US embassy cable - 04WELLINGTON729

UNCLAS SECTION 01 OF 02 WELLINGTON 000729 
 
SIPDIS 
 
SENSITIVE 
 
DEPT FOR EAP/ANP - TRAMSEY 
STATE PASS USTR FOR BARBARA WEISEL 
 
E.O. 12958: N/A 
TAGS: OVIP, ETRD, ENRG, PREL, AS, NZ, CODEL 
SUBJECT: CODEL SHELBY TALKS TRADE AND SECURITY WITH NZ 
OFFICIALS 
 
REF: STATE 163811 
 
1.  (SBU)  Summary:  Codel Shelby met with New Zealand 
officials August 8-9.  Discussions focused on lessons learned 
from New Zealand's successful effort to eliminate domestic 
agricultural subsidies, current state of the NZ economy, 
potential for a U.S.-New Zealand FTA and the need to promote 
foreign investment, New Zealand's contribution to regional 
security, and the country's increasing concerns over 
infrastructure gaps in energy and transportation.  Economic 
Development Minister Jim Anderton hosted dinner for the CODEL 
in Christchurch on August 8.  In Wellington on August 9, the 
CODEL met with Opposition leader Don Brash (and shadow 
Foreign Minister Lockwood Smith), Acting Prime Minister 
Michael Cullen, officials from the Reserve Bank, Defense 
Minister Mark Burton and Trade Minister Jim Sutton.  They 
also had lunch with the top civil servants in the Foreign 
Affairs and Trade, Defense and Justice Ministries and the 
External Assessments Bureau (NSC equivalent).  End Summary. 
 
2.  (SBU) Economic Development Minister Jim Anderton hosted 
Senator Richard C. Shelby, Dr. Annette Shelby, Representative 
Robert E. "Bud" Cramer and Senate Banking staffer Kathy Casey 
for an August 8 dinner in Christchurch with CEOs of local 
firms representing U.S. high tech companies.  Senator Shelby 
commented on how he had seen New Zealand evolving during 
previous official and private visits, as a result of the 
tough economic reforms introduced by the Lange Government in 
the mid-1980s.  Anderton concurred that the reforms had 
helped shield New Zealand from the results of the Asian 
economic downturn and the recent slowdown in the U.S. 
economy.  However, he said the current government felt that 
some of the reforms might have gone too far.  Anderton cited 
as an example the consolidation of New Zealand banking under 
a handful of Australia-owned banks.  The Minister said he had 
pushed to set up "Kiwibank," a postal banking alternative 
intended to ensure that banking services were available in 
every community in New Zealand.  Kiwibank was now turning a 
small profit and was, in his view, forcing the other banks to 
offer a greater range of services.  Anderton also said the 
Clark Government was looking at whether labor laws had tipped 
the balance of economic benefits too much toward employers. 
 
3.  (SBU) The Minister made a pitch for a U.S.-New Zealand 
Free Trade Agreement, noting concern that the U.S.-Australia 
FTA would divert investment from New Zealand to Australia. 
Senator Shelby said the Congress was well disposed toward New 
Zealand and still generally favored bilateral free trade 
agreements.  The "unfinished business" (i.e., NZ's ban of 
nuclear-propelled or armed vessels calling at its ports) was 
a complicating factor, but the Senator said he expected 
negotiations with New Zealand to happen "eventually."  Charge 
suggested that in the meantime, there was a great deal New 
Zealand could do to promote foreign investment.  Anderton 
agreed, explaining that the GoNZ was working to streamline 
the Resource Management Act and other investment approval 
legislation to make them more "friendly" to both foreign and 
domestic investors.  Anderton's spouse, a Christchurch City 
Councilwoman had a good side exchange with Rep. Cramer, 
comparing community development in the Canterbury region with 
the growth of Huntsville, Alabama, in the Congressman's 
district. 
 
4.  (SBU)  Opposition Leader Don Brash and National Party 
spokesman for Foreign Affairs Lockwood Smith told CODEL that 
the current government's economic policies and defense 
priorities were resulting in New Zealand falling farther and 
farther behind the standard of living of Australia and many 
other OECD countries.  They raised the negative impact of the 
anti-nuclear legislation on New Zealand's Defense Forces, but 
offered little hope that the New Zealand public would be 
willing to see the legislation scrapped.  Senator Shelby 
noted the importance the United States attaches to efforts by 
Australia and New Zealand to maintain peace and stability in 
the South Pacific. 
 
5.  (SBU)  CODEL's meeting with Finance Minister and acting 
PM Michael Cullen centered on the history of the Lange 
Government's economic reforms, in particular the scrapping of 
agricultural subsidies.  Cullen explained the necessity of 
the reforms and agreed with Minister Anderton's assessment 
that they might have gone too far in some areas.  With 
respect to agricultural subsidies, Cullen said he had been 
heartened by the progress made on agriculture at the recent 
WTO Council meeting in Geneva.  Senator Shelby agreed that 
progress on ag subsidies was essential to a successful Doha 
Round, but said he hoped the U.S. would not be required to 
get rid of its subsidies "cold turkey" as New Zealand had 
done.  Minister Cullen opined that it would be a lot easier 
politically to hide behind the WTO in ratcheting down 
domestic agricultural support. 
 
6.  (SBU)  Cullen also gave a brief overview of the current 
state of New Zealand's economy, stressing the important role 
of domestic investment, especially in residential 
construction.  He cited energy security and upgrading 
transport infrastructure as the major questions that could 
impede future growth.  The Minister also outlined how New 
Zealand's superannuation fund, a social security supplement, 
would work to address the increased fiscal demands posed by 
an aging population.  Senator Shelby said social security 
reform would be a tough issue, but one that would require 
rapid action by the incoming Congress after the U.S. 
elections.  Senator Shelby and Rep. Cramer had an instructive 
exchange with Cullen (who is often Labour's floor manager) 
contrasting party discipline in the New Zealand parliament 
with the freedom and power accorded individual members of the 
U.S. Congress, and of the Congress in general relative to the 
Executive Branch. 
 
6.  (SBU)  The CODEL met for nearly an hour with NZ Reserve 
Bank Deputy Governor Adrian Orr and Special Advisor Bruce 
White.  Orr and White reviewed the Reserve Bank's bank 
supervision role, and discussed how the Bank maintained price 
stability despite a fairly overheated domestic economy.  Orr 
also went over the results of New Zealand's privatization 
program, a key element of the mid-1980's economic reforms. 
He explained that a few sectors were still state-owned, 
including most education, health, electricity production and 
distribution, rail lines and the national air carrier, Air 
New Zealand. 
 
7.  (SBU)  Over lunch with senior civil servants, the CODEL 
discussed New Zealand's regional security concerns and 
contributions.  Defense CEO Graham Fortune outlined defense 
spending priorities and discussed the 2003 reorganization of 
the New Zealand Defense Forces.  MFAT CEO Simon Murdoch and 
External Assessments Bureau Advisor Hessel Baas identified 
regional security concerns in the South Pacific, focusing 
particular attention on governance issues in some of the 
Pacific Island States.  Justice CEO Belinda Clark reviewed 
her Ministry's efforts at capacity building in the island 
states. 
 
8.  (SBU)  At the Defense Ministry, Senator Shelby thanked 
Defense Minister Burton for New Zealand's contribution to the 
war on terror, noting in particular the efforts of Kiwi 
troops in Afghanistan and the combat engineering contingent 
in Iraq.  Burton reviewed New Zealand's upgrade planes for 
its navy and its P-3 Orion ocean surveillance fleet.  The 
Minister said a major component of the latter project would 
be done by a firm in Birmingham, Alabama. The Senator 
congratulated Burton, who is also Tourism Minister, on the 
successful tourism promotion campaign linked to the movie 
series "Lord of the Rings."  The Minister said he had been 
very pleased by the increase in tourism sparked by the movies 
and subsequent ad campaign. 
 
9.  (SBU)  Trade Minister Sutton outlined for the CODEL what 
had transpired at the WTO General Council Meeting in Geneva 
at the end of July.  The Minister said he was greatly 
encouraged by the negotiating framework that had been agreed. 
 He complimented Tim Grosser, NZ's Ambassador to the WTO and 
Chair of the Agriculture Negotiating Group for the leadership 
he had exercised.  Sutton also expressed his admiration for 
Ambassador Zoellick's contribution to moving the framework 
forward.  Senator Shelby said he was delighted to see a 
framework that would allow the Doha Round to proceed.  He and 
Rep. Cramer expressed their strong support for continued 
trade liberalization, though both noted how hard it was to 
convince some industries that they could compete globally. 
 
10.  (SBU)  Comment:  The visit left the CODEL's 
interlocutors with a clearer understanding of the role of the 
Congress in American politics and of the hurdles NZ might 
face in trying to get a free trade agreement, a very helpful 
outcome from the Embassy's perspective. 
Swindells