there was a "strong economic logic" to Japan, Korea and possibly China joining the 10-nation Asean grouping.

But Australia and New Zealand made up only 1.5 per cent of the world's GDP, and it was possible New Zealand would be overlooked.