$1 billion bonanza hope in US deal

The dairy sector could be the big winner from the United States' decision to negotiate a free trade pact with New Zealand and three other countries.

US officials confirmed yesterday the US had agreed to join the P4 group of Pacific Rim countries - Singapore, New Zealand, Chile and Brunei - to negotiate a trade deal, which would add up to $1 billion a year to our economy.

Prime Minister Helen Clark said yesterday she was "blown away by the news".

The value of the final free trade agreement would be about the same as that of the bilateral pact that has eluded her government for years, partly because of foreign policy issues including New Zealand's anti-nuclear policy.

"It could be worth up to $1 billion per year for the local economy," she said.

Miss Clark expected the US deal to be worth far more than the free trade agreement signed with China in April. It would also be much easier to negotiate.

The US is New Zealand's second biggest trading partner, and accounts for 10 per cent of all our trade.

Trade Minister Phil Goff is in the United States.

He said today he expected the first round of negotiations would take place in early 2009.

The New Zealand public would have a chance to submit on the shape of the country's negotiating mandate.

"Securing an FTA negotiation with the United States, the world's largest economy, has been a key trade objective for more than a decade," Mr Goff said.

"Securing this through the P4 negotiations follows my discussions of this idea with [US Trade Representative] Susan Schwab at a trade meeting in Cairns 14 months ago. I am delighted that the US has taken up this idea.

"To have this commitment from the United States in the same year as we have also concluded FTAs with China and the ASEAN economies is a great achievement and opens up the prospect of significant and sustained benefits to New Zealand businesses and the economy in general," Mr Goff said.

He said interest in the agreement had been shown by other countries such as Peru, Vietnam and Australia.

"Eventually we hope the agreement will prove attractive to other large economies in the region such as Japan. As significant export markets for New Zealand exports, this would also bring big benefits for New Zealand," Mr Goff said.

News of the deal - which would be the biggest trade pact for New Zealand since closer economic relations with Australia in the 1980s - seeped out early.

Miss Clark said a change in the US administration in November would be unlikely to dampen enthusiasm in Washington for a deal.

National's trade spokesman Tim Groser, a former ambassador to the World Trade Organisation, shared Miss Clark's enthusiasm and predicted Australia - which has had its own free-trade deal with the US since 2005 - would also want to get involved in the deal.

He believed the dairy sector was likely to emerge as the big winner because the deal could break down strict tariff barriers for dairy products entering the US.

Federated Farmers president Don Nicolson said the US already bought more than $1.7 billion of New Zealand's meat and dairy a year, but a free trade agreement would provide a greater foothold.

With US farmers getting around $300 billion in subsidies over the past decade the agreement would "level the playing field".

"This free trade pact is great news. Since the 1980s, when we lost all of our subsidies, we've become one of the most efficient producers of meat and dairy in the world. We're very well placed to match any competition," he said.

Former prime minister and former World Trade Organisation head Mike Moore urged caution. He said it was too early to be making comparisons with New Zealand's recently signed free trade agreement with China.

"The deal has yet to be done and there is a lot of hard work ahead. But it's all good," Mr Moore said.

The P4 agreement was signed between Singapore, Chile and New Zealand in 2005 before Brunei signed up the following year.

The US decision to join the agreement will give impetus to a long-term plan within the 21-member Asia-Pacific Economic Cooperation (Apec) forum to forge a free trade agreement of the Asia Pacific.

Apec, comprising such nations as the United States, China, Russia, Chile, Japan, Canada, Australia and key Southeast Asian economies, accounts for nearly half of world trade.

- © Fairfax NZ News