105 Minute from Lang to Evans

Canberra, 21 October 1980

RESTRICTED

Working Party Meeting on Closer Economic Relations

Australian and New Zealand officials met in Wellington on 8, 9 and 10 October to discuss the progress of the studies agreed upon by Prime Ministers Muldoon and Fraser in March 1980.1 New Zealand Departments represented were Treasury (Chairman), Trade and Industry, Customs, Foreign Affairs, Prime Ministers, Agriculture and Fisheries. The Australian side included representatives of Special Trade Representative (Leader), Trade and Resources, Industry and Commerce, Business and Consumer Affairs, Foreign Affairs, Treasury, Prime Minister and Cabinet.

  1. There had been some changes in personnel on the New Zealand side since the last meeting. Both Belgrave (DTI) and McArthur (Treasury) are new to the subject, and McArthur's chairmanship suffered a little form his ignorance of what had gone before.

Tariff Reductions

  1. An exchange of lists of goods with tariffs of 10% or less, to become duty free immediately, took place. The New Zealanders gave us their list with the exclusions shown by a line drawn through the item. Our exclusions were listed separately. Both sides took the position that exclusion from list One did not automatically mean inclusion in list Three. It was simply a matter of more study being needed. Some of the exclusions from New Zealand's list One were items in which there is a substantial trade, such as pineapples. Some of the exclusions from our own list One were items where quantitative restrictions apply e.g. whiteware. Frank Anderson put to the New Zealanders certain propositions about how the downwards tariff escalator to be applied to items in list Two might work. His suggestions were based on the need to (a) preserve equity among businesses affected by the changes and (b) not to further complicate an already very complex tariff. The New Zealanders took note, and will respond at the next meeting.

Intermediate Goods

  1. An agreed paper was finalised on this subject.' This was achieved mainly by virtue of the CAl having told Australian officials at the Hobart meeting that, except in the area of chemicals and plastics, their detailed enquires amongst members had not brought to light any significant intermediate goods problems. Having previously been fairly sensitive on this issue Australian officials were now placed in the position of not having any substantial interests to defend. It was not a difficult matter to agree amongst ourselves that some general safeguard provision in a new agreement would be enough to protect the interests of any manufacturers who could demonstrate substantial injury as a result of differential tariff treatment of an intermediate good. Possible remedies which were identified included: common external tariff on the good in question, countervailing duties, increased area content rules. Which remedy was applied, our IDC felt, would be determined by the specific nature of the problem. The New Zealanders had no difficulty accepting this. Their only concern was that any paper agreed between the two sides should recognise that New Zealand had potential intermediate goods problems too. It seemed clear to us that they were talking about problems that were different from those that concerned us; the world price of sugar, for example, is at the moment higher than the Australian domestic price, but New Zealand does not buy from CSR. This, New Zealanders feel, gives Australian confectioners an unfair advantage. In the expectation that New Zealand could not make a credible case of injury in a situation such as this, the Australian side agreed that the joint paper should give equal prominence to the possibility of an intermediate goods problem on both sides of the Tasman.
  2. Now that a joint and agreed paper on the subject exists, we can probably take it that the intermediate goods 'problem' has been solved.

Access

  1. Discussion of the question of liberalising tariff quotas and import licensing made some progress, although there is no prospect of a substantial advance until the New Zealanders have completed their talks with industry associations on the question of levels of initial access. This is one area that still has the potential to cause serious problems; if too many of the access levels offered by New Zealand are manifestly absurd, it will not be possible, I think, for the Australian side to agree to a final package. Further discussions are to take place between trade officials with a view to defining a set of agreed principles to be included in the Joint Working Party's Report to Permanent Heads. It would not be surprising if there were to be some slippage in the timing of meetings on this subject. The New Zealanders have allowed 4-6 weeks for industry consultations on access levels. Given the snail's pace of discussions hitherto, that seems a fairly ambitious deadline, particularly in view of the growing anxiety that attaches to talk of industry restructuring in New Zealand.

Export Incentives

  1. Although there appear to have been discussions in the Cabinet Economic Committee, New Zealand's position does not seem to have been elaborated beyond the commitment to retain the present scheme(s) until1985. New Zealand made no reaction, written or oral, to the Australian paper they received in September. At the meeting Newton Lind submitted an additional two-page paper the burden of which was that Australia could contemplate entering into a new agreement with New Zealand with the present export incentives schemes still in place, but only if the agreement also contained a commitment by New Zealand to review the schemes in 1982 with a view to harmonisation or elimination on trans-Tasman trade after 1985. The New Zealanders responded by saying that they had a 'very tight brief' on export incentives. With both Clark and Woodfield out of the country, there was no reply they could give us.
  2. In a discussion I had with the Customs Department representative a few days after the CER meeting, it was suggested to me that New Zealand officials accept the logic of the Australian proposal. What they need to do is get fresh riding instructions from Cabinet. We were told in Hobart by the CAl that New Zealand manufacturers are beginning to appreciate the inevitability of change to the present scheme because it has become very costly, out-running by a considerable margin the budgetary provisions that were made in the last financial year. The New Zealand Chairman of the Working Party, from their Treasury, made the same comment to me in Wellington. This would seem to be a factor, not previously in evidence, that will facilitate the eventual removal of present inequalities and enhance the likelihood of eventually reaching a new agreement with New Zealand.

Governement Purchasing

  1. Australia submitted before the meeting a paper proposing that each country treat the other as. a domestic supplier for the purposes of central government purchasing. New Zealand rejected this approach, stating that they sought to exchange the preference of their central government for the abandonment by State Governments of their preference for home state suppliers. They claimed that the preference of the Federal Government was a lesser interest to them, because many of its purchases could not be supplied by New Zealand. The State Governments, on the other hand, spent a lot on carpets and building materials. Anderson remonstrated that the Federal Government could do nothing to coerce the States, and suggested that the New Zealand Government approach State Governments direct. The New Zealanders seemed to have little enthusiasm for this. When the New Zealanders insisted that they were not willing to trade central government preferences, (despite the very much larger expenditure by the Australian Government) Anderson tore up the paper containing the Australian offer and told them we would wait for the New Zealand side to make a fresh proposal. There appears to be very little likelihood that State Governments will abandon their preferences for home state suppliers, so that it is unlikely New Zealand's demand can be satisfied. The present stalemate will probably continue until New Zealand modifies its request.

Agricolture

  1. I have left Agriculture till last, because that is the position to which it seems to have been relegated in our discussions, both at home and with the New Zealanders.
  2. Agricultural items were conspicuous amongst the exclusions from our list One. There does not seem to be, at the moment, any agreed procedure on our side for determining whether such items should go back into list One, or into list Three. Also, it seems to me that the New Zealanders are expecting to re-open the vexed question of cheese exports to Australia. They say they regard the voluntary restraint arrangement negotiated by the two Dairy Boards as not setting a precedent for the future, and may be looking to the Australian Government to impose on its own industry access levels for New Zealand products that the industry has previously resisted. The extent of New Zealand pressure will probably be conditioned by their success in preserving traditional (and more important) markets elsewhere. It may be that ultimately the two sides will agree on a formula giving New Zealand the right to a share of growth in the Australian market, but this is, as yet, by no means clear. I intend to follow-up these questions with my Primary Industry colleague in the next few days. As matters stand at the moment, not even having seen the BAE study on the dairy industry, we will be very lucky indeed if we reach a common view on agricultural products, or a clear statement of agreed differences, before the next meeting of Permanent Heads.
  3. The timetable at present envisaged is:
    1. a small group of Trade officials to meet in Wellington at the end of October to try to advance papers on access, tariff reductions and export incentives
    2. a further meeting of Joint Working Party in 3rd week of November to finalise report to Permanent Heads
    3. meeting of Permanent Heads in 1st week of December.
  4. As noted above, quite a lot of hard talking and thinking will be needed, especially on the New Zealand side, if that timetable is to be adhered to. As I said to you earlier, the prospects of achieving agreement with New Zealand on something to replace NAFTA seem to be improving, partly as a consequence of the endeavours of officials on both sides, partly by dint of economic circumstances. Whether, in the long run, it will work to Australia's advantage is still a question I can't answer. It came as a surprise to me to hear Newton Lind, the hard-bitten NAFTA expert, describe the basic inspiration of the present exercise as being the assessment that 'we need each other'. He wasn't talking about an economic need, simply the need of two isolated, relatively prosperous, and somewhat frightened anglo-saxons in a confused and hostile world.

[NAA: A1838, 370/1/19/18, xix]