11 Report to Cabinet by Talboys

Wellington, 30 March 1978

CP (78)310. CONFIDENTIAL

Visit of Deputy Prime Minister to Australia

The current economic recession has put new strains on relations between Australia and New Zealand. NAFTA has virtually been put on ice: in each country there are those who blame the other for the closing of plants and resulting unemployment. The purpose of my three-week tour of Australia was to ease the strains, by reminding the Australians, and New Zealanders too, how much both countries get out of the relationship. As neither the Australian Government nor ours at present has much room for manoeuvre on economic questions, I was not seeking the immediate removal of barriers to trade. My aim was to forestall any suggestion that additional restrictions might be imposed in the short term, and to prepare the way for closer cooperation, including renewed expansion of NAFTA, as circumstances improve.

  1. The Message. The message I tried to put across, not only in Canberra but in all the State Capitals as well, was that Australia and New Zealand have a lot to gain by working together, and we need to do so more and more. The three points I made everywhere were:
    • — Australians and New Zealand [ers] have more in common with each other than they have with any other people.
    • — We take far more of each other's manufactured products than any other country, and so provide a lot of jobs for each other.
    • — By working together in NAFTA we can make our industries more efficient and put ourselves in a better position to open our markets to developing countries, in South East Asia as well as in the South Pacific.

    The second point is the one I laid most stress on: not enough Australians seemed to be aware that New Zealand is the biggest market for their manufacturing industries.
  2. Australians in general do not take much notice of New Zealand. When they think of this country at all, they seem to think of it as beautiful and hospitable, but quiet, dull and increasingly hard up. They are inclined to suggest that economically the two countries are, or should be, complementary-often meaning that New Zealand should stick to agriculture and tourism and let Australia do the manufacturing. I therefore emphasised that we export manufactured products, as well as importing them, and that complementarity must be sought within the industrial field. New Zealand is not just a big farm, or a playground for tourists. I tried to make clear this is an industrial country too.
  3. The Reception. In Canberra I was well received. The Australian Prime Minister took an active interest in my visit and gave me a good deal of his time. The speech he made when I presented the McCahon painting was very warm, and the warmth was reflected in our private talks, both in Canberra and at 'Nareen', his country home in Victoria. He made it clear from the outset that, in view of the high level of unemployment in Australia, relaxation of any trade restraints would be difficult at the present time. He also made it clear, however, that he wanted to extend the cooperation between Australia and New Zealand in the economic field. He made two specific suggestions:
    1. New Zealand officials should join Australian officials in making a new study of the possibilities for getting world trade growing again by increasing the purchasing power of developing countries;
    2. In considering requests for assistance in industrial development (which, it was agreed, should be interpreted broadly) each Government should take into account the interests of industries in the other country, as well as its own.

    These suggestions struck me and my advisers as constructive and useful from New Zealand's point of view. If the second one limited our freedom of action at all, it would also limit the Australian Government's: on balance it might well favour New Zealand. So I welcomed both ideas.
  4. The Joint Statement. Mr Fraser proposed that after our talks were over we should issue a joint statement setting out the practical steps we had agreed on for strengthening relations between Australia and New Zealand. Originally these were to be just the establishment of the Australia- New Zealand Foundation and increased exchanges at various levels. We suggested that a section on trade be included as well, making it clear that both Governments are still committed to the progressive liberalisation of bilateral trade. Mr Fraser accepted this without argument. Rather to our surprise, he also proposed the inclusion in the public statement of the two ideas he had put to us privately. After consulting the Prime Minister by telephone, I agreed. The Joint Statement was issued just after I left 'Nareen' on Sunday 19 March. The text is attached. 1
  5. The key sentence in the Statement from New Zealand's point of view at least, is the one (second para, page 4) recording our agreement 'on the desirability of the further opening of bilateral trade, as conditions permit'. This obviously does not mean that NAFTA is to come off the ice straight away. What it does mean is that this will happen as soon as circumstances allow. It makes clear what direction we are moving in, and gives businessmen some basis on which to plan their investment. This is a modest achievement, but it has its value.
  6. The Joint Statement received fairly wide publicity in Australia-almost as wide as the painting I presented. But the Australian press generally concentrated on the foundation and the exchanges agreed upon: the significance of the section on trade for the most part escaped notice. One imaginative report claimed that I had failed to achieve my main objective in the trade field-allegedly to get more New Zealand dairy products into Australia. This report originated in the Sydney Morning Herald, which frequently criticises Mr Fraser for protectionism. It is not necessarily harmful to New Zealand.

    [matter omitted]2

  7. Dairy Products. In trying to increase our exports to Australia, we have hitherto not put much emphasis on agricultural products. There have been good reasons for this, but I think we should now have another look at the question. For dairy products in particular, I think the time may be coming when greater opportunities will begin to open up for us in the Australian market. Milk production in Australia is declining steadily. Unfortunately consumption, of butter at least, is also falling. This problem must worry the distributors and the retailers, if not the farmers, in Australia, and it gives us an opportunity to make common cause with them. My feeling is that officials in the departments concerned should be asked to discuss with the Dairy Board whether there is a way in which we can help to arrest the decline of butter consumption in Australia and in due course increase sales to the market.
  8. Third Markets. There would also be value for us in talking to the Australians more about our problems in getting access to markets in other countries. A number of people I met, in State capitals as well as in Canberra, suggested that we should work together more in approaching other markets. I explained the difficulties involved, and the advantages in some cases of pursuing different approaches. But I am inclined to feel that it would be useful to exchange views with Australian Ministers at regular intervals on a problem that is of great importance to both countries. It would be good for us to have to explain our policies, as well as to hear the explanations for Australia's. It would also help to bring out the things we have in common in the economic fields, and provide a wider setting for negotiations on strictly bilateral trade questions. For this latter reason, I think the exchange of views should take place in conjunction with NAFTA Ministerial Meetings, and we should propose this as the next meeting in April.
  9. Forest Products. Although I did not go to Australia to try to resolve current trade problems, I did talk to a number of people there about the proposed establishment of another newsprint mill at Albury in New South Wales. I raised with Mr Fraser and a number of his Ministers in Canberra the question of the 1969 Memorandum of Understanding and its bearing on the Albury project. The reply I got from all of them was that, if the companies concerned decide to go ahead with the project, the Australian Government cannot stop them. The Memorandum of Understanding itself acknowledges this, so I could not contest it. I did, however, point out clearly to Mr Fraser, shortly before I left Australia, that if the Albury project went ahead, without any step being taken to mitigate the effect on Tasman's sales to Australia, there would be a strong public reaction in New Zealand. I suggested that the Australian Government might bear this point in mind in preparing for the NAFTA Meeting next month. I have also discussed the problem with the Chairman of the Tasman Executive Committee, Mr Trotter, and ascertained that he is already exploring possibilities for making arrangements with one group of Australian newspaper proprietors or another to offset the impact that Albury would have on Tasman.
  10. Conclusion. The main conclusion I reached during my visit to Australia was that, despite the difficulties we are at present going through, Australia offers good prospects for the expansion of New Zealand's exports-certainly for manufactured products, probably for engineering and other services, and quite likely for agricultural products too. Trade between Australia and New Zealand has multiplied six times (on our figures) since 1965. The ratio has moved from 3.76:1 in Australia's favour to 1.79:1. New Zealand's exports have grown from $34 million to $365 million. We have done well out of NAFTA. We can do better yet, if we cultivate our relations with Australia carefully and keep our current problems in perspective.
  11. 12 Proposals. The main suggestions I have made in this report are:
    1. we should make a special effort to exploit the opportunities that are opening up for [us] in Western Australia;
    2. we should look again at the possibility of getting our dairy products into Australia, by working with the Australian diary industry;
    3. we should talk to the Australian government regularly at Ministerial level about the problem both of us have in getting access to other markets;
    4. we should bear in mind the opportunities Australia offers us for increasing our exports and keep current problems in perspective.

[AAFD 807 W3738, Box 391, CM (78) 11 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]