170 Extracts from Record of Joint Ministerial Meeting

Wellington, May 19811

CONFIDENTIAL

Australia - New Zealand Closer Economic Relations Joint Ministerial Meeting: Wellington 11-12 May 1981

[matter omitted]2

AGENDA ITEM 1

General Review of the Negotiations

The Prime Minister welcomed Mr Anthony and members of the Australian delegation. He thought it would be helpful if he commenced the meeting with a brief review of the situation reached as New Zealand saw it.

The Prime Minister recalled that it was more than a year since he had met Mr Malcolm Fraser. The Prime Ministers had charged their officials with the task of exploring possible arrangements for a Closer Economic Arrangement on the basis of the Annex to the Joint Communique of March 1980.3 Officials had done a great deal of work and together had reached suggested solutions to some of the central aspects of a more comprehensive trade agreement that could appropriately form the core of a Closer Economic Relationship. The Joint Report of Permanent Heads4 showed that much had been achieved. The Prime Minister said that New Zealand Ministers had followed very closely progress on this matter of major importance to New Zealand's economy and had agreed to specific approaches as these had been developed. The New Zealand Government considered that the work officials had done had been along the right lines. The Prime Minister therefore proposed that this Joint Ministerial Meeting should endorse what had been negotiated between officials. He informed Mr Anthony that much that had been negotiated by officials had already gone to Cabinet and been approved by it. The Prime Minister added that it was the hope of the new Zealand side that progress could be made in this meeting in solving issues which, owing to their political dimension, officials had not been able to resolve.

The Prime Minister noted that there was much public interest in the Closer Economic Relationship within New Zealand. It was of key interest to New Zealand's producer lobbies-manufacturers and farmers. However, the interest did not stop there. The press had followed the matter closely as it had developed, virtually week to week since the 1980 Prime Ministerial meeting. In addition, farming organisations and the Businessmen's Council had met together and were in favour of the envisaged closer relationship.

The Prime Minister said that manufacturers had been particularly active in their representations. The contacts between the New Zealand Manufacturers' Federation and the Confederation of Australian Industries had been positive and they took a similar view on many aspects of the Closer Economic Relationship. The New Zealand Manufacturers' Federation had come our in general support of the Closer Economic Relationship concept, but not without some equivocation and indeed opposition, reflecting views of their diverse membership. The Federation wanted to see an agreement of finite duration which would be subject to review and renewal and they were opposed to complete liberalisation of imports from Australia. The Prime Minister said that this might not be a final sticking point. However, it was the present position of New Zealand manufacturers. He added that the New Zealand Government did not share these views. It looked towards a lasting relationship which would indeed move gradually and progressively to complete liberalisation. However, they had not yet succeeded in bringing the Manufacturers' Federation to that point. It was necessary to move sensitively on such aspects as eventual free trade. The Prime Minister noted that the New Zealand Manufacturers' Federation's cautious endorsement, although a very real endorsement, of the Closer Economic Relationship by no means encompassed all manufacturer opinion on the subject. There were strong supporters but there were also some highly vocal, if not very numerous, outright opponents. Their arguments tended to be a blend of economic and political. The New Zealand Government had considered their economic argument in an objective and critical way. It accepted that some of the manufacturers, particularly in the metals area, would face considerable problems. In addition, the Government could not disregard the fact that some of the industries most opposed to aspects of the Closer Economic Relationship were of particular regional importance. He mentioned Watties and McKechnies and added that it had also to be recognised that they were not only of regional importance but also of political importance.

Looking at specific Closer Economic Relationship issues in the political context, the Prime Minister said that the New Zealand Government could not, at this stage, commit itself to abandon export incentives even several years ahead. He indicated that New Zealand could go some distance and would look for a formula that would be mutually acceptable; but it could not go as far as Australian asked. He reiterated that in March 1980 the Prime Ministers had agreed to assess the applicability of export incentives to trans-Tasman trade and to review the incentive schemes when it was practicable to do so. He noted that the Australian Administrative Services Review Committee had recently recommended and lAC review of incentives. New Zealand would be reviewing its incentive schemes on which the Government's current commitment extended to April 1985. He said that it was likely that, in this year's election programme, the Government would indicate its intention that the incentives be reviewed. This would be generally interpreted as a review downwards. The Government would certainly not seek to mislead the public on this matter. Logically, the New Zealand and Australia should conduct such reviews against the Closer Economic Relationship background. Thereafter, they should discuss and co-ordinate their positions. But New Zealand could not prejudge the outcome of the review. New Zealand could not disguise the fact that some of their incentives were excessive. At present, incentives were being given to some companies which are competitive exporters. These incentives would come down. Some of them were not appropriate in the Closer Economic Relationship context.

The Prime Minister said that on government purchasing, the New Zealand Government was concerned to ensure that the arrangement under Closer Economic Relationship should give New Zealand manufacturers as good an opportunity to sell in Australia as Australian manufacturers would have in New Zealand. Many New Zealand manufacturers knew that most government purchasing in Australia in their product ranges was done by State Governments rather than the Commonwealth Government. New Zealand needed to see the prospect of real progress here and looked to the Commonwealth Government to support its case with the States.

The Prime Minister indicated that the New Zealand Government considered appropriate the principles that Permanent Heads had proposed for the Deferred Category. He noted that Australian officials had indicated that the Australian Government was concerned at the size of New Zealand's Deferred Category List. After intensive consultations with industry, and weighing the different representations, New Zealand had nominated only those goods where it considered a period of deferment fully justified. New Zealand industry and its restructuring process was at an earlier stage of development than Australia's and for some industries more time was needed before they came into the main stream. However, New Zealand firmly endorsed the key principle that there should be no further items deferred once that agreement was signed and that there would be terminal dates for items on the Deferred Category.

New Zealand shared the objective that trade between Australia and New Zealand should be liberalised 'in reasonable time'. New Zealand had proposed an access formula which would rapidly increase the opportunity for Australian exporters. It would be prepared to have a review after five years and subsequent reviews to consider whether revision to the growth formula was necessary to fulfil the objective in the light of developments; but New Zealand was opposed to any formal pre-fixing of an end date. That would greatly strengthen opposition in New Zealand to the whole exercise.

Agriculture was of major importance to both countries. From New Zealand's viewpoint, inclusion of dairy products within the joint Closer Economic Relationship arrangements was a prerequisite for agreement. The Prime Minister noted that, in Canberra, New Zealand officials had floated ad referendum a proposal that aimed to take account of special circumstances of the dairy industry. According to that proposal, provision would be made for special and additional consultations between the Governments if either of the industries, which would have the responsibility of co-operating in the development of the trade, was not satisfied that it was occurring in an orderly way. The Prime Minister confirmed that the New Zealand could depart from the basic Closer Economic Relationship principle that where trade is at present unrestricted, no new constraints would be imposed.

The Prime Minister said he was informed that Australian horticulturalists were concerned about the implications of Closer Economic Relations. So, he said, were New Zealand's. The note which New Zealand officials had handed over in Canberra had also suggested ways of ensuring that Australia would not be disadvantaged by the role of the New Zealand Wheat Board of that of Fruit Distributors Ltd.

In conclusion, the Prime Minister said that there was no basic difference between New Zealand and Australia in their philosophy. On the Deferred Category and access creation, Australia was more anxious to foresee the final date. Each side wanted fair conditions of trading opportunity: Australia had particular concern regarding export incentives; and New Zealand, regarding government purchasing. Australia had certain agricultural concerns while New Zealand looked towards orderly growth in its participation in the Australian dairy market. Each side was looking for a little more in some areas. The Prime Minister looked forward to a positive discussion on these issues, taking account of the political factors. He proposed that the two sides should also consider if they could endorse the substantial agreement that officials had reached on some aspects.

Mr Anthony thanked the Prime Minister for his welcome and said that his review of the current situation provided a good starting point for their discussions. It brought to their attention the various points at issue.

Mr Anthony was very pleased with the rate of progress that had been made since he brought up the question of a Closer Economic Relationship a couple of years ago. At that time, he had noted that little further progress was being made with the NAFTA and suggested there was a need for more imaginative approaches. That seemed to be a bold suggestion at the time. Some were still a little nervous at such an approach, but industry groups and officials had been in discussion and they had helped to build up a greater acceptance of the need for this kind of change. Mr Anthony had always thought it possible to work out an appropriate arrangement. Of course, it would have been easier were both countries of the same size. The difference in size did cause some difficulties. In fact, it was hard, in Australia, to get people to focus on the trans-Tasman trading relationship. The Australian public tended to take New Zealand for granted. It forgot the New Zealand was an important factor in Australian overall trade. Mr Anthony wanted to foster an appreciation of this. As Minister responsible for Australia's overseas trade, Mr Anthony had done his best to foster trade with Asia and with the European Community, but not for a moment had he ignored the importance of trans-Tasman trade.

Mr Anthony noted that both Australia and New Zealand were facing growing trading blocks in the world. It was part of the international scene that both countries had to live with. In these circumstances, he could see benefits for both countries to work together to maximise their international trade opportunities. There were benefits in co-operating, especially in agriculture. Mr Anthony said he was an optimist so far as the future of agricultural trade was concerned. Amazing developments were taking place in Asia. There, peoples with an increasing purchasing power did not have the capacity to provide for their food requirements. There were benefits to be had from co-operating rather than foolishly undercutting each other.

Both countries were also trying to liberalise their trade to the benefit of their developing neighbours, and particularly to assist, through SPARTECA, their Pacific Island friends.

As the smaller country, New Zealand and particularly its industry would be a little more apprehensive about the possible impact of a Closer Economic Relationship. Mr Anthony said that his task was to follow-up the work that officials had done. It should be possible to categorise the different areas of work. Some were very difficult, and some less so. He had been asked by the Australian Government to come and get the flavour of New Zealand's intention in regard to the Closer Economic Relationship and to report back. The Government would then know where matters stood. Mr Anthony said he did not have the mandate formally to endorse anything. But he would be in a position to give an indication as to the areas which should not be too difficult to agree on. Thus, he thought by going through the Agenda, it would be possible to make progress.

There were a few irritants which hampered progress. One was passports, from the New Zealand viewpoint. There was some underlying tension in Australia resulting from the Springbok issue. This had not been discussed by the Australian Government in the Closer Economic Relationship context, but he could sense there was some underlying tension with his colleagues in persuading them to focus on Closer Economic Relations.

Mr Anthony noted that the Prime Minister, in his introductory statement, had mentioned quite a few areas that need to be looked at. He confirmed that the Australian Cabinet was sensitive on issues like export incentives. Australia was trying to cut back on incentives. A 50 percent reduction had just been announced. It was trying to reduce government commitment. But Australia was also concerned at the American attitude to export incentives. Australia hoped soon to be able to sign the GATT Subsidies Code.

Australia was also concerned about import licensing. If the two countries were looking towards free trade, they would want to reach the ultimate objective in a meaningful period of time. He noted that some difficult products might have to be treated a little outside the standard formula. Some agricultural issues would have to be looked at slightly differently from the standard free trade concept.

Important work had already been done. Mr Anthony hoped, at this meeting, to be able to get the measure of the time scale for future progress towards the Closer Economic Relationship. He hoped that, before too long, it would be appropriate for the Prime Ministers to meet.

AGENDA ITEM 2

Areas of Substantial Agreement at Official Level

The Prime Minister noted that officials had made considerable progress in various areas and reached substantial agreement on them.

[matter omitted]5

AGENDA ITEM 4 (A)6

Investment in Financial Institutions

The Prime Minister said that this question was probably not too difficult. There was a draft statement on investment in the financial sector with new wording in the final paragraph. Instead of the previous formulation referring to criteria being 'precisely the same' in Australia and New Zealand, it now referred to criteria designed to 'maintain an appropriate balance' between Australian and New Zealand investment in the New Zealand financial sector. There were different situations on either side of the Tasman and a reference to precisely the same criteria would not work. After consultation amongst the Australian side, Mr Anthony asked if the New Zealand side could elucidate the meaning of the change and the reason for it. The Prime Minister said that the previous wording had meant that the criteria would not work because the New Zealand Overseas Investment Commission could not apply Australian criteria in New Zealand. The term 'similar' which had earlier been discussed among the New Zealand side was too loose although it was essentially what was meant. New Zealand now proposed to approach the idea from the other angle, i.e., in terms of results rather than criteria and this threw up the current wording. Australia had a very large slice of the New Zealand financial sector and New Zealand a very tiny slice of the Australian financial sector. The current draft meant that the New Zealand Overseas Investment Commission could operate in a manner similar to that followed in Australia. Australia had a vast preference over other investors in New Zealand. This compared with the Australian Cabinet's position that although it believed that New Zealand's position in the Australian financial sector should be encouraged it could not have preferential treatment.

The Prime Minister noted that New Zealand did not want to invest heavily in the Australian financial sector. It had enough trouble getting investment for New Zealand but he felt that sometimes Australian decisions on New Zealand had been 'a bit tough'.

Mr Anthony agreed that there had been a historical imbalance and he understood the point the New Zealand side was making. He felt the treasury officials would find the right words. Australia had pretty strict rules for other countries. There was currently an enquiry being held into the Australian banking system. A report was due by about September. This meant that matters concerning the Australian financial sector would be under consideration by the Australian Government. It was the first review of the banking system since 1938. There was very liberal thinking going on at the moment. New Zealand was already established in the Australian financial sector in some areas but he understood that the restrictions went against New Zealand's desire for expansion and took note of the point. Mr Anthony felt that both sides had come a long way and there was a willingness to achieve the objective New Zealand was looking for.

The Prime Minister noted that if New Zealand adopted Australian criteria New Zealand would be tightening up. This was not, of course, proposed but the situation was that about 3/5 of the trading banks in New Zealand were Australian. They had approximately 50 percent of the total business and there was only one small New Zealand trading bank presence (Bank of New Zealand) in Australia. In the field of merchant banking and finance houses, Australia was substantially established in the New Zealand financial sector whereas New Zealand had a very small interest in the Australian finance sector. There had been cases where very minor operations for New Zealand interests had not been permitted by the Australians. In the insurance sector Australian companies were heavily established in New Zealand whereas New Zealand companies had only a limited interest in Australia. What New Zealand would like is that future operations could be conducted in balance and in line with the overall principles of the Closer Economic Relationship. New Zealand was looking for a formula to achieve this.

Mr Anthony noted the point and said that both sides had reached agreement down to the final paragraph of the financial statement and suggested that officials get together and talk some more about this.

Subsequently, the Ministers were informed that officials had agreed to new wording for the final paragraph of the proposed joint statement which now read 'In respect of proposed Australian investment in New Zealand, the New Zealand Overseas Investment Commission still adopt basically the same criteria as the Australian authorities'. Ministers found this acceptable and Mr Anthony undertook to seek the Australian Treasurer's confirmation.7

AGENDA ITEM 4 (B)

New Agreement for Apparel

The Prime Minister advised Mr Anthony that the New Zealand Cabinet had agreed to the new apparel arrangement along the lines proposed by officials. The New Zealand Garment Manufacturers had given as much agreement to the new arrangement as the Government was likely to get. It was now necessary for an early announcement to be made so that the trade could make its arrangements in definite knowledge of the conditions in which they would be trading. Mr Anthony noted that agreement on this arrangement was needed whether or not ANZCER was negotiated. The last year had been a difficult one for these negotiations. He thought this formulation devised by officials was a very good one. The Prime Minister remarked that New Zealand officials had had some difficulty in persuading one or two New Zealand Ministers that that was the case and Mr Adams-Schneider added that he had also had some difficulty with one or two of the New Zealand manufacturers.

The Prime Minister wondered when it would be appropriate to publish details of the new arrangement. Mr Anthony said that it did not have to go for approval to the Australian Cabinet. He and Sir Philip Lynch had the authority to approve it. It would probably require a week. It was important that the details were published this month. He then asked if the New Zealand Government would like the announcement to come from this Ministerial meeting. The Prime Minister said it would be New Zealand's preference. Mr Anthony then said he would try to make the necessary arrangements by telephone with Canberra. The Prime Minister added that some New Zealand manufacturers would be rather unhappy at the arrangements proposed, but he believed that once they were explained, the arrangements would be understood. He agreed with Mr Talboys that the successful conclusion of the apparel arrangement was a good lever in the whole operation. Mr Anthony repeated that he could see advantages in an announcement emerging from the Ministers' meeting and would explore that possibility.

After discussing the proposal for an extension of the 1977 Preferences Agreement, Mr Anthony returned to the subject of apparel. He noted that Australia had dealt with apparel, textiles, and footwear as one issue covered by an industry plan. Referring to textiles other than apparel, the Prime Minister noted that the CER trade liberalisation formulae would be able to be applied without the need for deferral.

Turning to footwear, the Prime Minister said the New Zealand Government was agreeable to the NAFTA Article 3:7 arrangement being extended beyond 1 January 1982 on the lines discussed by officials in Canberra. He noted that this would be able to provide a basis for including footwear in CER, subject to the decisions that would be taken in the footwear industry study which was shortly to be completed. He added that any movement on protection proposed in the report on the footwear study was likely to be in the direction of easing up rather than tightening up.

AGENDA ITEM 4 (C)

Extension of 1977 Preferences Agreement

The Prime Minister opened the discussion on this item by noting that it was a matter of making arrangements in case the present Preferences Agreement lapsed before a CER agreement came into force. It was the New Zealand proposal that the present Preferences Agreement be extended for two years or until CER came into force which ever was the sooner. The two year extension allowed a later agreement on CER or if this was not achieved, then sufficient time to negotiate a new Preferences Agreement.

Mr Anthony noted that something had got to be done about the Preferences Agreement this year. He suggested that it be kept going on a year by year basis until the basic CER issue was resolved. The Prime Minister responded that if next year it was agreed that CER was not a starter then it would not be possible to go ahead on a new preferential agreement right away. That would require agreement from Ministers and the Cabinet and he did not know how long this would take. Mr Clark added that if there were only a one year extension and next year it was decided that CER would not go ahead, there would only be six months to negotiate a new Preferences Agreement. This would leave exporters with very little certainty about what was ahead (and importers to some extent, the Prime Minister added). Mr Anthony thought that this uncertainty was not bad leverage to have on people. The Agreement could always be extended. The Prime Minister noted that it was not just agreement to extend the existing arrangement but the need to give businessmen time so that business could be conducted in an orderly manner. Business did not like last minute decisions. Mr Anthony noted that that situation was equally true now.

The Prime Minister said that if there were a decision next year against the CER and negotiating a new Preferences Agreement was necessary, he could not envisage starting talking before then. Mr Anthony said he hoped that the crunch point would be earlier, perhaps early in the year. The Prime Minister said possibly March. Mr Anthony said that a degree of uncertainly often persuaded people to be more co-operative. The Prime Minister said that depended which side of the argument one was on. Mr Anthony suggested that perhaps both sides might like to have further discussion about this point. The Prime Minister said that he was persuaded by the New Zealand officials' arguments. He agreed there would be finality one way or the other on CER by March next year. If the answer was No then the Preferences Agreement would need to be discussed. How long would this take? Mr Clark said that in New Zealand's experience it would take some time. The Prime Minister said it would not be simply an agreement Yes or No to continuing the Preferences Agreement but negotiations item by item until a package was reached. This could not be done overnight. Mr Anthony said that he could see some merit in establishing a timetable. Mr Clark added that Mr Anthony's point that a degree of uncertainty might be a spur on people was not perhaps as clear as it might be since the people who would be affected by CER were not necessarily the same people affected by the Preferences Agreement. The spur could work in some other direction. The Prime Minister said at some point it would be necessary to say that both sides were going ahead on CER regardless but the Preferences Agreement was a different question. It would not necessarily be the same as the present one and it could take time to renegotiate with all those involved-officials, Ministers and industries. Mr Anthony said that he did not envisage big changes in the Preferences Agreement itself. It was clearly expected at the political level in Australia that if CER itself did not go ahead, no other arrangement approaching it could be negotiated.

Later in the meeting, the Prime Minister noted that the previous discussion had shown a difference where New Zealand preferred an extension of the existing agreement for two years or the coming into force of CER whereas Australia preferred a one year extension. After some further discussion between officials, it had been suggested that the two parties might agree on a compromise figure of 19 months (a period necessitated by tariff changes being due in July). Mr Anthony said he had seen the one year extension as a means of putting pressure on people. A 19 month period would not achieve that. Moreover, it would be difficult to explain to anyone why a 19 month period had been chosen. He would therefore agree to go along with a two year extension.

AGENDA ITEM 3

OUTSTANDING ISSUES

AGENDA ITEM 3 (A)

Export Incentives

The Prime Minister opened the discussion by saying that in New Zealand's view export incentives did not create major distortions in trade or competition across the Tasman. A shift away from export incentives by New Zealand could not be handled quickly or in isolation from a number of other supporting policy initiatives. The issue was a sensitive one among New Zealand manufacturers, many of whom see export incentives as fundamental to their competitiveness. Such perceptions take time to change. The Prime Minister recalled that Australian manufacturers (through the Confederation of Australian Industries) had been able to agree with their New Zealand Manufacturers' Federation counterparts that 'significant bilateral disparities between the benefits of export incentive schemes are inconsistent with the objectives of this agreement (CER)' and that a joint review should examine disparities with a view to action to eliminate them commencing on 1 April 1985 and being completed no later than 30 June 1987. The understanding reached did not require any predetermined commitment to elimination of the schemes. The Australian Industries Assistance Commission was to be asked to recommend, by the end of this year, on the future of the Australian scheme post 1983. Its recommendations, and decisions by the Australian Government, could not be foreseen at this stage.

In this situation New Zealand saw it as logical for the two Governments separately and jointly to review the position next year. New Zealand would accept as a principle guiding such a review that the maintenance of incentives long-term on trans-Tasman trade was inconsistent with the CER concept of a single domestic market. It considered, however, that the outcome of the review should not be pre-judged in respect of the method or timing of any withdrawal of incentives. New Zealand submitted that such an approach would come very close to meeting the position set out in the Australian side paper of January 19818 in which it was stated that: 'Australia seeks as firm as possible a commitment in the Heads of Agreement that the objective of the proposed review will be to achieve approximate equivalence between the levels of benefit available to exporters in New Zealand and Australia respectively, and ultimately the elimination of performance based incentives in trans-Tasman trade.'

The Prime Minister said that a firmer commitment at this stage was difficult to contemplate and insistence on it could prejudice the possibility of reaching early agreement on a CER package.

Mr Anthony responded that the subject was one they would need to talk about a lot. It was one of the most difficult areas on which the Australian Government had a view. He appreciated the problems that phasing out export incentives posed for New Zealand, but there were big problems in Australia and obviously more work was needed. There was a view that performance-based incentives were inconsistent with CER and ultimately with its objectives, and that they were unnecessary. Market development arrangements were acceptable. Performance-based arrangements, especially as New Zealand operated them, brought a very strong reaction from Australian industries. They considered that the benefits to New Zealand industries were disproportionate. Australia was rethinking its whole approach. Currently, industries had to increase their performance over three years or they received less grant. Australia had defended this initially on the basis that it was not a straight-out subsidy, only an incentive. It had run into problems with the United States on the issue and it wanted too, to be a party to the Codes on Subsidies and Countervailing Duties. This had been at the back of the Government's mind when it had cut export incentives in half. In the meantime, it had referred the question of export incentives to the Industries Assistance Commission. A total review was going ahead. It would take about one year. But whatever the outcome of that review, Australian would see New Zealand trade as an area where export incentives did not apply because they were not compatible with CER. If both sides accepted the fair-go principle, then it was important that New Zealand should accept the same sort of basis for trans­ Tasman trade.

The Australian horticultural sector (strawberries, sweet com, peas and beans, mushrooms) was very sensitive regarding CER. Mr Anthony himself had moulded thinking amongst horticulturalists to the point where they were willing to talk and think about CER and he had been amazed at their willingness and involvement in the issue. They were adamant, however, regarding an equal basis for CER and they did not think it would succeed if New Zealand got export incentives and they did not. It would become a difficult point unless a quick solution was found. He wanted an end to export incentives immediately on the entry into force of CER. It would be hard to get finality on this point today but he would like New Zealand's comments regarding inconsistency with the free trade arrangement. The Australian Government thought it a critical point. There would be an imbalance if there were no definite terminal date for trans-Tasman export incentives.

The Prime Minister said that a good deal of the concern that Mr Anthony expressed had been covered by what he had said. The manufacturers' groups on both sides had gone a long way towards agreement on this question and had accepted that significant bilateral disparities in export incentives were inconsistent with the objectives of CER. This was a long way for New Zealand manufacturers to go. There would be a review of the present export incentives system in 1985. New Zealand's present export incentives scheme expired then. The review was likely to be completed by 1987. The Government would be looking next year to putting together some alternative scheme. Export incentives were not always going to be the ones now operating. Some existing incentives were too lavish and unnecessary, not in the Australian, but in the global context. If the manufacturers in both Australia and New Zealand could agree that this was acceptable he hoped it would be acceptable to the Australian Government to get rid of the problem by 1987. The manufacturers had agreed this themselves.

The Prime Minister said that New Zealand manufacturers had been very good in this exercise; better than he had expected, and were willing to agree that export incentives would be out by 1987. If this had been agreed with their Australian counterparts it would be difficult to push them further. They had agreed to eliminating the disparities which was the same thing as eliminating incentives.

Mr Anthony said that if the Australian and New Zealand manufacturers' discussions had taken place now, the position they reached might have been different. At the point they had reached agreement, they did not know that the existing Australian export incentives were going to be cut in half and that the total package would be up for review. But the points they had agreed were very helpful and further consultations between the two sides were needed on this now. Mr Anthony noted that Mr Muldoon had picked up the spirit of the need for elimination over a period of time. The Prime Minister responded that there was now a new factor in the Australian scene. Mr Anthony could talk to Mr Stevens (President of the Manufacturers' Federation) that evening. The New Zealand Government was taking the manufacturers quite a long way. The whole exercise would take the manufacturers a long way, and not just initially. New Zealand approached the question of export incentives as not just a concession but as something central to investment decisions by industry. It must have a measure of certainty over the years. It would not get that if export incentives were taken off overnight. It was necessary to phase out the existing scheme, to have an overlap phase and to bring in a new scheme because otherwise there would be no stable climate. The Government could not go back on the current scheme therefore, before 31 March 1985, and two years after that was about the best that New Zealand could do.

Mr Templeton said that he assumed the Australian Government would not have to move right out of export incentives and that they would not have to in spite of United States pressure.

Mr Anthony said there was a debate in Australia about the value of performance­ based incentives but there was not doubt that market development grants would go on. The question was whether performance-based incentives were warranted or were generally fair. The lAC would look at this question and it was on the cards that they would be eliminated completely. The Australian Government had saved itself 100 million dollars simply by halving the present scheme. Regardless of what was agreed, export incentives were inconsistent with CER. They led to distortion and moved against the encouragement to each side to trade in each others' markets. Mr Templeton and Mr Muldoon agreed. Mr Anthony confirmed that the present New Zealand scheme would be in place till 1985 and noted that Australian manufacturers would have to face this difference under circumstances where their own export incentives had been halved.

Mr Currie noted that the whiteware sector had been against the joint manufacturers' declaration in the first place and that the Confederation of Australian Industries was a pretty broad body. It had acted in good faith at that time but there ware pockets within the Confederation that were very much against it. The Prime Minister noted that it would be impossible to get an agreement on CER if every individual manufacturer had to be brought to agreement with it.

Mr Adams-Schneider noted that the New Zealand Manufacturers' Federation comprised 60 separate associations and Mr Clark added that the present position of the Manufacturers' Federation had come about after a 'Palace revolution'. Mr Anthony reiterated that there needed to be complete elimination of performance-based incentives at the same time the tariffs were phased out. He said that both sides could not agree on that day but considerable work needed to be done. Both sides knew the reviews were taking place. The Australian Government was adamant that if they were looking closely at the economic relationship then performance-based export incentives trans-Tasman must be eliminated. The Prime Minister said that there was no difference between the two sides there. New Zealand could go along with the Australian - New Zealand Manufacturers' Agreement. Mr Anthony thought he could handle that alright on the Australian front.

Mr Anthony then said that horticulture was a different question. They might look at a faster process for horticulture than for manufactured goods. The Australian horticulturalists found it hard to compete with New Zealand imports, particularly given the exchange rate. He had told them they had to live with that; it was a part of the world they live in; but the horticulturalists would 'really buck' if they thought the New Zealanders had an unfair advantage through export incentives. What he had gathered from discussions with them had been a desire to co-operate with New Zealanders regarding developing third country markets. There were different production patterns and seasons in Australia and New Zealand and it was better therefore for both if they co-operated. The Australian producers had volunteered that themselves. Horticulture was important and the industry was shaping up quite well but the export incentives were a difficult issue. The Prime Minister said this should be pursued further during the discussions and not be left up in the air. He had the impression that Australian horticulturalists received incentives other than the export type in question here, e.g. in terms of special financing.

Mr Templeton thought that it would be necessary to look to see if a timetable for phasing out incentives could be agreed. Mr Anthony said that Victoria and Tasmania were very sensitive on this question. He would lose Tasmanian support forCER 'if they go silly on vegetables'.

Mr Macintyre pointed out that in many cases the incentive involved was only applicable to the value added beyond the farm gate and only came to 1.4 percent. The Prime Minister thought it important that both sides clarify whether what they were talking about was very significant. Mr Talboys said that there was a banding for value added beyond a certain point. Fresh horticultural products were in the lowest banding. Mr Duthie noted that there was a 10.5 percent value on export incentives on peas and beans although less on strawberries and these, it was agreed, covered frozen goods too. He gave the values for export incentives as: fresh vegetables 1.4 percent; mushrooms 11.9 percent; frozen vegetables 10.5 percent; dried vegetables 9.1 percent and preserved vegetables 10.5 percent. The Prime Minister thought these figures did not sound right and thought they should be checked.

Mr Anthony said he hoped the New Zealanders understood the sensitivity to Australian producers. The Prime Minister said he could see that regarding a 10 percent incentive but not a 1.4 percent incentive. 'We could mop it up in one month's devaluation.' Mr Anthony said there was a principle involved, however, that had to be handled. The Prime Minister asked whether there were no incentives for Australian exporters to New Zealand. Mr Anthony said that if there were any they were pretty insignificant. There were some export development grants but if they were on an increasing base the producer received no benefit. Mr Anthony said it was necessary to get officials to clarify what these incentives were. The Prime Minister said that it was important that interest groups did not have a misconception of what was at stake. 1.4 percent would net out to nothing but 10 percent was significant.

[matter omitted]9

AGENDA ITEM 3 (B)

Government Purchasing

The Prime Minister opened the discussion by emphasising the importance to New Zealand manufacturers of achieving equal access opportunities under the various regimes in Australia. He recognised there were difficulties in Australia resulting from the Federal system. New Zealand was proposing to send a mission to talk to the State Governments. The Prime Minister wondered what attitude the Commonwealth Government would adopt towards any State wishing to continue its present preference policies, once the CER came into effect. He underlined the value of Australian Commonwealth Ministerial support for the visit to the individual States by a New Zealand mission, and wondered if Commonwealth Ministers had been talking to the states on this issue lately. Did the Australian Government see any scope for the recent preference abolition agreement between Victoria and South Australia being extended to include other States? The Prime Minister confirmed that New Zealand manufacturers saw this as an important point.

Mr Anthony acknowledged the significance of this to New Zealand and said that government business was very large and he knew that New Zealand manufacturers would like access to it. He was aware of the discussions Mr Muldoon had had with the State of Victoria and that New Zealand had got a pretty favourable response. He wondered had there been any discussions with South Australia? The Prime Minister said there had been no direct discussions with South Australia. He noted that they had no preference arrangement with Victoria and assumed that there would be no difficulty here. Mr Anthony said that New South Wales was reviewing its own position on this. Western Australia was more dogmatic-it wanted to encourage its own industries; and Tasmania would be difficult; Queensland had no fixed position. He suggested that, especially when in Queensland, New Zealand could discuss possible sugar arrangements (see earlier discussion on this point). This would bring New Zealand considerable goodwill and the Queensland Government would grasp this quickly. The question of CER had been intended for discussion at the recent Premiers' conference in Australia but there had been a heavy programme and only a few minutes of discussion on CER. The State Governments, however had shown a willingness to help and co-ordinate so that New Zealand officials could talk to their governments. The Federal Government would facilitate the process.

If he had any advice, Mr Anthony said it was for New Zealand to concentrate on its best marks first. The Prime Minister said that New South Wales was the most important and that 50 percent of New Zealand's business was with New South Wales. Mr Anthony had said he had really meant in terms of getting support for the government purchasing question. This would mean dealing with Victoria and South Australia first and then with New South Wales and Queensland, leaving Western Australia to last. Ultimately, Western Australia would get into the spirit of CER. But it was valuable to familiarise them with what was involved and to allay the fears of the dairy states and the vegetables producers. The Australian Prime Minister would send a letter to the State Premier on the government purchasing mission.1)

The Prime Minister said that New Zealand had it in mind to send a team of officials fairly soon before the Government became involved with other things here. He had discussed with Mr Wran the question of government purchasing and the latter supported the exercise New Zealand was engaged in and had agreed that New South Wales was most important for New Zealand's trade, tourism and finance. New Zealand might well get something there but he took the point that it would be wise to start with Victoria. The sooner the mission was underway the better. He thought sometime before the beginning of June, which would mean the party leaving soon. He welcomed Mr Anthony's advice that the Australian Prime Minister's letter was going out soon. Mr Anthony said it would go out immediately as a result of the current meeting.

AGENDA ITEM 3 (C)

Monopoly Import Arrangements

The Prime Minister said dealing with Fruit Distributors Ltd (FDL) should pose no difficulties. The company had always been amenable to government policy. Mr Anthony said he thought officials had covered this question fairly well. The products concerned were citrus fruits, grapes, pineapples and bananas. What Ministers had to do was to find some way of interpreting these arrangements as 'free trade'. Mr Anthony did not know, in the way FDL operated, how quality considerations came into play. It was an institutional situation. He understood that Australia would get a preferred position without prejudice to the Pacific Island countries which Australia would certainly not wish to supplant. But he understood that beyond the Island countries, FDL would look first to Australian fruit.

The Prime Minister considered New Zealand could go that far. New Zealand had some responsibilities to the Island countries but so far as bananas were concerned, most of New Zealand's purchases came from Equador with which New Zealand had little else going. The Prime Minister thought possible some development of banana imports from the Philippines, from which New Zealand had recently bought a significant quantity. He read the recent trade figures which showed that, apart from this recent trade figures which showed that, apart from this recent developments with the Philippines, New Zealand bought just over 100,000 cases of bananas from Western Samoa, smaller quantities from Tonga and the Cook Islands and almost 1.5 million from Equador. He did not know why New Zealand had not purchased from Australia. Mr Anthony thought shipping could have something to do with it. Mr Durrant confirmed that the reason would be a commercial one, related to price or quality. Mr Anthony said that at present all Australia's bananas are eaten in Australia.

The Prime Minister identified citrus fruits as an area where there were currently some problems in New Zealand. It was government policy that the New Zealand crop should be taken up. But the Government could tell FDL to do the best it could for Australia, and doubtless the company would do so.

Mr Anthony thought the proposed exchange of letters on wheat would be useful to Australia. He saw what New Zealand proposed as something of a parallel to what Australia would have to say to the New Zealand dairy industry. Where there was a shortfall Australia should buy from New Zealand. New Zealand would do the same on wheat. Mr Adams-Schneider recalled that New Zealand was already buying from Australia. Mr Anthony agreed that the wheat situation was already working well. The proposed exchange of letters would just make it more formalised.

The Prime Minister said that for oranges, Australia was already the supplier of more than half New Zealand's import needs, ahead of California. It was a seasonal thing. Mr Anthony said that there was some scope for an arbitrary decision to be taken making it most likely that when New Zealand produce was available it would be favoured. However, he considered the approach set out in the New Zealand paper to be acceptable.

The Prime Minister said that bananas seemed the most difficult of the sub­ tropical products. Mr Anthony acknowledged that supplies fluctuated and Mr Macintyre referred to the problem of getting appropriate shipping. Mr Anthony hoped that if the Australian industry were to develop it would receive an equal chance. The Prime Minister said he was hoping to see development in New Zealand's banana imports from the Philippines and he had asked FDL to pursue this.

Pineapples were a very small trade in New Zealand. There was limited demand, more than half of which was supplied by the Cook Islands. The canning factory there was in difficulties. Australia was the next biggest source of fresh pineapples, followed by Tonga, Fiji and the Philippines. Mr Anthony considered it would be helpful if the opportunity Australia enjoyed could be recorded. The Prime Minister thought this could be suitably drafted.

Mr Macintyre noted that New Zealand had developed a worthwhile export trade in tangelos to Queensland.

Mr Macintyre went on to explain that FDL was in fact a group comprising the main companies in the fruit trade. He undertook to provide the Australian delegation with copies of FDL's annual report. The Prime Minister noted that, in addition to the importing role that had been discussed, FDL had the responsibility for orderly marketing of these perishable products through the country.

Mr Adams-Schneider confirmed that it was New Zealand's intention to formalise the existing arrangement, whereby the Wheat Board purchased any import requirement from Australia, in an exchange of letters.

AGENDA ITEM 3 (F)1)

STANDOUT PRODUCT ISSUES

Dairy Products

Mr Anthony asked if there was not the same sort of situation, as had just been mentioned with regard to wheat, in the case of dairy products.

The Prime Minister asked if Mr Anthony was in a position to respond to the approach on dairy products set out in the paper that had been handed over by New Zealand officials in Canberra. He considered that that approach did offer a way of handling the dairy situation.

Mr Anthony said that the intention of the proposal was alright, but it was probably moving a little faster than was possible at this stage. He would be worried if some of the wording were published, e.g. '... the New Zealand Dairy Board would determine its pattern of supply ...'. What was necessary was that the two industries should come to grips with the way of handling the dairy question. What" he foresaw was not dissimilar from this, but it would take time to bring it to this point. The previous week he had been visited by dairy industry representatives. He believed they were accepting the inevitability of co­ operation. The State Governments could be a problem. The Victorian Government had an election this year. The Australian dairy industry had made great progress in his thinking but there was still latent suspicion of New Zealand. This also has found reflection in the Australian Federal Cabinet where there were some Ministers with some large dairying electorates-including the Prime Minister. Mr Anthony thought it would be possible to get into a position not dissimilar from what New Zealand was proposing-perhaps along the lines of the Wheat Board situation. He hoped New Zealand would leave the matter in his hands to use his diplomacy and wit to bring the Australian industry along. They were coming along quite well.

The Prime Minister noted that Mr Anthony had quoted of a sentence in the New Zealand paper, but he drew attention to the way the sentence started: 'In the light of its consultations with the appropriate Australian interests ...'Mr Anthony said he was afraid someone might quote extracts out of context. The Prime Minister responded that they must not be permitted to quote out of context. He reiterated how vital the dairy question was for New Zealand. Inability to reach a satisfactory outcome on this issue would be a breaking point in the entire CER negotiation. Mr Anthony said he realised that, but he did not want words written or accepted that people could work mischief with.

The Prime Minister noted that they would both have a problem at the conclusion of the meeting. They would be asked if the dairy industry was in CER or out of it. Mr Anthony said they would have to say it was in. Nobody was suggesting it was excluded. He thought it could be included on as good a basis as other aspects. The Australian industry was being brought along. He needed a few more months. The Australian Government had not yet given the industry its mandate. There had been terrific benefits from the contacts to date between the two industries. Thus horizons were extending. It was essential to get them to think that they were finding the solutions themselves. The Prime Minister asked if it was possible now to move to the next step-formal consultations between the industries. Mr Anthony replied in the affirmative. But first he would have to obtain approval of his Government. Whatever was agreed between the two industries would then need to be replaced under the umbrella of the two Governments.

Mr Anthony thought the outcome would be satisfactory. He believed it would be only a few years before the Australian market opened up. Already New Zealand was being called on to supply some contracts outside. Describing the continuing contraction of the Australian dairy industry, Mr Anthony said that in one electorate the number of dairymen had declined from 3000 to 600. In one district the numbers had dropped from 450 suppliers to only 23. Ultimately it would be a liquid milk industry. Victoria would still make some manufactured milk products but the economics of liquid milk production were better and people did not like the social disadvantages of dairying. (The Prime Minister noted that the latter point applied also in New Zealand, but there was no choice.) Mr Anthony observed that, at present, the Australian market offered only a very small possibility in relation to New Zealand's dairy trading concerns. Nonetheless there would be further change over the next ten years and New Zealand would then have an important place in the Australian dairy market.

The Prime Minister agreed with Mr Anthony's conclusion, but in the present context it was going to be necessary to tell some people that certain things they were doing or wanted to do would not be possible because of a Closer Economic Relationship which was in the national interest. The dairy farmers would compare what the Government said to those farmers would compare what the Government said to those people with what it said to them. Firmness would be required. Mr Anthony replied that firmness would only come from the two industries working together. Mr Talboys noted that the atmosphere of relations between the two industries was much improved. He and Mr Macintyre referred to the joint cheese promotion. Mr Anthony agreed. Much had happened in the past year. Now he would like to see the two industries get together. This could happen more quickly than Ministers expected.

Mr Talboys noted that it was necessary to recognise the differences between the wheat and dairy situations. In the case of wheat there were two monopolies. In dairying, however, while New Zealand had one industry, Australia had many. Mr Anthony said that the different participants in the Australian industry had to co-operate within internal orderly marketing arrangements and he was sure New Zealand could have a place within this context.

Mr Durrant said that New Zealand had been required to move 160,000 tonnes of butter and cheese from the British market yet had done this while taking only a one percent share of the Australian dairy market. Mr Anthony agreed this was a good point yet the New Zealand bogey was still a real one to Australian dairy farmers. Mr Anthony said he tried to urge Australian dairy people to co-operate with New Zealand in third country markets. Mr Talboys noted that the fear in the minds of many Australian dairy producers related to the danger when New Zealand was expelled from the European dairy market. There was no basis whatever for this fear. All the indications pointed to the conclusion that New Zealand would continue to sell to Europe for many years to come. A new agreement has just been concluded which would take New Zealand's butter sales to the UK beyond 1984. A position had been reached when it could be said New Zealand had a continuing place in the European dairy market. At the same time the figures Mr Durrant had quoted demonstrated the Dairy Board's success in developing other markets. Mr Anthony thought that when the Government Purchasing Mission was in Victoria and Tasmania it would be worthwhile reassuring them about the dairy situation. In response to a question from Mr Talboys Mr Anthony said that it could help the atmosphere of the discussions if some general reassurance•of this kind could be given to the State Governments. But the most important thing was to encourage the maintenance of a favourable atmosphere between the industries.

AGENDA ITEM 3 (D)

Elimination of Import Restrictions

The Prime Minister opened discussion on the Australian proposal to impose a date for the termination of quantitative restrictions. He said this could jeopardise acceptance by New Zealand manufacturers of the whole approach taken to access. New Zealand did not consider such a cut-off date necessary. The arithmetic that had been done suggested that, by 1995, the impact of import licensing as a substantial impediment to trade would have been markedly diminished over a wide range of product interest. The Prime Minister confirmed that New Zealand was prepared to review the practical effects of the access formula in the course of the general review of the CER agreement proposed for 1987, or at another date if Australia wished, but without any commitment to the setting of a terminal date for the elimination of quantitative restrictions.

The point of concern to the Australians was, the Prime Minister believed, more apparent than real. The New Zealand Government was quite concerned but the New Zealand manufacturers had come along extremely well. There had been great difficulty in this for the Manufacturers Federation. The Auckland Manufactures Association, meeting the previous day, had discussed the CER and the New Zealand President, Mr Stevens, was concerned at Mr Anthony's statement that the aim of CER was totally free access. The manufacturers were adamant about a gradual and long term approach to the reduction of barriers and they were getting worried, as the Australian dairy farmers were, about the reactions that were corning to them from their members. The Prime Minister said he thought the CER could be sold to manufacturers but that in any commitment to a terminal date could jeopardise the whole thing.

Mr Anthony said he would find that hard to explain to his people. They would like to see what would be done by 1990. As soon as there were any suggestion that the termination of import licensing would be indefinite even if greatly diminished it became a question of who was kidding whom. Both were aiming for a free trade zone. He had argued that a very big concession was being made by New Zealand, but his Government kept saying that it was looking for a firm timetable in some way related to the elimination of tariffs. It might help if the tariffs phase out period were extended. He did not want that but he did not want an open ended situation either. This presented a stumbling block. . He had been hounded pretty hard on that point. However, there was a little bit of time for work to be done on both sides. There would be a review in 1990. That would leave it all very vague.

The sort of work that could be done, Mr Anthony said in reply to a question from Mr Talboys, was an assessment of the impact of the reduction of import licences by 1990 and how to present to Australia the advantages of that. In this way they would encourage people to move to an elimination point. It would be so small by then it would not matter. Mr Talboys noted that that was exactly the point but if the New Zealand Government said that today, it would pull the rug out from under the supporters of the CER in the manufacturing industries and the opponents would climb on a band wagon. If it could, the Government would like to bring the manufacturers up to the point that meant that by about 1990 there would be very little in New Zealand's import licensing system vis-a-vis Australian exporters. Mr Anthony asked what was the point then? Mr Talboys said that it was just the political point, and it concerned those manufacturers who wanted the CER and those who were frightened of it. Mr Anthony said that he might get more acceptance of this from his people in Australia if it could be demonstrated that the effect of import licensing by 1990 would be small. The Prime Minister noted that the best test had been in the industry studies. He had been very surprised at the success in getting these things into place. They concerned moving to points where New Zealand manufacturers are competitive. The memo he had had from Mr Stevens confirmed the sense of disquiet among manufactures. CER would have to be sold and sold again and he was anxious that the manufacturers might start to skitter and go. New Zealand was now getting into a political atmosphere for the next six months or so. There was a phantom opposition which had not yet said anything critical but they were really desperate and in bad shape. They might say something in public quite nonsensical and CER was made to order for a horror story if the New Zealand Government were too firm on this point. He cited the experience of 1972 where a carefully worded statement from the National Development Conference agreed by the manufactures at the time had been subsequently blown up as the death knell of manufacturing. Manufacturing interests had plumped for the other side and it had been a considerable factor in the year's results. The Opposition were now more desperate than they were then. The Government was fortunate in the top people in the Manufacturers' Federation but they had got to keep their troops in line.

Mr Anthony said that after the March discussions, where the proposal had been made that tariffs would be out by 1987, that licensing would be reviewed in 1990, but that the termination of licensing was an 'N' factor, his Government had erupted. It had told officials that they must get something tighter and to see if a terminal date by 1995 could be agreed. This meant a gap between tariff and import licensing elimination. Subsequent discussions had led to some progress but the same difficulty persisted. So far, efforts were being made to look to tariffs and import licences together: it was hard to break that link. Unless New Zealand gave him some terminal date he would run into the difficulty again. Mr Anthony would speak to Mr Stevens but there was not much more both sides could do now. He had not the slightest doubt that the two sides would come together and that there would be a totally different New Zealand economy in 1995.

The subject of import licensing was taken up again in the afternoon session when the Prime Minister read out the points in Mr Clark's note as follows:

  • Mr Anthony suggested that further persuasion might get our manufactures to agree to a terminal date. The Government had yet to persuade the manufacturers to a continuing movement towards unrestricted access. Their position is that the review five years out should be one which determines whether movement continues or not.
  • The gradual and progressive elimination of import licensing is real, visible and certain. The New Zealand Government can persuade manufactures to wear that. To seek to persuade them beyond that point would mean a completely new round of consultations with industry, and that in itself could create a counter-productive atmosphere.
  • Import licensing has been embedded in the minds of New Zealand manufactures in the past 40 years. It has been a great achievement to move them so far.
  • The immediate benefits to Australia can be measured in financial terms. The first year's additional access figure would be upwards of $50m increased by 10 percent, real, a year.
  • In the initial years Australia should sell up to this access if for no other reason than the novelty of competitive goods in many areas.
  • Mr Anthony spoke of imbalanced trading opportunities. In the eyes of New Zealand manufacturers without some initial tilt to New Zealand the trading opportunities are all one sided-in favour of the bigger and more pervasive Australian competitor.

This note was passed to the Australian side.

The Prime Minister pointed to the value of the starting point of increased access under QR's ($50 million). This was an initial figure only and it would be compounded by 10 percent real growth a year. It was of value even if one could not put a terminal date on licensing. Mr Anthony said he would like his people to take a note of that. It would be helpful if New Zealand could do some graphs on how it saw trade developing up until1990. He wanted arguments to help him in explaining the situation. Mr Clark said that if an exporter had 5 percent of the market under the existing formula, this would be doubled in 71/z years. That 10 percent would then be doubled in the following 71/z year period to 20 percent. If this Australian competition was with an industry that hitherto had been tightly controlled then a 20 percent share of the domestic market meant that one was rapidly gt>ing to the point where import licensing ceased to be protective; one did not have to wait for 100 percent penetration before import licensing ceased to be effective. Mr Anthony said that would no doubt depend on New Zealand's attitude to global quotas as well but any work New Zealand could do would be a help. Mr Woodfield explained that it was hard to make accurate prediction by trying to impose static analysis on a dynamic situation. This could lead to some half-pie estimates. The Prime Minister noted that an exercise had already been done on this.

Tendering of Exclusive Licences

The Prime Minister said that New Zealand saw considerable merit in a tendering approach, both as an effective method of licence allocation and as assistance towards judging when removal of items from CER licensing control could be contemplated. New Zealand had yet to be shown a better alternative. It would not wish to see any 'second class' status attach to Australian licences, and agreed that tendering should not operate in such a way as to undermine the value of Australian exporters' access opportunities. Consultations could be held if Australia considered that the use of tendering in particular circumstances would frustrate the achievement of CER access objectives. In these conditions, New Zealand considered that tendering would be a generally valid procedure and hoped that this issue could be resolved satisfactorily on this basis at officials' level.

The Prime Minister went on to say that the introduction of tendering had caused considerable anxiety in New Zealand. It was rather unorthodox and the idea had required some selling. The Prime Minister himself and some of his colleagues had had some reservations. But now the situation looked better. He hoped the approach could be merged into the CER context without difficulty.

Mr Anthony said he had some reservations. It had the appearance of an additional impost. However consultations could take place before tendering was undertaken. That would be essential and it would probably meet Australia's interests. He suggested that officials keep working on it.

AGENDA ITEM 3 (E)

Treatment of Deferred Goods

The Prime Minister introduced this subject by observing that New Zealand's Deferred Category list was somewhat longer than that currently proposed by Australia. There were good reasons for this. The New Zealand Government had carried out extensive consultations with all sectors of the commercial community particularly manufacturers. This had brought to the surface most anticipated product problems. The initial reaction of many New Zealand industries was to seek deferment. The Government had, through the process of consultation, persuaded the majority of these to accept that deferment was not appropriate. Most of the original opposition had been overcome. New Zealand's current industry study programme had been given new impetus only recently (post-1979 Budget). There were several deferrals proposed for reasons of industry studies.

Those industries that remained on New Zealand's Deferred Category List were those for which the New Zealand Government believed deferral was fully justified.

New Zealand agreed with the basic principles governing deferrals

  1. no permanent deferrals
  2. the list to be kept as short as possible
  3. interim, partial application of tariff/access formulae
  4. length of deferred period for each item to be as short as possible
  5. a plan and schedule to be provided for each product nominated.

Mr Anthony said his reaction was that the list was a bit extended at present. He was not talking of the number of items but rather of the period for which they might be left on the Deferred Category. At present New Zealand was talking of about 10 years. He thought there should be more work to see if a tighter arrangement could be achieved. The Prime Minister thought that that might be possible for some items but for others, such as motor vehicles, a longer period could be appropriate. Mr Anthony suggested that officials might look at the wording. For some items deferral might be 10 years-perhaps apparel, and the automotive industry, no-one knew. Perhaps words could be found to convey that deferment should be no longer than absolutely necessary.

The Prime Minister noted that 10 years was seen as likely to be appropriate only in exceptional circumstances. It was not to be the normal period. This would be clear from the guidelines which were to be conveyed to the Industries Development Commission. He also noted that New Zealand agreed that there would be a plan and schedule providing an indicative time frame for each deferred item. Mr Adams-Schneider recalled that they were discussing only the short residual list of difficult industries. Governments had been able to come a long way.

Mr Anthony said his briefing suggested that in exceptional selected cases, (he cited apparel and motor vehicles) the final outcome of deferment might not be finalised before signature of the agreement. But in all other cases there should be a plan and schedule before signature.

Mr Clark suggested it might be more appropriate to state the general rule first but then acknowledge that there was a hard core of issues that might need special treatment. The Prime Minister agreed that some more work might be done on it on that basis.

Mr Adams-Schneider recalled that a number of the items on the New Zealand list were under industry study. It was not possible to know at this stage how they would come out. Mr Anthony acknowledged that they would have to be looked at on an ad hoc basis but considered it would be more satisfactory if officials could state before conclusion of the CER agreement how they would see each item being handled. He did not think it was up to Ministers to look at each item from this viewpoint at the meeting.

The Prime Minister agreed this was a reasonable approach. He did not want to get into a position of agreeing to something he could not deliver. While New Zealand would accept as far as possible the establishment of a plan and schedule, in the case of goods under industry study it was difficult to foresee.

Mr Anthony agreed with this. He reaffirmed that Australia wanted to see the Deferred Category as short as possible, and as much precision as possible on the way goods would come off the list. He expressed concern that the IDC might recommend deferral for up to 10 years. That would be difficult. He enquired what was meant. The Prime Minister then read the Cabinet Economic Committee minute on which the IDC's guidelines were to be based. It made it clear that 10 years was only to be considered in exceptional cases.

The Prime Minister remarked that the general pattern of IDC recommendations was to reduce the current level of protection. They tended to be a great deal tougher than the Government had been prepared to carry out. Mr Anthony said the words the Prime Minister had read were a great deal better than those he had seen. The Prime Minister confirmed that it was intended that the IDC recommendations should make New Zealand industries leaner and more competitive. Mr Anthony proposed that appropriate words be drafted to incorporate this concept. But 10 years should only be in extremely exceptional circumstances. The Prime Minister recalled that they were discussing only a handful of goods in the whole economy. The only really long term one he could see was the motor industry which involved a whole range of componentry and was both complex and politically difficult.

Mr Anthony said he was still worried about encouraging industry to think of 10 years as a possibility. He was looking for words that would obviate this risk. The Prime Minister reread two of the proposed IDC guidelines which underlined the exceptional circumstances which alone would justify consideration of such a long period deferral.

Mr Adams-Schneider mentioned that adoption of the tobacco study would cut production by about half. But this had to be done in a planned way. Mr Anthony said the formulation was very nearly right. He thought the right words could be found. For some industries even 10 years might not suffice. He would prefer that no finite period be mentioned.

Mr Clark noted that by the time the IDC items and the 'funny items' were taken out of the New Zealand list, it was not a long list.

The Prime Minister noted that orange juice was not nominated for deferment by Australia. Mr Anthony said he understood that if Australia agreed to include orange juice in its SPARTECA coverage, within one year New Zealand would agree to its removal from the Deferred Category. Mr Adams-Schneider said New Zealand had agreed to the inclusion of orange juice in its SPARTECA coverage subject to review after 10 years.

The Prime Minister said he did not consider orange juice was a major problem. It was the question of a 10 year maximum in the IDC guideline that needed to be given further thought.

At the Prime Minister's invitation, Mr Anthony said that he did not wish to discuss each of the goods nominated for the Deferred Category, but he did wish to comment on wine.

Wine

Mr Anthony said that New Zealand's recent decision on wine imports had caused concern. There had been a strong reaction to New Zealand's decision to raise the duty for five years and to leave open what it would do after that. There had been 'a pretty strong reaction to the way in which you handled this'. It had been a 'pretty bold move' in the light of CER discussions. The Australian wine industry had reacted strongly. Mr Adams-Schneider noted that this decision gave Australia better access and there would be more Australian wine coming in. Mr Anthony said that he had received a cable from the Australian wine industry. It said that while Australia would benefit to some extent from the decision, the initial phase was more significant because of 'pipeline filling'. Per kilometre, the Tasman was one of the most expensive stretches of water, which afforded New Zealand considerable natural protection. In addition a high tariff on Australian wine would disrupt the Australian wine exporters' consumer franchise. Their share of imports into New Zealand would be constant or increasing but the share of imports in the market would contract. The aim of the New Zealand decision could only be to cut back imports.

The Prime Minister noted that the New Zealand Government got letters like that too. The New Zealand wine industry presented a very real difficulty. It was expanding rapidly. In some respects it was internationally competitive. There would soon be an export surplus. Production at the moment was no more than one-tenth of the Australian production. Plantings were proceeding fast but vineyards were not yet into production and there would be more plantings. The industry was in a very vulnerable state. More new plant for the high quality end of the market was being established but the real pay back would not be for some time when the vineyards and the plant were in full through-put but this would be some years away. There had been very rapid growth over the past 10 years and would be for the next 10 years. The industry was too delicate to face much competition at this stage. The Government's decision was not intended to penalise Australia. More Australian wine would come in and compete at the proper level for quality. There was an unofficial premium on imported wine. This was a temporary phenomenon. There was much greater acceptance of quality in New Zealand wine than 5-10 years ago. But the New Zealand Government could not in any circumstances let an expanding and vulnerable industry be torpedoed by imports. The Prime Minister believed that the volume of Australian wine imports would grow in time. Some years hence there was no reason why there should not be more competition from Australia. The new tariffs were aimed at cheap imported wine because frankly, New Zealand wanted to keep it out,

Mr Anthony said that the New Zealand decision had produced a sour note 'Where do we go with wine in the CER'? It was seen as a rebuff by the primary industry group. What Mr Muldoon had said about wine was accepted over a lot of commodities. Neither side wanted to hurt expanding industries but 'let us approach wine as we do some other commodities'. Australia did not want to see New Zealand wine as a closed shop. The Prime Minister said that Australian exporters would sell more.

Mr Anthony said that it might be necessary to get the wine industry people of Australia and New Zealand together since there were major differences on this question. He accepted that the New Zealand industry was not opposed to Australian wine as such. The Prime Minister said that the decision deliberately provided for more Australian imports. New Zealand wanted Australia to supply a higher percentage. It already supplied 50 percent of high quality wine imports. The decision would enable the New Zealand wine resellers to sell imported wine. The high imposts had been placed on low quality wine. Mr Anthony noted that New Zealand wine was protected by both quantitative restrictions and duties whereas on the Australian side New Zealand wine exporters faced no quantitative restrictions and only 9 cents a litre duty compared to about $1 to $1.50 extra per bottle in New Zealand's case. The Australian wine industry had been stung by this decision. There had been no consultation with the Australian Government about it. Mr Adams-Schneider said that the new decision had removed import licensing and increased import quantities by 25 percent. Mr Anthony said that it was a tariff quota and that the Australian Wine Board did not see the situation in the same way. It would be better to get the two sides to look at it. It could 'play merry hell with CER'. The wine industry was a pretty good lobby when one considered that the Australian Government did not tax wine imports. The Prime Minister noted that New Zealand wine was taxed substantially-all liquor paid substantial taxes. Mr Anthony noted that the Australian wine industry was not subsidised. The Prime Minister said that the understood there were various schemes to help Australian wine producers. Mr Anthony said that the New Zealand side would find it hard to pinpoint this for wine. He acknowledged that New Zealand had an infant industry but said it need not be so discriminatory against Australia.

The Prime Minister said that if the quota gave greater access to Australia, he could not accept that the Australian industry had any case for complaint. Mr Anthony reiterated that it would be necessary to get the two industry boards to discuss this to let them put their heads together in the context of the CER­ they might come up with ideas, as the two Governments would ask the dairy industries to do. The Prime Minister said that the New Zealand industry was fairly relaxed about what the Government had done. He was not aware of any hard feelings concerning the Australian industry. The Prime Minister said that the New Zealand industry was fairly relaxed about what the Government had done. He was not aware of any hard feelings concerning the Australian industry. The Prime Minister went on to say that the Government accepted that the wine producers were in a growing and vulnerable position. The Government knew the industry well and had advocated that it would move to better quality wines. By all means the Governments should let the two industries get together to clarify and discuss. Mr Adams-Schneider suggested that it might be necessary to write to the Australians concerning getting the boards together after this meeting. The Prime Minister said that New Zealand now had one body speaking for the wine industry.

Mr Anthony said the Australian wine board could speak for the Australian industry since it handled the export side of industry. Could both sides be empowered to look at the long term? The Prime Minister said certainly but with the only proviso that when rapid growth was being undergone it was hard to see what the situation would be in 5-6 years. New Zealand wine was saleable internationally; it was starting to penetrate international markets. It would be hard to say where the New Zealand industry would be. Mr Anthony said it could lead to a useful conclusion but the current situation was a cause of resentment.

As a result of this discussion, both sides had now got a better perspective. 'Who knows, we might get a better approach from the two industries.'

AGENDA ITEM 3 (F)

Stand-Out Product Issues: Whiteware

The Prime Minister said New Zealand was willing to negotiate positively with a view to agreeing to a package for whiteware that took account of the particular circumstances of trans-Tasman trade in whiteware. He indicated that New Zealand officials would be discussing the proposed special arrangement with the New Zealand industry. He said it had been put to him that the access levels proposed by Australia sought far too sudden an increase and were not acceptable. Nonetheless, New Zealand officials would be taking a positive approach to the negotiations with a view to reaching agreement on a package which would enable whiteware to be kept out of the Deferred Category and would permit further development of a trade of real importance to New Zealand.

Mr Anthony said Australia understood the situation. They awaited the response when the proposal had been discussed with the New Zealand industry. Mr Anthony remarked that whiteware had been a problem area for years. If these negotiations could be successfully concluded it would be an achievement.

Furniture

The Prime Minister expressed satisfaction that the NAFTA Schedule B Furniture Arrangement had been renegotiated for 1981/82 to provide for increased two­ way concessional trade.

This arrangement could provide the basis upon which to apply CER trade liberalisation formulae.

Mr Anthony noted that an announcement had just been made covering the renewed arrangement. The trade was going well.

Mr Adams-Schneider commented that these industries worked very well together. They were an excellent example. The business had grown from nothing to $7 million in each direction.

AGENDA ITEM 5

Future Action

Mr Anthony expressed appreciation ofthe Prime Minister's personal involvement in the meeting. He thought the meeting had done very well. It had laid down a format for further work to proceed.

Mr Anthony summarised the outstanding issues

  • On import licensing there remained the knotty problem of concluding the restrictions.
  • On export incentives, the meeting had come a long way towards dealing with the problem.
  • On wine, he would like to see the industries work out the problem.
  • On dairy products he believed the industries could come together.

The Prime Minister agreed. Those were the issues. There was some distance still to go on some of them. Officials should talk about what should talk about what should happen next. There would now be a joint press conference. They agreed that they would no go into too much detail on the timetable for CER. In response to questions from Mr Anthony the Prime Minister said he would like to fudge some areas which were increasingly sensitive. He did not see a Prime Minister's meeting in the immediate future. There might be available a few minutes at CHOGM, not enough to reach finality, but a discussion perhaps with a view to finalising early next year.

Mr Anthony said that in any event one could say that industry groups were going to have to follow-up discussions and that this could take some time. A meeting later this year between Mr Muldoon and the Australian Prime Minister was possible, but may be even that was not convenient this particular year.

[NAA: Al313/111, 81/2446, iii]