101 Ministerial Submission to Fife¹ from Evans

Canberra, 29 August 1980

CONFIDENTIAL

Subject-Australia - New Zealand Relations

PURPOSE: To inform you of some recent developments in Australia - New Zealand relations.

Closer Economic Relations

2. Australia and New Zealand officials met on 7 and 8 August to exchange preliminary drafts of some of the studies commissioned by the two Prime Ministers in March 1980. In the preceding fortnight, some New Zealand press reports which seemed inspired by Mr Muldoon's office, cast doubt on the readiness or willingness of Australian officials to proceed with these discussions. We took steps to counter those stories through our High Commission in Wellington.
3. The talks that took place on 7 and 8 August were brief, and had little substantial content. It seems clear that the New Zealanders (to some extent like ourselves) are still feeling their way towards the details of a closer economic relationship. There are also signs, confirmed at these talks, that there now is a greater level of anxiety than before among New Zealand manufacturers about what concessions to Australian traders the New Zealand Government might be contemplating. In the course of a lengthy discussion I had with Mr Ian Douglas, President of the New Zealand [Federation] of Manufacturers, it was nevertheless apparent that New Zealand industry is growing more accustomed to the idea that the restructuring of industry, already under way, will need to continue. At the same time, it seems that the discussions between government and the business sector about the possible forms of a 'closer economic relationship' have been rather more frequent and intense on the other side of the Tasman than they have so far been here. I believe, for a number of reasons, that the tempp of consulation on this side may quicken over the next few months.
4. In addition to the studies agreed on, the New Zealanders put forward a statement of principles relating to the possible liberalisation of their import licensing system. Although it will need to be studied carefully before its potential value to Australian exporters can be assessed, the initial reaction in the Department of the Special Trade Representative was that it marked a useful step forward. So far the New Zealanders have made no specific statement of what they will be seeking in return. It is likely however that they will be seeking greater access to the Australian market for those products that have been the subject of lengthy NAFTA wrangles-carpets, clothing, dairy products and whiteware.
5. The New Zealanders pressed for agreement on a precise timetable for the completion of officials' studies. An approximate timetable as agreed between officials, although the NAFTA Communique states that, as far as further Ministerial meetings are concerned, their iming 'would depend on the pace and progress of studies and discussions by officials and associated consultations with interested arties'. Our expectation is that further officials' talks will be possible towards the end of the year with the two governments looking at possible package arrangements in the first quarter of 1981 (i.e. after the Australian and before the New Zealand elections).

NAFTA Talks

6. The 'closer economic relationship' was dealt with as one item on the agenda of the annual round of NAFfA consultations, official and Ministerial. With a single exception, every substantive item on the agenda represented a New Zealand grievance. The New Zealand side complained, for example, that the Australian Government had refused Ford Australia permission to import aluminium wheels from New Zealand free of duty. The decision was based on likely employment consequences for Australian manufacturers, and has not deterred Ford Australia from declaring its intention to proceed with the importation of these wheels at the normal preferential rate of duty (10%). New Zealand, in other words, does not appear to have been substantially disadvantaged, but still felt it had a legitimate grievance. The manner in which the official and Ministerial talks were actually conducted, the arguments that were presented and the manner in which they were received, did not invite the inference that New Zealand has been unfairly treated. In most cases, the situation of which the New Zealanders complained was marginally more favourable to them than it was to us. This, of course, has not stopped and will not stop the New Zealand side briefing its press to the effect that Australia is taking a 'tougher than ever' stance on NAFTA. (It had always been expected that in the absence so far of an agreed broader economic relationship, the shortcomings in NAFTA would continue to result in hassles over access for individual products.)
7. Mr Muldoon has tried, since the meeting, to ascribe blame to Australia for the abandonment of the special access arrangement for apparel. The full story is more complex. A 1977 arrangement gave Australian exports open ended access into New Zealand provided there was no serious disruption to New Zealand. In return, Australia preserved for New Zealand exclusive quotas to allow New Zealand to largely maintain the increased export levels reached when New Zealand was exempted from Australia's global quotas. In November 1979 New Zealand unilaterally imposed a limit of 4% of the New Zealand market on Australia's apparel exports. This would have had the effect in 1980, of providing Australia with an export opportunity about half as valuable as that eJ\ioyed by New Zealand. New Zealand offered the prospect of a 10% increase in real terms for 1981182, but this was not regarded as an equitable arrangement, and New Zealand was informed at the NAFTA meeting that, as foreshadowed, Australia would allow New Zealand's special quota under the 1977 arrangement to revert to a global quota. It should be noted that New Zealand's preferred access arrangement was continued for a considerable time after the introduction of the 4% limit, in the hope that a more equitable arrangement would be able to be negotiated. The paradoxical consequence of all this is that the apparel trade both ways across the Tasman will fall. It was for this reason that Mr Anthony made last minute attempts to find a solution which would have avoided this outcome.
8. The atmosphere of the NAFTA meeting was blunt with the New Zealand Minister for Trade and Industry Mr Adams-Schneider handling his brief in a take-it-or-leave-it manner, and yet seeking to give the impression, also reflected in some of Mr Muldoon's statements following the meeting, that Australia was being unreasonable. By contrast, Mr Brian Talboys, Deputy Prime Minister and Minister for Foreign Affairs sought to be more conciliatory and, in particular, more optimistic about the prospects for eventual agreement on a closer economic relationship. (The fact that New Zealand officials have carved the acronym CER to describe it indicates the extent to which it has now become a factor in New Zealand thinking.)
9. The communique, a copy of which is attached, carefully disguises the fact that almost no new agreements were reached, and that in most areas, stand-offs continue. The communique does not refer to the vexed question of leather wallets, which consumed an inordinate amount of time at the officials' discussions, largely because New Zealand's foremost manufacturer, Fred Tumovsky, is a friend of Mr Muldoon and a former President of the New Zealand Manufacturers' Association.
10. It is interesting to note that while Mr Anthony has in the past declared NAFTA to be a moribund arrangement, he stressed at the joint press conference on 14 August that there was still an important role for NAFTA. While it has been clear that NAFTA will have to continue until a closer economic relationship can be agreed his remarks suggested that an alternative arrangement will not be easy to come by.

ANU Conference on Australia -New Zealand Relations

11. The ANU Conference sponsored by the ANZ Foundation was opened by Mr Anthony and Mr Talboys on 12 August. An audience ranging from 150 on the first day, to 70-80 on the second and third days, heard papers and took part in discussion on Energy, Agriculture and Forest Products, Sea Transport, Manufacturing and Industrial Adjustment, the Labour Market and Industrial Relations and the new Trans-Tasman Economic Partnership. A satisfactory range of competent speakers took part and a good press coverage was achieved. Sir Peter Derham chaired most of the proceedings on the opening day, and seemed satisfied with the way things went.
12. A number of the officials involved in the study of 'closer economic relations' attended throughout, but the concurrent NAFfA talks prevented the Department of Trade and Resources from attending in strength. The fact that the NAFfA meeting was being held concurrently did however enable the Conference to gain some useful publicity and impetus from the attendance of Mr Anthony, Mr Talboys, Mr Adams-Schneider and Senator Chaney at functions on the first day.
13. The Conference provided a useful opportunity for some of the foremost partisans of closer trans-Tasman links to state their views. Sir Frank Holmes, Chairman of the New Zealand Economic Planning Council, and a long-standing advocate of closer Australia- New Zealand economic ties, took a prominent part in the discussions. His contribution, however, shared with many others the defecf that it was rather long on broad objectives and expressions of confidence, and rather short on suggestions for specific action or change. At its meeting in Melbourne on 20 August, the ANZ Foundation agreed that while the attendance had been somewhat disappointing, the Conference had met its objective of focussing public attention on the content of and prospects for the trans-Tasman economic relationship.²

[NAA: A1838, 37011/19118, xviii]

• 1 Fife was Acting Minister for Foreign Affairs while Peacock was attending the United Nations General Assembly Special Session on Economic Development.
• 2 Fife added the annotation 'Noted 2/ix/80' to the submission.