7 Letter from Peacock to Fraser

Canberra, 7 May 1979

CONFIDENTIAL

My dear Prime Minister,

I write concerning an important proposal discussed at the meeting between the Deputy Prime Minister1 and Mr Muldoon in Wellington on 11 April which was also attended by New Zealand senior Cabinet Ministers Talboys and Adams-Schneider and senior officials from both sides.

As you noted in your letter of 30 April to Mr Muldoon, Mr Anthony proposed, and Mr Muldoon agreed in principle, that it was time for Australia and New Zealand to give serious thought to a closer economic association and, against the background of new global circumstances, to seek opportunities to promote the welfare and security of both countries. Mr Muldoon undertook to put the general issue to his Cabinet and has issued instructions for officials to start working on the subject. Although we understand that little progress has yet been made there, recent public comments by Muldoon suggest that we could receive a relatively early response from New Zealand indicating how the proposal might be implemented and initiatives that might be explored. It is also possible that Templeton, the New Zealand Deputy Minister of Finance, could raise the matter with you in general terms when you see him in Manila.2 You said in your letter to Muldoon that we should take this matter forward at due speed. I agree and this prompts me to raise with you the question of how we should handle at official level ongoing discussion and co-ordination of what promises to be a most important and complex exercise, involving our total relationship with New Zealand.

I strongly support the objective of moving towards a closer economic relationship with New Zealand. Moreover, I see it as a natural corollary of our overall relationship that problem areas should be faced squarely so that both countries can adapt appropriately and quickly to changes in their external environments. As you said in your letter to Muldoon, movement of this kind flows from the talks we had with Brian Talboys last year. Indeed, much of what Talboys has been saying in recent years can be seen as preparing the ground for an in-depth study of the prospects for closer economic association and it is in the interests of both of us to do this now rather than later. However, while the first objective in seeking a closer relationship and to resolve present and future difficulties might be economic, it is clear that there are much broader implications involved. The whole range of our relations with New Zealand will need to be examined in a study in which a number of Federal Ministers and their Departments will have strong and legitimate interests, as will State Governments and the non-governmental sector.

There is inevitably much inter-connection in the formal and informal links between the two countries. In addition there are some fundamental assumptions about the closeness of the relationship which suggest that it would be unwise to give an impression that the future of the relationship was being reappraised in any narrow sense such as the economic interest of one country to the other. This would contravene the spirit of the Nareen declaration which emphasized the continuing relevance of the special bilateral relationship with its many facets as the basis for increased co-operation.

There is at present a proposal that the Department of the Special Trade Representative should undertake a special study of the existing economic relationship including prospects for a customs union. I do not wish to question the competence of that Department or the Department of Trade, to do such a study. But this is a matter which has far reaching implications for the overall relationship with New Zealand (and indirectly with other countries as well) and I am concerned to ensure that proper arrangements are established from the beginning for the carriage of the review.

The unfortunate fact is that past attempts to have a hard look at the development of the relationship have really gone no further than discussion of the technical aspects of the existing trading relationship. What is needed if we are to move into a new phase is a broader perspective. As international matters (especially of a bilateral nature) requiring such broad perspective come within the co-ordinating responsibility of my portfolio, I propose that our examination of this issue should proceed on the basis of a report to be prepared by an inter-departmental committee chaired by my Department at Deputy Secretary level. I would add that it was in recognition of the broad nature of the relationship that it was decided to establish the Australia - New Zealand Foundation under my authority. (I would also note that my Department has had co-ordinating responsibility for, and provided the Chairman at, the Australia- New Zealand officials' consultations on international economic matters held recently in Canberra in accordance with the agreement between yourself and Brian Talboys at Nareen.)

An IDC on this matter would need to include representatives from the following Departments (in addition to my own) with major interests in our relations with New Zealand:

  • Prime Minister and Cabinet Trade and Resources and STR Treasury
  • Industry and Commerce Business and Consumer Affairs National Development
  • Defence
  • Productivity
  • Immigration and Ethnic Affairs
  • Primary Industry
  • Transport
  • Employment and Youth Affairs
  • Department of Administrative Services

The interest of several of the above Departments is a relatively specialized one and they would not all need to be included at all stages. But I believe all would need to be involved. I would envisage that the Departments with the stronger interest in the exercise (Prime Minister and Cabinet, Trade and Resources, Industry and Commerce and Treasury) would constitute a task force chaired and serviced by my Department which would address itself to drafting the Cabinet submission.

An important implication of any decision which might be taken on the future of Australia - New Zealand economic and political relations is the likely reaction of third countries, e.g. Papua New Guinea and especially the South Pacific and the ASEAN countries. The United States' reaction would also need to be considered given the references which have been made in the ANZUS context at New Zealand's initiative to the nexus between the economies and regional and global roles of the treaty partners. The reaction of third countries is an additional element in our preference for the matter to be handled by an IDC chaired by this Department.

I envisage the first task of the IDC would be the preparation of a basic paper for Cabinet stating the objectives and possibilities so that Cabinet can issue a directive to the IDC in terms of a framework for further detailed examination. Presentation and comprehensiveness will, I believe, be of some importance in this exercise. The New Zealand Government will no doubt maintain a close interest not only in what we come up with but how we go about it. I hope therefore that I could discuss my proposals for the handling of this matter with yourself and Mr Anthony at an early stage. It may be in fact that the question of how to handle this subject in future could usefully be given a first airing in Cabinet without papers and before any IDC is set up.

I have sent a copy of this letter to Mr Anthony.

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