130 Cabinet Economic Committee Minute

Wellington, 4 November 1980

E (80) M 41 PART III CONFIDENTIAL

Australia- New Zealand Economic Relations - General Overview

Discussion flowed principally from recommendation (c) of E (80) 208. This concerned the criteria to be taken into account for the inclusion of items in category III, ie the category of goods for which the liberalisation of Australia/New Zealand trade would be deferred in the event of any agreement between New Zealand and Australia for a Closer Economic Relationship (CER).

Officials observed that they had been supplying New Zealand manufacturers with as much information about the negotiations with Australia as was possible. While in some cases the response was somewhat negative, in many cases it was quite positive. The Committee remarked that this was natural; firms engaged in exporting goods to Australia would welcome a more open Australian market, while firms producing for the New Zealand market alone would not welcome increased competition from Australian imports. Officials needed to bear two points uppermost in their minds. The first was that the Government did not want to become embroiled in a controversy with New Zealand manufacturers' representatives on the CER question. If any agreement was to be reached between Australia and New Zealand, the Government would need to have the manufacturers on its side. Secondly, in order to do this, officials needed to give great attention to manufacturers' requests for the inclusion of items in Category III. Part of the Government's economic strategy had been to support the development of New Zealand manufacturing and the prerequisite for this was a stable domestic market and the confidence that this would be maintained.

These points were acknowledged as being of considerable importance. However, it needed to be borne in mind that a final decision on the CER package would be made in the light of the balance of advantage to New Zealand. The opening up of the Australian market would in effect enlarge the domestic market for New Zealand manufacturers. This would mean that if the balance of advantage turned out to be favourable to New Zealand, any decline in the domestic market for New Zealand manufacturers caused by increased Australian imports would be more than compensated for. Hence, the liberalisation of trade between New Zealand and Australia would change the shape of some New Zealand industries rather than eliminate them altogether; production in some product lines would be enhanced, while production in other lines would decrease. In any event, the liberalisation envisaged would not be sudden and drastic; it would be gradual and steady and would provide ample time for adjustment. As indicated in paragraph 2 of the memorandum attached to E (80) 208, the liberalisation was not intended simply as a rationalisation of trade protection between Australia and New Zealand; it was intended to be the essential first step in making industry in both New Zealand and Australia more competitive internationally.

The point was also made that Australian officials, it seemed, had not been keeping Australian manufacturers very well informed about the progress of the CER negotiations. The possibility of significant changes in stance by the Australians at a late stage of the negotiations could therefore not be totally discounted. For their part, New Zealand officials would continue to keep New Zealand manufacturers fully abreast of developments. The Manufacturers' Federation were on the point of considering their response to the suggestion of amalgamating Categories I and II.1 Once the parameters of the possible CER agreement package were more precisely defined, and the reactions of New Zealand manufacturers more clearly identified, officials would be in a better position to advise the Government as to where the balance of advantage to New Zealand of the CER exercise lay.

In conclusion, the observation was made that it would be desirable for Manufacturers' Federation representatives to attend a meeting of the Committee, following its consideration of the next officials' paper on the CER negotiations, to discuss the shape of the CER agreement package as it was developing and to ensure that there would be broad-based support from manufacturers for the position the Government was adopting.2

The Committee agreed, for reference to Cabinet, to:

  1. note that the work programme for officials is based on the requirement that agreement be reached on the main elements of a new arrangement by February 1981;
  2. agree, subject to confirmation that theā€¢ Manufacturers' Federation has no substantial objections, that the Australian proposal for combining Categories I and II and for a revised tariff phasing formula be accepted;
  3. agree to the principles which govern the nature of Category III and the principles for consideration of inclusion of items in Category III set out in the Annex to the memorandum attached to E (80) 208 as a basis for discussion with Australia and for considering industry requests for Category III classification;
  4. note the position reached on other issues and the proposed immediate work programme as set out in the memorandum;
  5. agree that officials inform the Manufacturers' Federation of present progress on issues other than those which are forming the basis of current consultations;
  6. authorise officials to continue their discussions with their Australian counterparts on the basis of the discussions within the committee outlined in E (80) M 41 Parts III, IV and V.

[ABHS 950/Boxesl221-1226, 40/411 Part 31 Archives New Zealandffe Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]