Further to my telegram1 of today's date, attached is a copy of the draft paper which Jim Scully prepared for possible use by Mr Anthony, in public, while he was here. I had no prior notice, of course, that the moves made by Mr Anthony would in fact be made, and I gather from a remark Jim made to me that their thinking on this approach, while not new, had been consolidated on the trip down from Hong Kong.2 Essentially their conclusion was that the time had come to say, in the NAFTA Ministerial context, that NAFTA in its present form has reached the end of the line (given basic attitudes on both sides), and that if the two countries want to make progress-bilaterally and jointly vis-a-vis others-then some fundamental decisions will have to be made on forms of closer economic co-operation. Both Jim and Neil Currie see a customs union as being the first step, and probably the main target in the immediate future if the relationship is going to expand. The alternative is just to go on making small, niggling steps under NAFTA, year by year. There is no doubt that the Australian officials are thoroughly fed up with the same old annual exercise in haggling which produces progressively less and less in the way of positive achievement. So, virtually out of the blue, a challenge has been made and it is up to the New Zealanders to determine how far they want to go. There are some tremendously difficult problems, political and economic, for them to face, and certainly some big ones for us—as Mr Anthony himself made plain to Mr Muldoon. And equally, there are some exciting opportunities in the economic world opening up before us. Do we both bite on the bullet or don't we?
It had to come to this, of course. When New Zealand decided a couple of years ago that we were going up and out and New Zealand was standing still, and that this was not in New Zealand's interest, and when this was followed by the Talboys initiatives and visits, we all were aware that-whatever the strength and value of the political links—it was the nature of the economic connection which was basic to our future together, and that unless we were both prepared to work closely in harness economically then all the goodwill in the world would not prevent the gradual drifting apart of the two countries.
It is trite to say that 'it will be interesting to see what happens' as a result of Mr Anthony's initiative; we could indeed be entering into the period of the crunch point.
[NAA: A1838, 370/1/19118, i]