40 Brief by Ashwin for Henderson

Canberra, 29 October 1979

CONFIDENTIAL

Australia - New Zealand Economic Co-operation: Permanent Heads Talks, Wellington, 1-2 November

The talks will be held in the Treasury Building, Wellington. All members of the Australian delegation will be accommodated at the Town House. The High Commission will provide transport and stenographic assistance if necessary. Mr Border has arranged a social function.

  1. The New Zealand delegation is expected to comprise:
    Mr N. LoughtheSecretaryTreasury
    Mr H. ClarkSecretaryTrade/Ind.
    Mr F. ComerSecretaryForeign Affairs
    Mr B. Galvin SecretaryPrime Minister's Dept
    Mr G. Bathgate SecretaryCustoms Dept
    Mr R. WhiteGovernorReserve Bank
    Mr M. CameronSecretaryAgric. & Fisheries
    Mr C. TerryDep. Sec.Treasury
    Mr G. Scottof the Prime Minister's Dept (Secretariat for New Zealand Study) 
    Mr N. Plimmerof the New Zealand High Commission 
  2. The Australian delegation is as follows:
    Sir Geoffrey Yeend 
    Mr J. Scully 
    Mr N. Currie 
    Mr P. Henderson 
    Mr V. MontgomeryDep. Sec., Business and Consumer Affairs
    Mr G. MillerDirector, Bureau of Agric. Economics
    Mr J. MooreFAS, Treasury

Background

  1. At their meeting in Lusaka, Mr Fraser and Mr Muldoon noted that the main options for wider economic co-operation included:
    • an extension of the present limited free trade area
    • full free trade area
    • customs union (i.e. common external tariff)
    • economic community
    • monetary union.
  2. Mr Muldoon also noted that economic co-operation could also encompass many other matters such as the free flow of people, consultation on industrial matters and investment co-ordination. (The possibilities of co-operation in specific fields outside the tariff area has been referred to frequently by New Zealanders.)
  3. The Prime Ministers agreed that papers should be exchanged and that the senior Officials' Meeting would be followed by another meeting between themselves no later than February.

Purpose of the Permanent Heads meeting

  1. The meeting is to review a number of issues which have been thrown up by the study of the various options. It is expected that discussion will concentrate on the lower end of the spectrum of options set out above (i.e. extending NAFTA to a full free trade area, or possibly a customs union).
  2. A report will be submitted to Cabinet on the exchanges between officials and the preparations for the meeting between the two Prime Ministers.

Briefing and Documentation

  1. The briefing and reference papers for the meeting are
    1. The discussion papers recently exchanged between officials.1
    2. A paper in three parts:
      1. Australia's objectives and the framework for the meeting 2
      2. Conclusions arising from Australian Studies
      3. The proposed agenda (prepared by New Zealand).
    3. A report on Australia- New Zealand Economic Relations by STR.3
    4. Three volumes of reference papers. (Reports on special topics by individual Australian Departments.)4
  2. All of the abovementioned (except (c) which is attached to this note) were passed to you last Friday afternoon. For our discussion paper please see Vol I, p.1.5 It would be sufficient for you to read (a), and (b) which will probably become the working brief, and the foreign policy implications paper (Vol. 1 of reference papers p.73).6
  3. You should also be aware of recent Ministerial correspondence on OAPEC and trade in whitegoods, and of recent Ministerial discussion of trans-Tasman travel (see attachment A).

Foreign Affairs Role

  1. Our role in the current exercise has been a constructive if largely supportive one. Although we were not consulted by Trade and Resources before Mr Anthony took his initiative in April it can fairly be claimed that our low key role in nurturing the moves New Zealand has made to strengthen the relationship in the past few years has contributed to a favourable atmosphere which has made the initiative politically possible. Particular mention should be made in this regard of the part the Department and the High Commission in Wellington played in making a success of Mr Talboys' visit to Australia in March/April 1978 and in ensuring that all the initiatives have been followed up. DFA and NZMFA7 have both been closely involved with the exercise since Mr Anthony's initiative. An officer of this Department was seconded to the STR task force for the preparation of the preliminary report.
  2. We broadly endorse the interdepartmentally agreed objectives set out in the briefing paper. From our point of view, we would wish to see discussion freewheel over the range of issues even if this means departing from the agreed Agenda. We regard this first meeting as testing the water and we hope that it could be conducted more in general terms rather than on points of detail. The success of this initiative will depend upon the political commitment of both Governments. Our interest will be to keep before this meeting an awareness of the level of political involvement in this exercise and to head off any move by the economic departments (on both sides of the Tasman) to take a 'hard-headed' approach which emphasises potential damage rather than the opportunities.
  3. The meeting will of course identify potential difficulties for both countries in moves towards closer economic co-operation. The risk is that the cumulative effect of these difficult, indeed in some cases, unanswerable, questions, could give a negative tone to the meeting. In our view, the point of this first discussion should be to accept that there will be problems but to go on to examine whether these can be set to one side to allow movement where it is possible.
  4. The search for common ground must be the prime purpose of the talks with a view to providing the subsequent Prime Ministerial meeting with some substantive agreement capable of effective public presentation.
  5. While we endorse the delegation briefing, there are a number of points on which this Department has a particular perspective:
    1. NEED FOR AN OUTWARD-LOOKING ARRANGEMENT

      We strongly support the view that whatever arrangement is eventually agreed upon, it should result in a liberalising of the trade regime both between the two countries and between our two economies and our other trading partners, particularly in Asia and the Pacific. This accords with the Minister's view expressed in the Sir Robert Menzies lecture on 17 September:

      'I have focussed my attention tonight on the economic argument for Australia's association with the industrial revolution occurring to our north. But there are also powerful political arguments pointing in the same direction. If we want to live in a stable and prosperous and peaceful region, it is in our interest to act to facilitate rather than frustrate sustained economic growth. And if we want close political relations with our neighbours, we must appreciate that we cannot do so while remaining economically inward-looking and protectionist. Economic and political relations are different sides of the same coin.'

      The likely third country reaction could be stressed as an important factor in the examination of the various options. If the exercise is to be a credible one it must hold out the possibility of potential gains (particularly trade) for developing regional countries and must not conflict with our goal of promoting greater GATT based non-discriminatory global trade liberalisation.

      In this context, the importance of international presentation even at this stage should be stressed along with Foreign Affairs' willingness to play its part. Consideration could be given to NZMFA and DFA producing an agreed Information Objectives Paper for dissemination overseas.

    2. SOUTH PACIFIC

      The New Zealand discussion paper places particular stress on any implications for New Zealand's distinctive historical role in the South Pacific. Reference is made to ensuring that trade in sensitive products (sugar, bananas, tropical fruit and juice concentrates) is not damaged by any new arrangement. If this becomes a problem area it may be necessary to ensure that other departments appreciate the importance which New Zealand places on its relations with the South Pacific.

    3. POLITICAL CONSTRAINTS/PUBLIC 0P1N10N

      The degree of success of the current initiative will obviously depend in the last resort on the political will of the two governments. One aspect of the matter which we need to assess is the political freedom of movement of the respective parties. The constraints on Mr Muldoon have been analysed by the High Commission. On the Australian side the main political constraints are concern that any show of Australian enthusiasm could backfire against the project in New Zealand and a concern that closer economic links with New Zealand not prejudice the development of relations with our developing country neighbours. An important ingredient in decisions taken will be public opinion in both countries. Ways of promoting informed public discussion could be raised and perhaps the need for a bipartisan political approach and what recommendations should be made to Ministers in this regard. Possible roles for the Australia- New Zealand Foundations, Parliamentary Committees, media and SOVF visitors could be suggested.

    4. NEW ZEALAND'S ECONOMIC PERFORMANCE

      We should respect the fact that the New Zealand discussion paper gives a frank statement of New Zealand's economic difficulties. Australian departments should not use the talks to lecture New Zealand on its poor economic performance or to imply that New Zealand is looking to Australia to mount a rescue operation and accordingly that Australia has the right to call the tune. Such views would be of course anathema to the New Zealand side.

Preparations for the Prime Ministerial Meeting

  1. One of our concerns has been to ensure that the momentum of the exercise is sustained. There is a possibility that a decision could be taken to have another Official's Meeting before the two Prime Ministers meet. There would be advantage in any such meeting being again at permanent head level to reduce the risk of the exercise reverting to the officials who have continuing responsibility for NAFTA and whose perceptions have been affected by the rigidity which characterises NAFTA. Agreement on a joint record of the current meeting would also be a useful way of confirming important understandings in the interests of maintenance of momentum.
  2. The Prime Minister is strongly of the view that the initiative should be seen to be coming from New Zealand. While we have no difficulty with this in principle we feel it should not be carried to the point where it frustrates the speed with which further work and consultation proceeds.
  3. Departmentally, we would see merit in Mr Fraser going to New Zealand for the February discussions with Mr Muldoon rather than Mr Muldoon coming here. (Mr Muldoon would obviously not wish to create the impression that by coming to Australia he was assuming the role of suitor.) We understand that Sir Geoffrey Yeend also is of this view, although the Prime Minister has not yet taken a decision on it. It is important therefore that nothing be done which would foreclose this option.
  4. This briefing note was prepared jointly with Economic Division.

Attachment

Recent Relevant Developments

You should be aware of recent developments which may be raised at the talks. On 25 October Mr Muldoon wrote (copy attached) to Mr Fraser about a possible joint Australia- New Zealand dialogue with the Organisation of Arab Petroleum Exporting Countries. Mr Muldoon has couched consultation on this question in terms of the spirit of the closer economic co-operation initiative. The Government has not yet reached a decision. Any discussion at the meeting could centre around the possibilities for co-operation in dealing with the Middle East on joint marketing or energy.

Mr Anthony wrote (copy attached) to Mr Adams-Schneider on 25 October regretting that Australia cannot agree to incorporate whitegoods into a NAFTA Schedule B arrangement at this time. Mr Anthony cites the decision as an example of the difficulties in moving NAFTA forward which make it necessary to take a fresh look at the possibilities for broader Australia - New Zealand co-operation. Given the timing of the decision and the fact that this has been the only trade matter on which there has been Ministerial correspondence since the Prime Ministerial talks at Lusaka, the matter might be raised by the New Zealand side. There is a danger that Mr Anthony's reply might be seen as an attempt to pressurise New Zealand at the talks. The delegation may need to give early attention to how the matter should be handled.

You should also be aware that senior officials in NZMFA have expressed concern that moves in respect of trans-Tasman travel arrangements should not conflict with the spirit or the substance of the closer economic co-operation exercise. There should no longer be any need for this concern as we understand that the respective Ministers have recently agreed that no further action would be taken on proposals for the introduction of documentation on the trans-Tasman route at this stage.

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