91 Muldoon's Brief for Meeting with Fraser

Wellington, 14 March 1980

SECRET NEW ZEALAND EYES ONLY

Meeting of Australian and New Zealand Prime Ministers - Wellington 21 March 1980 - Overview Paper

  1. The best result that could emerge from your meeting with Mr Fraser would be to establish a clear direction for the future of the NNZ economic relationship. The draft Tasman Declaration1 and the Communique (or some combination of the two), together with a public version of the Joint Report of Permanent Heads2 will be the main instruments for achieving this result. These documents would establish the climate for subsequent inter-Governmental negotiations. They would convey to Australian and New Zealand interest groups and the public at large an idea of the future relationship. They would also be observed closely by neighbouring Governments.
  2. Though this meeting is focused very largely on the trading relationship, the development of closer economic ties should have a favourable impact on the wider relationship too-and should be seen in the context. Given the limited time available it is anticipated there will be little opportunity to discuss other political issues of common concern.
  3. Earlier CEC and other briefing papers have set out the reasons why officials see long-term economic advantages for both countries in seeking a substantial broadening of the economic relationship, with particular reference at this stage to further trade liberalisation. For New Zealand, the potential advantages lie as much in the broad impact this may have on our economy as a whole as in the favourable consequences such a step will have in improving the trading and political relationship with Australia.
  4. This meeting, however, has a clear negotiating function from New Zealand's perspective. New Zealand's efforts will now be directed to getting the best deal possible for New Zealand. The Australian Prime Minister will no doubt be seeking the same for Australia. But the impact of the sort of policies recommended-and hence the economic and political adjustments-is acknowledged as being far greater for New Zealand and Australia.
  5. Because of New Zealand's higher existing protective base, it would be difficult to achieve the objective of substantially free trade across the Tasman if we sought a package with 'balance' in traditional negotiating terms (e.g. the trade value of concessions on access).
  6. These tactical considerations should, officials consider, be central to the approach to be adopted at this meeting. We wish to give the Australians a clear sign that we are indeed prepared to undertake a major revision of the economic relationship on more competitive grounds. But we also want to establish the climate in which New Zealand can maximise gains in the negotiations to follow. To sustain the• political and economic adjustments required, these steps should result in immediate and meaningful trading opportunities in the Australian market for products where New Zealand has proven marketing ability.
  7. The balance for New Zealand in the negotiations to follow will thus come not only from improved access (through, for example, the phasing out of Australian tariff quotas and 'gentlemen's agreements'); it will also emerge from New Zealand negotiating a fair measure of flexibility on some of the important elements envisaged in the 'fair go' principle.
  8. The indications are that the Australian Cabinet, conscious of the General Election held traditionally in late 1980, would like a substantial delay in implementing any new economic relationship. New Zealand's requirements, however, suggest the adoption of an early time-frame. Admittedly, the Australians have some difficult problems in undertaking a major expansion of the economic relationship. But even the dairy issue has been categorised as essentially a 'regional' problem (Victoria). It is unlikely that closer economic ties between Australia and New Zealand will become a national issue in Australia­ simply because of the disparities in size between the two countries. Further, the earlier the business community knows what is envisaged, the sooner their investment and marketing decisions will take account of changes in the economic relationship.

Talking Points

  1. At the outset, you might like to suggest to Mr Fraser that you would prefer to confine discussions to bilateral economic issues and that it would be useful to concentrate on the central issue of bilateral trade liberalisation. The other non­ trade economic issues (transport, financial issues, etc) could be picked up later against the background of what progress can be made on the trade issue, (officials see the Tasman Declaration used to provide a setting for such discussions now and in the future).
  2. As far as the question of trade liberalisation is concerned, the following talking points may serve to illustrate the tactical approach outlined in paragraphs 3-7 above:
    • note that, by agreement, the approach of both sides to the question of trade liberalisation has been fairly academic and objective,
    • this has resulted in a proposal which would appear to embrace far more significant trade liberalisation than has ever been undertaken in the NAFTA context or even entertained by New Zealand in any other context (e.g. MTN),
    • New Zealand accepts the long-term economic logic behind these proposals which have far-reaching consequences for New Zealand,
    • New Zealand is conscious, however, that in the real world, trade liberalisation is not an academic issue, but an intensely political one,
    • it is not just a question of 'selling' the arrangement to the New Zealand public and special interest groups over the next 12 months or so, it is a question of sustaining the trade liberalisation over time and withstanding the pressures that will be put on the New Zealand Government as the arrangement 'bites',
    • this is not really a 'shared problem'; work by officials indicates that while the long-term economic benefits appear to be greater for New Zealand, the balance of adjustment costs will be borne by New Zealand,
    • this leads to the following observations:
      1. that at the end of the day, after all the talk of 'fair go', intermediate goods problems, etc, there must be immediate and meaningful trading opportunities opened up for New Zealand in areas where New Zealand has a proven marketing ability. Specifically, we are seeking the abolition of the various 'gentlemen's agreements' that impede New Zealand's agricultural exports and the dismantling of Australian tariff quotas as they apply to New Zealand. Australia will secure such trading gains through the import licensing changes envisaged in the Permanent Heads' Report. The New Zealand Government would not be able to sell a package where it offered unprecedented import licensing concessions in return solely for generalised long-term economic benefits. (The Australians could compile a very short exceptions list and yet still cover practically all of New Zealand's winners in the Australian market-cheese, whiteware, carpets, peas and beans, for example.)
      2. that at the end of the day, after all the talk of 'fair go', intermediate goods problems, etc, there must be immediate and meaningful trading opportunities opened up for New Zealand in areas where New Zealand has a proven marketing ability. Specifically, we are seeking the abolition of the various 'gentlemen's agreements' that impede New Zealand's agricultural exports and the dismantling of Australian tariff quotas as they apply to New Zealand. Australia will secure such trading gains through the import licensing changes envisaged in the Permanent Heads' Report. The New Zealand Government would not be able to sell a package where it offered unprecedented import licensing concessions in return solely for generalised long-term economic benefits. (The Australians could compile a very short exceptions list and yet still cover practically all of New Zealand's winners in the Australian market-cheese, whiteware, carpets, peas and beans, for example.)
      3. Australia should appreciate New Zealand's need to retain flexibility on many of the elements identified in the application of the 'fair go' principle­ export incentives, sourcing on international markets for example.
      4. given that the nature of any new trading relationship is likely to become a major national issue in NZ it would be helpful if these negotiations could be completed as soon as possible

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