228 Submission to Cabinet Economic Committee

Wellington, 18 September 1981

No E (81) 168. CONFIDENTIAL

Australia/New Zealand Closer Economic Relations: Joint Working Party Meeting

Introduction

  1. On 15 September, the Committee noted a report of officials who attended a joint working party (JWP) in Canberra on 2/3 September that examined outstanding issues arising from the current negotiations on a closer economic relationship between New Zealand and Australia (CEC E(81) 165 refers).
  2. The Committee also noted that officials were to submit a separate assessment paper on the outstanding issues where further discussions with Australia are required.
  3. A number of papers were exchanged at the Canberra meeting covering methods of allocation of exclusive Australian import licences, possible solutions to monopoly import arrangements, whiteware, intermediate goods, transitional arrangements for integrating NAFTA into CER and deferral of implementation of CER for certain goods. Officials have compiled a checklist of matters now requiring New Zealand and Australian responses and these will be actioned progressively.
  4. The present paper comments on the overall approach to the talks by Australian officials, gives a brief assessment of several key issues, and seeks approval for the general approach which officials recommend should be adopted in further discussions with Australian officials on outstanding issues.

Australian government Position

  1. Summarising the two days of discussions with Australian officials, officials noted in E(81) 165 that there was an overall positive attitude on the Australian side towards the resolving of outstanding issues. However, the sense of commitment to make progress was more manifest in the approach adopted by officials from the Department of Trade and Resources than in that of officials from the Department of Industries and Commerce, or more notably, the Department of Primary Industry.
    [matter omitted]1
  2. Although the Australian Cabinet has not been asked formally to review progress since March, officials understand Mr Anthony reported orally on the May meeting2 and key ministers are being kept briefed on major developments by their departments. The differing degrees of enthusiasm displayed by the major Australian departments involved probably reflects that it is Industries and Commerce and Primary Industries that have the main task in persuading and carrying with the exercise those elements of the producer lobbies and the Australian manufacturing sector that may be antagonistic. While the Australian Government has given its blessing to the negotiation of a CER agreement, it is not currently focussing on the issue. Maintaining the commitment of the Australian Government is therefore of prime concern as the negotiations move into what should, it is hoped, be their final phase.

OUTSTANDING ISSUES

Import Licensing

  1. As noted in last week's paper reporting on the Canberra meeting, Australian officials suggested a possible compromise approach aimed at resolving New Zealand's objections to a terminal date being set for the removal of quantitative restrictions on Australian imports into New Zealand. Australia proposed a review of the progress towards liberalisation of import licensing at the end of the tariff phasing period, with the aim of producing at that time a terminal date for the removal of import licensing. Officials consider the proposal represents a significant effort by Australian officials to advance towards a mutually acceptable solution. It may not be acceptable in its present form, but it nevertheless provides a useful basis for reviewing New Zealand's present position. Officials consider it could well be appropriate for New Zealand to seek a relatively small but significant variation to the Australian proposal, whereby the review at the end of the phasing period should consider whether a terminal date for ending restrictions could be set, rather than definitely to set the date. Officials accordingly seek the Committee's approval to discuss formulations along these lines with the Australians on an informal and non-committal basis.
  2. The Committee was advised last week that Australian officials suggested a formulation under which they might accept tendering of Exclusive Australian Licences. Officials do not consider that New Zealand should show any disposition to accept a formulation that would convert the tendering system from a method of licence allocation to a de facto means of automatically increasing the rate of growth in Australian access to the New Zealand market. Officials do not see the tendering of licences question as a potential threat to the outcome of the overall negotiations and do not see any need at this stage for New Zealand to change its current position.

Government Purchasing

  1. Australian officials made it clear that the Commonwealth Government considers there is no further initiative it can take to persuade the individual states to drop their preferences against New Zealand and that there would probably be no satisfactory resolution of the matter until all interstate preferences had been eliminated. They did not, however, exclude the possibility that further bilateral approaches to selected states, with the aim of achieving our objectives with those states individually, could be successful.
  2. The New Zealand delegation gained the impression that while the Commonwealth Government would like to see the end of inter-state preferences, and in that context would be happy to see New Zealand treated similarly, it feels unable to encourage states to eliminate this preference in relation to purchases from New Zealand while it is maintained on an interstate basis; as that would amount to encouraging states to discriminate in favour of another country against other states in the Commonwealth of Australia.
  3. The elimination of Australian preference on most purchases by the Commonwealth Government, which is expected shortly to be confirmed, would still leave a reasonable benefit to New Zealand in that it refers to the elimination of preferential loadings while retaining the notional application of any tariff which might be applied to any particular Commonwealth Government purchase. The CER involves the phasing out of all tariffs and therefore the notional application of the tariff will eventually phase out also leaving Australian and New Zealand government purchases duty-free across the Tasman
  4. A letter from Sir Philip Lynch to the Minister of Trade and Industry, reporting on the recent meeting of State and Federal industry ministers,3 which briefly considered the government purchasing issue in relation to CER, is expected shortly. Proposals will be submitted to ministers in due course on the follow-up required for the approaches that have already been made to individual states.

Horticulture

  1. Officials from the Department of Primary Industry continue to refer to difficulties relating to horticulture. Australian officials have failed to quantify alleged disadvantages to their own horticulturalists arising from New Zealand's export incentives. These sensitivities appear more political than economic. Although New Zealand will continue to emphasise its willingness to examine specific problems if and where they are identified, it is considered that in the absence of any such cases being identified the onus will be on Australia to obtain acceptance by its horticulturalists of inclusion in CER. In this connection the firm position taken by Mr Anthony with the potato growers4 is helpful but there is still little sign that other major horticultural lobbies have been pressed to come to terms with CER. The exchange of letters between the New Zealand [Ministry] of Trade and Industry and Mr Anthony on the potato issue is attached as Appendix I.

Deferred Items

  1. Apart from the automotive and apparel industries, where it was acknowledged at the May ministerial meeting that perhaps no definite timetable could at this stage be set for the removal of these items from the deferred list,5 Australia has been determined to have as few items as possible included on the list and for it to be made clear when those that are, would be removed.
  2. This attitude was clearly conveyed during the course of the discussions although Australian officials were at pains to stress that they were declining a considerable number of requests for deferment from Australian industry. They noted the linkage between a satisfactory resolution to the question of import licensing and the keeping of goods out of the deferred category. If the former was not able to be presented in a sufficiently acceptable 'package', they could not give an assurance that they could 'hold the line' on their thus far negative responses to deferral requests. The recently reported unequivocal statements from Australian Ministers to the respective Australian producer organisations that dairy products and potatoes and potato products would be 'in CER' from its implementation, have been most helpful. The Australian and New Zealand dairy industries will also have to discuss the CER at some stage.
  3. As noted in last week's paper to the Committee, steel has now been highlighted as a major concern to Australia, and New Zealand officials draw the Committee's attention to the fact that careful consideration will need to be given to CER implications within the context of the New Zealand Steel Development Plan. On the issue of wine, Australian officials underline[d] the sensitivity of their Ministers and indicated that it would be crucial to have an acceptable formula for subjecting wine to the CER tariff phasing/increasing access provisions after the current 5 years deferral period.
  4. Discussions between officials will continue in the coming months with a view to reducing the number of items on the deferred list to a minimum and developing possible terms for those to be recommended for eventual deferral. Officials will report progress to the Committee.

Consultation and Implementation

  1. As noted in E(81)165, there was brief discussion at the recent joint working party on a possible implementation date for CER. A difference of emphasis became apparent concerning the degree of consultation that would be held once a final package had been agreed upon. The New Zealand delegation noted that the major consultation with industry in this country is taking place concurrent with the negotiations and made it clear that New Zealand would be unlikely to entertain any significant revision once a package had been agreed by the two governments.
  2. No further meeting of the joint working party for the remainder of this year is envisaged, although some specialised meetings to deal with specific matters (eg steel, whiteware, wine) might be necessary. As also noted in last week's memorandum to the Committee on CER, Australia perceives the need for permanent heads to meet to settle the package on which the Australian officials would prepare a submission to their Cabinet in advance of a formal Ministerial meeting.

Recommendation

  1. It is recommended that the Committee:
    1. note this assessment of officials on the ANZCER joint working party held in Canberra on 2/3 September 1981;
    2. approve the general approach to be adopted by officials in seeking to narrow outstanding issues in the way of a closer economic relationship with Australia, as outlined in paragraphs 7 to 19, subject to instructions on specific issues being sought from the Committee as appropriate.

[ABHS 950/Boxes1221-1226, 40/411 Part 39 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]