126 Telegram from New Zealand High Commission in Canberra to Ministry of Foreign Affairs

Canberra, 30 July 1980

No 2404. CONFIDENTIAL NZEO PRIORITY

Australia - NZ Economic Relations: Australian Attitude

Since the meeting of the Prime Ministers in March, the Australian inter-departmental committee has been meeting regularly under the chairmanship of STR (Anderson) to charge member departments with the preparation of papers and to review progress. The lDC interpreted the Prime Ministers' instructions as giving them sufficient authority to press ahead without seeking further guidance from Ministers, and without involving key interest groups like the CAl or the NFF in consultations.

  1. As we have indicated in other messages, the studies on the Australian side are on schedule and at the NAFTA/CER officials' meeting they will be ready to exchange with us a selection of the papers that have been prepared. They appreciate however that the task of working through the tariff, assigning each product to a 'box' and drawing up a timetable for those products under reference to the lAC, is a good deal more straightforward for them than it would have been if, like NZ, they had had to deal with a large number of products which were subject to quantitative restrictions as well. While officials are relatively relaxed about the possibility that our studies may not have progressed as far as their own, they are keen to hear from us on the state of play on the NZ side, any unexpected problems that may have been identified, and where, from the NZ perspective, the studies seem to be headed.
  2. What can we expect from the Australians at this round of talks? From an early stage in this exercise Australians have been very forthcoming in their approach. We have had access to most of the major internal papers they have prepared: their objective has been to seek to identify and define the principles on which any new economic relationship should be based, rather than to protect or extend areas of comparative advantage. This approach has meant that we have been exposed to an extremely diverse and at times mutually inconsistent range of views from the Australian departments involved:
    • The Treasury has been sceptical whether closer economic relations with NZ will bring substantial economic benefit to Australia: but it sees the discussions as a useful forum for pressing its own case to other (Australian) departments about the need for reducing protection.
    • Trade and Resources, somewhat harassed by their parallel involvement in NAFTA discussions, are keen to remodel the basis of the economic and trading relationship so that it more accurately reflects the two countries' long term economic interests. We have not recently heard the NAFTA/ASEAN 'trade-off' line which was so current a year or so ago and this may be because, as far as we can discern Trade now not only accepts but presses the view interdepartmentally that if Australian manufacturing industry is to be able to compete with its ASEAN counterparts, it must first be in a position to compete with its NZ counterpart.
    • Primary Industry's focus of attention has been the likely fate of the dairy industry in a closer economic relationship with NZ: but the BAE has also pressed the view that dairying's lack of profitability vis-a-vis other sectors of the Australian rural economy suggest the need for an approach to the problem which is other than solely defensive.
    • Industry and Commerce have tended to take an aggressive attitude on questions such as access, import licensing, and intermediate goods: but, I and C also look on these discussions as a means of seeking support for a more positive approach towards adjustment assistance. Needless to say, on both the general issue of adjustment assistance and on its specific application to ANZCER, I and Cis opposed by Treasury).
  3. Many of these divisions of interests parallel those on the NZ side, but the overall Australian approach has been sufficiently flexible and positive, at least at the official level, to suggest that at this juncture they are not seeking major concessions from us in the CER context (although that has not prevented them from continuing to take their usual hard line on current NAFTA issues-which they regard as totally separate). While the Australians consider the move to establish a new economic relationship is essentially a New Zealand 'initiative' they have acknowledged that the burden of adjustment to a relationship of the dimensions being contemplated will fall more heavily on NZ than on Australia (although again that has not inhibited them from emphasizing their potential difficulties). For that reason, they are now showing willingness to add to the principles of reciprocity (Scully's 'fair go') and automaticity a third principle: gradualism. While a gradual approach to resolving the more difficult areas would be particularly helpful to New Zealand there is no doubt that it would suit the Australians also-one needs only to note the increasing sensitivity of the Australian Government to the possibility that some lobby groups (such as the TCF industry) will use the impending election to intensify pressure to accommodate sectional interests. This is a general concern of the Government's part and is not specifically generated from the ANZCER exercise itself. But it could mean the Australians are now prepared to face up to the difficulties of finding solutions to the problems presented, as distinct from merely defining them.
  4. The Australians want to concentrate attention for the informal talks on Thursday on:
    • categorisation of products
    • liberalisation of tariffs and quotas
    • agricultural support and stabilisation measures
    • intermediate goods
    • export incentives
    On a more routine level, they have also worked out some position papers on:
    • by-law rules of origin
    • extension of preferences agreement
    • government purchasing.
  5. The Australians are not looking on this round as 'make-or-break' discussions, nor even as entering the hard negotiation phase. At the same time the indications they have been reviewing of NZ attitudes have raised doubts about our commitment to a continuation of the discussions. Both in Wellington and Canberra we have been at pains to dispel the misapprehensions of Australian officials on this score, but they will want to be able to report to Ministers that progress has been achieved, and, if possible, that officials can now get down to the business of elaborating the framework for solutions to the more difficult problems. They are flexible because of the diversity of interests that have been brought to bear on their side: they are positive because they appreciate the extent of the adjustment likely to be necessary on NZ side. Consequently the Australians will be most receptive to any initiatives from us which will help to advance the discussions: on timing they will defer to us provided we accept that no final discussions1 can be taken before the general election (which was earlier assumed would take place in December but may now be brought forward to October).
  6. There is something of a contrast between the generally positive approach of officials, and the apparently less constructive tone of one or two public statements emanating from some Cabinet ministers. This is largely a reflection of the difficulty Australian politicians have had in taking a public stance on an issue whose outlines have yet to be fully defined in terms of all its pluses and minuses but at the same time in being expected to protect essential Australian interests. Since the Prime Ministers' meeting, both Mr Fraser and Mr Nixon have assured dairy farmers they will not allow 'unfair' competition from New Zealand to affect adversely the Australian dairy industry's viability. While we may regret the need for such statements it is important to recognise that the dairy industry is the only lobby which has sought to make ANZCER a political issue: politicians have responded to it as an issue because the dairy industry's lobbying efforts have persuaded them that it is one. It has been in order to contain the issue and prevent it from becoming part-political that Australian ministers have been so anxious to reach an accommodation on cheese which can be presented to dairy farmers as evidence of NZ's reasonableness and willingness to accept the principle of restraint in developing its market in sensitive areas. Similar considerations apply, of course, to our own political situation and the uncertainty as to what has been happening during a period of seeming inactivity has required public reassurance that the NZ Government is above all fully aware of the implications of the exercise for the future of the NZ economy. The difference between the two perhaps lies in the differing emphasis placed on CER by the two countries. For New Zealand CER would be a major development having consequences right across the community. Hence any public statement in NZ must be of a general nature, the result being that any reservations we may express tend to be interpreted by the Australians as reflecting our attitude toward the concept itself. In Australia, on the other hand, CER is regarded as having much less significance in the total scheme of things so that public statements have focussed on the one issue and the note of criticism implicit in those statements does not go beyond that.

[ABHS 950/Boxes1221-1226, 40/4/1 Part 28 Archives New Zealandffe Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]