203 Memorandum from Moran to Scully

Canberra, 30 August 1982

CONFIDENTIAL

CER

Having had an intensive series of intra-Departmental meetings on the CER as well as comprehensive industry/State consultations, we are now arriving at a position where our views are crystalising.

We remain firmly of the view that the goals of CER are to the benefit of Australian industry and indeed of the economy. Though we see difficulties in the free trade rather than customs union approach taken by CER our concerns are primarily with the phasing period to general free trade. During this period we feel the draft as circulated unduly prejudices Australian industry.

We are also mindful that any one-sidedness inherent in CER stems from the operations of NAFTA and of Australia's general industry policy which has evolved an assistance regime markedly different from that of New Zealand. The former of these facets would have to be reviewed in the event that a more embracing economic relationship is not brought about.

The following outlines changes to the draft as circulated which we feel to be necessary.

Access

We are of the view that the overview formula of 5% of the market or $NZ200,000 (whichever is the lesser) plus 10% real growth is inadequate. We see this as

  • an insufficient base for Australian firms to penetrate the NZ market
  • lacking credibility in moving to an LOD position given that by 1990 less than 10% of the NZ market will be open and by 1995 less than 16%
    • and these figures would be lower to the extent that the $NZ200,000 base is less than 5% of the market.

In keeping with a move to LOD by 1995 we would like to see a formula whereby some 30% of the NZ market is opened up by 1990 or 1991. There are various combinations of annual growth and starting points which would make this possible e.g.

  • a 10% start point and 15% growth
  • a 15% start point and 10% growth
  • with a 5% start point, growth of the order of 20-25% would be necessary.

In each case we would wish to see the alternative start point if higher at $NZ500,000 or as a minimum $NZ350,000.

We are not of in favour of adopting the current formula and improving access on a case-by-case basis since the weight of representations persuades us that the individual cases will prove totally unmanageable to process.

The minimum we can at present envisage as being acceptable to Australian industry and to our Minister would be a formula of 10% start point and 10% growth.

The higher the start point, the fewer are likely to be the individual problems of insufficient access to meet the goal of 'commercial viability'

  • but virtually any formula would still leave problems and provision needs to be retained to permit deviation from the formula to tailor specific systems for what may be only isolated product categories.

Allocation

It is not acceptable that NZ industry would have access to 50% of EALs leaving the rest to be tendered. In our view such a provision would not generate rationalisation consistent with market forces

  • since it would offer NZ firms an advantage and encourage Australian firms to adapt to this.

One way to reduce this advantage could be to have three equal allocation pools for NZ licences: one to NZ industry nominees, one to Australian industry nominees and one for third parties

  • penalties would need to be attached to non-usage in the event that an allocation other than tendering were to be determined upon
  • flexibility would be maximised if transfer were to be permitted
  • but to ensure some certainty the initial allocation would be required for two or three years with thereafter all growth moving to the third party tender pool
  • we would have no objection to NZ allocating licences over and above these levels exclusively to their own manufacturers in the interest of rationalisation.

There is no symmetry between the Australian and NZ system and it is most unlikely that Australia's exclusive NZ quotas could be allocated on the above basis. The availability of past performance may enable us to employ an allocation system not based on tendering or alternatively the full amount could be tendered

  • tendering of the full amount would also constitute our 'fall-back' position for EALs should our suggested allocation procedures not be acceptable to NZ.

These provisions would have to be tightly specified in the Heads of Agreement.

Export Incentives

We are now of the view that NZ performance based incentives and suspensory loans would need to be phased out by March 1985 at the latest but that we might need to seek earlier removal for certain products

  • the use of the countervailing code provides an analogous solution to the case- by-case solution for import licensing; though it is more flexible than the latter and allows Australia greater control, it has potential shortcomings in stretching our bureaucratic resources as well as creating an adversarial image which would be particularly unfortunate for a free trade agreement.

Safeguards

Broadly speaking we think the safeguards provisions are acceptable. We are of the view that a special purpose advisory body comprising one Australian and one New Zealander should be established and operate on an ad hoc basis (along the lines of the former Textiles Authority though not necessarily linked, formally or informally, to the IAC). Further definition is required to strictly limit the timing of the hearing of complaints, action permissible following receipt of the reports, etc.

Intermediate Goods

There has been extremely slow progress in agreeing within the range of solutions to this issue, specific measures to be applied. To some degree there would appear to be a philosophical difference between ourselves and NZ

  • for our part we would wish to see a solution which acts to prevent unfair advantage occurring
  • NZ wishes a solution which simply redresses the degree of advantage to the favoured country's industry.

These differences must be resolved.

That aside, the NZ proposals provide a useful basis for a solution provided it is clear that

  • in the event of disagreement on the measures to be used, the country being injured takes the action it considers to be most appropriate
  • time limits are strictly set
  • action on secondary dumping (or probably more correctly 'third country dumping') can be taken.

A further issue is the point at which a disability is recognised as being of sufficient importance to warrant taking action. The extent of meaningful disadvantages will vary from product to product as a result of the products' marketing features, portability etc.

One possibility could be that where an intermediate goods advantage is greater than 10% clear prima facie evidence of the potential trade deflection is constituted; where it is less than 5% there is a lack of such evidence. In between, a judgement is required based inter alia on the importance of transport costs and of price in a product's marketing.

[NAA: A1313/113, 82/2334, vii]