59 Ministerial Submission to Peacock by Ashwin

Canberra, 5 February 1980

CONFIDENTIAL AUSTEO

Subject: Closer Economic Association between Australia and New Zealand

PURPOSE: To brief you on the outcome of Australia New Zealand officials talks on the above subject which took place in Wellington from 29 January to 1 February and to report some comments of Mr Fife on his discussions with Mr Muldoon in Sydney on 31 January.

ISSUES: The group of Permanent Heads from both countries which met last year had tasked working groups on both sides to examine a number of options for closer association and to report back to Permanent Heads. The report, which was drawn up at last week's meeting, will now be discussed by the Permanent Heads (including our own) at a meeting in Canberra on 25/26 February. The outcome of the Permanent Heads discussions will be considered by the two Prime Ministers when they meet in Wellington on 20/21 March. (It is expected that Mr Fraser and Mr Muldoon will briefly discuss closer economic association as well as the international situation at their meeting in Christchurch next week.)

The Australian side at last week's officials talks was chaired by the Department of the Special Trade Representative and included officials from Foreign Affairs, Industry and Commerce, Business and Consumer Affairs, Primary Industry, Treasury and Transport. The Australian group of officials found that New Zealand was not well prepared for last week's meeting. Although our side had handed over our papers 1 to them earlier in January, no documents were received from New Zealand until shortly before our team was due to leave Australia and these were largely inadequate. When our team arrived in Wellington it was given a draft report to the Permanent Heads which had been drafted by the New Zealand side, but our officials found it too sketchy and it had to be rewritten considerably.

New Zealand officials told our team that, although they had been able to carry their own Permanent Heads with them in consideration of this matter, they had no confidence that New Zealand Ministers would be able to withstand the considerable pressure from New Zealand manufacturing and other interests who fear any closer economic co-operation with Australia. Mr Muldoon told Mr Border before the latter left Wellington last week2 that he saw a number of 'fishhooks' in the exercise which he could not get around. A senior official of the Foreign Ministry told our representative to the talks that he did not think that Mr Muldoon would be able to agree, at the Prime Ministerial meeting in March, to anything more than the need for closer economic association and a broad indication of trends that future studies of the subject should take. Neither are the New Zealanders enthusiastic about a revision or replacement of the 1944 ANZAC Pact with New Zealand which they fear the press would see as an attempt to paper over the cracks to hide basic disagreements.

Nevertheless, after several days of negotiations, both sides were able to agree on a joint report3 to Permanent Heads. In brief, this document states that because New Zealand would favour a Free Trade Area and Australia a Customs Union, the solution may lie in a hybrid arrangement, incorporating features of both such arrangements but excluding those which cause difficulties for either country. It remains to be seen, however, whether this document (if approved by Permanent Heads), will be acceptable to Ministers on the New Zealand side. The New Zealand view seems to be that it may not. They are therefore casting around for initiatives which the Prime Ministers could announce if they cannot agree on a major step towards closer economic association. Their preliminary thoughts are that energy, shipping or joint marketing in third countries may be worth exploring, but our initial view is that these areas do not look very promising at this stage.

The attached cable, giving an account of Mr Fife's talk with Mr Muldoon in Sydney on 31 January was sent to you in Jakarta. We have now received the attached letter from Mr Hearder in Sydney giving some comments from Mr Fife on his discussions with Mr Muldoon. Mr Fife told Hearder that Mr Muldoon had been very pleased with the visit and thought that there should be more visits of this kind in both directions both before and after Mr Fraser's trip to Wellington in late March. Once more, Mr Muldoon played down the possibility of any substantive results emerging from the March meeting.

Mr Fife told Hearder that, having regard to New Zealand sensitivities, he thought it would be a good idea to have a reserve core of two or three Australian Ministers with appropriate knowledge of and background about New Zealand who could deputise for the Prime Minister or the Foreign Minister, as he did on this occasion, in dealings with the New Zealanders. His own previous acquaintance with Mr Muldoon and previous dealings with New Zealand had been helpful on this occasion.

RECOMMENDATION: It is recommended that you note the above.4

[NAA: A1838, 37011119118, xiv]