46 File Note by Plimmer

Canberra, 12 September 1979

RESTRICTED

Australia/New Zealand Economic Relations: Conversation with President of the Federation of Labour

While in Melbourne 10--11 September for the Heads of Post meeting, I attended also, on invitation, the biennial conference of the ACTU, and met there Mr Knox, President of the Federation of Labour from New Zealand.

  1. Mr Knox wondered about the talk on economic union. He was pleased that Mr Muldoon had damped down on some of the speculation and had said that things would develop over a longer time frame. Mr Knox was not sure about the whole idea. I said that the studies being done were without commitment and it was a desirable exercise to go through. In any case I doubted if people were really talking about full economic union, meaning common currencies and the whole works. My guess was that the focus would be more on options such as a full free trade area or a customs union. He agreed with this with some enthusiasm.
  2. Mr Knox said he had discussed the subject with the President of the ACTU, Mr Hawke, and they had simply agreed that any arrangement should look after the work forces of both countries. About five years ago he and his predecessor in the FOL had discussed a similar idea with Mr Hawke. They had agreed then in broad terms that a closer trade relationship was desirable under which New Zealand would export dairy products and small manufactured products, particularly component parts, and Australia would develop heavy industry. Hawke had returned to Australia and said this publicly and had been howled down by the Australian dairy industry. This would no doubt happen again. I agreed that the Australian dairy industry would fight increased competition from New Zealand and said that it had already started to do so in the context of the economic relations study, but that there were signs the Australian Government would be willing to face up to this if it were part of a desirable overall package. Certainly, it would seem to be necessary that any comprehensive free trade or customs union arrangement would have to include provisions for New Zealand dairy access to Australia.
  3. I then said that in any event it seemed to me that agriculture should not dominate the exercise. I did not like the idea that Australia would do industrial products and New Zealand do agricultural products with perhaps marginal manufacturing. An arrangement would have to be mutually beneficial on manufacturing. Mr Knox agreed entirely but wondered whether New Zealand's manufacturing could compete. Australia had some powerful industries, he said.
  4. I responded that it was hard to generalise but overall the evidence was that many sectors of New Zealand industry could compete. The trade balance had swung in New Zealand's favour over the years of NAFTA from about 4:1 against us to 1.5:1 against us. Studies showed that apart from tariff cuts and better access arrangements a key factor which permitted New Zealand manufacturers to export to Australia was the exchange rate. With this differential New Zealand manufacturers could compete, and exports had surged when the differential was greatest. New Zealand also had the advantage of lower wages. Mr Knox was non-committal on this line of argument (and we were probably talking about different things in the sense that he would have been concerned with the New Zealand manufacturers competing with Australian imports rather than competing in the Australian market), but he was moved to talk at some length about New Zealand as a low labour cost economy. Its development could not be based on that, he argued. I noted that I did not use that expression or concept and had simply referred to the fact of the current wage differential between Australia and New Zealand. He accepted this, but said that he had to use that expression.

    Foreign Investment

  5. The discussion on 'low labour cost economy' led Mr Knox to talk about foreign investment, especially from West Germany. He had met the Investment Delegation from that country. He did not like the idea that they should invest in New Zealand if they did so because of New Zealand's low wages. If they did there would be trouble when they exported the products back to Western Europe or wherever. But there was certainly a need for foreign investment and for overseas technology which came with it. There were not the financial resources in New Zealand to develop without it. He was ahead of many unionists in supporting this. But there would be difficulties, he reiterated, if foreign investment came in just on the basis that New Zealand was a cheap labour country.

    Trade Missions

  6. Mr Knox said he had been pushing for some time to participate in New Zealand trade missions abroad, and he was pleased that this had been accepted at least in one case. He was going off shortly on a trade mission (to West Germany, I think). He thought it essential to participate in these sorts of talks, so that he and the union movement could improve/ their understanding of the issues involved in trade and investment.

[ABHS 950/Boxes1221-1226, 40/4/1 Part 20 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]