15 Note from Shallcrass to Lough

Wellington, 11 April 1979

Australia/New Zealand: Economic Relationship

Attached is a copy of a note that Mr Corner submitted to Mr Talboys after the first day of NAFTA Ministerial discussions. You will see from the account of the remarks made by Mr Anthony at those discussions that the Australian side offered a fairly clear invitation to the New Zealand side to talk in broad-ranging terms about the place of New Zealand and Australia in the world at large, and following on from that, about the direction of movement of the economic relationship between the two countries. At the time Mr Talboys did not take up Mr Anthony's offer, and the discussion concluded with the Australian Deputy Prime Minister saying that he would pursue the subject further. The attached Foreign Affairs note was put to Mr Talboys, with the knowledge of Treasury and the Department of Trade and Industry in the hope that the New Zealand side would, at today's meeting, seek to explore the thinking that lay behind Mr Anthony's offer.

Although Mr Talboys gave the impression that he did not appreciate the significance of the Australian offer, he raised the subject with Mr Galvin after the meeting. As a consequence, at dinner at Vogel House last night Mr Anthony, Mr Talboys, Mr Adams-Schneider, and Mr Muldoon, aided and abetted by Mr Galvin and Mr Clark, did together or separately discuss Australia's apparent interest in exploring ways in which the economic relationship between the two countries could be placed on a more satisfactory basis.1 (The implication of Mr Anthony's remarks is that the Australians do not regard NAFTA as a satisfactory basis.)

The upshot of these discussions was that this morning Mr Muldoon, Mr Talboys and Mr Adams-Schneider, in the presence of Mr Galvin, Mr Clark and Mr Francis (New Zealand High Commissioner, Canberra), agreed that the Prime Minister's Department should undertake a study of the A/NZ economic relationship with a view to preparing for Ministers a report outlining ideas that could subsequently be explored with the Australians. For his part, Mr Anthony noted at this morning's NAFTA meeting that with regard to future cooperation between the two countries, he had tested the water, found it less than icy cold, and would therefore follow up the subject in Canberra. On the two occasions when he spoke across the table to New Zealand Ministers about the future of the economic relationship between the two countries, Mr Anthony revealed a very deep Australian concern at what is seen to be New Zealand's continuing failure to face up to economic realities and adopt policies designed to protect its own, and by implication, Australia's interests. As directly as decency allowed, he pointed to the need for New Zealand to adopt policies designed to reduce

inflation, remove distortions from the economy and set the scene for economic growth. He implied that New Zealand is increasingly becoming an economic backwater, and that unless the Government introduces policies designed to take advantage of the resources we have (people and energy were mentioned) New Zealand will continue to stagnate. He alluded to devaluation, implying that it was about time the New Zealand Government appreciated the long-term value of temporarily unpalatable medicines.

While it does not appear that the Australians have any clearly thought-out ideas on what should be done about the A/NZ relationship, or how we should go about doing it, discussion with officials on the Australian side suggest a considerable degree of scepticism about the value of NAFTA. The implication of their reservation about the piecemeal sectoral discussions that have been going on recently within NAFTA, and their negative attitude to a customs-union, suggests that from their point of view, a common-market approach to the promotion of trade between the two countries could represent the most satisfactory avenue for exploration.

It is not clear just where it is that Ministers on either side envisage that we are now headed. Mr Muldoon has agreed to officials studying A/NZ economic cooperation and Mr Anthony is going to pursue his ideas in Canberra. How and when the two sides come together again is unclear. It is also not clear just what the New Zealand Prime Minister's Department is going to study, who is going to do the work, and how the other OEC departments fit into the picture. There is clearly advantage in having the Think Tank involved in this work, but it should not be carried out in isolation.

You might like to talk to Mr Galvin at some stage on these issues. I understand that similar advice is being put to Mr Comer by the Ministry of Foreign Affairs.

Attachment

Wellington, 11 April 1979

Australia: The Economic Relationship

I understand that yesterday afternoon Mr Anthony spoke in general terms about the future of the Australia/New Zealand economic relationship, saying that NAFTA had reached a plateau, pointing to the economic cooperation achieved in Europe, and suggesting that the time had come 'to do some really heavy thinking' about the future of the Australia/New Zealand relationship. (I have been given a note of this part of his remarks, which I attach.)

  1. Mr Anthony was clearly asking whether New Zealand wished to consider the possibility for the future. of a much closer economic relationship with Australia. No doubt you will be considering what response should be made to these comments.
    In terms of our political as well as economic interests regarding Australia I suggest that some form of positive response would be desirable. One possibility would be to say that you propose to instruct New Zealand officials to meet together at Permanent Head level with a view to reporting to Ministers as soon as possible on the possible options for the long-term development of the economic relationship with Australia. After consideration of such a report, discussions could take place with Australia at Ministerial level.
  2. In the short time available before this morning's meeting I have not been able to discuss this suggestion with other interested Permanent Heads. I will, however, ensure that the Secretary of Trade and Industry and the Secretary to the Treasury have this note in time to put to you any views which they might have before this morning's meeting.

Attachment

11 April 1979

NAFTA Ministerial Meeting: The Future Economic Relationship

At the end of the meeting on 10 April, Mr Anthony spoke in general terms about the overall economic relationship between Australia and New Zealand. The following is a note of some of his remarks:

'Having been overseas for some time I am naturally influenced by the world scene. I am convinced that there is not going to be much opportunity in the future for growth in temperate agricultural trade. And on NAFTA we have reached a plateau. Is it good enough for us just to nibble away at making progress? Are we facing up to facts? I get worried when it seems that we might be grinding to a halt. Where do we go from here?

If Australia and New Zealand can't move together, what hope is there? If the Europeans can do so, why can't we? I am naturally concerned about your economic situation. I hate reading the OECD reports and so forth. What can we work out?

Let's be frank-temperate agricultural producers are in for a rough time. We've got to hold hands. Certainly our industries have got to interlock with each other. The creation of Businessmen's Councils is one of the best recent developments. They can do things governments can't. Responsible leaders in both countries have got to ask where we go from here.

... What about your balance of payments problems? ... It's time for us both to do some really heavy thinking. Yet every year it's so much harder to make progress.

In Australia, we think we're getting on top of our problems. We're certainly going to look after our country. What about yours in the year 2000? We are after all both isolated countries in the South Pacific.'

[ABHS 950/Boxes1221-1226, 40/411 Part 17 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]