Foreign Minister Murray McCully's annual Europa Lecture, Northern Club, Auckland, 6.30pm, 12 August, 2009.

Thank you to the New Zealand European Union Centres Network and the New Zealand Europe Business Council for inviting me to take part in this important forum.

My topic tonight is New Zealand's relations with Europe, and especially our key relationship with the European Union.

We have, of course, very close political, cultural and personal ties with many of the EU's individual member states. 

And we have valuable relationships with European countries who are not members of the EU, such as Switzerland, Norway, Russia, and Croatia.

Even these countries partly define themselves in the context of their relations with the EU, or their aspirations to join the EU.  Perhaps the only exception is that uniquely Eurasian power, Russia.

Important though our relationships with individual countries are; our strategic engagement with Europe is to an increasing extent through that remarkably successful creation, the EU.

The current state of our partnership with the EU is set out in the Joint Declaration on Relations and Cooperation between the European Union and New Zealand, adopted in 2007. 

This Declaration contains a range of practical aims: for cooperation and dialogue in these areas, and for work towards formal agreements in sectors such as science, mutual recognition, and customs.  Many of these aims have now been achieved.

In the last few months, the New Zealand Government has been asking itself whether this is enough; whether our relations with the EU can be further enhanced through an upgraded agreement that goes beyond a declaration, and establishes a treaty-level relationship. 

It's become anomalous that New Zealand has no formal comprehensive agreement of treaty status with the EU. 

We already have very good bilateral agreements in a range of areas, including sanitary measures in animal and animal products trade, and science and technology.

These are extremely beneficial in their particular sectors, but they cannot reflect the breadth of the relationship or the interconnectedness among its various elements.

We believe we should develop an institutional framework that reflects the richness of the relationship.  And it appears that similar views are held in Europe.

In February this year, Prime Minister John Key and European Commission President José Manuel Barroso discussed upgrading our bilateral relationship.

President Barroso said that he sees very good potential for greater cooperation across a range of regional and global areas - cooperation based on the fact that Europe sees New Zealand as very like-minded.

His proposal to explore "a broad and comprehensive agreement encompassing common values" was welcomed by our Prime Minister. 

The Prime Minister made it clear to President Barroso that New Zealand puts a high value on robust trading arrangements as part of a strong overall relationship.  It was confirmed that the exploratory talks should be truly comprehensive in nature.

Before I discuss the steps that we and the European Commission have been taking to move this initiative forward, let me stand back and ask what New Zealand and the EU can mean for each other.

There's no doubt that for New Zealand the EU is a vital partner - not only as a trading partner, but in the upholding of shared values. 

And the EU is also the world's greatest and most successful exercise in peacemaking.  It has rendered war between its member states inconceivable.   

By locking its members into trade and regulatory interdependence, and into guaranteed freedoms and justice, the EU can provide a model that other regions still overshadowed by traditional mistrust might look to. 

China's ambassador in Brussels has said: "The EU is one of those things which happen only every four or five hundred years".  Perhaps he will be proved wrong.

All this may sound a bit abstract.  But the EU is also of great interest to New Zealand for very tangible reasons: for most purposes, it's the world's largest single economy. 

It accounts for more than 30 percent of global economic production, and its consumers represent the largest affluent market in the world.  It is our largest market after Australia, even if - thanks to the NZ-China Free Trade Agreement - the China market may soon challenge it for that position.

EU consumers are already a major market for our agricultural products; and also a market of growing significance for our high-quality manufactured goods like wine and yachts.

In the past, we've had serious concerns about trade access to the EU or its predecessors.  And we've also been disadvantaged by the massive subsidies given out under the EU's Common Agricultural Programme (CAP). 

Over time, with the ongoing reform of the CAP, these have become less prominent in our relationship.

We do have concerns, though, at the EU's re-introduction of dairy export refunds at the start of this year.  We continue to hope that this will be a very temporary measure.

The EU is also the world's leading regulator.  Countries that work closely with it will be well positioned to participate in setting global standards in goods and services.

The EU's economic evolution has been made more complex by the current global recession.  EU members are following a variety of strategies to push back the worst effects of the crisis. 

The point we should not lose sight of, when we look at the current retrenchment in some of Europe's key economic sectors such as automobiles or banking, is that the attractions of the EU have lost none of their power. 

Membership of the Union is seen as protection from the worst of the storm.  And aspirant members, such as Croatia and Iceland, are knocking at the door as hard as ever.

Around the end of this year or in early 2010, the EU's Lisbon Treaty is likely to enter into force. 

Among a raft of institutional changes, this will strengthen the EU's strategic outlook.  It will create a President of the European Council, and a High Representative of the Union for Foreign Affairs and Security Policy - effectively a Foreign Minister, with an evolving diplomatic service.

I expect this to mean that in foreign policy we will see an EU that starts to punch commensurately with its economic weight.

Against this background, let me look at the second element in my question: what can New Zealand mean for the EU?

New Zealand occupies a particularly favourable strategic position, where geography and history intersect.

We are a Pacific country and, increasingly, an Asian country; but we are is also, except for geographical location, a European country.  A defining element of our national identity is that we are learning - and I think with reasonable success - to meld aspects of all three: Pacific, Asian and European.

The European side of our national identity is based in the traditions we've inherited from Europe, traditions for which New Zealanders made a major sacrifice in Europe's wars last century. 

These traditions are manifested in our institutions, and even more importantly in a broad range of values that we share with the EU: values of democracy, openness, the rule of law, and respect for human rights. 

Like Europeans, we see these as universal values, not just as European or New Zealand values.   

In the defence of those values, we and the EU look on each other as like-minded partners - as the Joint Declaration of 2007 makes clear. 

Europeans, through the EU, are in the forefront of propagating those values elsewhere in the world. Not imposing them, but propagating them. 

We New Zealanders do the same, in our region and beyond. 

This isn't a matter of starry-eyed idealism, but of pragmatism and, dare I say it, self-interest.  I believe that a prosperous, lawfully administered, tolerant global village is to everyone's advantage - even if that's not yet universally accepted.

This is where our like-minded approach, our European-ness, is particularly relevant for the EU.

The EU, like New Zealand, needs like-minded partners, whatever the disparity in size and wherever they are located.

Many of the issues confronting the EU and New Zealand - ranging from extremism to climate change to financial regulation - are global issues that must be approached globally, in conjunction with close partners. 

New Zealand has a record of applying innovative approaches to economic, regulatory and public policy issues, both domestically and through international agreements.

New Zealand and the EU already cooperate in the development of effective, internationally acceptable standards in multilateral institutions. 

We both have strong records as responsible international citizens.  We often cooperate or coordinate our actions, whether on the voting floor of the UN or on the ground in Afghanistan or Solomon Islands. 

In development aid, New Zealand and the EU are important partners in the Pacific, with a long record of support for New Zealand's Pacific neighbours.

The EU is a significant donor to the region, allocating in annual terms the equivalent of $NZ200 million per year for the five years 2008-2013.

This is only slightly less than New Zealand's allocation over the same period: we spent NZ$235 million on aid to the region in 2008/09.

I am keen to see New Zealand and the EU deepen our cooperation in the region.

We have made a good start, and in that vein we look forward to hosting the annual Australia-European Union-New Zealand trilateral meeting on Pacific cooperation this October in Wellington.

Last week at the Pacific Islands Forum, I discussed cooperation with the European Commission's Director-General for Development, Stefano Manservisi.

I encouraged the EU to coordinate development aid with New Zealand, on the basis of each side identifying complementary strengths.

New Zealand is prepared to provide additional funding to facilitate that cooperation.

I see opportunities for us to work more closely with the EU to realise the Pacific Plan's vision of a stable, prosperous region.  Promoting sustainable economic development is key to achieving this. 

We welcome the EU's readiness to partner with Australia, New Zealand and the development banks in the Pacific Region Infrastructure Facility.  We are hoping that this sort of joined-up approach will lead to more efficient aid, with better impact on the region's economic growth.

Promoting better access to sustainable energy services in the region is a key to economic growth.

We look forward to working with the EU on "Energising the Pacific", the regional programme for coordinating responses to energy needs in the region.

For example, I've indicated the Government's readiness to support development of solar power in Tonga; an area where, guided by the Tongan government, New Zealand and the EU can work closely together.

New Zealand has a special responsibility in the Pacific, and we want to build on the EU's willingness to partner us in this responsibility. 

Beyond the Pacific, in the Pacific Rim and in Asia, is where we see opportunity: economic opportunity, and the opportunity to promote security and cooperation.  This is where we can offer tangible benefit to the EU, as a platform into the region.

It's clear that growth in the world economy is going to be driven mainly out of Asia for the foreseeable future.

Any country that wants to get ahead, or even hold its relative position, needs to have a strategy for engagement with Asia.

And certainly the EU's interest in the Asia-Pacific region is growing. 

Two concrete examples: the EU is on the point of reaching a new partnership agreement with Indonesia, and has just completed FTA negotiations with Korea.

In this vital area, we can not only assist the EU with the projection of our shared values, but also offer the benefit of our own experience in engagement with Asia-Pacific countries.  

We have an outstanding record in achieving FTAs in the region.

New Zealand was the first developed country to conclude an FTA with China, and has recently concluded high-quality FTAs with Australia and the 10 countries of ASEAN, and with Malaysia. 

We are also embarking on negotiations with Korea and with India, and resuming those that began several years ago with Hong Kong.

Looking slightly further afield, the United States and others have shown interest in joining the ground-breaking Trans-Pacific Strategic Partnership which we negotiated several years ago with Chile, Singapore, and Brunei. 

So clearly there is wide recognition by others, including major players, that developing closer trading links with New Zealand can add value as part of their overall strategy, far and away beyond the size of the New Zealand market.

New Zealand has become influential in ensuring that Asia-Pacific economic integration remains open and outward looking, through institutions such as APEC and the East Asia Summit.

Soon we hope to take our place in ASEM, the Asia-Europe Meeting forum. I have just advised my counterparts in Cambodia and India, as coordinators of the Asian Group in ASEM, of New Zealand's interest in applying for membership.

We are well positioned to play a proactive role in further regional integration initiatives, providing exporters and investors in New Zealand and our partners with new, commercially meaningful opportunities. 

The point here is that improving trade access would not just be one-way, to New Zealand's advantage.

Stronger links with New Zealand would in turn strengthen the EU's links with the rapidly growing economies of the Asia-Pacific and, through our close trade links with Asia, enhance EU access to these increasingly important markets. 

We can also offer tangible opportunities for joint approaches to research, education and other linkages, as well as in trade and investment.

New Zealand has a proud record of success in deepening our engagement with Asia - not just through these FTAs, important as they are, but as an active player in helping to develop the new regional architecture.

Since the Prime Minister and President Barroso agreed we should explore a comprehensive agreement, New Zealand and Commission officials have been looking at the shape it might take. 

Areas of possible coverage might include political and security; global peace and sustainability; trade, investment and regulation; justice; education, and others.

I travelled to Brussels in May for my six-monthly consultations with the EU Presidency.  New Zealand values these consultations highly, and I look forward to the next round, in Stockholm in December.

When in Brussels, I discussed a comprehensive agreement with the EU Council's Dr Javier Solana and External Relations Commissioner Benita Ferrero-Waldner.

I also discussed it with the Foreign Ministers of Sweden and Spain - the current and next holders of the EU Presidency.  And I raised the issue again when I talked with Dr Solana in Phuket, at the ASEAN Regional Forum last month.

These talks left me in no doubt that there is strong interest in an agreement with New Zealand, both in senior EU circles and among Member States.

So the process looks very promising.  We hope eventually to get to the stage of formal negotiations.

A comprehensive agreement will be a new concept for both sides.  Development of such a new and wide-ranging vehicle for bilateral relations will be complex, and will take time. 

It will involve getting into some sensitive areas.

We are prepared to be patient in pursuit of something that is so manifestly worthwhile.  It has the potential to be a new model for relations among developed countries.

Our priority will be to get it right, and achieve a genuinely comprehensive agreement that brings together all our shared interests and is based on our like-mindedness.

I am sure that the EU Ambassadors and Heads of Mission in New Zealand understand very well the mutual benefits of a comprehensive agreement between us, and I look to them to ensure that these are also recognised in their capitals.

Thank you.