Cablegate: Eap/Anp Deputy Director Gets Read-Out On New Zealand

DE RUEHWL #0057/01 0430709
R 120708Z FEB 10



E.O. 12958: DECL: 2020/02/12
SUBJECT: EAP/ANP Deputy Director Gets Read-Out on New Zealand
Defense, Trade, Economy

CLASSIFIED BY: Robert Clarke, DCM, Department of State, US Embassy
Wellington; REASON: 1.4(B), (D)

1. (SBU) Summary. During February 7-9 visit, Australia, New
Zealand, and Pacific Island Affairs (EAP/ANP) Deputy Director
Stephen Schwartz met with a number of academics and Government of
New Zealand officials on a range of subjects, including New
Zealand's economic situation, the Trans-Pacific Partnership (TPP),
Pacific Island issues, non-proliferation, counterterrorism, and
bilateral defense relations. Ministry of Defence Deputy Secretary
Brook Barrington said the New Zealand Government understands the
U.S. military policy review was a big step and sees the outcome as
positive. In the event of a media inquiry, he urged coordination
between the United States and New Zealand on a response. Ministry
of Foreign Affairs (MFAT) Pacific Island Affairs officials reviewed
ongoing tensions with Fiji and do not foresee an easy or timely end
to the Regional Assistance Mission for the Solomon Islands (RAMSI).
MFAT trade officials emphasized New Zealand is gearing up for TPP
discussion in Melbourne and hopes the meeting will be an
opportunity to begin building an overarching framework for the
agreement. MFAT counterterrorism and non-proliferation officials
also welcomed closer cooperation with the United States and
expressed particular interest in partnering with the United States
in conducting counterterrorism capacity building activities in
South Asia, Southeast Asia, and the Pacific Island regions. In a
separate meeting, New Zealand Institute of Economic Research
Principal Economist Shamubeel Eaqub said that New Zealand's economy
is on the "cusp" of recovery but still very fragile. During a
briefing at the Centre for Strategic Studies: New Zealand,
Professor Robert Ayson said New Zealand has a strong sense of the
Pacific Island region as its "backyard" but lacks a sense of its
role in Asia. End summary.

Military Policy Review - Need to Coordinate on Media Message

--------------------------------------------- ----------------------

2. (C) In a meeting with Ministry of Defence Deputy Secretary of
Defence Policy and Planning Brook Barrington, EAP/ANP Deputy
Director Stephen Schwartz emphasized that the U.S. military policy
review was a big step for the United States and expressed his hope
that the results remains strictly between the two governments. He
also underscored that the substance of the review and possible
follow on activities would be addressed during the upcoming visit
of DAS Frankie Reed and DASD Robert Scher. Barrington replied that
the New Zealand Government understands that it has not been an easy
process for the USG, and the end result is "a tribute to the
commitment, perseverance, and good sense" of those involved. He
also emphasized that "no one on our side sees the results as
anything but positive." In addition, no one in the New Zealand
Government is "enthusiastic" to see the results in the media.
Barrington said that the New Zealand Government will not "front
foot" the issue, but one or two journalists in New Zealand will
likely raise the question. He added that "we want to make sure our
script and your script are the same" and urged the USG to work
closely with his government to create a unitary response to be used
in the event the issue is raised.



3. (C) Barrington said that the New Zealand Government views the
provincial reconstruction team (PRT) in Bamyan as a clear success
and is pleased New Zealand's Special Air Service (SAS) has remained
reasonably busy there. The challenge now is to manage the drawdown
from Bamyan "in a way that will not diminish the good work done."
He also emphasized that the New Zealand Government has signaled
that there will be a shift in 2010 towards "civilianization" of New
Zealand's contributions to Afghanistan. "With a more secure
environment, we need to now shift to building society," said
Barrington, and the New Zealand Government believes this is in
compliance with the McChrystal report. He also confirmed that New
Zealand will soon appoint an ambassador in Kabul.

WELLINGTON 00000057 002 OF 006

Other Defense Issues


4. (C) Barrington noted that the Ministry of Defense will soon
present a defense policy White Paper to the Cabinet Strategy
Committee, which will emphasize the themes of increasing
uncertainty and the decreasing ability of international
institutions to deal with global issues. One area of concern for
New Zealand is the rise of China and whether that will have
positive or negative implications. Barrington added that he
personally saw Chinese behavior in Copenhagen as "deeply
troubling." The paper and ensuing discussion will help New Zealand
shape their defence forces with appropriate characteristics and
provide adequate funding to deal with issues on the horizon. On
the issue of Fiji, Barrington said that Bainimarama's Government is
New Zealand's biggest political problem in the region. "The longer
that government is in power, the easier it is (for them) to justify
their existence," said Barrington. He said that New Zealand has
suffered calculated attacks from the Fiji Government, more so than
Australia, and the Fiji Government thinks such attacks serve a
purpose. Barrington added that he sees the Fiji's latest
announcement to suspend pensions of anyone who opposes the
Government as deeply troubling. "This will only give Bainimarama
more power to shut down dissent." Regarding Vanuatu, Barrington
said New Zealand has some philosophical concerns about the rise and
possible autonomy of the paramilitary forces. Schwartz said the
USG shared those concerns but was pleased to hear Vanuatu's prime
minister say the previous week that his government fully intended
to keep the Mobile Force as part of the police force.

2010: Challenging Year for the Pacific Islands

--------------------------------------------- -------------

5. (C) Ministry of Foreign Affairs and Trade (MFAT) officials,
Pacific Division Director John Adank and Deputy Director Ruth
Nuttall said they appreciate the close cooperation with the United
States in the region. Adank said a bilateral visit to Papua New
Guinea by Secretary Clinton would be viewed positively across the
Pacific Island region. New Zealand puts a "very high priority" on
relations in the region, according to Adenk. New Zealand officials
also worry that 2010 could be a "perfect storm" of problems in the
Pacific. Tonga faces difficulties as it tries to pass electoral
reforms. Papua New Guinea may face a "meltdown issue" over
liquefied natural gas. Nuttall added that Solomon Islands will
hold elections in mid-2010 and former PM Sogavare could return to
power. She said the Solomons would likely "disintegrate" without
the safety and security provided by RAMSI and given this precarious
state, New Zealand does not foresee an early or final exit of
RAMSI. Samoa is struggling to rebuild. Adenk said that these,
among other issues, cause New Zealand to advocate for robust U.S.
engagement in the region.

New Zealand's Recognized Seasonal Employer (RSE) Scheme a Regional
Bright Spot

--------------------------------------------- ----------------------

6. (C) On the issue of Vanuatu, Nuttall said that New Zealand
relations had flagged a bit in recent years, but now New Zealand's
Recognized Seasonal Employer (RSE) work scheme had revived the
relationship and has been a great success. Schwartz noted that 60%
of the passengers on his flight from Port Vila to Auckland were RSE
laborers. (Note: New Zealand's RSE scheme allows workers from
certain developing countries, mostly Pacific Island nations, to
work temporarily in New Zealand's horticulture and viticulture
industries. The program is also designed as a means to provide aid
to designated developing countries. The onus is on the developing
nation to ensure that participants are trained and qualified for
the program. End note.) Nuttal said that the RSE program has
worked well with Vanuatu's traditional culture, and the Vanuatu
Government ensures that the opportunities to participate are
divided up equally throughout the country. The program has in many

WELLINGTON 00000057 003 OF 006

ways encouraged the Vanuatu Government "to get its act together,"
said Nuttal.

Fiji Remains Particularly Problematic for New Zealand

--------------------------------------------- ----------------------

7. (C) According to Adenk, Fiji remains a major focus of New
Zealand foreign policy, especially the reestablishment of a
"diplomatic footprint". During the November 2009 U.N. General
Assembly meeting, New Zealand officials believed they had reached
an understanding with Fiji officials on the "normalization" of
diplomatic exchanges. Hence, they were caught off guard when Fiji
shortly after expelled New Zealand's third Head of Mission.
Currently, New Zealand only has a second secretary and a New
Zealand AID official posted in Fiji. Adenk said that the two sides
are engaged again on the issue and agreed to exchange counselor
level positions. Fiji had put forth an acceptable nominee and
then, after Foreign Ministers McCully and Kubuabola met in Nadi,
switched the nomination to Lieutenant Colonel Neumi Leweni, a
senior military leader in Fiji who is banned from New Zealand under
the country's travel restrictions. Adenk emphasized that New
Zealand has chosen to ignore the second nomination. Adenk added
that the Leweni nomination "clearly came from the military
establishment" and said he hopes Kubuabola can make headway in
getting back to the original nomination. Despite the difficulties,
New Zealand is committed to continuing diplomacy with Fiji and
hopes the rest of the world will continue to engage the country and
bring it back to democracy. Adenk underscored, however, that New
Zealand will not change its sanctions until it sees better
behavior. Schwartz reviewed U.S. policy towards Fiji, which
includes a ban on most development and military assistance, visa
restrictions for coup and government leaders, and regular
humanitarian assistance activities.

New Zealand Set to Lay TPP Groundwork in Melbourne

--------------------------------------------- ----------------------

8. (SBU) On the issue of the Trans-Pacific Partnership (TPP), MFAT
Free Trade Agreement Unit Negotiator Matthew Hawkins and America's
Division Economic Officer Gareth Pidgeon emphasized that New
Zealand views the TPP as a way to solidly "lock" the United States
into the region. Hawkins added that New Zealand understands the
domestic target of "messaging on TPP coming from the United States
on job and export creation." According to Hawkins, the P4 agreement
was a good starting point, and now New Zealand supports the eight
members moving forward. There will always be space to "add new
rooms" and "renovate existing rooms" (existing trade agreements
between the partners) once we have the foundation right and of
"high quality," said Hawkins. Hawkins also noted that although
Vietnam is currently not attending as a full member in the
discussions, and New Zealand is keen to see Vietnam participate in
future rounds as a full member. New Zealand sees Vietnam's full
participation in the TPP as a catalyst to Vietnam implementing key
internal reforms.

9. (SBU) As for March talks in Melbourne starting March 15, New
Zealand hopes to come first to an understanding of what the eight
countries hope to achieve and then build on that common
understanding. Hawkins said New Zealand wants all parties to
openly discuss their goals and focus on a comprehensive framework
and not rush into the technical negotiations too quickly. Hawkins
said New Zealand has identified a small but representative
delegation for Melbourne to make the conversation productive yet in
a position to not get "bogged down" in the weeds.

New Zealand Welcomes Closer Cooperation on Disarmament and

WELLINGTON 00000057 004 OF 006

--------------------------------------------- ----------------------

10. (SBU) MFAT International Security and Disarmament (ISED)
Division Deputy Director Jeff McAlister and Deputy Director for
Disarmament Jillian Dempster emphasized that New Zealand welcomes
closer cooperation on both counterterrorism and disarmament issues.
On disarmament, Dempster said New Zealand is pleased with U.S.
multilateral efforts and would like to find more avenues of working
together. Dempster noted that MFAT International Security and
Disarmament Division Director Hamish Cooper will likely attend the
Global Nuclear Security Summit, scheduled to take place in April in
Washington and would welcome any outside meetings.

11. (C) On counterterrorism issues, New Zealand McAlister said
that New Zealand would like to hold bilateral counterterrorism
talks with the United States. He said New Zealand is just
beginning to designate entities beyond the UN list and will likely
announce four entities soon. Because of its freedom of information
laws, New Zealand counterterrorism officials mainly look to see if
there is a direct threat to New Zealand or its interests and must
build a solid case. Hence, any non-UN designated entity must be
fairly New Zealand-centric. Besides triggering travel bans and
financial restrictions, designating any non-UN entity "creates a
criminal offense" under New Zealand law and cannot be done lightly.
According to McAlister, New Zealand is actively engaged in capacity
building exercises on counterterrorism in the Pacific Island and
Southeast Asia regions and would like to be involved in any
regional meetings. McAlister also said that New Zealand recently
added funding to conduct counterterrorism capacity building
activities in South Asia and would welcome the opportunity to work
with the United States in this effort.

New Zealand's Economy Has Come a Long Way - But More Can Be Done

--------------------------------------------- ----------------------

12. (SBU) New Zealand Institute of Economic Research Principal

Shamubeel Eaqub emphasized that New Zealand still needed progress
in two areas to make the economy globally competitive:
strengthening entrepreneurial incentives for individuals and
improving management of its natural resources. He explained that
New Zealanders are often content with modest business success - not
willing to expand and/or invest at home or abroad, which hampers
the country's overall growth. On resource management, Eaqub noted
that "New Zealand does not yet have the right balance." New
Zealand's Resource Management Act puts "too much emphasis on
environmental protection" at the expense of economic expansion.
Eaqub also said that New Zealand needs to do a better job of
attracting foreign direct investment (FDI), with its attendant tech
transfer and innovation. Currently the country tends to attract
more portfolio investment.

Trade is Essential for New Zealand's Economic Growth

--------------------------------------------- ----------------------

13. (SBU) Eaqub emphasized that New Zealand is heavily dependent
on trade for economic growth and has therefore vigorously pursued a
policy of opening opportunities for New Zealand goods and services
abroad through free trade agreements (FTA). New Zealand has also
made a dramatic change in its main trading partners. Over the past
twenty years, the distance of travel for New Zealand goods has
halved as trade has shifted away from the United Kingdom to the
Asia Pacific. In the past few years, the country has concluded
FTAs with a number of economies, including China, Hong Kong,

WELLINGTON 00000057 005 OF 006

Malaysia, and the Gulf Cooperation Council. It is also pursuing
FTAs with Korea, Japan, India, and Russia. Eaqub noted that
statistics have shown that FTAs generally have a large impact on
New Zealand's economy; the large increase in trade volume with
China following the conclusion of an FTA in 2008 being the most
notable one. Eaqub said that although the 60 percent jump in trade
following the FTA signing could not fully be attributed to the
agreement, it was still significant given the global economic
downturn. However, "China was easy because it wanted what we have,
and there was little competition for our agriculture products."
Eaqub did not think a trade agreement with the United States would
bring quite the same results since there are already many U.S.
products that would compete with New Zealand's exports. New
Zealand's economic ties with Australia are particularly important
since it is the destination for 30 percent of New Zealand's exports
and a source of 40 percent of New Zealand's visitors. Eaqub
asserted that Australia's relatively strong economic performance
and effective economic stimulus during the global economic crisis
"saved" New Zealand from a worse recession and from spending more
of its own money on a fiscal stimulus package.

New Zealand Is Coming Out of Recession - But Full Recovery Will Be

--------------------------------------------- ----------------------

14. (SBU) According to Eaqub, New Zealand's economy dipped into
recession before the global financial crisis due to the impact of
drought on New Zealand's agriculture sector. The country's already
tight credit market ironically helped it through the financial
crisis since credit reforms were already underway, and individuals
and companies had already begun to deleverage. New Zealand saw a
10 percent decline in housing prices, but home values have now
recovered to their peak value before the crisis. Eaqub pointed out
that the reason for the quick bounce back was that New Zealand did
not have the same subprime mess or vacancy rate issue as the United
States. It only had a problem of oversupply, which was very
localized. Despite the positive economic signs, Eaqub stressed
that New Zealand is only on the "cusp" of recovery, and the economy
is still very fragile. For example, credit growth to business is
still negative. There is no pick up in hiring, and retailers are
not restocking yet. Until people act on their optimism, there will
not be a full return to growth. Eaqub emphasized that, even then,
recovery will be slow over the next "three to five" years. Even
though New Zealanders have begun to deleverage, it will still take
time for them to reduce debt to a more manageable level. (Note:
New Zealand's debt to income ratio is currently around 160 percent.
End note.)

New Zealand Keen on Global Issues, Unsure of its Role in Asia

--------------------------------------------- ----------------------

15. (SBU) Victoria University of Wellington Professor Robert
Ayson, discussed New Zealand's view of itself in the world and how
that view influences security-related decisions. Ayson also serves
as the Director for the Centre for Strategic Studies: a small think
tank that encourages debate about strategic issues. Ayson
emphasized that New Zealanders are strong "internationalists" and
often have a high degree of exposure to the outside world. They
want New Zealand to get involved in the outside world and are
highly interested when New Zealand does get involved. However,
sustaining interest in foreign engagement can be difficult unless
there is a humanitarian or U.N. component. According to Ayson,
when Australia and the United States become involved in a foreign
issue, New Zealanders are the first to ask how they can also become
involved. New Zealanders are also keen on keeping the balance in
the Asia Pacific area from shifting. Ayson said Kiwis do not see
it as a matter of keeping external influences out; it is about
creating checks and balances. New Zealand is too small to have a
significant influence on regional architecture so keeping the
United States engaged in the region is central to its strategy.

WELLINGTON 00000057 006 OF 006

16. (SBU) New Zealand also has a strong sense of the Pacific
Island region as its "backyard", and it has an interest in global
issues in general. However, New Zealand lacks a sense of itself
vis-a-vis Asia and does not have a sense of "Asia is just over
there." New Zealanders still strongly identify with Europe. For
example, they prefer to vacation there and students tend to judge
themselves by European standards. Ayson suggested that maybe such
views of Asia are held because New Zealand feels "protected" or
shielded by Australia or because New Zealand feels like it is
simply not large enough to make a difference. Ayson said he is
trying to inspire more thinking about New Zealand's role with
respect to Asia, particularly in light of China's rising power in
the region. New Zealand structures its security interests
accordingly. For example, the country's military capabilities are
focused on handling smaller issues in the Pacific Island region
and/or contributing to peacekeeping operations further afield.
However, New Zealand, unlike Australia, does not maintain useful
military assets if a larger conflict were to break out in Asia.
According to Ayson, this world view is also why New Zealand urges
the United States to be actively engaged with regional diplomacy in
the Pacific Island area, but New Zealand generally takes a more
"hands off" approach with U.S. relations in Asia.

17. (U) This cable was cleared by EAP/ANP Deputy Director Steve

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