March 22, 2002

March 22, 2002 | WebMemo on Trade, Economic Freedom

Negotiating with New Zealand

In order for the United States to demonstrate leadership in the global market, free trade must be pursued. The recent steel decision has left U.S. leadership in question. The Bush Administration should take steps to alleviate such doubt by advancing global trade. Beyond exerting leadership in the current World Trade Organization (WTO) round, the Administration should begin negotiating new bilateral free trade agreements.

The United States Trade Representative (USTR), Robert Zoellick, should take the opportunity of the visit of Helen Clark, Prime Minister of New Zealand, to the United States on March 25-28 of pursuing a bilateral free trade agreement with New Zealand. The United States and New Zealand have a strong friendship and both maintain a strong commitment to economic freedom, democracy and the rule of law. Moreover, because New Zealand maintains high labor, environmental, and human rights standards, these issues will not be a major stumbling block in negotiating a trade agreement. Negotiating with New Zealand will reinforce U.S. leadership in Asia and will further the market liberalization goals of the Global Free Trade Association (GFTA) and Asia Pacific Economic Cooperation (APEC).

Though some issues will be tough to negotiate, a bilateral trade agreement would benefit the United States and New Zealand by reducing barriers and reestablishing U.S. leadership in the global market.

Expanding the global market

While 95 percent of New Zealand's imports are duty free and the average weighted tariff is just 0.7 percent, a bilateral trade agreement would remove non-tariff barriers that hinder U.S. exports. The largest economic gains from negotiating a free trade agreement would come from removing barriers on agricultural goods. Each side has something to give: for the United States this would include reducing barriers on dairy products, and for New Zealand it would include relaxing sanitary and phytosanitary standards on US agricultural products. Reducing agricultural barriers in the New Zealand market would greatly benefit U.S. farmers, who currently export one out of every three acres grown.

The Bush administration should do its part to spur these negotiations by liberalizing the agriculture market and reducing market-distorting subsidies. By doing so, President Bush would not only benefit the economies of the United States and New Zealand from increased trade, but it would also help further his reputation as being a strong supporter of free trade.

Beyond agriculture, many other American industries will benefit from a trade agreement with New Zealand. The U.S.-New Zealand Council estimates that U.S. merchandise exports to New Zealand would increase by about 25 percent.

Even more important than the economic benefits to the U.S. economy would be the momentum that negotiating a free trade agreement with New Zealand would generate. Because New Zealand maintains low trade barriers, is open to foreign investment, has secure property rights, and low levels of regulation, New Zealand qualifies for membership in the GFTA, a vehicle to promote free trade among countries that maintain similar institutions. In addition to New Zealand and the United States, 11 other countries qualify for GFTA membership including Australia, Chile, Denmark, Estonia, Finland, Hong Kong, Iceland, Ireland, Luxembourg, Singapore, and the United Kingdom. Currently, the United States does not maintain a free trade agreement with any of these countries. If the United States and New Zealand negotiated a free trade agreement, then this could lay the ground work for negotiating other trade agreements with the other countries that qualify for membership within the GFTA or could be used as a model agreement to jump-start GFTA negotiations among all of the qualifying members.

Aside from furthering the goals of free trade through the GFTA, a free trade agreement could also create some momentum in APEC, a regional trade agreement with 21 countries, of which the United States and New Zealand are founding members. APEC members have attempted different strategies at jump-starting negotiations in order to achieve its goal of "free and open trade and investment in the Asia Pacific by 2010", but none of its strategies has been successful. A U.S.-New Zealand free trade agreement could help jump-start these negotiations as some of the key members of APEC move forward with pursuing the goal of free trade.

To increase the chances that a U.S.- New Zealand free trade agreement happens, Congress should give President Bush Trade Promotion Authority (TPA). With TPA, President Bush would have the authority to negotiate a trade agreement and then submit the agreement to Congress for a straight up-and-down vote. A U.S.-New Zealand free trade agreement could be achieved without Trade Promotion Authority (TPA), if both governments agree to undertake the required negotiations. Undoubtedly, however, a U.S.-New Zealand free trade agreement could be negotiated much more rapidly if Congress gives President Bush TPA.

Conclusion

As The Wall Street Journal recently noted, "The loudest proponents for free trade the U.S. and the leaders of the European Union -have refused to open their markets to New Zealand's best products." American protectionism has not escaped the attention of the world. Clearly, the crumbling credibility of U.S. commitment to trade needs to be addressed. With only 3 out of the 131 trade and investment agreements in the world, the United States needs to keep its commitment to free trade by liberalizing its market and by seeking bilateral trade agreements to expand opportunities for American producers. Negotiating a trade agreement with New Zealand will start this process and build on a longstanding friendship.

Sara J. Fitzgerald is a Trade Policy Analyst in the Center for International Trade and Economics, and Aaron Schavey is a former policy analyst in the Center for International Trade and Economics at The Heritage Foundation.

About the Author

Sara J. Fitzgerald Policy Analyst
Center for Trade and Economics (CTE)

Aaron Schavey Policy Analyst
Finance and Accounting

Related Issues: Trade, Economic Freedom