143 File Note by Bentley

Wellington, 5 February 198[1]

CONFIDENTIAL

Note for file1

ANZ CER: Cabinet Economic Committee Discussion on 3 February 198[1]

On 4 February I had a foreshortened discussion with ...2 on the above meeting. He telephoned me from .... As usual he should be very carefully protected. The CEC had before it the joint Permanent Heads Report,3 New Zealand and Australian side papers oR export incentives, Government purchasing, dairy products4 etc., and a New Zealand covering submission. So far as I can gather, the New Zealand covering submission contained specific recommendations.

... said the Prime Minister had made the running in what had been by far the best discussion on CER in the whole two years it had been under consideration. He thought that the Prime Minister and Ministers were now concentrating on the real issues. The Prime Minister said he had studied the Joint Permanent Heads' Report and accompanying documents a number of times. His basic inclination was to say that it was an unsaleable document but ... pointed out that he had made this comment on the document as it stood and was fully aware that there was still a number of issues of difficulty on which progress remained to be made.

Getting down to specifics, the Prime Minister began by concentrating on the Category C balance with the comment (which he admitted was not necessarily fair) that Australia seemed to be holding out rather more products than New Zealand. He supposed this was for negotiating purposes, but at the moment there was not a balance in Category C as the Australian list included more items of serious export interest to New Zealand than the reverse.... commented that officials were able to make the point that the lists were still evolving, adding that there was an implied direction to achieve something better.

On Government purchasing, Mr Muldoon had a simple line. Here we are setting up a trade agreement inviting private interests to get out and trade, but it is ridiculous that it is with the two Governments that nothing was happening. The Governments should be able to agree on tariff preferences. The Prime Minister brushed aside officials' comments about Federal/State complications with remarks to the effect that everyone had problems to sort out. ... said the Prime Minister's attitude seemed very coloured by conversations he had had with Premier Wran, who had apparently indicated that something could be done. The Prime Minister's response to officials suggesting that the issue was complicated was that if Federal Government was finding it difficult why should not New Zealand discuss the matter with the States. In reply he was given to understand that for the moment it would be better to let the Federal Government pursue the matter. Mention was also made of the June Premiers' Conference which brought the retort from Mr Muldoon that he could not wait until June and that it was not an issue that could be separated off. .. . said various ideas were floated such as monitoring a special mission to the States pointing out what New Zealand had to offer, but nothing firm decided.

The Prime Minister's perspective of export incentiv.es ... thought was a little different from that of officials (separately Treasury Secretary Galvin commented that this issue was going to be more difficult than he had previously thought). The Prime Minister saw export incentives as an integral part of his future economic policies. Their purpose was to enable New Zealand manufacturers to land and sell their goods in foreign markets and if there were not to be expoit incentives, there would have to be some other market intervention mechanisms. When it was pointed out to Mr Muldoon that Australian manufacturers would have a legitimate complaint about export incentives in the context of fair and equitable trade he replied that that was precisely his worry. New Zealand was already trading under NAFTA and some ftrms were saying to him that but for export incentives they would not be in the business. (I asked whether officials made the point that NAFTA in its present form would not go on forever. Apparently not.) Officials took the line that in freeing up trade, tariffs would be phased out and it should be possible to phase down export incentives at the same time.But Mr Muldoon asked rhetorically what about goods already traded duty free.

.. . summed the Prime Minister's view up as being that the balance on export incentives had gone too far in Australia's direction. It was all very well to talk about a review but a review really meant a cut. How could the Government sell that to the manufacturers. Officials had in effect been instructed to watch the form of words on what a review was expected to achieve. ... thought the Prime Minister accepted the fair and equitable principle and the idea of a review of export incentives but was reluctant to have the outcome of the review pre-judged.

Dairy products remained the biggest issue. The Prime Minister's basic line was that he wanted some improvement on the present situation, i.e. some trade in dairy products. He acknowledged that any deal would be a step backwards from the formal position of free New Zealand access. A solution that did occur to the Prime Minister was retention of the present formal access with a side agreement (recognising Australia's need for a 'bankable assurance' that the Dairy Board would act responsibly and recognising New Zealand's need for a 'bankable assurance' that New Zealand would have some trade in dairy products).

As ... understands the situation, the next move in discussion of the dairy products area is to come from the Australian side. He ventured that the Prime Minister was becoming more responsive on the issue.

[matter omitted]5

[NAA: Al838, 37011119/18, xxi]