18 Draft Minutes of Officials' Meeting

Wellington, 18 June 1979

Officials Economic Committee1 Meeting with John Stone, on 28 May 1979

After introductory remarks by Mr Lough and Mr Stone, Mr Clark opened up with a review of the trade relationship and pointed out that a special trade relationship had developed mainly since World War II. It was no secret that the relationship in 1965/66, when NAFTA came into being, was not a very happy one. The trading imbalance was then seen as a particular problem. In the 1960s there was a belief that growth would continue indefinitely; the attitude taken then was that we should build on industries which were already in existence. On the Nareen meeting last year, Mr Clark commented that nothing very specific had come out of it. It really consisted only of an exchange of platitudes. This illustrated the state of NAFTA today. Mr Stone disagreed with this interpretation. Mr Clark continued however suggesting that the recent Ministerial meeting was very similar in that respect. Ministers spent a lot of time talking about horseshoes and 700 tonnes of peas or whatever. He accepted that in general individual trading imbalances should not be seen as a problem but he believed that our trading imbalance with Australia was of a particular kind, and a matter for concern. Both Messrs Stone and Clark agreed that trade restrictions rather than trade imbalances were the underlying cause for concern.

Mr Lough suggested that our main problem was to make ourselves more internationally competitive.

Mr Scott then went on to talk about the current Anthony invitation to look beyond NAFTA. There were two major issues involved: the economic problems that would arise in a real free trade area and the effect of a free trade area on the restructuring of our economies. He thought that restructuring was very slowly beginning to be accepted in New Zealand. He then went on to talk about the concept of comparative advantage and asked the question, comparative to who? New Zealand's importation of Holdens and Australia's importation of New Zealand textiles illustrated the point that free trade could have the effect of encouraging industries which do not have a comparative advantage internationally. He suggested however that although a free trade area would lock us into high cost markets in some sectors, this might nevertheless be a best alternative to complete international free trade. Mr Scott then outlined some of the different types of economic cooperation which would be possible. He asked what would happen if there really was economic integration. In the 1960s it was believed that one result would be that New Zealand would become Australia's farming district and tourist playground but it appears now that some industries have emerged which are internationally competitive.

Mr Stone said that he did not know specifically what Mr Anthony had in mind but he said Australians were increasingly questioning where their economy was going and any discussion of the Australia/New Zealand relationship had to be seen in that light. Neither country would solve its economic problems through a closer economic relationship, although it could help. The first thing was to get the domestic economies right, and then look at the position of Australia and New Zealand in the world in the 1980s and 1990s.

Mr Galvin indicated that New Zealand officials were trying to find out more exactly what Mr Anthony had meant. Mr Stone replied that he believed that we should not try to analyse Mr Anthony's remarks too closely in textual terms-Mr Anthony was expressing general concern from a very general brief, ie that we must do better than we have so far. Similarly, Fraser's letter said in effect that there should be no barriers to thought and that we should generally look more closely at our international economic relationships. Mr Stone then went on to say that restructuring was also being looked at in Australia. It was often said that protection was required to maintain employment, but Mr Stone believed that protection was the very thing that maintained unemployment. Mr Corner then mentioned political and other aspects of our relationship and made some general remarks about our cyclical bouts of concern about the Australia/New Zealand relationship which have gradually become more frequent and more intense as our awareness of each other has increased over the last 35 years. Mr Clark suggested that Fraser's letter in a sense farmed the problem out to the Businessmen's Council. Mr Stone said that the commercial community in Australia has come a long way since the beginnings of NAFTA and that there is now a growing body of opinion in Australia that if they cannot take competition from New Zealand, they will be unable to open up their economy to the rest of the world.

Mr Keane commented on the need to use the trading relationship between Australia and New Zealand as a step towards becoming more competitive, but not as a half way house in which we would yield to the temptation to go no further.

Mr Jackson then made some remarks about migration across the Tasman and some of the problems associated with this. Apparently about 600,000 people cross the Tasman each way every year. Mr Stone said that from Australia's point of view the increased inflow of New Zealanders had one good aspect in that it provided more competition in the Australian labour market. He then turned to more general problems in Australia's economy and suggested that one thing a business community cannot live with is uncertainty. The biggest single factor which leads to risk for a business is to get too mixed up with government. The Australian Government was continually changing its mind in the field of tariffs and taxation in particular. Mr Galvin suggested that in New Zealand farmers in particular would agree with this point of view.

Mr Lough and Mr Stone both expressed their appreciation of the opportunity to have these informal discussions.

[AALR 873, W4446/Boxes 312-313, 61/Aus/2/2/1 Part 1 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]