161 Submission to Cabinet Economic Committee

Wellington, 20 February 1981

E (81) 26

Australia/New Zealand Closer Economic Relations: Consultations with Commercial Interests

  1. Since October of last year officials have been engaged in intensive consultations with national and regional manufacturers and trade associations and with a large number of individual companies, principally manufacturers. The consultations covered both the principles of CER thus far negotiated with Australia and in more recent weeks have concentrated on how the application of these principles will affect individual industries and companies. Some consultations remain to be concluded, although the bulk of discussions are now complete.

Manufacturers

  1. Although the New Zealand Manufacturers' Federation has been the principal body through which the views of manufacturers have been assessed and the operation of CER discussed, officials have also concentrated on regional manufacturers' associations, national trade groups, and a large number of individual companies. In all, CER has been discussed with some 100 companies and 50 trade associations/groups.
  2. The New Zealand Manufacturers' Federation has generally from the outset supported the CER, although since Christmas there has been something of a hardening of opposition amongst manufacturers, particularly amongst the regional associations. This was reflected in a submission to the Prime Minister dated 12 February 1981 (Appendix 1) representing the up-to-date views of the Manufacturers' Federation, which has assured officials that it has the full backing of the four regional associations.
  3. This communication incorporates all of the points of principal concern which have been made to officials by individual manufacturers. These are:
    • Inherent commitment in the CER to move to comprehensive free trade.
    • Disparity of market sizes, and unfavourable freight/transport costs.
    • Need to retain export incentives.
    • Proposed issuing of CER licences on an item code basis.
    • Provision for adequate safeguards mechanisms to alleviate serious injury to manufacturers, and anti-dumping mechanisms.
    • Need to abandon national pricing in order to remain competitive-which would have unfavourable regional connotations.
    • Manufacturers to have priority access to the CER licences.
    • Maintenance of the current margins of tariff preference for New Zealand in the Australian market.
    • Discriminatory effects of current Government/State purchasing policies in Australia, and of differential standards requirements and the policing thereof.
  4. The Federation's position, in that it still supports 'a controlled and progressive expansion' of trans-Tasman trade, is seen by officials as qualified support for CER, whereas a number of individual manufacturers and trade groups in raising some of the same points of concern listed by the Federation go one step further and translate this concern into outright opposition to CER.
  5. The principal point of concern to the Federation, echoed more strongly by the majority of individual companies who are against the exercise, is that CER envisages the progressive elimination of import licensing and tariffs on all goods. This is based on the Federation's perception that the disparity in market size between Australia and New Zealand is the matter of greatest underlying concern to manufacturers. These same points have been made to officials directly by a number of individual manufacturers.
  6. The Federation is also concerned that the current system of export incentives be maintained until March 1985 and that after 1985 the present level of assistance from export incentives be also maintained. Generally this position has been reflected in submissions made to officials by individual manufacturers.
  7. The Federation seeks, administratively where required, the issue of import licences on an individual tariff item basis, the retention of manufacturers' ability to continue to source imports on third countries, and the retention of current area content rules; again reflecting submissions made to officials by individual manufacturers.
  8. The Federation sees distortions in the area of national pricing arising from CER. This problem has been raised by food manufacturers with officials as one of their princip'al reasons for opposition to CER and their request for deferral from the exercise. Similarly the Federation, supported by the individual industries concerned, submits that the existence of industry studies is a reason for placing these industries in the deferred category until industry studies have been completed and consequent policy development decisions have been made.
  9. The Federation's views on allocation of exclusive Australia import licences, the maintenance under the CER of the current margin of preferences arrangement, improvement of access for New Zealand manufacturers to Australian Government procurement contracts, protection against dumping, and adequate provision for on-going procedures aimed at amending standards and other non-tariff barriers to trade currently faced by some New Zealand manufacturers, particularly those in the electrical and engineering industries, also reflect the position of individual manufacturers as discussed directly with officials.
  10. The judgement will need to be made whether the new points of concern listed in the manufacturers' latest submissions will in fact constitute an effective barrier to a successful conclusion of CER, or whether final negotiations with Australia can resolve the issues, at least to the degree where manufacturers generally will go along with the arrangement.
  11. Where individual companies have suggested that one or other of the above issues are of themselves sufficient grounds for opposition to CER, this does, of course, represent the importance of that particular problem to that particular company.
  12. It is the view of officials that the principal stumbling block in the latest paper from the New Zealand Manufacturers' Federation is its opposition to the eventual achievement under CER of full free trade with Australia, since from the outset the Prime Ministers' communique of March 19801 envisaged the progressive and ultimate elimination of import licensing and tariffs on all goods.
  13. This must also be seen in the context of the Federation's submission that the agreement be subject to a full review no later than five years after its commencement, and that it should have a renewable duration of seven years.

Sectoral Analysis

  1. Attached as Appendix (2) to this report are summaries of the main elements covered in consultations between officials and each major sector. The papers set out the companies seen, the views expressed to officials and officials' responses, together with a judgement as to likely reactions of companies in the sector to the implementation of CER along the lines envisaged.
  2. Based on the consultations undertaken, views of individual manufacturers to the exercise vary from enthusiasm to outright opposition, with the majority of manufacturers probably prepared to go along with CER, albeit with no great enthusiasm, provided that issues on which the majority feel strongly-namely export incentives, intermediate goods, government purchasing, and non-tariff barriers, particularly standards requirements-can be resolved satisfactorily. Officials in their discussions with individual manufacturers did not discern the same overt concern about the movement towards full free trade which is now put up by the Manufacturers' Federation as one of the principal objections to the CER as currently formulated, although a number of companies pointed out that they reserved final judgement until the final shape of the CER package emerged.
  3. The most vocal opposition to CER has come from the food processing industry, fruit and produce growing industry, certain areas of the plastics, engineering and metals industries, and the ceramics industry. It is difficult to judge the degree to which the opinions of those opposed violently to CER are reflected in the final position as submitted by the New Zealand Manufacturers' Federation. However, on the evidence of submissions made to officials, a minority of companies are in this position and are likely to continue their opposition to CER whatever form the final package takes.
  4. Officials have also examined comments made by various sectors from the standpoint of effects in regional areas. Given that in the highly protected areas initial access proposed for Australia is not large, the short-term impact on regional areas is likely to be minimal. However, possible negative impact on regional areas has been mentioned by Watties (Hastings/Napier), Cadbury's (Dunedin), Ceramco (Whangarei, Dunedin), and McKechnies (New Plymouth), and by the Grocery Manufacturers because of the impact on national pricing. The Otago/Southland Manufacturers' Association has also submitted that CER could have serious effects for that part of New Zealand, but have not thus far as a group requested specific deferral on these grounds, although individual companies in the area expressed reservations about some aspects of CER.

Other Sectoral Groups

  1. Officials have also kept the following organisations in touch with the general line of developments on the negotiations-Federated Farmers, the Australia/New Zealand Businessmen's Council, the New Zealand Retailers' Federation, the New Zealand Chambers of Commerce, the New Zealand Bureau of Importers and Exporters, and the Federation of Labour. These discussions have not in the main needed to be as detailed as those with manufacturers' organisations.

Federated Fanners of New Zealand Inc

  1. Federated Farmers are philosophically inclined in favour of CER. They do, however, have some sub-sector groups who are opposed or, at the very least, concerned about the proposal. For example, the vegetable, fresh produce, and fruit growing sectors are generally against CER, and are making their concern public. Wheat growers are also not attracted to the idea of additional guaranteed access for Australian wheat, despite their being protected by the trading monopoly given to the Wheat Board. (The Australians are concerned about this monopoly, and may yet pursue it further in the negotiations, possibly linked to access into Australia of commodities of concern to New Zealand.)

Others

  1. The New Zealand Chamber of Commerce, the Bureau of Importers and Exporters, the Retailers' Federation, and the Australia/New Zealand Businessmen's Council, are broadly in favour of the CER.

Federation of Labour

  1. The greatest question must lie on the attitude of the Federation of Labour. The Federation has said it can accept the logic of CER, so long as employment prospects are not undermined or the interests of workers otherwise adversely affected. On the other hand, some manufacturers have expressed concern that the CER will provide a stepping-stone to demands for equality of wage treatment between the two countries.
  2. The CER will in time inevitably cause some change in individual sectors. Even if there is an overall balance of advantage for New Zealand at the end of the exercise, the precise attitude that the Federation of Labour will take as CER develops is difficult to determine.

Category C-Deferred List2

  1. As part of the industry consultations, officials received a significant number of requests for Category C treatment. These are recorded at Appendix (3). These have all been examined carefully by officials with a view to assessing those requests, which could be met through the application of acceptable CER principles governing access as they are currently being negotiated. In these instances this approach was accepted generally by the companies concerned, albeit reluctantly in some cases.
  2. However, requests by companies in the grocery industry, including canned fruit production and fruit and produce growing, the wine industry (seeking permanent deferral), the welding machinery industry, the ceramics industry, the gas appliances industry, and the aluminium fabricating industry, for Category C treatment, do not seem warranted by officials. It is anticipated that when these requests are declined formally, some units in the industries concerned may raise further objections.
  3. Attached as Appendix (4) for the Committee's information, is the indicative Category C list, which currently is being discussed with Australian officials, with the possibility of removal of some further industries as part of the negotiations.

Reccomendation

  1. It is recommended that the Committee:
    1. note the current position of the New Zealand Manufacturers' Federation and other interests towards CER as presently envisaged;
    2. note from the attached sectoral papers the positions of major industries towards CER as a result of consultations by officials;
    3. note the position concerning the items currently set down for deferral by New Zealand (Category C);
    4. instruct officials to maintain close liaison with interested parties as the negotiations proceed.

[ABHS 950/Boxes1221-1226, 40/4/1 Part 34 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]