14 Extract from Draft Discussion Paper by Department of Trade and Industry

Wellington, October 1978

Relations with Australia1

Should New Zealand Embark on a New Initiative?

Whether or not it is determined that the relationship is in a critical phase, we need to consider whether a new initiative should be proposed to Australia within the next few months.

In deciding this question, a number of associated questions need to be considered-whether or not we wish to continue to advance NAFTA; whether the price to be paid for that advancement is commensurate with the advantages to be gained; whether any initiative we might propose is likely to find favour with the Australians; and whether it would tie in with our longer term policy objectives.

There is no doubting the value of the Australian market to New Zealand's manufacturing industry nor the benefits which NAFTA has provided in developing the trade we currently enjoy. It should however be remembered that much of the growth in NAFTA coverage in products of interest to New Zealand occurred at a time when the arrangements were agreed to by Australia without the necessity of special access within our import licensing policy. If we are now considering a return to the degree of movement previously enjoyed then we must recognise that Australia expects a quid pro quo. We should also realise that the Australian market is showing signs of obvious limitations. Similarly we should recognise that Schedule A addition is a commitment in terms of duty free access which will remain beyond the termination of our import licensing system, whenever that may be. Because we have added products to Schedule A while maintaining protection by way of import licensing we have in effect removed the transitional phasing of duty reductions. If licensing is removed many New Zealand industries are going to face the immediate shock of complete free trade with Australia. We should therefore be considering whether a particular industry can survive against duty free competition from Australia without import licensing protection. In this context Schedule A might not be the attractive goal it was previously considered. The concept of 'advancing' NAFTA simply by greater additions to its schedules while maintaining other forms of protection may present us ultimately with a considerable problem.

To be acceptable to Australia any initiative suggested must overcome concerns held by Australian officials and through them Australian industry. The integrated market profile studies, commissioned by the Permanent Heads were an attempt to do this. On present indications it appears that the benefits deriving to either country will be outweighed by the disadvantages.

Whether such an approach would be compatible with our longer term objectives is doubtful. If to meet with Australian approval the initiative involves sacrificing many of the benefits our industry now enjoys vis-a-vis its Australian counterparts and, in effect, competing on Australian terms its benefits seem very dubious in terms of trade development. To tie ourselves to Australia could prejudice our efforts to diversify our exports of manufactured products to other markets. At the same time it seems that at the political level the integrated market approach is seen as very important by Australia. Whether Australian officials agree with this is not yet clear.

What Form Might an Initiative Take?

As already mentioned, any approach we might suggest, to be successful, must meet the concerns currently held by Australia. To meet the major concerns would involve the granting of access to the New Zealand market on terms which enable Australia at least to have the chance to sell here successfully. By definition this will result in greater competition on the New Zealand market, perhaps to the detriment of our own industry. Such an approach would seem to fit in with the concept of restructuring of New Zealand industries into more competitive areas, and with the ultimate effects of Schedule A. Other less painful approaches could be considered but it seems unlikely that these would remove or ameliorate the basic concerns of Australian politicians, officials or manufacturers.

In this regard it is pertinent to note that [at] his recent meeting with Ministers the President of the New Zealand Manufacturers' Federation commented that the Federation did not support any major initiatives being suggested to Australia. Rather the Federation favours a 'holding operation for the next three to four years while manufacturers diversify into other markets and Australia assumes a less important role in their export activities'. This approach is no doubt based on the fact that manufacturers are currently exploring other markets to the utmost, recognising the limitations on their future growth in Australia. It does not however seem to recognise that it is highly unlikely that some of our major manufactured exports could find a market elsewhere.

In the circumstances it seems appropriate to approach the forthcoming NAFTA meetings with an open mind. It should subsequently be possible to assess more accurately the extent of official Australian concerns and formulate our future policy accordingly.

There are however some basic issues we have to face concerning the role of NAFTA itself. While not mutually exclusive we have to decide whether NAFTA is primarily-

  1. a device that we should use to gain the maximum trade advantage;
  2. has a much wider significance in foreign affairs terms;
  3. has a role in basic economic development.

In trade terms it is apparent that we can no longer expect to obtain benefits without at least granting much greater access. We are in fact fighting a rearguard action to maintain the place of some of our major exports to Australia. The usefulness of the preferences agreement in anything but the short term seem[s] doubtful. The attitude of Australian officials and manufacturers appears to be turning more against us.

To regain some goodwill and to try to show Australia that we have significance as a market in the future would seem to involve a drastic change of policies to meet the basic Australian complaint-access to the New Zealand market. To adopt such a policy could well fit in with our own economic and foreign policy objectives as well as facing up to the ultimate responsibility of adding items to NAFTA schedules. We have to date been rather like the ostrich. There is little point in fooling ourselves with ideas that Australia will regard initiatives such as 'all the way with Schedule A: as commendable in themselves, and from our point of view it could ultimately prove foolhardy.

The alternative is to continue our current 'ad hoc' approach and try to achieve what we can, while minimising the future risks, at as little cost to ourselves as possible. It seems highly likely that such an approach will make almost certain the steady diminution in the trading relationship and might have some effects on our hopes for a more successful broader relationship.

Regardless of which approach is adopted it would obviously be to our benefit to pay greater attention to the 'promotion' of New Zealand and the Australian/ New Zealand relationship in its broadest sense. In such an exercise it is essential that we try to re-establish the importance of New Zealand as an Australian market in Australian eyes.

Whether a more forthcoming and realistic approach to NAFTA itself would achieve a great deal is open to doubt given the other Australian concerns mentioned in this paper. It would however be a realistic attempt to maintain and improve our relationship should that be judged to be in our best interests.

[ABHS 950/Boxes1221-1226, 40/411 Part 16 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]