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A free trade agreement with the United States?
The US Government's announcement to enter negotiations to join the P4 group has been warmly welcomed here in New Zealand. If the negotiations are successful, this decision could provide New Zealand with a much sought after free trade agreement with the US.
Entry into a free trade agreement (FTA) with the US has been on the agenda for the Ministry of Foreign Affairs and Trade for the better part of decade. Particularly as the disparity in our trade relations with the US was highlighted by the US-Australia FTA, which came into force in January 2005.
Rather than enter into further bilateral arrangements, the US Trade Representative has announced the US's intention to join the Trans-Pacific Partnership group (P4 group), which comprises New Zealand, Singapore, Chile and Brunei. The P4 group was formed in 2005 as a vehicle for Pacific-wide economic integration.
Earlier this year, the US joined the P4 to look at measures affecting financial services and investment. This most recent announcement indicates the US's intention to join the P4 group to negotiate trade liberalisation measures across the board, rather than just on a sector-by-sector basis.
The US is New Zealand's second largest individual trading partner and second largest export market. Government figures indicate that New Zealand's total trade with the US for the year ended in June 2008 was worth $8.14 billion, or 9.6% of our total trade.
On a political level, the announcement indicates a further thawing of the relationship between the two countries. Nonetheless, there are still a number of uncertainties around the announcement. Chief among these will be the stance of any new administration that takes office after the US presidential election. Also of concern is the extent to which the powerful US farming lobby is able to hamper moves to reduce or remove the suite of tariffs and quota restrictions applying to the importation of New Zealand agricultural products into the US.
Participation by the US in the P4 group on a comprehensive basis would also be likely to encourage other countries to join, perhaps forming the basis for economic integration across the Pacific rim. Participation by other large regional economies and significant trading partners, such as Japan, could bring further benefits for New Zealand.
It is expected that the first round of negotiations between the P4 group and the US will take place in early 2009. While negotiations on the NZ-China FTA signed earlier this year took around three years, the New Zealand Government has indicated that talks with the US could be shorter.
For further information, please contact:
Stephen Layburn
Senior Associate
