Submission to Cabinet Economic Committee

Wellington, 13 March 1981

No 701. CONFIDENTIAL NEW ZEALAND EYES ONLY IMMEDIATE

Australia/New Zealand Closer Economic Relations: Report of Joint Permanent Heads’ Meeting, Wellington 11-12 March 1981

Introduction

Permanent Heads of Australian and New Zealand Trade Departments met in Wellington to discuss the state of the ANZCER negotiations following the Australian Cabinet’s consideration of the Permanent Heads’ Joint Report of December 1980.1 As expected, the Australian officials’ attitude, which reflected the Cabinet’s deliberations in Canberra, was significantly harder than the attitude displayed by them in December. It was particularly apparent in the discussions on two issues, export incentives and the elimination of import licensing in ‘reasonable time’. Australian attitudes to New Zealand expectations, particularly with relation to dairy products and other agricultural commodities had also hardened following the Cabinet’s consideration. This report outlines the major topics discussed by Permanent Heads and the positions reached on them. Further papers will be prepared giving detailed appraisals of the position of the two sides on the issues subject to continuing contention. This report is for the information of the Committee.

Areas of Tacit Agreement

As earlier indicated (E(81) 34 refers) the Australian Cabinet discussion appears to have been a free ranging and somewhat unstructured occurrence. A number of issues received scant or no attention. Australian Permanent Heads have taken the absence of substantive guidance on some issues as indicating tacit agreement by their Ministers. These issues include; the tariff phasing formula, whereby all tariffs will be eliminated over a five year period; the intermediate goods question; and rationalisation of industry. New Zealand Permanent Heads indicated general acceptance of this approach, subject to the need for further work on minor aspects of the texts concerned, and to the interrelationship of these texts with other aspects of any final package.

Topics Requiring Further Work

A number of areas were identified by Australian Ministers as requmng further discussion, in some cases within somewhat more stringent parameters than previously agreed by officials. Although in some cases the Australian position was not in line with the negotiating brief of New Zealand Permanent Heads, it was agreed that further discussion to reveal the full extent of the differences could provide a basis for future agreement on these issues. The items were: 1. THE FORMAT OF CATEGORY C.2 With the exception of whiteware, outlined below, Australia proposed the following treatment for goods so classified:
1. where an item was the subject of an industry study, that its deferral from the normal phasing formula be limited to twelve months;
2. where an item was not subject to such a study, that a specific time for its removal from Category C be detailed prior to the agreement coming into force, and the principles for such action stated explicitly. On (i) above, New Zealand Permanent Heads’ attitudes remain unchanged in wishing to adhere to the time frame which the relevant industry commissions decide. This did not represent, in their view, a derogation from the principle of removing an item from Category C as quickly as possible. It was jointly agreed that the issue be further explored. On (i) above, New Zealand Permanent Heads’ attitudes remain unchanged in wishing to adhere to the time frame which the relevant industry commissions decide. This did not represent, in their view, a derogation from the principle of removing an item from Category C as quickly as possible. It was jointly agreed that the issue be further explored.
  1. WHITEWARE. Australia undertook to remove whiteware from its Category C list if the following conditions could be met:
3. that export incentives be eliminated by 1987;
4. that solutions to intermediate goods problems be found;
5. that whiteware be removed from Category C on the basis of a phasing arrangement which could extend to 1986;
6. that a substantial increase in the base level of access into New Zealand be agreed;
7. that tariffs presently operating be phased down at a faster rate than the formula of 5% per year. Australia indicated that the package was open to detailed negotiation within the above parameters. New Zealand Permanent Heads stated that the export incentives aspect of the proposal could be a major problem, but that the Australian approach would be studied. It was indicated that New Zealand would be, however, reluctant to depart from normal ANZCER formulae approaches or to adopt a sectoral approach to this or any other problem.
  1. GOVERNMENT PURCHASING. Australia recognised New Zealand’s claim to equal treatment at both the State and Commonwealth levels. The commitment to extend domestic preferences at the Commonwealth level as an interim measure for a limited time, was reiterated. Australian Permanent Heads also stated that they intended to pursue the extension of the preference with States and statutory authorities. In doing so they undertook to inform States of the aims of eliminating the preference system and explicitly to outline New Zealand’s concerns and desire to discuss the subject with them directly. It was agreed that it would be appropriate for a New Zealand delegation to visit State capitals in the near future.
  2. FINANCIAL INSTITUTIONS. Australia contended that despite its foreign investment policy guideline requiring a maximum of 50% foreign ownership in non-trading bank financial institutions, it had in the past demonstrated flexibility in dealing with applications by New Zealand companies. It was agreed that a statement would be prepared that outlined the attitude of the Governments to this issue.
  3. TENDERING FOR IMPORT LICENCES. Australian officials expressed reservations about the suggestion that the additional import licences to be made available to Australia under the new access arrangements should be distributed on the basis of tendering. New Zealand officials explained the practical advantages of such an approach and the Australian side undertook to give further thought to their own position.

Significant Problems

A number of significant problem issues for each country were identified. Discussion on these revealed that agreement could not be reached on the basis of the negotiating instructions under which the two sides are at present operating. It was agreed, however, that Permanent Heads should report their discussions to their Ministers, together with their assessment of how solutions to these problems might best be pursued. Decisions on how to proceed should, it was agreed, be the subject of Ministerial consideration.
NEW ZEALAND
New Zealand Permanent Heads were unable to accept Australian proposals on the following two items. Further papers will be prepared on both of these issues:
[matter omitted]3
AUSTRALIA 1. Dairy Products: Australian Permanent Heads stated that dairy exports from New Zealand would have to be controlled for as long as their industry stabilisation scheme was in place. They favoured an industry to industry arrangement which would be endorsed by the respective governments. For Australia, a formula approach in keeping with ANZCER rules seemed to be untenable. New Zealand Permanent Heads reiterated the need for all agriculture trade to be treated in like fashion to other trade in the ANZCER, although they did not totally rule out the possibility of some individual problems receiving attention. New Zealand could not agree to a formula which imposed a reduction on present access opportunities. The Australian position appeared, in their view, to place the New Zealand dairy industry in a position where it would be negotiating under duress, as the Australian industry would, in practice, have the power to veto any proposals put forward by the New Zealand industry. Australian officials did not dispute the logic of the New Zealand stance but said that political realities in Australia appeared to rule out Ministerial acceptance of a ‘voluntary restraint’ approach. They nevertheless acknowledged the critical importance of the dairy issue for New Zealand and undertook to take up with their Minister, Australia’s approach to the issue. 2. Other Agricultural Trade: Australia, it was stated, wished to see all export incentives removed for trade in horticultural products. Concern was also expressed that New Zealand monopoly suppliers represented a barrier to trade in the New Zealand market. New Zealand Permanent Heads reiterated their earlier reaction to the removal of export incentives, as outlined above. On monopoly suppliers, they stated that such monopolies existed for internal ‘orderly marketing’ reasons only. When purchasing outside New Zealand, with the exception of the undertaking to purchase bananas from the Pacific Islands, monopoly suppliers purchased at the best market prices available to them. Australia therefore stood an equal chance with other suppliers of products of interests to such monopolies. In the case of wheat, for example, Australia had proved to be the most competitive source for New Zealand. Australia requested further information on monopoly arrangements operating in New Zealand.

Other Issues

A number of other issues were canvassed in the course of the meeting and it was agreed that they should be addressed further. Wine, sugar, steel, and motor vehicles stood out as items which would be studied more closely in the coming months.
Of these issues, wine was described by Australian Permanent Heads as a • problem for New Zealand, not unlike that which the dairy industry posed for Australia. New Zealand Permanent Heads did not disagree but did point out New Zealand’s intention to eventually include wine in the ANZCER and noted that no such undertaking had yet been given by Australia for the dairy industry. Moreover, the New Zealand side contested the Australian contention that balance should be sought in individual sectors such as agriculture. New Zealand could not accept an approach which balanced dairy against wine and wheat.
The Australian embargo on sugar imports was raised by New Zealand, noting the fact that the product had not been nominated for Category C treatment. Australian Permanent Heads stated that the embargo was, to some extent, open to Ministerial discretion. They requested further information on the operation of New Zealand sugar purchasing contracts and undertook, without commitment, to study the question.

Conclusion

Australian Permanent Heads will be reporting to the Deputy Prime Minister, Mr Anthony, who has been charged by the Australian Cabinet with responsibility for the ANZCER negotiations, on the outcome of tpe Wellington Permanent Heads meeting. (It is understood that Mr Anthony will be out of Australia until around 2 April.) Discussions between officials of the two sides on a number of issues, particularly those cited in paragraph 3 above, will continue over coming weeks.

Reccomendation

It is recommended that the Committee note the contents of this report.

[ABHS 950/Boxes1221-1226, 40/4/1 Part 35 Archives New Zealandffe Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]

1 Document 139.
2 Elsewhere referred to as Category 3.
2 Two paragraphs concerning Australian Cabinet matters omitted in accordance with advice from the Australian Department of the Prime Minister and Cabinet.