May 15, 2008

Breakthrough In Japan-NZ Trade Relationship

Much against everyone's expectations Prime Minister Helen Clark has delivered the goods again and achieved agreement from the Japanese Prime Minister to an official government to government study on an FTA between New Zealand and Japan. Up until last week Japanese officials were advising that such an outcome was impossible, and we understand that Japanese agricultural interests are already planning ways in which they can claw back lost ground. This is also a victory for Trade Minister Phil Goff who has been putting pressure on his MFAT team to put more effort into the Japan relationship. He has personally visited several times as a Minister and has been in regular contact with his Japanese counterpart.

Why is this important? Because Japan is important and because Australia is negotiating an FTA with Japan. If this negotiation concludes New Zealand risks losing its market in Japan, as trade will be diverted to Australia. Until yesterday, New Zealand wasn't even in Japan's FTA queue - now we are.

Why has Japan changed position? The China-NZ FTA has the Japanese worried about loss of relevance in New Zealand. Japan is also worried about food security (one small example is the fact that Japan has run out of butter!!). What better way to ensure supply than to give New Zealand exporters a price incentive to supply to Japan? The risk is that if we have an FTA with China but not with Japan, that if we get a better return in China as a result of free trade that we stop supplying Japan.

What is the New Zealand business reaction? We understand it is very positive. The breakthrough occurred on the eve of the inaugural Partnership Forum with Japan. 40 of New Zealand's most senior business people and Government heads are in Tokyo to meet with an equal number of their Japanese counterparts. We are told that when the PM announced things at a party last night their was spontaneous applause from the New Zealand contingent.