Wellington, 24 October 1979

No. E (79) M 41 PART II: CONFIDENTIAL

Australia - New Zealand Economic Cooperation1

The discussion on the report from the Inter-departmental Working Party on Australia - New Zealand economic co-operation was prefaced by consideration of a number of administrative and strategic matters. Among them were:

• –that members of the Committee should be provided with the background papers prepared by officials on which the paper attached to E (79) 208 was based. The Committee was advised that these papers would be considered by the Officials Economic Committee on the following day, Thursday 25 October, and on being cleared would be distributed to Ministers;
• –that it was important to bear in mind that it was possible that the forthcoming attempt to secure closer economic co-operation between Australia and New Zealand might not be successful. It was accordingly considered important that proposals should not be publicised in a manner which would unduly raise expectations;
• –that at this stage it was envisaged that the New Zealand and Australia Prime Ministers would meet in either late February, or more probably, in early March 1980;
• –that the officials' meetings leading up to the Prime Ministers' meeting should concentrate on assessing the scope for economic co-operation in the light of the economic structure and strategies of the two countries, and against this background consider the form which economic co-operation between Australia and New Zealand might take. The Committee was informed that at this stage Australian manufacturers were in favour of a customs union type arrangement, whereas New Zealand interests seemed to prefer an extended free trade agreement. The view was expressed that there was a need for some common ground to be found before the Prime Ministers met in March 1980 if the risk of an impasse at that stage was to be avoided, and that officials should establish which of the options currently under consideration would clearly not be acceptable to either or both sides;
• –that there were many variations to each of the broad options, such as a customs union and a free trade agreement, and that in view of this a reasonably open position should be maintained at this early stage;
• –that it was important that interested groups be consulted and kept informed on developments arising from the exercise. The Committee was informed that the Manufacturers Federation had been consulted over recent days, although the Federation of Labour had not. At this point the view was expressed that it was important that the Federation of Labour be consulted and informed on the same basis as other groups. On the question of when interested groups should be consulted the Committee was of the view that they should be briefed before the Permanent Heads' meeting and be informed that they would be further consulted after that meeting.

The Committee then proceeded to consider the Working Party's report. The following headings correspond to the section headings contained in the report:

New Zealand's Development Strategy

The point was made that the proposed economic strategy for New Zealand as outlined could cause some industries to feel uneasy and at risk, although it was noted that some industries would benefit. Again, it was considered that care needed to be exercised in the presentation of a development strategy. It was also suggested that more emphasis than suggested in the paper should be placed on a resource-based approach to economic development. It was suggested that there was scope for co-operation with Australia in this area, although others pointed out that there would also be areas of conflict.

Relative Competitiveness of New Zealand and Australia

Attention focussed on the prospects for the New Zealand manufacturing industry under a free trade or customs union arrangement. It was noted that a study showed that about half of New Zealand's industry (by number or establishments, employment, output and exporters) would be expected to benefit. Another quarter constituted a grey area and the remaining quarter would be unlikely to survive in the present form. Officials indicated that these results had been arrived at by way of a study of New Zealand industry sector by sector, but it was stressed that they were based on very crude calculations and assumptions. Officials advised that it was very difficult to foresee the long term outcome of major changes in the economic relationships between countries, and in this context it was noted that when the Benelux customs union had been established it had been expected that the advantages would accrue to the manufacturing industries in Belgium and to the agricultural sector in the Netherlands. However, in the event both industries in both countries benefited and expanded. Another comment made was that those industries which were expected to benefit under such arrangements could not necessarily be expected to support the arrangements simply because of the risks inherent in change.

Comparison of Australian and New Zealand Tariffs

There appeared to be a clear difference in the purposes for which tariffs were used in Australia and New Zealand, and it was considered that this would make the establishment of a customs union most difficult. At this point it was noted that the economies of the Benelux countries for which the customs union had worked successfully were of a more similar structure than was the case for New Zealand and Australia. It was also considered that a compromise between the New Zealand and Australian tariff structures would not be in the interests of either country, although it was suggested that there may be some scope for a hybrid customs union/free trade arrangement.

Free Trade in Agriculture

Discussion under this heading focussed on the dairy industry. A member of the Committee understood, on the basis of discussions he had had with Australian Ministers, that the Australian dairy industry was declining and would continue to do so. However, an official commented that whilst there had been some restructuring and rationalisation in the Australia dairy industry, a stable situation had now been reached and that there would not be significant scope for increased dairy exports to Australia under either a free trade or customs union arrangement.

Conclusion

It was considered that the points listed (a) to (d) under this heading, on which it was proposed agreement between the two Governments be sought, were not sufficiently substantive nor specific. Officials however indicated that it was proposed that these points were intended as only the first stage and that it would be necessary to secure agreement on them before more specific proposals could be formulated. Officials also suggested that the points listed (a) to (d) should be considered in conjunction with the proposed Agenda (contained in the telegram attached toE (79) 208) for the Permanent Heads' meeting, which gave a more detailed outline of the issues on which agreement would be sought. It was noted that the New Zealand proposals for the Agenda were closely parallelled by the Australian proposals on this question.

The Committee:

1. noted the approach, as outlined in the report of the Chairman of the working party on Australian - New Zealand economic co-operation attached to E (79) 208, that New Zealand officials will adopt in their discussions with their Australian counterparts at the Permanent Heads' meeting on 1 to 2 November 1979;
2. approved the draft Agenda for the meeting as contained in the draft telegram, attached toE (79) 208, to the New Zealand High Commission in Canberra;
3. directed that the background papers to the report attached toE (79) 208 be distributed to members of the Committee as soon as possible after they had been cleared by the Officials Economic Committee;
4. directed officials to consult with interested groups before the Permanent Heads' meeting and to inform them that they would be further consulted after that meeting.

[ABHS 950/Boxes1221-1226, 40/4/1 Part 21A Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]

• 1 This minute records the Committee's discussion of the preceding Document (49).