3 Cablegram from Border to Parkinson

Wellington, 12 April1979

0.WL1730 CONFIDENTIAL PERSONAL

Closer Australia- New Zealand Economic Co-operation

You will no doubt wish to have a detailed briefing from Scully and Currie on a very interesting meeting between Mr Anthony and Mr Muldoon in Wellington on 11th April, but the following is a broad outline. The meeting had not been arranged as part of the program but developed from a discussion between the two men at Muldoon's dinner the night before. Also in attendance were Talboys, Adams-Schneider, Galvin, Clark (Secretary Trade and Industry) and Francis on the New Zealand side, and Scully, Currie and myself on our side.

  1. The thrust of Mr Anthony's presentation was that given the limited new growth inherent for both of us in the MTN arrangements; the tremendous potential in other areas particularly China, the Middle East and South-East Asia; the successful combination of other (less similar) countries into units for economic and political purposes despite inherent political and other difficulties; uncertainty about the ability of the United States to continue to provide leadership; and the fact that NAFTA under present arrangements has gone just about as far as it can go-given all this, was this not the time for Australia and New Zealand to give hard and basic thought to a closer economic association, to take mutual advantage of new global circumstances and opportunities to promote the welfare and security of our people?
  2. I should add that a draft paper on these lines had been prepared for Mr Anthony, originally with the idea that he might clear it with Mr Talboys and possibly use it as a basis for a statement at the press conference after the NAFTA Ministerial meeting. In the event it was decided not to follow this course, especially in the light of the discussion with Mr Muldoon, but I am sending a copy of the paper to you by bag leaving here today.
  3. Mr Anthony made it clear to Mr Muldoon that he had no specific ideas to suggest about a closer association nor was this required at this stage. He simply wanted to open up thinking about the possibility of what the draft paper described variously as 'new, expanded and, hopefully, more rewarding forms of economic co-operation'; 'a broadened basis of economic co-operation'; 'possibilities of closer union as far as economic ties are concerned'; and 'avenues of closer co-operation for their mutual benefit and to achieve greater strength in dealing with the rest of the world'. Mr Anthony foresaw the debate being carried forward in government, business and media circles.
  4. The New Zealand reaction was naturally cautious and the subsequent discussion was essentially devoted to canvassing the sort of questions which would have to be faced, for example, what is proposed or what would be possible; what would be involved; how would we go about it; would a specific time frame for action be required or contemplated; would a political union be implicit; are we thinking about a free trade area, customs union etc? There was reference, of course, to political difficulties, to fear and resistance by sector groups, and to other inherent problems.
  5. The interesting thing, however, was that Mr Muldoon-while clearly having to be careful in his reaction-said that he agreed with Mr Anthony's general proposition in principle; with his presentation and analysis of economic conditions and prospects; with his general statement that New Zealand would have to take the lead in any initiative; and with the need to get the consideration process under way now. He said that the first step he would have to take would be to put the general issue to his Cabinet (it would be neither appropriate nor wise for the debate to begin first in the non-governmental area) and that he would do this 'forthwith'. Mr Muldoon brusquely overruled a plea for 'a bit of time' from Adams-Schneider (who incidentally seemed to be having difficulty in getting hold of the overall concept and kept referring to the need for solutions to whiteware and carpet problems-reflecting what Talboys referred to as a 'trenches mentality'1 by officials in their perennial discussions on certain commodities in the NAFTA trade), and we learned subsequently that he gave directions to Galvin immediately after the meeting to set the think-tank in his Department to work on the subject straight away. I understand that Mr Anthony's intention is that the STR Department is to be given the job on our side. We have also learned that the first reaction of New Zealand officials is positive, and this is a good sign.
  6. At the Ministerial discussions on the previous afternoon Mr Anthony had in fact opened up his subject but the penny seemed not to have dropped on the New Zealand side. He said that NAFTA had been good to both of us that a plateau had now been reached and NAFTA no longer afforded scope for expanded trade and economic ties between us. He was worried that we were grinding to a halt. Were we facing up to the facts, given what was happening in other areas? Where do we go from here? If our (underline one) two countries cannot get together, which countries can? We should look at the options ahead, work out how to handle developing situations, and co-operate to find the answers. The new Businessmen's Council could be the vanguard in this process. But both Talboys and Adams-Schneider seemed to interpret Mr Anthony's remarks as having reference essentially to matters such as import licences, so that in his final intervention Mr Anthony had to refer again to his interest in New Zealand's long term thinking, especially on where we both go from here. Were we content just to go on having the yearly NAFTA talks with only very limited progress possible?
  7. It is interesting, but not surprising, that broad references to our future economic association by Mr Anthony at his press conference yesterday afternoon were not picked up by the press, and media reporting has tended to concentrate on the statements by the two Ministers that no breakthrough had been achieved at these talks and that they were now looking to the Businessmen's Council to see what further could be done in expanding the trade.
  8. The net result is that the New Zealanders are putting on their thinking caps. In essence they are being asked to consider their economic future with Australia in terms which are broader than the technical confines of the NAFTA machinery. It is clearly a challenge to them, as indeed it will be to us.
  9. Mr Anthony has seen this report. In view of its sensitivity he thinks its distribution should be limited to the Prime Minister, the Foreign Minister and the two Permanent Heads involved.

[NAA: A1838, 370/1119/18, i]