IV.      POLITICAL ENVIRONMENT


NATURE OF BILATERAL RELATIONSHIP WITH THE UNITED STATES:

U.S. relations with New Zealand are generally excellent.  The two
countries cooperate closely on a wide range of trade, scientific,
and other issues.  There are no significant economic issues which
threaten our thriving bilateral trade and investment.  The major
disagreement concerns New Zealand's legislation prohibiting the
entry of nuclear powered or nuclear armed vessels.  Having
determined that New Zealand's anti-nuclear law is incompatible with
full military cooperation, the U.S. Government suspended its
security obligations with New Zealand under the ANZUS Treaty.  In
February 1994, the U.S. restored senior-level contacts on
political, strategic, and broad security issues with New Zealand in
hopes that upgraded dialogue would, over time, resolve the dispute
and lead to the restoration of the full relationship our two
countries enjoyed before 1987.

MAJOR POLITICAL ISSUES AFFECTING THE BUSINESS CLIMATE:

The major New Zealand domestic political issue affecting business
is whether, having successfully restructured the economy from
government-regulated to market-determined, and balanced the budget
for the first time in sixteen years, the government might enact
economic and social legislation and budgets which would threaten
growth and the reduction of the large public debt.

Most of the economic restructuring is now widely accepted.  However
it is not inconceivable that a future government might increase
social services spending so much that the debt could not be
reduced, amend the Employment Contracts Act to reintroduce labor
rigidities, or amend the Reserve Bank Act to add full employment as
a goal for the Reserve Bank (or simply widen the agreed inflation
range defined as price stability).  To one extent or another, all
of these steps have been proposed by opponents of the present
government.

THE POLITICAL SYSTEM, ELECTIONS, ORIENTATION OF POLITICAL PARTIES:

New Zealand is a parliamentary democracy within the British
Commonwealth, with a one-house legislature.  The head of government
is the Prime Minister, who must be a member of parliament, and is
usually the leader of the political party with the largest number
of seats in the parliament.  The head of State is the British
Monarch, represented in New Zealand by the Governor General.  The
Cabinet, formed of Ministers chosen by the governing party or
parties from among its members of parliament, governs through
ministries and departments staffed by professional civil servants.
The court system is based on the British legal system.  The highest
court of appeal is the Privy Council in London.

In a referendum associated with the parliamentary election of
November 6, 1993, New Zealand decided to shift to proportional
representation for elections to its parliament.  Based on a system
used in Europe, this new system, "Mixed Member Proportional," or
"MMP," will come into play in any election after about mid 1995.
A new parliamentary election will be required by November 1996.
Under MMP, each voter will have two votes -- one for an individual
candidate to represent his voting district in the parliament, and
a second vote for political party preference.  The second vote will
determine the percentage make-up of the new parliament.  All those
elected in the first vote will be seated in the parliament,
regardless of the second vote.  It is presumed that under the new
system, no one party will likely receive enough votes to have a
majority of seats, and therefore any government formed after mid
1995 will be a coalition of two or more parties.  Thus the
following description of political parties' orientation, current in
mid 1994, may not be indicative of the political scene after the
next election.

In mid 1994, the government was controlled by the National Party,
which held fifty of the ninety-nine seats in parliament.  (Under
MMP there will be more than 100 seats.)  The National Party, in
power since 1990, is considered to be the most business oriented
and free-market oriented of the two major parties.  In 1994, the
largest opposition party was the "Labour Party".  Although the
Labour Party actually introduced most of the reforms which brought
New Zealand back into a market-oriented economy in the late 1980's,
it now places less emphasis on the market approach and is more
interested in social issues than the National Party.  Labour had 45
seats in the 1994 parliament.  Two smaller parties held two seats
each in the 1994 parliament.  The Alliance (of five smaller
parties, including the environmentalist "Green" party) believes
that the government should take a larger role in the economy, and
strive harder for full employment and more generous social welfare.
The New Zealand First Party also supports greater spending on
social needs, but (unlike the Alliance) does not call for this to
be financed by higher taxes.