62 Issues for Permanent Heads Meeting

Canberra, 18 February 1980

CONFIDENTIAL

Australia - New Zealand Economic Relations Permanent Heads Meeting-25/26 February 1980 Issues for Consideration1

BACKGROUND

The joint report by the Australian and New Zealand Working Parties2 setting out the principal issues and conclusions arising from studies undertaken in accordance with the Statement of Understanding,3 is expected to form the basis of discussion at the Permanent Heads meeting in Canberra on 25/26 February.

This note, based on the Australian Working Party's assessment of the key issues which need to be addressed at the forthcoming meeting, has been amended to incorporate the views and comments expressed by Permanent Heads at a preparatory meeting on 14 February.

COMMENT

While the joint report has been prepared and agreed to by the Working Parties as a means of advancing consideration of this subject, it should be noted that the document is not considered as formally binding on either side

— this is particularly important in the case of New Zealand officials who appeared to submerge major internal differences in order to reach agreement on a text with Australia.

The New Zealand Working Party was reluctant to have the report identify some of the hard issues (e.g. export incentives and agricultural support/stabilisation measures) and took the approach that they were not negotiable

—this Australian delegation had to press them into acknowledging their position in the report even though expressed in fairly evasive language.

Clearly, New Zealand Trade and Industry officials have reservations about aspects of the report dealing with liberalisation of New Zealand import licensing, access to world-priced raw materials and intermediate goods and export incentive schemes since these form the cornerstone of New Zealand's industry policy

—it may be therefore that after further internal consideration New Zealand Permanent Heads will be unable to endorse the joint report.

Any assessment of the possible New Zealand approach should also take account of a marked reluctance on the part of the New Zealand officials to be tied down to mention of a time frame

—the impression was conveyed that they would wish to push out the indicative time frame beyond the 5-7 years mentioned by Permanent Heads.

New Zealand officials have also sought acceptance of the view that any advantages conferred on its industries by various assistance measures should be regarded as a factor offsetting the advantages which Australia would enjoy because it is the larger partner

i.e. the concept of equality of trading opportunity would need to be viewed in the light of the balance in the overall package

NZ thinking in this respec t is clearly different from that of Australia.

It would be too optimistic to assume that New Zealand would be prepared to proceed to a customs union in the next ten or so years or modify many/most policies which are fundamental to establishing equality of trading opportunities across the Tasman.

Against this background, it is in Australia's interests to ensure that any new trade and economic arrangements do not become locked-in to a 'stretched' version of NAFTA which provides selective advantages to New Zealand but does not embody the commitment to longer term arrangements which would provide benefits to both countries in a wider relationship

— this is particularly important given that the overall benefits to Australia are considered likely to be less significant than for New Zealand in relative terms.

From the discussions to date it would appear that New Zealand's main interest in an outward looking future trade arrangement is to ensure that their existing duty-free treatment of most raw materials and intermediate products is maintained

— as regards finished goods industries of interest to New Zealand, it is likely that New Zealand would resist future moves by Australia to reduce tariffs applicable to third countries.

The Working Party considers that the approach to be adopted by Permanent Heads at the forthcoming meeting should be to:

  • — reaffirm the position that any future arrangement with New Zealand must be consistent with the Government's broader objective for a more competitive and outward looking structure for Australian manufacturing industries which is less reliant on government assistance
  • — acknowledge that any move to closer economic association must be a gradual process and to avoid a situation where both countries could enter new arrangements without an agreed longer term goal
  • — ascertain the extent to which New Zealand is committed to these objectives and whether and over what time frame they would be prepared to modify specified existing policies to achieve them
  • — make it clear that Australia regards duty-free and import licence-free treatment fundamental to the liberalisation of trade across the Tasman

    and that both Parties must be prepared to tackle other measures which significantly affect prospects for equality of trading opportunity between Australia and New Zealand

  • — establish what is negotiable in this area before Australian officials can advance any recommendations to Cabinet.

    Otherwise, judging from current New Zealand attitudes, the first step might be the only step.

    Closer relations with New Zealand involve questions of interest to Australian States

  • these will need to be given due consideration at the appropriate time.

Should Permanent Heads agree that further studies are warranted, Australia is of the view that they should at least include

—an assessment of the extent of the raw materials intermediate goods problem in relation to the concept of equality of trading opportunity

—in relation to the concept of equality of trading opportunity

  • a detailed comparative analysis of the impact of the respective export incentive schemes
  • detailed comparative analysis of by-law and concessional entry arrangements in the two countries and the implications of harmonisation
  • consideration of the scope for harmonisation or equalisation of the impact of agricultural production and marketing arrangements
  • further study in depth of the possible mechanisms, time frame and implications for particular industries of phasing out of import licensing

—study of the implications and arrangements for co-operation between the respective industries and assistance advisory bodies.

OTHER ISSUES

The Working Parties have held follow-up discussions on certain other issues which were raised at the first Permanent Heads meeting:

Transport

  • — the joint report (p. 20) notes that the Working Parties consider it important that the potential benefits from closer economic ties are not diminished by the impact of trans-Tasman freight rates or inadequacies in transport services
  • —at the request of the Working Parties the two Transport Departments have finalised a paper (to be circulated separately) setting out available information on the costs and problems in this area along with an indication of the range of policy options which may be open to governments to deal with them

    Permanent Heads might consider whether a statement by Prime Ministers would make a useful contribution to this work

  • —on 8 February the two Transport Ministers announced in South Australia that a six-month study of trans-Tasman shipping services is to be undertaken by the BTE and the NZ Transport Ministry

    Permanent Heads may wish to review the terms of reference of the proposed study and consider how it relates to the current exercise on closer economic co-operation.

Co-operation in Third Country Markets for Agricultural Commodities

  • — this subject has attracted enthusiastic comment at the political level
    • however, papers prepared by both Working Parties have not revealed significant scope for putting this into practice
    • appears to be reluctance on the part of commercial interests/marketing boards
  • — although the subject might still be referred to in some way in joint Prime Ministerial statement, more study and change of heart would be required if greater co-operation was to become a reality.

Energy

  • — matter was discussed by Working Parties in December

    did not see scope for significant increase in co-operation beyond that which already occurs, with Ministerial endorsement, in relation to energy R&D.

Canberra Pact

  • — was also discussed in December
  • — Australian working group saw no pressing need for a new treaty, but was not opposed to the concept

    considers any revised treaty would have to be based on a fresh draft rather than existing text and that before deciding on appropriate course it would be necessary to know outcome of current discussions on the central issues on closer economic co-operation

  • — it is expected that a draft text which could be used either as a treaty or adapted to form a joint Prime Ministerial statement, will be available for consideration by Australian Permanent Heads and, if considered desirable, passing to New Zealand.

    Note that as of late January New Zealand had not started drafting

  • —did not wish to detract from studies on the central issues
    • but agreed would require a new draft
    • no firm views on whether a new treaty or an agreed statement, although considered any new treaty would need to have a broad focus (would attach importance to consultations provisions and free exchange of people across the Tasman).

In brief, not a great deal of interest.

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