Wellington, 7 November 1979

No E (79) 226. CONFIDENTIAL

Australia - New Zealand Economic Co-operation

At its meeting on 24 October 1979 the Cabinet Economic Committee reviewed a number of administrative and strategic issues relating to the meeting of Australian and New Zealand Permanent Heads on Australia - New Zealand Economic Co-operation that was held on 1-2 November in Wellington.¹

Permanent Heads Meeting

2. Discussion of recent trends and possible developments in economic relations between Australia and New Zealand revealed a considerable degree of commonality in the approach that officials on the two sides of the Tasman are adopting in assessing the possible merits of changes in the relationship. General agreement was reached that on the basis of the preliminary analysis of some of the issues relating to Australia-New Zealand economic relations that has been undertaken in Wellington and Canberra, a prima facie case exists for the two countries to anticipate benefits from a closer relationship, and that a more thorough study of the possible balance of costs and benefits to each of various approaches to increased co-operation should now be undertaken. The attached Statement of Understanding² between Permanent Heads sets out the basis on which officials on both sides will approach this work, which will include the establishment of study groups that will report early next year on a number of issues that were identified by Permanent Heads as central to any consideration of the merits of closer economic ties between the two countries. It is anticipated that on the basis of this work, agreement should be reached on the issues that should be discussed by the two Prime Ministers when they meet in March 1980. (It was agreed that a meeting in the second half of March rather than February would be desirable, given the substantial amount of work to be accomplished before then and the need for the Prime Ministers to have the results of the studies some time in advance of their meeting.)

   Further Study: Trading Arrangements

3. The aspect of trans-Tasman economic relations that the meeting identified as the principle area for focus over the next few months are tariffs and non-tariff barriers to trade. The meeting revealed a considerable degree of agreement between officials on both sides of the Tasman as to the reasons why NAFTA is now proving to be a less effective instrument for the freeing of trade than it was in the first years of its operation. With a view to establishing the extent to which the two countries could benefit as a result of changing NAFTA, or introducing an alternative instrument, the Permanent Heads agreed that study groups should be established with the terms of reference indicated at the conclusion of the attached Statement of Understanding. These groups, which will be established in both capitals, will collate information already available, and within the limitations of the very tight timescale required, undertake additional analysis to arrive at an assessment of the likely effects of the elimination of tariffs and non-tariff barriers to trade between Australia and New Zealand over a period of around five to seven years. The purpose of these studies is to establish those elements of the trading environment that create inequity, and the implications of removing or harmonising these inequitable features. The studies should therefore assess the extent to which the removal or harmonisation of these barriers to trade would require adjustments in domestic policy areas that impinge on trade between the two countries. They are not intended to define a specific programme for the establishment of a particular new trading arrangement. Rather they are intended to establish benchmarks (see l(a) and (b) in the Terms of Reference contained in the attached Statement of Understanding) against which the effects of possible instruments designed to free trade can be judged. The study groups should therefore provide relatively detailed analysis of the factors that would have to be taken into account if the Prime Ministers discuss possible changes to the administrative arrangements that govern trade relations between the two countries when they meet in March 1980.
   

   Other areas being studied

4. Although the Statement of Understanding does not cover them, a number of issues relating to aspects of the trans-Tasman relationship outside the area of tariffs and non-tariff barriers to trade were considered by Permanent Heads. These issues, which will be the subject of further discussion between Australian and New Zealand officials over the next few months, constitute a catalogue of subjects for possible discussion, at the Prime Ministers' meeting.
5. An idea put forward by the Australian side (without, it would appear, having been discussed first with Australian Ministers) was that the 1944 Canberra Pact should be re-examined to see if it might be rewritten to provide an umbrella agreement under which existing co-operation at all levels could be formalised. There was some discussion as to whether a new agreement would serve any useful purpose in practice and whether the idea could stand on its own merits, independent of efforts to achieve a closer economic relationship, or whether a necessary precondition would be a clear move towards such a relationship. It was agreed that both sides would give some thought to these issues with a view to reviewing attitudes when preparing for the Prime Ministers' meeting early next year.
6. The potential benefits that might accrue to both countries as a result of increased co-operation in the marketing of Australian and New Zealand products in third countries were reviewed. Attention was drawn to the considerable extent to which the two countries already co-operate in this area, co-operation which for commercial reasons is not always publicised. The point was also made that given the independent status of the marketing organisations involved in selling primary produce, scope for closer co-operation between the two countries may lie in the area of increased co-ordination in government-to-government representations rather than the joint marketing of produce. Papers on this subject were exchanged and it is proposed that further discussions be held in the near future.
7. Discussions on the energy resource policies of the two countries led to agreement that the two countries should exchange information on present Government pricing and development policies for bulk electricity supplies, and that Australia should provide information on current Australian practices and policies on the taxation of multinational oil companies. It was also agreed that a report should be prepared on the future scope for co-ordination and co-operation in the energy field with a view to assessing whether any new arrangements could be the subject of a suitable announcement by the Prime Ministers.
8. The continuing problem of trans-Tasman freight costs was discussed, and it was noted that labour costs and restrictive practices could erode many of the apparent benefits of a closer economic relationship. It was agreed that it might be useful to study the effect of these high costs on trans-Tasman trade. The Australian side indicated in confidence that it intended to promote a public enquiry into coastal shipping around Australia, and that this could have implications for the trans-Tasman trade as well. It was agreed that both sides would continue to compare notes on these questions. It was also agreed that although air freight and other aspects of civil aviation relations between the two countries would be negotiated elsewhere it was important that the present group remain seized of the problem to ensure that sectional interests in the two countries did not prevail over national ones.
9. Other areas covered by the discussion among Australian and New Zealand Permanent Heads that will be subject to further exploration by officials within the next few months include the effect of any change in the trans-Tasman trading relationship on trading relations between each country and its developing neighbours, the preparation of a joint position paper setting out for public consumption the guiding principles both countries are following in examining prospects for a closer economic relationship, problems that have arisen for New Zealand enterprises seeking to undertake direct investment in Australia, and the implications of any move to harmonise the Developing Country Preferences Schemes of the two countries.
10. It was agreed that questions relating to trade in agricultural products should not be separated from the general framework of the trade and industrial issues being studied. It was understood that support measures and subsidies rather than tariffs would have to be the major area of focus in the assessment of opportunities for freer trade in these products.
    

    Further Meetings

10³ Permanent Heads agreed that further meetings between officials from both sides should be held as appropriate over coming months. It is assumed that a further meeting of senior officials will have to be held early in February to review the outcome of the programme of work outlined above with a view to preparing a suitable agenda for the meeting of Prime Ministers due to take place in March, 1980.

This report is for information only.

[ABHS 950/Boxes1221-1226, 40/4/1 Part 22 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]

• 1 Documents 49 and 50 refer.
• 2 See Document 52.
• 3 Follows a numbering error in the original.