125 Letter from Douglas to Woodfield

Wellington, 29 July 1980

Australia - New Zealand Closer Economic Relations

This letter is in response to the notes handed to us at the meeting in Mr Clark's office last Thursday and is intended to express our views on the principles to be applied in considering tariff and import licensing changes.

The FOL believes that before any consideration be given to trade relationships between countries and the possible benefits accruing from such trade that recognition be accorded to the fact that much international trade is intercompany. In this regard it should be noted that P J Lloyd's study on 'New Zealand Manufacturing Production and Trade with Australia' published in 1971 recognises quite significant links between Australian and New Zealand investment. It is likely that this phenomenon has not been significantly reduced since 1971.

The significance of this feature of modem investment patterns to international trade is its impact upon the pricing of exports and imports. In many cases it means that trade transactions are not 'arms length' and that alleged 'international prices' only reflect the accounting policies adopted by the company concerned, Comalco's pricing of aluminium exports at cost of production being a significant example of this. Our general concern is therefore that any economic benefit accruing from an enlarged share of trade could be easily dissipated by losses arising from 'transfer pricing' and we would wish to see some surveillance of this practice as an integral element in any movement towards freer trade.

A second factor of general concern is the actual reality that can lie behind lower cost imports. In many cases the[s]e are through low wage levels made possible by poverty, vast inequalities and the denials of trade union and political rights. While these considerations do not apply to Australia, they do apply to imports from many other parts of the world and the FOL would be concerned if a move to freer trade generally was envisaged.

In our comments on the proposals put to us, I would like to develop our position on the tariff and import licensing questions separately.

Suggested Tariff Categorisation

In list 1 the major problem area could be in paints, an industry which will be adversely affected by any contraction in the motor vehicle assembly industry. In list 2 we would consider that early consultation with unions in the industries concerned will be an essential element in winning acceptance and working out any transitional problems that may arise.

Import Licensing

Our major concerns would relate to the annual 10 percent access growth and the establishment of a 5 percent market share where no sales presently exist. There would need to be some means of monitoring the effect of the 10 percent growth upon employment opportunities in New Zealand and also the extent of the benefits gained from such growth with some proviso for revision if the effects were harmful.

It is difficult to assess how the initial 5 percent access could be calculated and this is one area in which substantial trade offs from Australia should be sought before any such provision was agreed to.

I trust that the above is of assistance to you.

KG DOUGLAS

Secretary

[Federation of Labour]

[ABHS 950/Boxes1221-1226, 40/411 Part 28 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]