Submission to Cabinet Economic Committee

Wellington, April 1978

CONFIDENTIAL

New Zealand/Australia Trading Relationship Proposed Initiative by New Zealand Delegation to 1978 NAFTA Consultations

Cabinet Decision

On 3 April1978 Cabinet considered the report by the Deputy Prime Minister and Minister of Overseas Trade on his visit to Australia and discussed preparations for the 1978 NAFTA Ministerial meeting which he and the Minister of Trade and Industry will attend on 17 and 18 April. (This will be preceded by officials’ discussions on 13 and 14 April.) As a consequence Cabinet:

1. declined to accept the recommendation from the Officials Economic Committee in E (78) 58 that the Government should propose at this month’s NAFTA consultations an inter-governmental agreement whereby there should be a substantial shift of all products into Schedule A of the NAFTA over a ten year period, and that there should be prior advice to the New Zealand Manufacturers’ Federation of the Government’s intention in this regard;
2. directed that E (78) 58 be withdrawn from the agenda of the Cabinet Economic Committee on 4 April; and
3. invited the Minister of Trade and Industry to instruct officials to prepare a revised paper in time for the meeting of the Cabinet Economic Committee on 11 April.’ (CM78111/28 refers).

Background

1. The earlier paper (E (78) 58) which officials had prepared on this topic was not considered by the Cabinet Economic Committee at its last meeting, in accordance with the above decision. It is understood that Ministers endorsed the general approach to the issues (re-stated in the next section) but considered that a more restricted policy objective for this month’s NAFTA talks would be more likely to gain the acceptance of both the Australian Government and the New Zealand producers who would be affected.

Re-Statement of Issues

1. In the 12 years or so since NAFTA was signed, it has proved extremely difficult to achieve any significant expansion of the coverage of Schedule A. This has largely been because the procedures involved have tipped the balance in favour of manufacturers in either country who objected to the inclusion of their products in Schedule A, rather than in favour of those who sought by this means to protect their export markets. It led to a seri[e]s of negotiating impasses, in which progress has seemed possible only by a seri[e]s of trade-offs, which in the final analysis were of little benefit to either country.
2. Officials on both sides of the Tasman had concluded by 1976 that in the absence of some agreed procedure for the addition of items to Schedule A, little progress was likely. They therefore proposed that all items save only a minimum of exceptions should be added to Schedule A and that duty phase out (which could be over eight years) should begin at once. Eventually the deteriorating Australian economic situation led to opposition by Australian Ministers to such an initiative, and since then variants on this approach have not proved acceptable to them. At present Australia’s economic difficulties appear to rule out any large scale additions to Schedule A over the next year or so, and our import licensing on Schedule A items is viewed by the Australians as a second major hurdle to be overcome. From New Zealand’s viewpoint, as Australian protectionism has increased, the security of Schedule A has assumed greater importance to New Zealand manufacturers.
3. During Mr Talboys’ recent visit it appeared that the Australian Government was now more likely to seriously consider an inter-governmental agreement to liberalise trans-Tasman trade within a defined period, say 10 to 15 years. As noted above, no major moves were likely to take place immediately because of their economic situation. Also, New Zealand will need to raise the subject of our policy on access for Schedule A items at this month’s NAFTA talks, particularly to ensure that Australian Ministers and senior officials give adequate recognition to the extent to which their requests have been met and to obtain a clearer picture of their current concerns.

Proposal

1. It is proposed that the New Zealand delegation to the 1978 NAFTA consultations be authorised to seek a positive expression of the intention of the two governments to substantially liberalise trans-Tasman trade within a period of 10 to 15 years, by expanding the coverage of the NAFTA.

Comment

1. Officials have reviewed the issues in the light of the Cabinet decision and subsequent discussions with Ministers, and have reaffirmed the desirability of New Zealand pursuing: 1. faster process on the liberalisation of trans-Tasman trade; and 2. a commitment now to such action within a finite period, eg 10 or 15 years.

It is proposed that after the NAFTA discussions this month a further report should be made to the Government and if the Australian response is favourable, officials could begin formulating recommendations in consultation with their Australian counterparts on such issues as the procedures for liberalising trade, the time period involved overall and for each stage, safeguard provisions, provisions for consultation with industry, etc.

1. The significance of the above distinction between (a) action and (b) commitment is that firstly, it is in New Zealand’s interest that at the earliest opportunity NAFTA should ‘come off the ice’ in order that we might advance our present position on the Australian market, particularly for those products which we are having difficulty in getting admitted to Schedule A. Secondly, even if conditions do not permit us to make major progress in trade liberalisation over the next year or so, a joint statement of intention made now would guide future policy making by both governments and the investment decisions by industry in each country. This would ensure that as each country restructures its economy in response to depressed international and domestic trading conditions, its decisions on industrial development strategies would be made in the knowledge that the markets of both countries would eventually be open to industry in each country. It would also provide guidance to businessmen in relation to existing or new activities if they were aware that international competitiveness was to be an increasingly significant test for the New Zealand market.
2. As well as these direct effects, New Zealand’s success (or failure) in achieving some significant movement at these NAFTA talks has wider implications. Some major new initiative, ie which goes well beyond expressions of mutual goodwill, is needed to support our efforts to gain greater recognition from the Australians that in such matters as the Albury paper-mill the spirit of NAFTA undertakings should not be frustrated. Within New Zealand, the proposed commitment and prospect of movement on the addition of products to Schedule A would give some momentum to Export Year, and to the Government’s policy on restructuring the economy to export more and survive better the current difficult world trade situation. New Zealand producers generally accept that the Australian market is particularly critical to our strategy for increases in manufactured exports, and that the NAFTA is a well-established mechanism for advancing and securing our trading interests in that market. However the safeguard provisions in the NAFTA may be inadequately appreciated in some quarters (see attached Appendix).

Recommendations

1. It is recommended that the Cabinet Economic Committee: 1. authorise the delegation to the 1978 NAFTA Ministerial meeting to seek a positive expression of the intention of the two governments to substantially expand the free trade coverage of the NAFTA within a period of 10 to 15 years in order to advance the trading interests of each country and to ensure that the development of industries on both sides of the Tasman takes place in the knowledge that the markets of both countries will eventually be available to industry in each country; 2. note that after the NAFTA discussions a further report will be made to the Committee on the outcome, after which officials could begin to formulate more detailed recommendations, in consultation with their Australian counterparts.

[ABHS 950/Boxes1221-1226, 40/411 Part 14 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]