106 Minute from Lang to Evans

Canberra, 27 October 1980

RESTRICTED

17th Annual NAFTA Meeting of Confederation of Australian Industry and New Zealand Manufacturers' Federation

The Hobart meeting of the CAI and the NZMF is now slipping a little into the mists of history, having taken place on 28-30 September but there are one or two points worth recalling because they may have continuing relevance. Incidentally, the information Mr Santer and Mr Monfries obtained from Morton of the CAI two days after the meeting1 they could have got from me (if information was what they really wanted) the day after the meeting. I have told Morton that I share the hope that there will be closer liaison between this Department and the CAI, and that New Zealand Section will continue to be the point of contact for discussions on the 'closer economic relationship' with New Zealand.

  1. The only conference papers attached are the list of delegates and the opening address by the CAl President, Sir Max Dillon. Dillon stressed that Australian manufacturers will be seeking more equitable trading arrangements with New Zealand, whether under NAFTA or some new 'CER', is not specially important to them. He was, I think, concerned to lay to rest any expectation amongst the New Zealanders that Australia would relent from its pursuit of greater equity under NAFTA in anticipation of a CER, and I think his message was well-judged and timely.
  2. There was little of note in the conference papers which included:
    Review of Australian-New Zealand Economic Situation
    eview of Australia-New Zealand Trade (which contains a useful up-to­date summary of trends in trade)
    CER. Recent developments at the Government and Private Sector levels (largely historical in treatment and suffers somewhat from ignorance of what has been discussed at official and ministerial level)
    Statement by National Farmers Federation (' ... if agriculture in both Australia and New Zealand is to benefit significantly from a closer economic relationship, the spirit and mechanics of the agreement must primarily be concerned with fostering increased co-operation in the development of third country markets'. ' .. . very little is to be gained by NZ exercising its potential, which is largely won by virtue of different marketing assistance arrangements, to disrupt Australia's dairy marketing arrangements.')
    Statement by Federated Farmers of NZ Inc. (Placed more emphasis than the Australian statement on increasing agricultural trade between the two countries ' ... after all, a major objective of the whole exercise is for both countries to benefit from rationalising production to those areas which do have a naturally lower cost structure')
    CAI Paper on Intermediate Goods (which illustrated the problem with a hypothetical example from the plastics industry)
    NZMF Paper on Intermediate Goods (which makes the claim that some New Zealand manufacturers 'would be substantially disadvantaged in competition with Australia because they would be forced by protection policies for local suppliers to buy from NZ suppliers at prices substantially higher than available to Australian manufacturers from their own domestic suppliers'. This is decidedly not the problem that the Australian side is talking about. As Frank Anderson was to point out later on in Wellington, the solution to that problem is a simple one-buying from Australia)
    CAI paper on Tariffs and Quantitative Restrictions (which makes the sensible point that an annual increase of 10% on items for which the value of NZ imports from Australia is less then $100,000 and the CAl believes that these constitute the great majority, provides an incremental market opportunity of less than $10,000, which new entrants to the trade would find hardly worth bothering about.)
    CAI Papers and brief NZMF comments on export Incentives, Exchange Rates and Government Purchasing.
  3. A highlight of the meeting was the attempt by some NZMF delegates, abetted but not strongly support by the NZMF President, Stevens, to have the meeting endorse the principal that inter-industry consultations and agreement should become the building blocks of the CER. They quickly retreated from this position to the looser formulation contained in the Joint Statement,2 which does not oblige industries to consult (many Australian industries will not want to) and does not bind governments to the outcome of such consultations (which even NZ officials present at the meeting did not favour).
  4. The most obvious objection to an arrangement [such]3 as the New Zealanders sought is that it would remove control of negotiations from governments, but more serious objections are that it could not be counted on to increase trade, and would probably serve to prevent even a modicum of industry rationalisation of the kind which is central to the concept of closer economic relations. The words actually used on this subject in the Joint Statement2 come very close to describing what actually happens now; industries can't be prevented from consulting each other and putting their views to governments, and governments have never been so unwise as not to 'take them into account'.
  5. I looked for echoes of this NZMF bid during the Working Party Meetings in Wellington4. Either NZ manufacturers had not had time to catch up with their officials, or the idea died a natural death in Hobart. Treasury and DTR people who had been in Hobart told me that Stevens had used the Hobart meeting to allow an irredentist rump of the NZMF to have their say and be put in their place, the NZMF as a whole not being in favour of the idea. Colin James, who I spoke to on two occasions in Wellington, told me that Ian Douglas had given him a similar explanation, but I am not altogether sure we have heard the last of the idea. If DTR officials, in their consultations with industry on levels of initial access, find it necessary to press hard to ensure that economically viable levels are agreed on, then there is, in my view, a strong possibility that the idea will re-emerge.
  6. The only other interesting aspect of the Hobart meeting were the talks we had with Morton and Hopwood. Morton gave us copies of a letter addressed to Frank Anderson signed by Bill Henderson, with attached confidential papers on intermediate goods, tariffs and quantitative restrictions, export incentives, exchange rates and government procurement. The papers were classified, we were told, because they had not been given to CAl members or delegates at the conference, and contained information which varied slightly from that contained in the conference papers on the same subjects.
  7. Henderson's covering letter included some interesting and instructive references to the results of a recent survey of CAl members attitudes to the CER, both in general and on particular detailed aspects, such as intermediate goods. The letter notes:
    'Our members are taking a positive view of the CER exercise, and generally hope that a CER with New Zealand can be negotiated. This desire to see a closer relationship does not flow from a belief that Australia would gain significantly in terms of expanded market: in fact, most members feel that New Zealand has little to offer in terms of future growth prospects even under a CER. The desire by our members to see a closer relationship stems rather from a belief that existing levels and patterns of trade would be smoother and more problem-free if a CER were to be negotiated; and from a view that both countries could benefit in international negotiations by presenting a common front.
    These reasons for favouring a closer relationship are rather marginal, and the corollary of this is, of course, that our members would not be unduly disturbed if a closer relationship did not eventuate. Indeed, our members would be very strongly opposed to any framework in which-to buy these rather marginal benefits-Australia had to make major concessions which were not reciprocated by the New Zealanders. Furthermore, members were strongly of the view that any agreement leading to a CER should be negotiated on a 'total package' basis, such a package incorporating a satisfactory resolution to what we see as the major problem areas. These problem areas primarily relate to export incentives, adequate access increases under the New Zealand import licensing system, and satisfactory treatment for chemicals, plastics, and certain textiles products in relation to the intermediate goods question.'
  8. When I raised the question of attendance at this meeting you will recall that I said that we might get some indication of what Australian industry would and would not want from the 'CER'. I thought we would have to glean it from the debate. In the event, this letter tells us much more than the debate did. Although the language is not precise, and to that extent the CAl's final position is reserved, I think we have a clearer idea now than at any previous stage, of what industry will regard as an acceptable package. Certainly, the two meetings so far held in the name of 'consultations with industry' were barren by comparison.
  9. Of the [papers attached to the letter], only the one on intermediate goods deserves special comment. It records the results of a survey of members carried out at the request of the DIC. It established that there appear to be no intermediate goods problems in the food and beverage industry, carpets, pulp and paper, or the glass and glassware industry. But, the CAl paper says, 'a major intermediate goods problem exists for the Australian chemicals and plastics industries; for those Australian manufacturers whose products embody significant proportions of chemicals or plastics; and for certain parts of the textiles industry'. Chemicals and plastics enter NZ duty free. In Australia they are dutiable at rates above 20%. The CAl paper gives hypothetical examples (plastic injection moulding and brush manufacture) showing a 22½% and 34% difference in cost, largely arising from raw materials costs.
  10. In all other areas of industry, the CAl encountered a marked lack of interest or concern, which they discovered only when making enquiries about the very low rate of response to their questionnaire.
  11. The paper concludes:
    'Apart from (chemicals and plastics), the intermediate goods question is not generally seen to be of major significance ... ' It seeks 'special arrangements' for chemicals and plastic products, and the inclusion of some safeguards provisions relating to intermediate goods in any new agreement with NZ. The second point was agreed on in the Joint Working Party meeting in Wellington. The first point has yet to be looked at by our IDC, and may result in chemicals and plastics being included in List Three of the tariff items.

[NAA: Al838, 370/1/19/18, xx]