Lusaka Agreement

Conference Post [Lusaka]1, 6 August 1979

O.XX0165 CONFIDENTIAL

Prime Minister’s Meeting with Mr Muldoon

From Lusaka.

Prime Minister met today with Mr Muldoon. Mr Peacock and Mr Garland were also present. Meeting focused exclusively on possible closer economic association between Australia and New Zealand.

1. Mr Muldoon said that since the April discussions with Mr Anthony New Zealand officials have been pressing ahead with detailed preparatory work. However, he felt that for the exercise to have real impetus there would have to be a Prime Ministerial meeting.
2. Mr Muldoon said that unfortunately what were hitherto confidential studies had now been publicised in the media. It began with Templeton’s speech to the Wellington Chamber of Commerce on 19 July. Templeton had checked with Muldoon about a proposed reference in the speech to a closer economic relationship.2 Muldoon had replied that the reference should be withdrawn but the message was misinterpreted and it was inadvertently left in. This reference was followed by Mr Anthony’s statement3 in Sydney and then Mr Muldoon’s own statement.4
3. Now that the studies were public knowledge Mr Muldoon said they must be presented properly. They must be publicly perceived as a lengthy, exploratory project. He did not want ‘pressure groups to be on his back all the time’.
4. There had been a fundamental change of thinking by the New Zealand Manufacturers Federation. After years of intransigence and the advocacy of high protection they now accept the need for industry to be structurally re-adjusted to promote those internationally competitive and phase out the least efficient. Mr Muldoon felt this changed philosophy was an important background to studies for a closer economic relationship with Australia.
5. Mr Muldoon also said that Sir Max Dillon of CAl had been quite forthcoming on the concept of moving well beyond NAFTA in the economic relationship. All were in basic agreement that NAFTA had reached a plateau.
6. The possible options for wider economic co-operation must be identified and explored. In the near future Muldoon said both governments must refine the options so as to focus attention on agreed areas. The main options would range from: * an extension of the present limited free trade area, * full free trade area, * customs union, * economic community, * monetary union.
7. Economic co-operation could also encompass many other matters such as the free flow of people, consultation on industrial strategy and energy policies together with investment co-ordination. The question of banking would also have to be looked at. Whilst Australian banks operate in New Zealand there are great difficulties in getting New Zealand banks into Australia. Employment and income policy could be another area for study but Mr Muldoon considered, and the Prime Minister agreed, that this would be a very long-term exercise.
8. The Prime Minister said that Australia was prepared to examine constructively and forthrightly respond to the concept. There did not seem to be much rationale in having two adjacent yet isolated industrial communities in the South Pacific. NAFTA had in fact run its course. Whilst it should not be dismantled it must be built upon. The question was the direction in which we should go and how it should be handled. One sensitive matter was the question of presentation. Australia would not want the impression created in New Zealand that it was an Australian initiative with related innuendos of ‘big brother takeover’. He would prefer the initiative to be clearly a New Zealand one to which Australia could respond.
9. Mr Muldoon said there were no presentational problems in New Zealand. He had clearly stated the question had arisen spontaneously out of a review of difficulties under NAFTA. He agreed with a request by the Prime Minister to provide him with a brief on public presentation which both Prime Ministers could employ so as to ensure consistency.
10. The Prime Minister suggested that the most expeditious way of proceeding would be for officials to exchange notes on areas under study and progress achieved by say the end of September. Officials should then meet together to compile a report to the two Governments identifying areas for consideration. This report would then be considered by a Prime Ministerial meeting before the end of this year.
11. Mr Muldoon agreed with these procedures with the proviso that commitments at the end of the year may mean he would not be available until early next year. But in any event the meeting would take place no later than February 1980.
12. Both Prime Ministers agreed that in contacts with the media they would say that they had had discussions on the question of future Australia/New Zealand association. Officials are studying the issues involved. The study is a long-term one with all options being considered. Officials are to meet September/October and there will be a Prime Ministerial meeting not later than February 1980.

[NAA: A1838, 370/1/19/18, ii]

• 1 The cablegram was sent from the temporary post set up at the Commonwealth Heads of Government Meeting, held in Lusaka from 1-7 August 1979.
• 2 Templeton had said ‘ … a wider ranging free trade area with Australia is critical to our future economic well being…the idea of a customs union has some attractions, despite some difficulties for our part, which we will have to overcome. Such a development will involve some sacrifices and further rationalisation of our industrial development … without some radical moves in this direction our efforts on the economic front will be in vain’.
• 3 In an address to the Australia- New Zealand Businessmen’s Council on 26 July 1979, Anthony commented on the limitations of NAFTA and the diminishing opportunities to expand trade with Europe now that the multilateral trade negotiations had been settled. He suggested that Australia and New Zealand ‘need to consider together where they go from here, and how they can best arrange their affairs to achieve the greatest mutual benefit and the greatest combined strength.’ He added ‘we need to get down to some really thorough thinking about this matter-and I would hope that this Council might become very deeply involved in the process … I see it as a forum in which there can be a real effort to look seriously at the whole future of our association’.
• 4 Addressing the Annual Conference of the National Party on 27 July 1979, Muldoon said that both the Australian and New Zealand Governments were investigating ‘the wider area of economic co-operation and development and a combined market’. In the three months since Anthony’s visit ‘a study had been made of ways of broadening economic co-operation and development between the two countries’. He predicted that ‘twenty years from now the New Zealand dairy farmer will be supplying a good slice of the Australian market because their dairy industry is in decline. Another advantage would be the combined market and economic strength of the two countries’.