POUnCAL AND SOCIAL CHANGE IN NEW ZEAUND Y4.IN8/16;N42Z Politicjl and Social Change in *'» HEARING BEFORE THE SUBCOMMITTEE ON ASIA AND THE PACIFIC OF THE COMMITTEE ON INTERNATIONAL RELATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS FIRST SESSION JULY 31, 1995 Printed for the use of the Committee on International Relations U.S. GOVERNMENT PRINTING OFFICE ^ WASHINGTON \ lQ<lfi ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-052195-5 POUTICAL AND SOCIAL CHANGE IN NEW ZEALAND Y4.INB/16;N42Z Political and Social Chanje in Ht\t... HEARING BEFORE THE SUBCOMMITTEE ON ASIA AND THE PACIFIC OF THE COMMITTEE ON INTERNATIONAL RELATIONS HOUSE OF REPRESENTATIVES ONE HUNDRED FOURTH CONGRESS FIRST SESSION JULY 31, 1995 Printed for the use of the Committee on International Relations ^^8^ 2^ RW ffO^'-^;'j* U.S. GOVERNMENT PRINTING OFFICE -; WASHINGTON ! l««fi ForsalebytheU.S.GovernmentPiintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-052195-5 COMMITTEE ON INTERNATIONAL RELATIONS BENJAMIN A. OILMAN, New York, Chairman WILLIAM F. GOODLING, Pennsylvania LEE H. HAMILTON, Indiana JAMES A. LEACH, Iowa SAM GEJDENSON, Connecticut TOBY ROTH, Wisconsin TOM LANTOS, California HENRYJ. HYDE, Illinois ROBERT G. TORRICELLI, New Jersey DOUG BEREUTER, NAraska HOWARD L. BERMAN, California CHRISTOPHER H. SMITH, New Jersey GARY L. ACKERMAN, New York DAN BURTON, Indiana HARRY JOHNSTON, Florida JANMEYERS, Kansas ELIOT L. ENGEL, New York ELTON GALLEGLY, California ENI F.H. FALEOMAVAEGA, American ILEANA ROS-LEHTINEN, Florida Samoa CASS BALLENGER, North Carolina MATTHEW G. MARTINEZ, California DANA ROHRABACHER, California DONALD M. PAYNE, New Jersey DONALD A. MANZULLO. Illinois ROBERT E. ANDREWS, New Jersey EDWARD R. ROYCE, California ROBERT MENENDEZ, New Jersey PETERT. KING, New York SHERROD BROWN, Ohio JAY KIM, California CYNTHIA A. MCKINNEY, Georgia SAM BROWNBACK, Kansas ALCEE L. HASTINGS, Florida DAVID FUNDERBURK, North Carolina ALBERT RUSSELL WYNN, Maryland STEVENJ. CHABOT, Ohio MICHAEL R. MCNULTY, New York MARSHALL "MARK" SANFORD, South JAMES P. MORAN, Virginia Carolina VICTOR O. FRAZER, Virgin Islands (Ind.) MATT SALMON, Arizona AMO HOUGHTON, New York Richard J. Garon, ChiefofStaff Michael H. Van DUSEN, Democratic ChiefofStaff Subcommittee on Asia and the Pacific DOUG BEREUTER, Nebraska, Chairman EDWARD R. ROYCE, California HOWARD L. BERMAN, California DANA ROHRABACHER, California ENI F.H. FALEOMAVAEGA, American JAMES A. LEACH, Iowa Samoa JAY KIM, California SHERROD BROWN, Ohio MARSHALL "MARK" SANFORD, South ROBERT E. ANDREWS, New Jersey Carolina SAM GEJDENSON, Connecticut DAN BURTON, Indiana GARY L. ACKERMAN, New York DONALD A. MANZULLO, Illinds Michael P. Ennis, Subcommittee StaffDirector Richard KBSSLER, Democratic Professional StaffMember Dan Martz, Professional StaffMember Jon J. Peterson, StaffAssociate (II) CONTENTS WITNESSES Page Mrs. Sandra O'Leary, Deputy Assistant Secretary of State for East Asian £uidPacificAffairs, U.S. DepartmentofState 3 Hon. Paul Cleveland, president, U.S.-New ZealandCouncil 11 Mr.Robert O'Quinn, policy analyst, TheHeritageFoundation 15 APPENDDC Prepared statements andbiographical sketches: Mrs. Sandra O'Leary 27 Hon. Paul Cleveland 37 Mr.Robert Quinn 43 Additional material submittedforthe record: Questions submitted for the record to Mrs. Sandra O'Leary, and responses thereto 55 (III) POLITICAL AND SOCIAL CHANGE NEW EST ZEALAND MONDAY, JULY 31, 1995 House of Representatives, Subcommittee on Asia and the Pacific Committee on International Relations, Washington, DC. The Subcommittee met, pursuant to call, at 2:06 p.m., in room 2200, Rayburn House Office Building, Hon. Doug Bereuter (chair- man ofthe Subcommittee) presiding. Mr. Bereuter. The Subcommittee will come to order. During the first 6 months of the 104th Congress, the Asian and Pacific Subcommittee has conducted oversight over a wide range of activities from human rights, to refugees, to counternarcotics, to missile proliferation. We have devoted considerable attention to such nations where bilateral relations with the United States have been strained, in other words, China, North Korea. But proper oversight need not, indeed should not, be restricted to jumping from crisis to crisis. Today, we have the opportunity to explore a success story. New Zealand has in the past decade experienced a remarkable political and economic turnaround. As a matter of fact, in March I sug- gested to Speaker Gingrich and to Majority Leader Armey that they ought to take their first leadership visit in the 104th Congress to New Zealand and I outlined why I thought it would be a good idea. I understand there is a congressional delegation planning to go in December with some contact with the Speaker's office, so per- haps that will substitute, but I still think in particular that Major- ity Leader Armey would be particularly interested in what has happened there and I have commended it to him. The United States and New Zealand enjoy a long history of close relations. We were allies in both world wars and New Zealand, to- gether with Australia, was a key partner with the United States in the ANZUS security alliance. Unfortunately, over the past dec- ade the relationship has been marred by the tension over port vis- its by U.S. naval vessels. In the mid-1980's, New Zealand declared itself a nuclear-free zone and, since the tjnited States refuses to identify its ships that have nuclear weapons, the effect was to prohibit port calls by our Navy. Washington in turn responded by suspending our defense treaty relationship with New Zealand. This remains a significant problem that I know Deputy Assistant Secretary O'Leary is prepared to discuss. Nonetheless, we are now (1) trying to get beyond these difficulties. It is fair to say, I believe, that Prime Minister Bolger's very successful and welcomed visit to Washington several months ago marked what can be the beginning ofa new and positive era in U.S.-New Zealand relationship. At the hearing today, we specifically are intent upon examining the impressive political and economic reforms that New Zealand has implemented over the past decade and to examine lessons that might be learned for U.S. actions. New Zealsind has truly been on an economic boom. One ofthe world's wealthiest and most dynamic in the 1950's, New Zealand unfortunately fell a victim to the ex- tremes ofcentralized state planning. By the 1980's, the economy was nearing collapse. Centralized market controls, nationalization of key sectors and overregulation had produced a stagnant economy. I think one ofthe witnesses has in their written statement that the productivity rating was the bot- tom ofthe OECD countries during that period oftime. The government had instituted wage and price controls and had undertaken a range of social obligations far beyond its ability to fund. By 1984, New Zealand was the victim of double digit unem- ployment, inflation of more than 15 percent a year and it faced great difficulty in attracting support from the international finan- cial institutions. Faced with such a disastrous situation, New Zealand's Labor Government instituted a broad range of reforms: abolishing import quotas, cutting tariffs, getting rid ofmost subsidies, selling off gov- ernment-owned monopolies and enacting major labor reform law. At the same time these economic reforms were being enacted, New Zealand fundamentally revamped the way that its govern- ment functioned. Government departments were expected to adopt accrual-based Generally Accepted Accounting Principles and de- partment heads were made responsible for the fiscal soundness of their agencies. In short. New Zealand adopted its own version of an economic "Contract With America" over a decade ago, and the people ofNew Zealand clearly seem to be reaping the benefits today. There are some problems, too, and we want to hear some about those prob- lems and people that perhaps have not benefited. The results, as we shall hear, have been truly astounding. New Zealand's economy last year grew almost 6 percent, making it one of the most dynamic economies in the world. Business investment has poured into the country and there is every indication that New Zealand has become a force to contend with in the highly competi- tive Asian market. Certainly no such revolution could occur without causing disrup- tion and at least temporary hardship for some who had grown de- pendent on government largesse. But in weighing this hardship, it is important to note that New Zealand was on the way to economic collapse and that hardship and disruption were inevitable. The re- markable thing is that after all this temporary disruption, the New Zealand society has quickly rebounded. From this perspective it would seem that New Zealand's contract has been a remarkable success. For the hearing today we have an excellent panel of witnesses, actually two panels, to discuss with the Subcommittee how this economic miracle was achieved and how the government reforms have worked and at what cost. They are also, I hope, in a position to suggest what lessons can be drawn for the United States. The first panel, Deputy Assistant Secretary Sandra O'Leary has responsibility for Oceania, Southeast Asia, and the Pacific Island nations. Prior to her present position she served as Director of Planning and Economic Analysis at the State Department as well as having various positions at Treasury and USTR, and I just no- tice that you played a key role in our APEC activities. Mrs. OLeary. Yes. Mr, Bereuter. Until very recently and we held a hearing on that subject last week in order to give our colleagues and the country more understanding of APEC. Secretary O'Leary holds a doctorate from Johns Hopkins University. On the second panel we have two people. Ambassador Paul Cleveland enjoyed a long and distinguished career in the foreign service, including service as the U.S. Ambassador to New Zealand. He put on quite an interesting party for the prime minister when he was here. It was a pleasure to attend that. I learned a lot in the visit with the prime minister and his wife. He presently serves as the president ofthe United States-New Zealand Council. Mr. Robert O'Quinn is a policy analyst at the Heritage Founda- tion where he is completing a major study of New Zealand's gov- ernment reforms. Prior to joining Heritage, Mr. O'Quinn served in various congressional staffpositions. I would tell our witnesses that your full testimony will be made a part of the record, but I would ask our witnesses if they can to limit their remarks to approximately 10 to 12 minutes an—d that will permit Subcommittee members, at least this mem—ber hope- fully, there will be more joining us as the planes arrive the great- est possible exchange with our witnesses during our question-and- answer period. Secretary O'Leary, thank you very much for coming. You may summarize or proceed as you wish. STATEMENT OF MRS. SANDRA O'LEARY, DEPUTY ASSISTANT SECRETARY OF STATE FOR EAST ASIAN AND PACIFIC AF- FAIRS, U.S. DEPARTMENT OF STATE, ACCOMPANIED BY MR. GUS RECINOS, NEW ZEALAND DESK OFFICER Mrs. O'Leary. Thank you very much, Mr. Chairman. It is a pleasure to appear before the Subcommittee to discuss our relations with New Zealand and that country's impressive economic reforms which have made it one of the top performers in the OECD, as you said. Before focusing on New Zealand's economic success story, I would like to briefly review this administration's efforts to strengthen our ties with New Zealand. At the President's direction, the administration completed a re- view of U.S. policy toward New Zealand in February 1994. This was the first such review undertaken since the mid-1980's when New Zealand enacted antinuclear legislation that effectively bars visits by U.S. Navy ships to that country. New Zealand law does this in two ways: It prohibits visits by nu- clear-powered vessels, and some 40 percent of U.S. Navy combat- ants are nuclear propelled; it also requires the prime minister to determine that ships and aircraft are not carrying nuclear weapons before granting them permission to visit. This of course conflicts with our longstanding global policy ofneither confirming nor deny- ing the presence or absence of nuclear weapons on particular air- craft or ships. Given the inability of our ships to visit New Zealand, we sus- pended our defense obligations to that country under the ANZUS Alliance in 1986. This was not an easy decision. New Zealand long had one been one of our closest allies, fighting alongside U.S. forces in virtually every major conflict this century and yet it was clearly impossible to sustain defense obligations to a country which no longer permitted access to our Navy ships. Similarly, since U.S. ships could not visit New Zealand, it followed that U.S. forces could not exercise with their New Zealand defense force counterparts and joint military exercises were ended as well. Much has happened since New Zealand passed its antinuclear legislation. We have removed all tactical nuclear weapons and the NCND nuclear capability from most of our ships although our pol- icy remains in place. At the same time, an exhaustive New Zealand government study has found U.S.-nuclear propelled Navy ships to be safe. Meanwhile, we have worked with New Zealand to achieve an indefinite exten- sion of the NPT, and we will closely coordinate with New Zealand and others as we seek to conclude a comprehensive test ban treaty in the comingyear. The United States and New Zealand are also cooperating on a range of issues involving the establishment of a new world trade organization, the Asia Pacific Economic Cooperation forum, APEC, the ASEAN Regional Forum, peacekeeping operations, KEDO and our Antarctic programs. It was against this background of increas- ing cooperation that the administration decided in February 1994 to restore senior-level contacts between officials of our two govern- ments. It seemed to us that the dramatic changes outlined above offered an opportunity to take another look at how we might constructively work on security issues. New Zealand and the United States are natural partners and we would like to see cooperation again extend across all aspects of our respective policies, including in the unfin- ished business in the security arena. President CHnton's meeting with Prime Minister Bolger was the first such meeting to take place at the White House in 11 years. That meeting was not an end in itself but rather the beginning of a new stage in a process of political reconciliation that will, we trust, enable our two democratic countries to reestablish the kind ofclose links that previously served ourjoint interests. Looking today at New Zealand's impressive economic record, I would like to begin with a minor word ofcaution. New Zealand has been seen as a potential model for others, showing clearly the very real benefits of free market economics and open trade and invest- ment regimes. In the 1994 World Competitiveness Survey, New Zealand ranked seventh among OECD economies rising quickly from eighteenth just 3 years earlier. But there are some cautions here.