136 Submission to Cabinet Economic Committee

Wellington, 12 December 1980

E (80) 253. CONFIDENTIAL

Australia/New Zealand Economic Relations Report of Meeting of Permanent Heads 10-11 December 1980

Background

  1. At its meeting on 9 December 1980, the Committee agreed to a report, E(80)M46 Part V1 refers, outlining aspects of the negotiating brief for the meeting of Permanent Heads of New Zealand with their Australian counterparts in Wellington on 10-11 December 1980. The report agreed to at that meeting is attached.2
  2. The purpose of the Permanent Heads' meeting was to attempt to reach as much finality as possible on the format of a new relationship with Australia, following the outline given in the Prime Ministers' communique and annex of March 1980.3
  3. This report outlines the major areas to which Permanent Heads gave their attention. A draft of a possible Heads of Agreement was considered to which a broad measure of agreement was reached on many aspects of a closer relationship.

Tariffs

  1. Permanent Heads agreed on a tariff phaseout formula of five years duration. Assuming that final agreement on all other aspects of the relationship could be reached in time for it to commence on 1 July 1982, it would result in the total removal of all tariff barriers on goods in Category A/B4 between the two countries by 30 June 1987.

Category C5

  1. Broad agreement was reached on provisions covering the inclusion of goods in Category C. Australian Permanent Heads wished to consider further the maximum time period that any item might stay in Category C. They will report on this by mid January. The product coverage of List C has still to be discussed in detail. The Australians wished to consider further the status of whiteware, plastics, motor vehicles and apparel upon which they will comment further; in mid January for whiteware and plastics, and mid February for motor vehicles and apparel.

The Agreement on Tariffs and Tariff Preferences

  1. Consideration is being given to the need for extension of tariff preferences provided in the 1977 Agreement on Tariffs and Tariff Preferences. The need for the extension of the present Agreement following the implementation of a closer relationship, is presently being studied.

Import Restrictions

  1. Subject to the Australians checking the full effect of the access levels derived from the formula presented by New Zealand for calculating the base level of access for licensed goods where trade is presently flowing, there was mutual agreement on the access formulae. The Australians questioned the meaning of the phrase 'gradual and progressive liberalisation of import licensing and tariff quotas between Australia and New Zealand in reasonable time'. They suggested that the aim might be achieved by a review at a later stage in the new relationship, perhaps 1990. The review could seek to arrive at an undertaking to phase out completely all import restrictions on Australia/New Zealand trade by say, the year 2000, a date which the Australians described as 'reasonable'. New Zealand Permanent Heads stressed the advantageous position that Australia would enjoy under the access arrangements at present under discussion. The very significant impact that these liberalisation arrangements would have on New Zealand's protective structure was also stressed. It was agreed that there was room for debate as to the interpretation that could be placed on the term 'in reasonable time'. Both sides undertook to consider the point further.

Intermediate Goods

  1. Permanent Heads affirmed a set of principles covering an approach which should enable intermediate goods (inputs) problems of significant dimensions to be resolved in a manner consistent with the overall objective of the closer economic relationship. It was agreed that talks would be held in the week of 15 December on the specific question of whiteware and plastics.

Agricultural Issues

  1. Resolution was not achieved on the issue of trade in dairy products. Australian Permanent Heads will recommend to their Ministers that the New Zealand proposals, as outlined in (80)M46 Part V,6 should not be accepted. The major reason for this was that the high levy on Australian dairy production, and consequently high wholesale prices did not permit fair competition to take place in a free trade environment. The Australians stated that a review of all assistance measures to the dairy industry is currently underway and consequent changes could be implemented in the middle of 1981. Additionally they raised the need that they saw, notwithstanding the result of the review, for dairy trade to be established in the new relationship on a base access level plus growth factor approach. This would mean the restriction of the largely free access currently available to New Zealand. The Australians stressed their understanding of the importance of this issue to New Zealand and expressed the hope that a satisfactory formula relating to a base access level and growth factor which would be acceptable to New Zealand could be found and which accordingly would not unduly delay the signing of the Heads of Agreement. New Zealand again emphasised the importance of this issue and reiterated its view that the objective in terms of the dairy industry in a CER was a continuation of the present unrestricted duty free access for dairy products, other than cheddar cheese, to the Australian market.
  2. On the other agricultural issues, a broad measure of understanding was reached. In the matter of Peas and Beans however, the Australians requested that export incentive eligibility be removed.

Export Incentives

  1. Agreement was reached that a review of performance based incentives be undertaken, commencing before 1 July 1982 and to be completed by 1 April 1985, or in any event no later than 30 June 1987. The Australians also wished to see the removal of performance related incentives between the two countries by 30 June 1987.

Government Purchasing

  1. It was agreed that discrimination in purchasing by national and state bodies was not in harmony with the concept of the closer economic relationship. It was recommended that the subject be put on the agenda of the State Premiers' Conference in June 1981 and that, with reference to available documentary evidence demonstrating the magnitude of the problem, the elimination of discriminatory purchasing practises by the states be sought.

Customs Issues and Rationalisations

  1. Both these items were agreed.

Consultation, Review and Safeguard Provisions

  1. General agreement resulted on the need for mechanisms to be included in the new relationship to allow for regular consultations and reviews. The need for safeguard provisions, in keeping with the format of the relationship, was recognised.

New Agreement

  1. Once all the outstanding problems, particularly in Agriculture have been resolved, it was agreed that the NAFTA and its related agreements be replaced by the new Agreement. It was recognised that the Closer Economic Relationship was a development from the NAFTA, but it was considered that the breadth of its provisions was such that it should be formulated as a new agreement.

Future Timetable

  1. Permanent Heads considered that if no major problems were met, an agreed report would be completed by mid January 1981. If significant problems were encountered, then it was envisaged that separate reports be made to respective Cabinets in January outlining agreed progress and areas requiring further negotiation in February. This latter scenario would retard the following process by approximately one month. It was otherwise considered that the reports to Ministers should be referred to Cabinets in early February 1981, seeking agreement to the joint report and also seeking authorisation to make public a Heads of Agreement. A period of one month would be set aside for public comment to be followed by initialling of the Heads of Agreement by late March at Ministerial, or possibly Prime Ministerial, level. The detailed text of the new agreement would then be signed by the end of April, by Ministers.
  2. Consideration of this timetable took place before discussion on agricultural issues and Government purchasing was completed. It was agreed, after further discussion, on the dairy issue, that there could be considerable difficulties in keeping to the timetable. The Australians said they would try very hard to develop their position on the dairy issue in a time frame that allowed the timetable to be met. Attention should also be drawn to the date of the Australian State Premiers' meeting in June 1981, and the consequent effect that this may have on achieving the timetable considered by Permanent Heads.
  3. The Joint Report of Permanent Heads to Prime Ministers plus a draft Heads of Agreement are currently being completed. Likewise separate reports on matters upon which agreement has not yet been reached are also in preparation. In accordance with the timetable outlined in paragraph 16, they should be available in mid January.

Reccomendation

  1. It is recommended that the Committee note this report.

[ABHS 950/Boxes1221-1226, 40/4/1 Part 32 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]