56 Minute from Gate to Henderson

Canberra, 14 December 1979

CONFIDENTIAL

Australia - New Zealand Talks on Closer Economic Association

At the talks on 13 December, the two sides discussed marketing in third countries, GSP, energy matters, transport and the revision/replacement of the 1944 ANZAC Agreement. Very little of what was said on many of these issues seemed to affect the question of whether we were moving towards closer economic association. The following is a follow-up to my note of yesterday on Wednesday's talks.

Future Arrangements

  1. As on the previous day, there was considerable discussion of what arrangements were to be made for future discussion of the question. It was assumed that Prime Ministers would meet on 20/21 March. It was decided to ask Permanent Heads whether they would be able to consider meeting in Canberra on 25/26 February (the latter would be a sitting day of the Australian Parliament). Mr Flood suggested that official discussions might take place in Wellington on 30, 31 January and 1 February to prepare for the Permanent Heads meeting. He said that Mr Anderson of STR would be prepared to fly to Wellington for those talks. (Mr Flood did not suggest what other Australian Departments might be represented at these talks and I decided not to raise this potentially divisive question in front of the New Zealanders.)

Conclusions

  1. Summing up, Mr Flood said that March would be too soon to take or prepare decisions. He thought, however, that the Prime Ministers might be able to settle on principles or a charter for future work to be done by officials. He said he thought he could draw eight conclusions from the talks:
    1. Any new arrangements must reflect an outward-looking approach and efficient structure of industry and resources;
    2. The further liberalisation of trade between the two countries would need to be studied further. He thought that the solution might lie in a hybrid consisting of certain non-tariff barrier adjustments, phased elimination of tariffs between the two countries over a period and the reduction of external tariffs to the lowest prevailing rate. In those cases where one country did not have a protective tariff in respect of an industry which existed only in the other country, a careful examination would be required before a solution could be found;
    3. Both countries would have to face the fact that some of their industries would be hurt, but this might be balanced by advantages to other industries;
    4. There should be no expansion of inefficient industries;
    5. There should be automacity in any new arrangements;
    6. Following from (v), there should be only very limited procedures for safeguards;
    7. Careful attention would have to be paid to how industry and tariff policy was to be implemented under the new arrangements (e.g. by the lAC or whatever);
    8. The normal growth expectations of our partners in Asia and the Pacific should not be impinged on by the new arrangements.
  2. Mr Flood also noted that the talks had identified certain other subjects which would have to be followed up by the Prime Ministers-joint action in third country marketing; closer co-operation in GATT, OECD and UNCTAD (bearing in mind that much is already done in those areas); energy, transport and tourism. The big questions were, however, what work was to be done after March and how it was to be done.
  3. Mr Flood's was a valiant and largely successful effort to get the talks back into focus after the somewhat negative talks on Wednesday.
  4. The leader of the New Zealand team, Mr Scott, then said that New Zealand would take home the impression that the following four points were of most interest to Australia:
    1. Export Incentives. Compared with the totality of forces that would be unleashed by closer association, export incentives were not, in Mr Scott's opinion, of very great significance, but he thought progress had been made in identifying those export incentives that were important in Australian eyes;
    2. Importation of world prices. This was a reference to the tariff structures of both countries. Mr Scott thought that Mr Flood's reference to a hybrid arrangement was a useful one;
    3. Anti-dumping and countervailing arrangements;
    4. Import Controls. These were very important to Australia, but it would be very difficult for New Zealand to eliminate them. Many entrenched interests were involved and politicians were very sensitive to them.
  5. Neilson (I&C) commented to me later that there was no doubt that export incentives, tariff structures and import licensing are regarded as of prime importance by Australia. Both he and O'Donohue (STR) thought, however, that Scott had exaggerated Australian attitudes to anti-dumping and countervailing.
  6. Mr Scott seemed to be trying to present a more positive picture than had the other members of his team the previous day. He noted that Australia's and New Zealand's broad policies were compatible and that the implications of what had been begun could not be lost on those who had started it (i.e. Ministers). He noted (in contrast to what Cranston has said the day before) that all groups of New Zealand manufacturers thought that some form of economic association was desirable and were waiting to see what it was. (This advice tended to support the comment made to us privately by NZMFA officials that the other members of the New Zealand team had exaggerated the fears held by New Zealand manufacturers of closer association.)
  7. Mr Scott finished by saying that officials had to work out a solution that would be acceptable to politicians. Nevertheless, he noted that we were not equals. New Zealand was smaller and weaker. In considering what to do, we would need to see that in any arrangement made, there was a balance of advantage. (This recalls the New Zealanders' fear ofMr Scully's 'fair go' policy.)
  8. In the discussion on the Canberra Agreement, New Zealand accepted our view that the 1944 text did not provide a good working draft and that a fresh text would be necessary. They did not object to the outline of our draft as explained to them and, like us, did not consider that the new pact should provide for the establishment of a secretariat. Neither did they disagree with our view that it would be in appropriate to include in the text any provisions about the rights and privileges of individuals and companies in Australia, similar to those included in the Nara Treaty.1 They said, however, that in any treaty they would attach importance to the clauses on consultation (on international relations and the economies of both countries) and on the free exchange of people. (On this latter point, we are having some difficulties with I&EA who do not want to put in anything beyond a very general reference to migration.) New Zealand would also want something on economic relations, but accepted our view that it was difficult to do this until we knew in which direction the current negotiations on closer association were going. They emphasised that they did not want the treaty to become something that distracted attention from the closer association proposal or to tum [it] into a piece of paper which the Prime Ministers could use as an alternative if the closer association exercise proved too difficult. We, of course, agreed with that view.2

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