55 Minute from Gate to Henderson

Canberra, 13 December 1979

CONFIDENTIAL

Discussions on Closer Relations with New Zealand

I attended the first day (12 December) of the talks between Australian and New Zealand officials, chaired by Mr Flood at STR, on closer economic relations between Australia and New Zealand.

Future Arrangements

  1. There was consensus that, if Prime Ministers are to meet on 20/21 March, Permanent Heads should meet approximately one month earlier to prepare the ground. Mr Flood and Mr Scott (leader of the New Zealand team) agreed that it would probably be desirable if, at this meeting, the Permanent Heads could finalise a joint Australian: - New Zealand report to be submitted to the Prime Ministers. Mr Muldoon had told his officials that he would need about one month to consider any report made to him by officials and the suggested timing for the Permanent Heads meeting met this requirement. Mr Flood said that he thought that the Australian side would need to go to Ministers before the Permanent Heads meeting, to enable the Permanent Heads to speak with authority. (Mr Scott of New Zealand suggested that the Permanent Heads might meet shortly before the Prime Ministerial meeting so as to iron out any last minute problems, but this idea did not get far.)
  2. Mr Flood said that the Australian side hoped to hand over its preparatory paper to New Zealand early in January. We would need to maintain contact with New Zealand after that, and a further officials meeting would be required late in January to prepare for the Permanent Heads meeting. A small group might meet in Wellington or Canberra for five days in the week beginning 28 January for this purpose.

Substantive Discussions

  1. Discussions lasted all day and were very detailed. STR will issue a summary record next week. However, it does seem that there are serious impediments to a Customs Union or a Free Trade Area.
  2. The Permanent Heads' Terms of Reference for the officials talks referred to 'a common external regime based on the adoption, in respect of each industry, of the lower of the two external regimes currently in force'. The New Zealand side was astonished to learn that the Australian interpretation of this was that, in those cases in which as industry existed in Australia but did not exist in New Zealand, we would expect New Zealand to adopt the Australian tariff, even though there was no New Zealand industry for the tariff to protect there. This was unacceptable to New Zealand. Mr Neilson (I&C) argued that any other policy would mean the demise of Australian industry. New Zealand said that the Australian interpretation of the Permanent Heads Terms of Reference meant that these was no point in discussing the Customs Union option. Neilson argued that it could just as well be said that the Free Trade option was equally unacceptable to Australia because it would allow New Zealand to continue to import its raw materials duty free. (New Zealand would also have problems with a Free Trade Area.) Discussion will continue on this point on 13 December.
  3. Generally, the New Zealanders seemed, as was to be expected, much more apprehensive than Australia about the effect of closer association on their industries. They were conducting a survey of some fifty manufacturing firms, some of whom were the leaders in their field in New Zealand, and were surprised by the degree of hostility to the idea. They did not seem to think their Government could withstand the pressures for assistance that industry would exert in the event of closer association.
  4. The Australian side also noted various difficulties that closer association would bring, but, in general, we were more positive than the New Zealanders. Our only real difficulty seemed to be in the dairy industry. Mr Flood warned the New Zealanders that the dairy interests were very active in questioning Ministers on the implications of closer association.
  5. Many other matters were also discussed during the seven hour talks-minerals, agriculture other than dairying, export incentives, health and quarantine requirements, consumer safeguards standards, various forms of industry assistance, but they are beyond the scope of this interim report. Four matters are worth mentioning:
    1. how any closer association would be implemented. Some ideas were canvassed. Would it be done through the IAC here and the IDC in New Zealand, or as a result of a government decision? On the Australian side, action by the IAC would normally involve a public enquiry which might be unsuitable in the circumstances. The IDC in New Zealand is not similar in structure or in its procedures to the IAC; whether or not its decisions are implemented often depends on political considerations. How could we be sure the IAC or the IDC came to compatible conclusions? Perhaps the Government could simply decide that certain action was to be taken and could simply then ask the IAC and the IDC to work out the time span over which it should take place. This will need to be looked at carefully;
    2. the New Zealanders are worried about actions that the States might take which could undermine any closer association agreed to by New Zealand and the Commonwealth Government. For example, they fear that attractive incentives by State Governments to establish industries in non-metropolitan areas could induce industries to move from New Zealand or not to invest in New Zealand. Neither the Commonwealth or the New Zealand Government could prevent this and it would strike at the heart of agreed policies between the two countries;
    3. the New Zealanders have difficulty with Mr Scully's 'fair go' concept that any agreement should be absolutely the same for both sides. They appear to think they should be given some advantage over Australia;
    4. the New Zealanders seemed unwilling to undertake more detailed studies until they were given political guidance; one reason was their inadequate statistical resources.

[NAA: A1838, 37011119118, xii]