 Good morning. I'm Ernie Bauer, the Senior Advisor and Director of the Southeast Asia Program at the Center for Strategic and International Studies. And we are delighted this morning to have the Honorable Tim Grocer, the Minister of Trade of New Zealand, who's just arrived in Washington, D.C. Minister Grocer, welcome to Washington. I'd like to first just say our hearts go out to the people in Christchurch. We're very sorry about the earthquake and how are they doing? Well, considering the magnitude of the earthquake, which is the same size as the Haiti earthquake that killed 256,000, while I suppose you wouldn't want to say it to the people of the good folk of Christchurch, they are damn lucky. Not one person killed, other than one person whose heart attack is attributed to the shock. And damage, while extensive to some of the older buildings, remarkably little given the size of the quake. And I think it's intriguing and interesting perhaps to a broader audience to just have two or three words about why. We're called, and this is a deliberate insult by the Australians, of course. Our closest friends, the shaky aisles. I'm sure they have more than just earthquakes in mind. But they call us the shaky aisles for good reason. We're part of the ring of fire that starts off roundabout where we think of Japan through the Indonesian Malay Archipelago to New Zealand. And this is a prime earthquake prone zone where the names of tectonic plates that I've long forgotten collide. So we have to expect earthquakes. And our forefathers showed unbelievable foresight in doing a number of things. First of all, developing seismic code, building codes, which are requirements for building houses. Almost all the damage was done to houses that were built before the codes were put in place in about 1945-46. Secondly, in more sophisticated application of geoengineering, we have put in place geotech solutions to deal with an issue that nobody had heard of except scientists until about six weeks ago called liquefaction, which is one of the main results of earthquakes. And where the geotech solutions have been put in place, the damage has been unbelievably light. Intriguingly, the Chinese are extremely interested in the earthquake, and it is not hard to understand why. They're the place that's building their cities from scratch in some respects. Their earthquake prone, we had the disaster in Shiswan, what about a year ago, was it, you know? And I think people will look to New Zealand for geotech seismic solutions and also some social approaches. Our forebears also put in place what is, I find it hard to believe, but I'm told, the world's largest externally based disaster insurance scheme. So every New Zealander for the last 80 years has had to pay money to a fund that sits offshore to accumulate massive financial resources relative to the small size of our economy for disasters like this. So now we're drawing down on their good fortune and on their foresight. So, yeah, a tough story for those who are caught and the children are still very disturbed because the aftershocks go on and on and on and on around the 4.5, 4.6 Richter scale. But you have to step back and think, thank God, it was, had such little actual consequence considering the massive scale of the quite, excuse the extended answer, sir. No, no, I appreciate it. Thank you very much. And good luck to the, to those people as they recover. You've been trade minister for about two years now, if I'm right. And I wanted to ask what, what's it like being the minister of trade in New Zealand? What are your, what are your major challenges and, you know, trade in the United States is extremely political. Could you talk a little bit about, you know, how that works in New Zealand? First of all, Ernie, I, I come from a rather unusual background for a trade minister. I actually have been New Zealand's chief trade policy strategist for a number of years. First of all, I was our chief negotiator in the last GAT round, the WTO, now the WTO, the Uruguay round. And secondly, principal economic advisor to our trade ministry. So I went into politics as a geriatric, as it were, with one objective, becoming the trade minister. So I've actually had 30 years, and I was before that, I was chairman in Geneva, first of all, of the rules group in this negotiation, the group that handles the negotiation on anti-dump subsidies and a few other issues. And then I became chairman of the agriculture negotiations after the disaster at Cancun in 203. So I come with an unusual background, and for me, it's just a great privilege to, near the end of my career, to be the minister rather than the senior official. That's on the one hand. The second thing that's rather unusual about New Zealand is that trade is not political in New Zealand. Now this is deeply unusual and wasn't the case 25 years ago. In fact, trade 25 years ago was a deeply divisive political issue. But I think over the years, for a variety of reasons, I wouldn't want to bore you with the two major political parties, one on the center-left, one on the center-right. I represent the center-right party, but very much a centrist party, not a right-wing party. We've come to a strong working consensus that we can have our arm wrestle on a whole number of issues in the good democratic sense of that. But this is an issue which doesn't fit into the literal cycle of any democratic country. I can give you example after example of highly successful trade strategies that we've implemented that have spanned, in some cases, three changes of government. So we have come to a consensus, informally, but a very strong consensus between the two major parties that we have a bipartisan approach to trade issues. And I can't say that I can recommend it to anyone else, but it sure has worked for us. Well, thank you very much. Maybe you could come and do some seminars in Washington. We sure need a consensus on trade, and it sounds very nice. We're wrestling with that. In the sense of the U.S.-New Zealand relationship, trade is obviously trade and investment is a very important part of that relationship. Could you talk about New Zealand's outward perspective on trade, particularly in relation to some of the new trade agreements that you've signed with China, India, ASEAN? How do these agreements fit into your strategy? And then could you relate those agreements to what you're trying to do with the United States and TPP? Well, first thing I want to emphasize is we are very close to the United States on a number of issues, and I have worked, I think, extremely well and easily with successive U.S. DRs, U.S. ambassadors in Geneva, senior USDA people, and the relationship has just been fantastic. And I think when the New Zealand-U.S. relationship works well, it's a classic example of using the huge power and muscle of the United States, but sometimes we can act as what I call a front fence for the United States. If I just put your question aside for one second and think about another aspect of my responsibilities, I'm also the Minister in Charge of International Climate Change Negotiations. And one of the initiatives, which is very much a New Zealand fronted but U.S. being the muscle behind New Zealand, is a research group we put together called the Global Agricultural Research Coalition or Alliance, which springs out of our knowledge that food is a major source of emissions into the upper troposphere. In fact, it's 14%. And people are not going to stop eating, you know, at the point of taxing food in the sense that you want to discourage that. We have got to find technological solutions to the relentless growth of emissions in agriculture because we know as a planet we have to grow about 70% more food by 2050 to feed the 3.5 billion extra miles that have to be fed and also accommodate the reality that the development process around the world is working so unbelievably well that as hundreds of millions move into the effective middle class and I use the McKinsey concept of 5,000 U.S. PPP as that base, they're going to want high quality protein, high quality foodstuffs that countries like the United States and New Zealand produce. Now we've got to do that while lowering the growth rate of emissions. So New Zealand's taken some leadership here of fronting up with a whole bunch of scientists from 30 countries, both developed and developing. The United States has essentially put some serious money into this proposal as well as some of the great brain, scientific brains of this country and it's a beautiful example in my opinion of a very small country close in values to the United States working very productively. And I'm going to see Tom Vilsack, the Secretary of Agriculture later this morning to follow that through. He and I launched this initiative at the Copenhagen meeting given the very poor quality result from Copenhagen on climate change. Many people told my Prime Minister they thought that what Tom and I had launched was probably the most positive result coming out of the conference. Well, that's maybe exaggerated, but you know. So I just want to give that as an example of how the greatest power in the world, the United States, actually sometimes it's great to have little countries like us that share very similar perspectives working constructively on common international agendas. On the trade agenda, we have been, in my opinion, and I'm going to use big words here, astonishingly successful for a country with so little power and so little influence and also with such an open market. I mean, sometimes I go around saying I think I've just sold the Brooklyn Bridge for the seventh time. So we're strongly committed to the multilateral process and this is not just rhetoric, I promise you. We fully understand that some of the issues of greatest concern to our companies can and will only be resolved by further advancement in the multilateral process. We are never going to see an FDA by whatever name that tackles anti-dumping, that tackles subsidization, that tackles export subsidies, that tackles trade and distorting production link subsidies to agriculture, that frankly tackles fishery subsidies adequately. It's something I feel very passionate about and we've got an initiative again, very strongly US-New Zealand initiative on fishery subsidies in the WTO to try and arrest this appalling degradation of wild stock fisheries. There are so many issues here that can only be dealt with multilaterally and people that aspire as FTAs with while forgetting that have not got the plot. So we're totally committed to that and I've spent 11 years of my professional life in Geneva under various titles doing that gig. But at the same time, we haven't stopped there and we've pursued a very aggressive FTA strategy that is working unbelievably well and I'd have to say almost contrary to my own predictions because I just didn't think we could do it 15, 20 years ago. So I'll just quickly outline where we are and some of the things we're looking at often jointly with the United States. First, from our point of view, we have established a fantastic relationship with Australia. This is our most important partner, it's our closest friend. We're almost working towards what I call, to put the Chinese Taiwan metaphor around the other way around, two countries, one system. Whereas China and Taiwan have got this long-term vision of one country, two systems. Well, there's a whole lot of jokes. There's all sorts of inappropriate sheep jokes behind this, but we just get on. Sometimes foreigners don't understand as we insult each other at dinner parties that it shouldn't be taken too seriously. So we have this very strong relationship between our two countries. We're brothers in arms historically. We've done all the wars together and we're a very strong bond between these two countries. And we've established this comprehensive FTA called the CER, or Closer Economic Relations, exercise in 1982. I was very much part of that negotiating team on the New Zealand side that absolutely did establish the gold standard of the day. So that's in place, that's working well. 24% of our exports go to Australia. They're a larger source of FDI and so on and so forth. Then we've established a set of relationships in the Asia Pacific. Both we and the Australians, our economies were strongly geared towards Europe. Primarily we were offshore farms for the United Kingdom as former colonies of the United Kingdom. Much more strongly so for New Zealand than for Australia. Australia's got other options, massive mineral reserves in the last 20, 30 years, but still it couldn't be said about Australia with less force. The movement towards Asia has been very difficult at the beginning from the mid-70s onwards, but is now going unbelievably well. I don't think we truly saw, I'd like to pretend we did, but I don't think it would be true just how much growth and development would take place in the Asia Pacific when we started down this journey in 1973 when Britain joined the then EEC and our markets disappeared into what was then the protectionist morass of the unreformed common agricultural policy. And let me say for the record the Europeans to their great credit have made huge changes since then, and that's what propelled us down this path. Now at that stage it was very much a Japan story, Japan being the first Asian economy to reach developed country status, and the Tigers then, Hong Kong, Singapore, Taiwan, and one or two others, they were just at the early phase of their development. Well, to fast forward 30 or 40 years, what an extraordinary Asian success story we see, and we have established, along with Australia, a very interesting agreement with a name that would make you blind, Anne's Fitter, what it is, it's a comprehensive FTA starting to come into effect on the 1st of January 2010, so nobody in New Zealand or Australia really is aware of it, but it will influence their futures. Which combines the Australian economy, the New Zealand economy, along with the FTA that encompasses the Southeast Asian economies called AFTA, and over the next 10 years, most of it dam site sooner than 10 years, this will create a trading block out of these two contiguous FTAs, the CER and the AFTA into one, with common rules of area origin, a market of 566 million people, our exports to ASEAN are compounding at around about 11% at the moment going extremely well. We'll probably be selling more to Indonesia in the next five years than we sell to the United Kingdom, which used to take 50% of our exports in 1975. So that's going on. We're also extremely fortunate from an economic perspective in being the only developed country in the province of FTA with China, negotiated by my predecessor in the previous center left-lead government. Now, I mean, going back to my political point here, how important it has been to have complete continuity of policy for a very small trading economy that doesn't let its domestic armed wrestle get on the way of structural strategic policy initiatives like this. So they did that or credited them and I'm very careful to give credit to my opponents on trade policy because it's just and deserved. And we've built very successfully on their achievements. Our exports to China are going through the roof. They've doubled in two years. China's just overtaken the United States as New Zealand's second largest export market. Australia's largest market. That's driven very strongly in Australia's case by minerals exports. We've negotiated very recently the first ever FTA that Hong Kong's done with anyone to try and make more coherent the greater China strategy. That's working extremely well because Hong Kong itself has a separate customs territory of China and a separate member of the WTO is I think the sort of 12th largest trading economy in the world in its own right. So that's going really well and what I was trying to say to the folk at the services seminar is if you look at the FTAs in the world's most exciting region, the Asia Pacific region through the prism of a New Zealand negotiator's eyes what we see is quite interesting. Throughout the 90s there's this debate since I'm talking to a think tank I'm allowed to talk about intellectual things, because you will recall and anyone who's interested enough to watch this interview will recall the great debates between Bagwati and Bergston over RTAs or regional trade agreements versus the Motley and Trade System. My own personal view on that debate 15 years ago was Bagwati was right, of course. We would have all been far better if we'd never done regional trade agreements and we'd all been faithful and done the right thing by the principle of EMFN and multilateralism blah blah blah blah blah blah but that wasn't the way the world went. So, you know, Bagwati was right in principle, Bergston was right in practice and these two distinguished gentlemen I think at the end of the day set out the debate in ways that actually both of them have contributed in a very constructive way to understanding what the real issues were and what the real issue was not a choice. So, we have tried and I know the United States has tried as hard as any country to push forward the horizon on the multilateral fund but as from 1982 onwards when Bill Brock, then USTR shifted policy of the United States and said this is going too slowly for us when we the United States are no longer prepared to find ourselves boxed in. I mean this is very much frustration about the then unreformed common agricultural policy of the European Union. I'm not a European basher at all. You know, I mean I've actually a European by birth and I recognize the massive reforms they've gone but actually it was immense frustration with Europe at the time the forced Bill Brock and the US system down this track. Now, in the 90s during this great debate that so exercised seminars of the time and I've written extensively on this myself in sort of quasi-academic terms the quality of some of the FTAs that were being written at the time was very low actually and they were often done for political reasons. They were lightweight. More recently, I would argue there's been a flight to quality and if you look at the FTAs we concluded they are I promise you this is not a politicians rhetoric any analyst who looks at them would not be able to come to a different conclusion they are real high quality they are comprehensive there are no exceptions to them in any important sense let me give you an example I could go into one in depth because it's the most important the China FTA so there is effectively no S&D, special differential treatment other than some very minor extended time frames for them are sensitive products to be completely liberalised the only exception on goods to complete liberalisation are some relatively unimportant tariff lines in the forestry area and the only reason their exceptions is because it's part of the deal to get China into the WTO their protocol of accession included a legally binding commitment never to liberalise those tariff lines on forestry other than on a multilateral basis it was either a US or a Canadian demand when they couldn't get what they wanted I can't recall which country led that so apart from that technical exception which is of no real consequence we're talking about tariff lines around 7% nice to get rid of them but not the end of the world we're talking about something without exceptions now if that's not a flight to quality I don't know what is the second and we're just down to deal with Malaysia it's why we're so keen to see Malaysia come into TPP again exactly the only exception on the good side is alcohol and we're there in Islamic country in fact one of the reasons that I am extremely excited about bringing Malaysia into the TPP is precisely because I think trade people like me might surprise some of the skeptics we actually do have a broader perspective than just trade these are strategic these are not just trade agreements these have deep political consequences going back to I have not worked my whole life on just trade I was ambassador to Indonesia at one stage the only way we're going to get on top of terrorism from Islamic countries I'm not pretending terrorism only comes from Islamic countries is with the help of Islamic countries I mean we're never going to do this as non-Islamic peoples on our own and extremely constructive countries like Indonesia and Malaysia who actually are in the front line of Islamic terrorists the number one objective of most Islamic terrorists is their own governments not ours the point that's very easy to overlook so working constructively with these constructive largely Islamic countries to me has got a very very important kickback strategically but Malaysia is an outward looking country highly successful yes it has challenges economically it's a little bit squeezed by its success actually it's very success in dealing with low cost labour electronic manufacturing and now it needs to move up market to more sophisticated product lines he's a very good friend of mine and he's an outstanding minister for his country and they got very able political leadership in our view so they're an open economy and the only exception in the FDA there was alcohol because of their Islamic culture which we appreciate and respect so what I'm saying is that you're seeing a flight to quality contrary to what was said 15 years ago about FTAs and you're seeing a lot of the spaghetti in the bowl being wrapped up via contiguous FTAs now starting to merge which is of course what TPP is meant to be about so you've got these eight countries led by the United States they've got their own networks we're an exception to it but most have got an FTA already with the United States and therefore if we go back to the original critique of FTAs and RTAs you know there's all the complexity of different rules of origin and different deals here and there well we're trying to wrap them up into a common agreement now this ain't easy you know this is highly sensitive domestic issues no more so than in the case of this great country so we... but I've never seen a trade agreement that I describe as easy so you know nothing new in that it's going to take us time to work through but the president is strongly committed to this I know the president has said to his ministers and his senior officials that he wants to see something by the end of the year we're going to try and achieve that objective precisely you know how far we'll get is in the hands of the gods but the negotiating gods in this case but that's the objective and we see this as first commercial second strategic in terms of trade policy thirdly strategic in terms of the political relationships amongst our countries and we've just gone in depth into the issues around Malaysia as a potential strong candidate not quite in the system but we're comfortable with Malaysia joining I know and thirdly I mean this is the US ticket to continuing to be the leader of Asia Pacific trade investment integration now TPP is not the only game in town there are other games in town and I don't know how well this is understood frankly in some circles in the United States I'm sure your leaders understand this so you've got China laying down a card saying we can play I mean that is the significance of their FTA with New Zealand now you can say well New Zealand small country yeah yeah yeah yeah yeah but big countries always start policy shifts with small countries are referred to the shift in US policy in 1982 when Bill Brock shifted US policy who was the who did they did their first deal with Israel people often miss the significance I remember at the time of this shift in US policy precisely because they said it's only Israel I mean it's just a political ally of the United States I mean if no consequence economically well what a wrong judgment that proved to be so China's laid down its card it can do FTAs with clean comprehensive deals we're waiting for our Aussie mates to dock into that we've got the agreement in the center geographic center of Asia between Australia and New Zealand and South East Asia ASEAN has launched two initiatives one called ASEAN plus 3 which is they the 10 ASEAN countries plus the great East Asian economies of China Japan and Korea and a complimentary trading initiative called ASEAN plus 6 which is those 13 countries plus Australia, New Zealand and most intriguingly India note that US is not part of this but TPP is ahead of the game here those are study processes they may or may not lead to pluralateral comprehensive trade and investment integration frameworks in the Asia-Pacific region with TPP ahead of the game we've gone past that stage we're actually now negotiating and I mean I think a lot of us being very close friends of the United States of course very comfortable with traditional US leadership on these issues we want to see the US be at front and center of this process it does have strategic implications for the United States that go well beyond trade we fully recognize that the grouping in its current configuration is not sufficiently large to be a game changer for the United States that's fully understood when it may be small but we're not stupid we're quite sophisticated people and we get it so the whole concept here is to try and use it's not that small it's a relatively modest group of countries Australia and New Zealand and the others Singapore and Co and Peru and move this game forward to establish a template for trade and investment integration and then with US leadership within it then move on to the economically more interesting agenda of the really big economies of Asia I mean that's the game plan I don't think TPP makes sense to the United States except as a dynamic the problem for the US will be to maintain strategic unity of vision and keep that strategic concept uppermost in its mind as it proceeds given the fact that we everything in this country is open to public scrutiny there's going to be all manner of lobbies that will want to tear this down and won't be the slide is a bit interested in the bigger US strategic interest that's about how I see it could you as a last question since you think obviously far beyond the trade agreement could you talk about the three things Americans should know about New Zealand or think about New Zealand as they think about the trade agreement and our relationship going forward well it may sound very conventional thing to say but I think shared values lies at the foundation stone of a relationship and just remember this New Zealand in the last centuries been only ever invaded once and that was by Americans but I don't know how many thousands of GIs invaded our country in 1941 1942 on R&R and there were many ugly scenes between young American males and New Zealand males competing for the same women I don't know whether we should say that on television but shared values lies at the heart of that relationship and and I think increasingly now this vision of us as a predominantly Anglo-Saxon country though we have very interesting mix now of Asian people and of course traditional indigenous, Polynesian people who make a fantastic contribution in New Zealand and increasingly savvy in the sense we're looking to Asia that's where the United States long-term interest lies and New Zealand is a fantastic albeit very small partner of the United States together with the Australians in that region so I mean I see it shared interests you know we all now follow the Joseph Nye concept of soft power New Zealand doesn't have any hard power except as Bob Hormats once said to me you're sort of the Saudi Arabia of milk aren't you well okay okay okay but putting aside Bob's joke we only have soft power and ideas to sell but you don't need to be a big country to have a good idea and I mean one thing I've always liked about American people is they're always ready to listen so I mean those are the sort of general comments I hope they don't sound too too goody two shoes but I think they have merit and I think they have substance behind them Mr. Minister thank you very much for spending some time with us that was a fantastic tour of trade in New Zealand your perspective of trade developments in Asia and the relationship with the United States thank you and good luck on your trip here Mr. Minister