Attached for your information1 is a memorandum from the Ministry of Foreign Affairs discussing the question of the possible need for the provision within the Treaty establishing the CER agreement for termination of that agreement in the event that either party consider such a step necessary.
The memorandum was prepared on the basis of a discussion among interested departments and the approach it takes has been endorsed by Mr Clark. In commenting to me on it he remarked that if a sufficiently grave situation in trans-Tasman trade relations were to arise the possibility of one or other side abrogating the agreement was there: but that was a prospect we would not want to contemplate. In view of this provision of the kind floated in paragraph 7 of the attached memorandum would have the merit of defusing private sector concern that the agreement once signed would be in place in perpetuity regardless of the way it might in the future impact on our economy.
Wellington 8 December 1982
CER Treaty: Duration and Provisions for Termination
Australian and New Zealand officials have had one meeting to settle an agreed text for the draft CER treaty. Both sides are now looking at the text separately and will meet again, at a more senior level, in Canberra next week with the intention of finalising the text if possible.
- The draft treaty text will, of course, be agreed by officials ad referendum to their Governments, but there is one issue on which the New Zealand side would like some ministerial guidance before next week's meeting. This concerns the duration of the Agreement and the provisions for its termination.
- The rules of international law provide that if no specific provisions are included an Agreement between two countries runs indefinitely and can only be terminated with the agreement of both parties. You will be aware as will New Zealand industry that the Heads of Agreement provides that the CER treaty will be open-ended in duration. The Australians would clearly prefer that no specific provision for duration or termination be included in the CER treaty (in line with common practice) which means that the rules outlined above would apply.
- During the consultations held with the private sector over the last few months New Zealand manufacturers have expressed their concern that while the CER may be of indefinite duration, New Zealand should retain the right to terminate the Agreement unilaterally (after giving due notice to the other party); no doubt they have had in mind the Article 17 of the NAFTA which provides that the Agreement shall remain in force for ten years and shall continue in force after that unless terminated by either side with six months notice.
- We have considered ways in which this concern in the private sector might be met without our creating difficulties with the Australians at this late stage or both Governments creating the impression here or in Australia that CER is open to renegotiation while its provisions are taking effect in the period up to 1995.
- The CER Agreement contains ways in which the provisions for safeguard action during the transition phase, for review in 1988, as well as more general provisions to cover measures that either Government may need to take to meet unforeseen problems as they arise during the duration of the Agreement. The long transition phase of CER was negotiated in order to allow industry time for gradual and orderly adjustment to the new trading environment.
With these factors in mind, we could float with the Australians next week a variation of the NAFTA provisions along the following lines:
The Agreement to remain in force for 15 years and to continue in force after unless terminated by either party on one year's notice.
The advantages of such a formula would be that, firstly, it would not identify the length of the initial period of duration with either of the milestone dates in the CER: the review in 1988 and the completion of liberalisation by 1995; secondly, it would ensure that such an important step would only be taken on the basis of knowledge of the effects of CER once it had come into full effect and in the light of the evolution of economic relations between Australia and New Zealand over that time; thirdly, that this provision is not identical to that under NAFTA just as CER differs itself from NAFTA.
- We can take up this idea in Canberra next week. As far as we know, permanent heads or ministers there have not given any thought to this issue and we cannot predict what their reaction might be. The only note of caution that we might enter here is that in the past the Australians have shown some concern that New Zealand might try and reopen points already agreed as CER takes effect (a concern New Zealand might now begin to share regarding the Australians' approach). No doubt both Governments will be concerned to make it clear to their industries that the CER with all the necessary provisions for safeguard, review and consultations will go ahead according to schedule in the expectation that industry on both sides of the Tasman will have sufficient time to adjust as the provisions of CER gradually take effect.2
[AALR 873, W4446/Boxes 312-313, 61/Aus/2/211 Part 4 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]