29 Letter from Border to Henderson

Wellington, 27 September 1979

CONFIDENTIAL

Mr Garland's visit seems to have been quite successful, given its very limited objectives. He was careful to say that he was here to look and learn, that we had no proposals to advance and that we had an open mind on the subject, and that any scheme ultimately agreed upon must be clearly seen to embody benefits for both countries. While his presence was an earnest of our interest in a closer economic association he was careful to emphasise, nevertheless, our own determination to develop our links with the growth areas to our north and to come to grips with the difficulties and challenges of the changing international economic environment. If we could do this together, as would seem natural, so much the better; we should, at least, study the options and see what is in them for both of us.

Mr Garland was listened to with interest wherever he went-and with some relief that he and his team did not try to foist ideas on the New Zealanders nor extract from them details of the course of their current investigations... 1

New Zealand officials were very careful not to give any indication of the direction of their thinking on the available options, no doubt because they themselves have not moved towards any conclusions. They are still heavily engaged in their homework, and did not want to commit themselves or the Government in any way whatsoever. The manufacturers, on the other hand, seem to be much more advanced in their thinking, and the clear impression they left was that no new and adventurous schemes are wanted; rather, they contend that there is scope for modification and extension of the present NAFTA machinery to improve and expand our trade, and that while we have this machinery our first effort should be to try to make it work better. They do not seem to go as far as to say that 'a free trade area' is in fact their objective, although their endorsement of the NAFTA presumably implies this. They do not want, in short, to upset their comfortable apple cart.

I had the impression even from Hugh Templeton, who is far and away the greatest enthusiast for the concept, that he might be thinking on somewhat similar but more positive lines, i.e. that we should make it our business so to remove or modify the limitations within NAFTA that free trade is in effect achieved, and I think he would be more forthright than the manufacturers and say that the objective clearly must be 'a free trade area'. How far he can carry the officials with him, and indeed other Ministers, remains to be seen. Certainly he will have Mr Adams-Schneider against him; he will have Mr Talboys' general support, but without a great deal of drive pending Cabinet decisions. I cannot recall anybody talking about other options, such as the merits of a customs union, and I suspect that a free trade area-in due course-would be the most that the majority of interested parties would be prepared to contemplate at this point.

Within the bureaucracy, Foreign Affairs and Treasury are in the vanguard of a more enterprising arrangement but their dilemma is whether they should get out and lead or merely push from behind. The latter is the present course, as far as Foreign Affairs is concerned. But people like Ian Stewart believe that New Zealand will have to jump out of the NAFTA parameters if a really effective and forward looking association is to be formed, and I suspect that Terry in the Treasury feels the same way. They are up against those in Trade and Industry who are out to protect the comfort and relative security of the manufacturers, and hence the political prospects of some Ministers. They feel that it is pointless to try to revitalise the NAFTA, both as a matter of principle and having in mind the real practical difficulties of doing this. Like Hugh Templeton they see the advantage, indeed the necessity, of linking in with the Australian engine economy both bilaterally and in dealing with others. Stewart, too, would like us to work much more closely in preparations for international meetings and negotiations.

So things are rather fluid at the moment. What is certain is that there is a genuine interest in all sectors of the country in the possibility of a closer economic association. The public opinion polls are extremely interesting in this regard. And there are clear divisions as to what can and should be done within the bureaucracy and even within the ranks of the manufacturers and the business world generally. Even in the Businessmen's Council I detect caution, which reflects itself in a feeling in the Council that the NAFTA should be made to work, without limitations, in a specific period of time, e.g. in five years of the remaining eight years of the Arrangement.

We will try to keep Jim Scully and yourself and others up to date with developments in New Zealand thinking and in their preparations, although clearly the New Zealanders are playing their cards very close to their chests. I did not get far in a chat today, for example, with Ian Stewart who is presumably following instructions 'not to talk too much' to us in detail. He thought that Mr Garland was generally satisfied with his visit, and had gained some insight into New Zealand thinking on the concept. Stewart himself felt that New Zealand officials and some Ministers had been less forthcoming than they might have been, and that Mr Garland might have expected something more positive from them. He was inclined to think that the somewhat negative line of the manufacturers was partly tactical, i.e. they want to be wooed, and he emphasised that the manufacturers were only one element in the complex of New Zealand thinking which must be applied to the issue. He also thought that the public generally in New Zealand was well ahead of both politicians and business circles on the desirability of a closer economic link with Australia.

Stewart has also emphasised to me that the Prime Minister does want a positive result from his meeting in February with Mr Fraser, and that he has instructed officials that they must come up with constructive ideas for that meeting. Stewart feels, as I do, that if the Prime Ministers can only say after their meeting that they have had a good discussion and they have sent the officials off to do some further work, then the impetus behind the concept will largely have been lost. He took my point that the Permanent Heads meeting is a highly important one in this respect, and that their chances of agreeing on a positive course will be increased if they can focus on one or more particular options rather than traverse the field in a general and unstructured way. He thus sees the need for New Zealand to have one or more propositions ready before this meeting, which our officials can at least think about before the Permanent Heads meet.2

[NAA: A1838, 370/1/19/18, vii]