19 Internal Note from Powles to Senior Ministry of Foreign Affairs Officers

Wellington, 18 July 1979

CONFIDENTIAL

Australia/New Zealand: Economic Options: Progress?

Several months have elapsed since Mr Anthony invited consideration of the future options for the economic relationship 1. Since then several Australian Ministers (Fraser, Peacock, Garland and Anthony himself) have underlined the seriousness of Mr Anthony's suggestion. They have made it clear both that they would expect any initiative to come from New Zealand and that from the Australian viewpoint nothing should be ruled out at this stage. While Australian Ministers have accepted that it will obviously take time for our Government to decide what if any initiative it wishes to propose, there have been indications that they definitely expect a response of some kind this year. Delay will lead not only to a waning interest on the Australian side but also very likely to a growing sense of exasperation with New Zealand.

  1. The Prime Minister is himself concerned to move ahead with the exercise. The attached note was prepared for him by the Prime Minister's Department on the assumption that he would raise the subject with Mr Anthony at Honiara. (We were consulted, rapidly, in the preparation of the note, paragraph 14 of which omits reference to the Minister of Foreign Affairs simply in error.) In the event, the Prime Minister did not consider that the note took the subject significantly further than he had gone in his earlier discussion with Mr Anthony and he decided not to raise the subject. Mr Anthony did, however, raise the subject with Mr Woodfield who indicated that officials were pressing ahead with studies as a matter of priority.
  2. Mr Muldoon has indicated that he needs something more specific to use in talking to Australian Ministers and that he wants this for Lusaka, where he will be seeing Messrs Fraser and Peacock.
  3. We are now in a very tricky situation. The Prime Minister is clearly not expecting any delay in the production of concrete proposals and, on the Australian side, delay would very likely kill Ministers' interest in the subject. On the other hand, there is probably a year's fulltime work involved for several officers if the subject were to be approached in a proper analytical way resulting, at the end, in the formulation of precise propositions blessed by economic departments before being put to our Ministers for their consideration before being put to Australian Ministers. This approach is clearly not on politically.
  4. The situation is not helped by the difficulties the bureaucracy is having in grappling with the subject. The Prime Minister has, of course, directed that the work is to be done or organised by his Department. Following Mr Corner's discussion with Mr Galvin early on, I have continued to emphasise our readiness to cooperate and assist Dr Graham Scott of the Prime Minister's Department. I have given Scott some of the early pieces of paper (addressing the questions to be answered) we had produced and have agreed with him on specific topics which we and the High Commission in Canberra should work on. Progress on this has been quite good-Canberra in particular has worked quickly to produce papers on the state of Australian agriculture and on Australian motivations: we will have drafts for discussion on other aspects of the subject shortly. But it turns out that Scott is not getting much from other Departments at all and that DTI in particular is being unforthcoming. The net result is that 'official studies' of the subject are hardly being given the priority by Departments generally which our and Australian Ministers might expect. I have suggested to Scott that he call a meeting of officials, say one from each Department, within the next few days at which he might lay down the law on the basis of the Prime Minister's expectations. This will probably take place next Monday.
  5. But in the meantime the Lusaka conference draws nearer and there is no consensus at all as to what the Prime Minister might say to Mr Fraser. Dr Scott's preliminary inclination has been that the Prime Minister should have a brief which would set out a 'bare minimum' proposition which Mr Muldoon might put to Mr Fraser. This would be a 'package' involving several of the elements which would have to be dealt with before any movement to complete free trade would be possible but the proposition would not affect the basic NAFTA framework. It would be a step in the direction of economic integration-no more.
  6. I have suggested to Dr Scott that there are very real dangers in this approach. First, it would be inappropriate for a detailed discussion on the future of Australia/New Zealand economic relations to take place in the heart of Africa and at a conference at which the Prime Ministers will be preoccupied by other issues, on some of which they could have differences. But secondly, and more important, it seems to me that a 'bare minimum' step-by-step proposal could kill the whole exercise just as readily as would excessive delay.
  7. Dr Scott in response has asked what would be necessary by way of a substantive New Zealand proposition to maintain Australian political interest in the subject. I believe strongly that something more than a reaffirmation of NAFTA is necessary. It was implicit in Mr Anthony's initial comments on the subject and in Mr Fraser's letter to Mr Muldoon that there must be a better way of conducting the economic relationship. This can only mean that the Australian expectation is that a better framework must be found. It would emphatically not be sufficient for us to propose that both Governments put more effort into making NAFTA work. Also, Mr Anthony has indicated that he would not be interested in the NAFTA step-by-step approach. My view is that the bare minimum in terms of Australian expectations would be a ringing political commitment to achieve complete free trade within x years, including willingness on the New Zealand side to remove import licensing for all Australian imports and to discuss issues such as comparability of export incentives.
  8. Needless to say, Departments would be unable to decide whether such a proposition was in New Zealand's best interests in the time available between now and Lusaka. And despite the Prime Minister's desire to have something concrete it is surely a question whether other Ministers would wish to move so rapidly.
  9. I have suggested to Dr Scott that the brief on this subject for Lusaka might take a different line. It could be suggested to the Prime Minister that he tell Mr Fraser that he definitely favours the proposition that there should be closer economic cooperation with Australia and would like to pursue the subject in discussions with Mr Fraser or his colleagues later in the year. Mr Muldoon could indicate that the two options being looked at closely are complete free trade and a customs union/common market. He might go on to invite Mr Fraser (or, if Mr Fraser, wished, one of his colleagues) to come to New Zealand in October or November for more detailed discussions of these possibilities. Issuing such an invitation would make up for lack of substantive comment in indicating New Zealand's serious interest in the subject. (Although Mr Fraser suggested to Mr Templeton at Manila that the two Prime Ministers and their deputies might meet at Nareen later in the year, it would seem to be more politically acceptable for our Government to issue the invitation and avoid any impression of going to Australia on bended knee.)
  10. If this suggestion were accepted by the Prime Minister there would be the added advantage that officials and Ministers here would be forced to concentrate on the subject as a matter of urgency with the deadline in mind. Otherwise, present indications are that the bureaucracy may never grapple effectively with the topic. The one danger of this course is that we may still be unable to deliver in October/November. I don't believe, however, that it would be very difficult to devise a way of talking through the subject with Australian Ministers at that stage which would convince them at the very least of New Zealand's desire to cooperate closely with Australia, whether within a specific framework or not.

[ABHS 950/Boxes1221-1226, 40/4/1 Part 18 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]