Submission to Cabinet Economic Committee

Wellington, 5 May 1982

No E(82)74. CONFIDENTIAL

ANZCER: Outcome of Ministerial Meeting

Introduction

1. This paper summarises the outcome of the discussions on ANZCER held between Ministers and Mr Anthony on 20 and 21 April.

Endorsement of Agreements Reached at Officials’ Level

1. At the commencement of the meeting the two Ministerial delegations endorsed the agreement reached at officials’ level on a range of matters associated with the CER negotiations. A list of these matters is annexed to this paper. They include, inter alia, the handling of government purchasing and the possibility of tendering import licences.
2. In the case of government purchasing, the agreement does not complete action on the issue, in particular the Australian State Government dimension. It acknowledges that, pending the complete elimination of all government purchasing preferences favouring home (in-state) producers, New Zealand will be free to apply the principle of reciprocity in relation to goods from the various states.
3. The agreement on tendering of import licences in effect removes Australia’s opposition in principle to the allocation of Exclusive Australian Licences (EALs) by tendering. However New Zealand has acknowledged an obligation to ensure that the operation of a tendering system does not create commercial difficulties that disadvantage Australian exporters.

Deferred Category1

1. Discussion took place against the background of a general concern conveyed at the preceding week’s Joint Permanent Heads’ meeting2 that the list of deferred items proposed by New Zealand was unacceptably long and would, in the Australian view, invite strong opposition from the manufacturing sector in Australia and would cause New Zealand’s commitment to a full free trade agreement to be challenged in the Australian Cabinet. Australian Permanent Heads had urged that New Zealand delete from its deferred category nomination list those items where the value of Exclusive Australian Licences generated by the application of the standard access formulae would be low and therefore not pose a threat to the New Zealand industry.
2. Discussion at the Ministerial meeting took account of the fact that the Australian problem was partly substantive but partly presentational. The New Zealand side agreed to delete from its nomination list margarine and electric motors. In respect of a number of items on which the Government has yet to receive recommendations as a result of industry studies or to take decisions on such recommendations, it agreed to consider a new approach. That approach would be to agree to the inclusion of the products in CER from the outset on the basis of the normal access formula and on the understanding that where the Government decision in the light of the industry study was taken to increase tariff levels, the tariff could be increased on Australia, although the new tariff would then become subject to an agreed tariff phasing formula. Where such a tariff increase was made, Australia would wish to be assured that the total quality of its access was maintained. (This, for instance, could be achieved if the rate of access possibility created by means of the phased liberalisation of global access exceeded the CER formula.) It is envisaged that, subject to completion of industry consultations the adoption of this approach may permit tyres and writing instruments to be taken off the New Zealand deferred nomination list.
3. The Ministerial meeting also agreed to alter the basis on which variations from the standard CER formulae will be presented in the context of the exposure draft and a subsequent agreement. Hitherto, any goods on which phasing would commence later than Day One or on which an agreed phasing programme was slower than the standard formula were regarded as deferred. It is agreed that henceforth the term ‘deferred’ will be applied only to the very limited list of goods which both sides have agreed should be deferred for a period, the duration of which may not yet be fixed. Items that fail within that category are included in Annex 2, List C, attached. Other goods where the application of the formula is delayed (or indeed accelerated) or modified, but nonetheless predetermined, will be listed in schedules attached to the exposure draft and subsequent agreement, but will properly be described as included within CER on a modified basis from the outset. Such goods can be divided into two categories, those subject to an agreed modified plan and schedule for entry into CER, and those subject to agreed minimum access provisions pending further decisions by the Government on industry study reports/plans (see paragraph 6 above). The goods included in these two categories are listed in Annex 2, Lists A and B respectively.
4. It should be noted that because of the changed definition, List A includes a number of items which, while their treatment varies from the standard CER formula, have never been included in a deferred nomination list. It was considered by officials, meeting subsequent to the Joint Ministerial meeting, that the inclusion of goods such as cheddar cheese, certain horticultural products, and whitegoods, where the pace of liberalisation will actually be greater than the standard CER formula, is an appropriate way of bringing a non-standard treatment to the attention of the public and in addition will help presentationally to counter-balance those items where the pace of liberalisation is to be slower than the standard CER formula.

Other Product Issues

1. The meeting briefly discussed progress that had been made towards bringing whiteware, carpet and furniture into the CER. The whiteware package has almost been completed, the only outstanding area being the size and nature of the action which would appropriately be taken to compensate for a recognised intermediate goods problem. The industries in both countries are now to be advised of the details of the package.
2. The Australian Government supports the inter-industry agreement on carpets as the basis for their inclusion in CER. Mr Anthony was informed that the New Zealand Government had not yet reached a position on this issue which had important implications in New Zealand for the wool-rich policy. A separate paper on carpet is being submitted to the Committee.
3. On furniture, it was accepted that the existing inter-industry (Schedule B) arrangement will remain in effect pending further discussions by the industry on the timing and phasing for eliminating the remaining restrictions on trans- Tasman trade in future.

Horticulture

1. The areas of Australian concern have been narrowed down to peas and beans, processed potato products and canned corn. New Zealand Ministers indicated a willingness in principle to resolve the issue by the elimination of accelerated phasing out of export incentives in return for the abandonment of the guideline quantity limitations on trade in peas and beans, and the accelerated phasing out of the Australian duties on processed potato products and frozen and canned corn. This question is elaborated in a separate paper being submitted to the Committee.

Fish

1. Australia has requested the elimination of export incentives on New Zealand fish exports to Australia. The availability of these incentives on fish exported from New Zealand that had been caught by joint venture vessels was said to be a particular irritant with the Australian industry. While New Zealand Ministers expressed willingness, subject to a review of their commitments to the New Zealand industry, to consider removing export incentives on fish exports to Australia, they drew attention to the relatively small proportion of the exports which were drawn from Joint Ventures. This point was supported by figures subsequently conveyed to Australian officials. Statements made by Mr Anthony in Australia during the last week suggest, however, that he is still looking for movement by New Zealand on export incentives on fish.

Safeguards

1. The discussions effectively confirmed the willingness of the Australian Government to provide the scope, during the period of liberalisation of a product, for safeguard action on import licensing as well as tariffs. It is envisaged that quantitative restraints would only be used where tariff-related measures would not be sufficient. It is accepted that such action would be oflimited duration (two years) and would only be justified where the liberalisation process gives rise to severe material injury. In return, New Zealand Ministers accepted that safeguard action could apply where inequality of trading opportunity was involved. However, they insisted that it would still be necessary for severe material injury to have resulted from the inequality of trading opportunity in order for safeguard action to be justified.
2. New Zealand pressed its demand that safeguard action should be available in cases of demonstrable threat of severe material injury as well as those where such injury has actually occurred. Mr Anthony appeared to accept the inclusion of demonstrable threat, although with some misgivings as Australia is anxious to avoid the need to investigate numerous claims of threat of injury.
3. Mr Anthony was also anxious to ensure that manufacturers in New Zealand did not see the safeguard provisions as offering a way of extending import licensing beyond an agreed terminal date. Both sides agreed that officials should find a way of making clear in published CER documents that the safeguard provisions would not be available for this purpose. Subject to this, safeguard action would still be available in a genuine case of severe material injury in the year following termination of import licensing and such action could be applied for up to two years.
4. Transitional safeguard provisions along these lines will give considerably more assurance to New Zealand industries than action restricted to tariffs which was all Australia was, until recently, prepared to agree to. This clearly has implications for consideration of a terminal date for import licensing.

Terminal Date for Quantitative Restrictions

1. Mr Anthony made it clear that a terminal date was an absolute prerequisite of Australian agreement and he had been charged with gaining agreement to a date as far as practicable in advance of 1995. New Zealand Ministers emphasised the strength of manufacturers’ opposition to a terminal date. They indicated that the New Zealand Government could accept a 1995 date on the basis that it was first discussed between the Confederation of Australian Industry and the New Zealand Manufacturers’ Federation. If the two industry organisations were able to reach agreement on a different date then the two Governments should be prepared to accept that date. New Zealand Ministers expected the Manufacturers’ Federation to press for a later date and they indicated that they could see difficulty in concurring if industry representatives came back with an earlier date. If such an agreement between the industries was not reached, however, then New Zealand could agree to 1995. Mr Anthony accepted this approach on the basis of his expectation that the CAl would press for an earlier terminal date- probably 1993.

Export Incentives

1. After indicating that it was probable that all performance-based export incentives in Australia would be eliminated by 1984, Mr Anthony said that 1987 was the latest date for the complete elimination of performance-based incentives on trans-Tasman trade that he was authorised to accept. After reiterating the existing commitments, both domestic and international, New Zealand Ministers indicated that they could contemplate phasing out incentives between 1985 and 1989. An earlier date than 1989 would not, however, be possible. Mr Anthony undertook to convey the New Zealand position to this government.

Review of the Agreement

1. It is proposed that there should be a wide-ranging review of the agreement after five years-ie in 1988. Mr Anthony also raised the question of a possible review five years before the end of the transitional period and suggested that that review might examine the continued appropriateness of the safeguard mechanisms as well as a plan and schedule for completing the liberalisation process. On the basis of the 1995 terminal date, that would mean a second review in 1990, only two years after the first. In effect, the difference may be more apparent than real. The review could be envisaged as one requiring considerable research, consultation, and time to complete, and, though commenced in 1988 (the New Zealand manufacturers would be very reluctant to see it start later), it may well not be brought to a conclusion before 1990.

Inter-Industry Discussions

1. Since the conclusion of the Ministerial meeting, the Prime Minister has met leaders of the Manufacturers’ Federation who have agreed to enter into urgent discussions with their Australian counterparts. They were informed, on an appropriately confidential basis, of the substance of the Ministerial discussions on the terminal date question. They have also been informed of the difference that still exists in the area of export incentives. Those issues, together with the proposed safeguard provisions, are likely to be the focus of a meeting which has now been arranged with the CAl for 10 May.
2. The Manufacturers’ Federation will report back to the Government following that meeting, and a further paper will then be prepared for the Committee assessing the situation reached and making recommendations concerning the next phase of the negotiations.

Recommendation

1. It is recommended that the Committee note this report.

[AALR 873, W4446/Boxes 312-313, 61/Aus/2/2/1 Part 2 Archives New Zealand/Te Whare Tohu Tuhituhinga 0 Aotearoa, Head Office, Wellington]

• 1 Elsewhere known as Category 3 (or III).
• 2 For the Agreed Minutes of that meeting see Document 190.