US politics likely to scupper P4 trade deal

With trade deals already backed-up in the Congress and the US economy tanking, New Zealand may find that going it alone is still the best way to an FTA with America

The initial ra-ra over America’s decision to join the P4 trade negotiations, and its hope that it could lead to a free trade deal with the US, has started to die down. And quite right too. The ever-wise Brian Fallow offers some of the smartest comments thus far made on the deal in today’s Herald. Looking at it from the US perspective, he says that the world’s largest economy doesn’t care about access to virtually tariff-free New Zealand, it just doesn’t want to be left out of a burgeoning Asian free trade zone.

Look more closely the politics though, and the road to a deal looks even more full of potholes. Free trade is such a contentious political issue in the States that the only way to get a deal through Congress is for the President to be granted what’s called trade-promotion authority, known as “fast-track” powers. It means that protectionist politicians can’t pick apart trade legislation clause by clause, thereby condemning it to endless sub-committees and ultimate failure. It’s either a yes or no vote. But the issue has such heat that Congress has stripped George Bush of that power. As a result, the already negotiated free trade deals with Colombia, Panama, and even the strategically vital South Korea remain in limbo. This is a Congress with a Democratic majority; and that’s almost certain to be the case again come November. If they won’t give fast track powers to Bush, don’t expect Congress to give them to McCain. If Obama loses, the House Democrats will try to wound McCain every which way. In other words, for all that McCain is on the record approving of a free trade deal with New Zealand, you can all but forget about progress if he becomes President.

The good news is that Barack Obama is much more likely to win. A Democratic-led Congress might be kinder to a Democrat president. But they might not. Sure, the Democrats make the right noises. A spokesman for the House of Representative's influential Ways and Means committee told me last year that, "Many of our members believe it should have been negotiated alongside the Australian FTA, so it's a logical step to continue processing towards this goal”. But there’s a simple rule in US politics: the more the economy struggles and jobs disappear, the more protectionist politicians, especially Democrats, become.

Obama himself is on record railing against NAFTA and other American free trade deals. Given the importance of him winning the working class vote in Michigan, Ohio, and Pennsylvania come November and the success he's having hammering the Republicans on the country's tanking economy, you can expect that rhetoric to continue. He has, to be fair, given himself some wriggle room, talking more favourably about deals that have strong labour and environmental protections. And in that there’s hope for New Zealand.

We could be the poster-child for a new era of US free trade deals. For all that the business lobby has opposed Labour’s climate change legislation and is always whining about our labour laws, the irony is that they could be crucial for us to get a deal with America. Problem is, by tying ourselves to other countries in this process, we could be undermining the union- and environment-friendly appeal we would have on our own. I emailed Tony Faiola, one of the trade reporters at the Washington Post to ask about this. He replied: “Labor and environmental issues will be key to reaching any new FTA, and if NZ’s allies in this deal don’t have that under their belts, passage will be even tougher”.

Faiola is “skeptical” the P4 deal could ever be completed... “largely because the US currently has three trade agreements on tap - South Korea, Colombia and Panama - and all three of them are stalled, facing stiff opposition in Congress. The current economic climate in America has made free trade a hard sell, particularly as the notion is being blamed for lost US jobs. Additionally, chances are the very strong US farm lobby would weigh in against the deal”.

As if on cue, this statement was released: “NMPF to Fight Inclusion of Dairy Products in Proposed Free Trade Agreement with New Zealand”. Their complaint is that Fonterra is a “de facto dairy monopoly” and any FTA is “market manipulation” that would “drive down dairy farmer income in America, force farms out of business, and create a ripple effect swamping dairy plants and other rural businesses – all at a time when our economy is slowing and unemployment is rising”. The hard sell just got much harder.

And just to cap things off, Australia, Peru and Vietnam have expressed interest in joining the P4 negotiations, taking them to P8. Then will come Thailand and Malaysia. South Korea, if its own deal is stuck, might consider a joint approach. And with each new country that tries to jump aboard, the ship of free trade is more likely to sink under its own weight.

So as clever as it has been for Phil Goff and his trade officials to try and lure America in through the bedroom window when it became clear they weren’t simply going to walk in the front door, I wouldn’t be surprised if that window slammed shut some time in the next 12 months. The front door, however hard, may yet be the best option.