132 Submission to Cabinet Economic Committee

Wellington, 14 November 1980

E (80) 221. CONFIDENTIAL

Australia/New Zealand Economic Relations: Industry Consultations

Introduction

  1. It is important that in evaluating the overall benefits of a closer economic relationship with Australia, the broad reactions of New Zealand industry to the proposals are taken into account. The need for consultations with interested parties was endorsed by Ministers in September and the Government's intention to hold detailed consultations with such parties was spelt out in a press statement by the Acting Prime Minister on 6 September 1980. Subsequently, the Committee underlined the importance of obtaining a favourable reaction from industry and approved the Manufacturers' Federation being briefed on all relevant aspects of the negotiations (E(80)M41 Part 111).1 This paper outlines the progress of consultations to date as a basis for discussion between the Committee and members of the Manufacturers' Federation on 18 November 1980.

Consultations to Date

  1. Consultations have taken place with manufacturers' groups and various farming and producer organisations. Because the proposed trading relationships should, in general, benefit the agricultural production sectors, there has been little adverse reaction from representatives of those sectors (except for the NZ Vegetable and Produce Growers' Federation).
  2. Consultations with manufacturers have generally been conducted through the Manufacturers' Federation (MANFED), at the national and district levels and with trade groups. Besides a general briefing on the proposals, manufacturers have been given a detailed outline of the proposed levels of access on the basis of individual tariff items. They were asked to react as individual companies or trade groups to the various access proposals. Discussions have also been held with industry groups outside MANFED (eg the Pharmaceutical Manufacturers' Association and the Wine Institute) and are being extended to individual key manufacturing companies.
  3. At a meeting on 13 November, MANFED executives were given on a confidential basis documents relating to a wide range of relevant issues, so they are now fully briefed on the whole compass of the negotiations. At the same time Mr I Douglas reported on the general position of MANFED and raised a number of points for consideration. These are set out below.

Reactions of Manufacturers

  1. While the MANFED Council is still adopting a broadly positive stance to the proposals for a CER there are certain trade groups and a number of individual companies that have misgivings. Douglas made it clear that the two issues that loom largest at the national level are access and the continuation of export incentives. He indicated that the offer of full consultations on issues as well as access had been warmly received. MANFED has also been reassured that adequate time will be made available for consultations; the concern about lack of time has come through in a number of submissions from groups and companies.
  2. An analysis of written submissions to date from individual manufacturers or groups has revealed a number of common factors. These, and comments by officials, are mentioned below:
    1. The Government has not yet identified clearly to manufacturers the benefits that will accrue to New Zealand of a CER. Comment: The major benefit of any new arrangement would arise from more favourable conditions of access to the Australian market. The extent to which New Zealand producers and manufacturers can take advantage of that access cannot be measured in advance. These factors will need to be fully explained in public statements. However, until the shape and content of a new arrangement have been more clearly determined, it is not possible to fully evaluate the likely benefits.
    2. The current depressed market conditions and government induced changes make this an inappropriate time to be entering into a new relationship with Australia. Comment: The answer to this point is that the direct competitive affects of the CER lie some way in the future. It is likely that the earliest possible date to begin tariff phasing and access increases would be 1 July 1982 and the process would take up to five years. The process of access liberalisation will in most cases be even more gradual. It is also important to bear in mind the possible consequences to trans-Tasman trade if no changes are made to the present institutional arrangements.
    3. The issue of special licences equivalent to the average of three years' imports from Australia where trade is already flowing freely under Global licences would provide an unduly high level of access. Comment: Australian and New Zealand officials now agree that commercially viable imports under existing Global licences should constitute the base and that initially additional licences for Australia would be required only to the extent of 10 percent of the base figure to provide the increase in access in the first year. (This effectively meets the MANFED request.)
    4. Manufacturers should be eligible for some of the additional import licences that are to be issued as they will be giving up part of their market. Comment: The policy has not yet been determined and account will need to be taken of the views of manufacturers and other interested parties (importers, retailers). In the special circumstances of the CER, consideration could be given to the MANFED request in selected areas, especially where beneficial industry rationalisation was involved.
    5. The issuing of licences on an item code basis would endanger some manufacturers. The issue of licences according to tariff items would be preferred. Comment: This problem is receiving detailed attention in the light of the submissions received.

Other MANFED Concerns

  1. MANFED has identified several other more general matters which may be raised with the Committee. These are as follows:
    1. There is some concern about the open-ended nature of the proposed arrangement. There should be provision for a stocktaking after, say, five years to determine if it is still appropriate to continue moving to free trade. Comment: The stated objective of the CER is ultimate free trade and there must be certainty as to the outcome to provide a basis for long term investment decisions. Nevertheless, it would be normal to review progress and the operation of an agreement of this type at about the end of the tariff phasing period. Such a review would provide an opportunity for the Government to make a general assessment of the benefits of the arrangement.
    2. Because of higher tariffs in New Zealand than Australia against third country imports, Australian exporters gain greater benefit in New Zealand than vice versa. New Zealand should seek to retain a margin of preference in Australia if third country tariffs are reduced. Comment: Although, in general, New Zealand tariffs tend to be higher than Australian tariffs there are wide variations. An effect of the formula approach to tariff phasing will be that some New Zealand tariffs will be phased out over a longer period than their Australian counterparts. Officials have not yet addressed the future of the Agreement on Tariffs and Tariff Preferences.2 The possibility of maintaining tariff preferences during the tariff phasing period on a limited range of key products might be explored.
    3. All items currently subject to an industry study should automatically qualify for inclusion in Category III.3 Comment: Officials believe the justification for inclusion in Category III should require a tighter test than only whether products are scheduled for.an IDC or industry study. Each case will be considered on its merits. All proposals for Category III treatment are presently being intensively studied.

Conclusion

  1. This meeting enables the Committee to take a reading on the views of MANFED at this point in the consultative process. At the same time Ministers may wish to reinforce the Government's intention to carry through the consultations begun in terms of the September policy statement.
  2. Ministers may also wish to give an indication of possible timing in reaching an agreement with Australia. Officials assume that no final decision to proceed will be taken until prior to the meeting of Ministers sometime early in 1981, and that any such decision will depend on the outcome of the meeting of Permanent Heads in early December and will have full regard to the views of industry. The material set out above may be drawn on, as appropriate, to answer points raised by the MANFED representatives.4

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