NZ looking for a win after the fight

President George W. Bush's backers bet on a short but sharp war to overturn Saddam Hussein's regime - and he got what they wanted.

Twenty-one days into the US-led invasion, Baghdad fell and there was jubilation on the city's street. The world can breathe easy. Or can it?

Foreign Minister Phil Goff said yesterday that few would be sad to see Saddam's regime end.

"The international community must now combine to help the people of Iraq rebuild so they can have a better economic and social future and have the opportunity, as soon as possible, to participate democratically in the election of a new government," he said.

Prime Minister Helen Clark wants the United Nations taking part as early as possible in Iraq "without compromising the regime change".

In an interview for this series, Clark said a stable Middle East had to be good for a meat-producing nation like New Zealand.

"Before the Gulf War, Iraq was a good market for New Zealand, so the prospect of a change of government with a lot of foreign money going in to rebuild capacity - there's got to be opportunities there.

"But it all hinges on getting some sort of internal political settlement in Iraq pretty quickly because an occupied country with a sullen resentful population won't settle.

"Iraq restored economically is important.

"Fundamentally it's a rich nation. It's got an educated people. It's got its oil - third largest in the world."

Bush's unilateral approach has left a trail of wreckage at the UN and within Nato which skilful diplomats such as US Secretary of State Colin Powell are countering.

But big "what ifs" have to be resolved.

Will countries such as France and Germany, which opposed the US, be cut out of the action? If so, will this puncture the World Trade Organisation drive for market liberalisation that US Trade Representative Robert Zoellick has spearheaded.

And what then would be the effect on the world economy?

As Japan and many of Europe's economic locomotives lose steam, a strong US rebound is essential to kickstart world growth.

Goff is quietly confident that nations such as France and Germany will play ball.

"I think they want the war done and out of the way.

"Then they will want to be part of whatever benefits will flow from reconstructing Iraq and rebuilding the relationship."

That will become clear this weekend after Europe's anti-war leaders, France, Germany and Russia, meet in St Petersburg.

G7 ministers - from the United States, Britain, Canada, France, Germany, Italy and Japan - meet on Friday and Saturday in Washington in sideline sessions of the International Monetary Fund and World Bank, institutions that are thirsting for a role for themselves in Iraq.

The Bush plan is for a wide-ranging overhaul of Iraq's economy.

It includes proposals to transform the country's educational, health-care and banking systems. In the US it has been dubbed the "for-profit Marshall Plan".

US companies have already lined up for a slice of the post-war reconstruction, which is expected to cost more than US$1 billion.

So too, are companies from America's coalition partners, Britain and Australia.

The New Zealand Government is weighing up the extent of its contribution to rebuilding Iraq.

How much, where and when it will contribute has yet to be decided.

New Zealand has not participated in this war.

But businesses here are asking whether - despite this - they will get a slice of the war dividend, says Auckland Regional Chamber of Commerce chief executive Michael Barnett.

He says businesspeople taking part in chamber forums have questioned whether they will be cut out because of New Zealand's stance.

Yesterday, Finance Minister Michael Cullen said the economy was ending a period of prolonged strong growth - 4.4 per cent last year, faster than any other OECD country.

But agricultural commodity prices had dropped this year, and this would flow through to lower farm incomes.

"We can now add to that the impact of the Sars virus on export industries like tourism."

Cullen was confident New Zealand could weather an economic downturn better than nearly all other developed countries.

But an Institute of Economic Research survey shows business confidence at its lowest since 1985.

A February Treasury report said a swift resolution of the Iraq conflict and removal of uncertainty "should see global growth rebound".

"This should help to push up growth in the New Zealand economy."

But the prospects for international growth have since dampened.

The Treasury's report drew on a study by the American Academy of Arts and Sciences.

That study, the Nordhaus Report, says it is hard to predict how long occupation-peacekeeping efforts will last.

Japan was occupied for seven years, and the US has had 30,000 troops in South Korea for 50 years.

The report says that once order has been imposed, the US and its coalition partners must turn to reconstruction and nation-building in a country with little social capital and civic infrastructure.

"We might conservatively expect that the effort would require six years of effort for a total of US$75 billion."

Should it be financed from Iraqi oil revenue?

If Iraq can get oil production back to three million barrels a day, it would yield around US$25 billion a year.

But much of this money will be needed for food, medicine and other daily necessities.

Iraq still faces claims from other nations from the 1991 Gulf War. About US$300 billion was involved, and little has been paid or written off.

"To divert funds from vital necessities to pay the expense of the US occupation forces would be economic and political folly," says the Nordhaus Report

And what if Bush cannot get others to help pay the cost of rebuilding Iraq?

The report says: "In the past the US has followed a 'hit and run' philosophy which has not been followed by construction crews."

In the year to last September, the US spent US$13 billion on the Afghanistan war.

In contrast, the Pentagon effort for civil work or humanitarian aid cost only US$10 million.

Helen Clark told Parliament yesterday that the Government was talking to the UN and other nations - including the US - about New Zealand's post-war reconstruction role

It is a delicate time for New Zealand.

Its exports of lamb and beef to the Gulf from October to February were 13.3 per cent up on the same period a year earlier.

Ironically, we may even have benefited from a wave of goodwill in the Middle East because Arab states know New Zealand did not join its traditional allies.

Of more critical interest to the New Zealand meat industry has been fears of a US boycott of New Zealand products - in the way French wine was dropped from some Washington fine-dining tables - in the wake of the furore over Clark's critical comments.

The real post-war dividend for New Zealand is a renewed focus on international trade.

Clark says New Zealand's best hopes for a prosperous trading future lie with successful World Trade Organisation negotiations to free agricultural trade.

New Zealand wants substantial improvements in market access, elimination of export subsidies and substantial reductions in trade-distorting domestic support.

But some WTO members, such as the Europeans and Japan, were not prepared to move beyond their protectionist positions.

Now, there are fears that reaction to French and German opposition to America's decision to invade Iraq may spill over and scuttle the WTO talks.

The Government's worry is that if a breakdown occurs - and there has already been serious disruption to the agricultural timetable - the world trade system would split into three blocs: Europe, the Americas and East Asia.

Clark is quietly confident that the strong personal relationships developed between New Zealand and the United States will prevail.

"[Agriculture Minister] Jim Sutton developed a very good relationship with Bob Zoellick," she says.

Those relationships will come into play again this month.

It has been suggested that Sutton will use an OECD meeting in Paris to get the WTO agenda moving again.

"They are going to put more effort into this round because the developing world needs something - it needs signals that it will get a cut out of globalisation," says Clark.

"So I'm not pessimistic. I know it looks bleak, but it always does. That's the way these trade talks work. They work through crisis ... then they'll sit up for hours and Mike Moore's eyes are hanging out like bean bags and something happens."

Moore stepped down as WTO director-general in September.

But he is not out of the frame.

The Government has appointed him a trade envoy and he is an international consultant for dairy giant Fonterra.

Yesterday, in an article for the Australian Financial Review, he suggested Australia, Timor, New Zealand and Indonesia could start moves to reform the UN and its agencies.

"This group would have the moral authority to begin a process of confidence building, and should begin with the basic question, 'What would be the international architecture if we could start again?' "

In the background are the rumbles over New Zealand's push for a free trade deal with the US.

In February - during a period of intense US lobbying to win international support for the invasion - Phil Wall, deputy chief of mission at the US Embassy in Wellington, gave some harsh news.

He said the US was looking to the international community to assist Iraq in building a new future.

"I have to report that as of now, the United States Government is not prepared to commit to bilateral trade negotiations."

Since then, some powerful US senators, including Republican Majority Leader Bill Frist, have signed a letter asking Bush to ensure New Zealand gets its own trade deal.

New Zealand diplomats are now working hard to mitigate the damage done by Clark's comments about the Iraq War.

She is confident her close relationship with the Australian Prime Minister, whose officials are now negotiating a free trade deal with the US, will help.

"John Howard has been very helpful to us at all points," she said.

But New Zealand also neglects Asia and Europe at its peril, says Clark.

"We can't neglect these absolutely critical trading relationships and regional relationships.

"I don't think we have to make choices.

"But quite interestingly, the EU has been quite active around here recently.

"The point it is making is that the European Union is our second biggest trading partner by a country mile.

"Think about it. Bigger than the US."

- Additional reporting by Reuters

Herald Feature: Iraq war